GUEST BLOG: Karen Gregory-Hunt – Government Subsidies

Truth can emerge from the most unlikely sources.  At least, that’s what I thought last Sunday, when I read the Sunday Star Times column by Act leader, David Seymour on National’s supposed “push to the left”.

Buried in the story though was an ironic twist related to the declining incomes and stretched household budgets of many New Zealand families.

Mr Seymour presented figures showing 42 percent of households now receive more in benefits and tax credits than they pay in income tax.

The figures relate primarily to Working for Families, and left David Seymour blustering over National’s support for the scheme, which he condemns as leftist.

But as he laments National’s embrace of Working for Families and interest-free student loans – introduced by a former Labour government – the ACT leader has missed the point.

Even more laughable is his decrying of National as a “socialist” government.

Working for Families was and remains a massive subsidy for employers – a core constituency for National.   It allows employers to pay workers less, because the tax-payer picks up the tab for supporting families which earn too little to pay the bills.  

The huge number of families reliant on Working for Families reflects the failure of wages to keep up with living costs.

But David Seymour was wrong to see this as a lurch to the left by National.

The suppression of wage growth is classic National politics and it’s been going on since 1991.

John Key’s National government has supported employers by weakening unions through legislation, thus reducing wage rises.

Immigration is crucial too, because a big pool of surplus labour drives down wages and conditions.

Working for Families helps plug the poverty gap.

You can expect the growth in reliance on Working for Families to continue in the wake of the 200,000-plus temporary work visas issued in the year to June.  

This will mean fewer jobs for resident New Zealanders, who will earn less for the work they do.  Much of that work will be low-value, casual and/or temporary work, with more people forced to rely on benefits, including Working for Families to bolster their household budgets.

Nor are employers the only beneficiaries of National’s tax-payer largesse. Landlords benefit too, through the accommodation supplement which helps poorer New Zealanders pay their very high rents.

Finance Minister, Bill English has described the fiscal risk associated with the 2-billion dollars a year spent on accommodation supplements and income related rents.  

According to Interest.co.nz’s Bernard Hickey, the government now subsidises 60-percent of all rental properties.  

Economist, Susan St John estimates Working for Families will cost about $2.4 billion this year.  

The truth is, while beneficiaries have been demonised and punished through a cruel regime of blame and penalties, the country’s most voracious beneficiaries are employers and landlords – who also receive tax breaks for their rental properties.  

But National won’t touch these beneficiaries. It can’t.  If it did, the unmitigated impact of low wages and high rents would greatly worsen poverty, driving it to politically unacceptable levels. It’s bad enough already, but not bad enough yet to dent National’s polling numbers.

Meanwhile, the Reserve Bank looks at the low inflation figures and worries about deflation – which erodes people’s savings, as well as investor confidence.  

Deflation happens when prices fall through lack of demand.  A key reason is that people can’t afford to buy goods and services unless they are cheaper.  When demand tanks, as it has in the wake of the Global Financial Crisis, deflation becomes an issue.

Encouraging employers to pay higher wages would help solve the deflation problem.  Working people spend most of their income, driving up demand for goods and services, causing prices to rise, which fuels inflation.

Higher wages would also mean fewer families would have to depend on state subsidies of one kind or another.  

But that’s not politically expedient. It would alienate employers, many of whom would claim they can’t pay more.   

But they are affected by deflation too, as lack of demand forces them to lower the price they can charge for goods and services – and ultimately what they pay out in wages.  

On the other hand, inflation would improve margins, and hopefully profitability, allowing employers to lift wages.  

That’s a circle of interest of mutual benefit to workers and employers.

But this more leftist take on economics is not the path the government has chosen.

It clings instead to right-wing ideologies, letting the market decide wage rates – whilst all the while manipulating the supply of labour to suppress peoples’ pay.

It’s a bastardised form of neoliberalism, but that’s true anywhere this flimsy ideology has been introduced.  Because it breeds poverty and disorder, neoliberalism eventually forces governments to intervene to mitigate its outcomes – or face the wrath of voters.

That’s not leftist – it’s pragmatism though it’s only a temporary fix.

A race to the bottom eventually gets there and then there is no way but up.  You can see this in the United States where rock-bottom wages and immigration have driven workers to campaign hard for better pay and conditions.  And they’ve turned on the main political parties, punishing both for failing them.

In the US, top Wall Street players have changed their tune about neoliberalism, calling instead for higher wages to help boost the economy.  This theme was also at the heart of key debates during the recent presidential primaries.

John Key acknowledged the economic sense of this argument, when he lifted the minimum wage to $15.25.  

But that’s not the rhetoric in public.

Thirty years after neoliberalism took hold in New Zealand, our political parties are afraid to blink, despite the fundamental unsustainability of neoliberalism’s core tenets.  

Thus the party of the right – National – finds itself supporting a system which fosters the growth of welfare, turning growing numbers of working New Zealanders into welfare beneficiaries – alongside landlords and employers.  

And that’s ironic.

Karen Gregory-Hunt is the Communications Officer for Union Etu