The Post: How a capital gains tax could help fix the economy

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The fundamental flaw in the New Zealand economy, I have come to think, is that we’ve never married our pragmatic, “number 8 wire” mentality with a long-term investment mindset.

We’re good at fixing things without a fuss, making the best of what’s there, building machines out of scraps left in a garden shed. What we’re not good at is planning, establishing a shared national vision, making investments that have a long pay-off. Number 8 wire can patch up a broken piece of kit; it can’t build a new national grid.

We also work harder, not smarter. The average Kiwi labours for 1748 hours a year, against 1415 for the vastly richer Dutch. That’s 333 hours a year – nearly a whole working day each week – of extra work. We get by on the sweat of our brows rather than the speed of our thought.

We also “sweat” our assets, extracting the most from ageing machines rather than investing in new ones. Our infrastructure spending “gap” is estimated at around $100bn.

Even if our infrastructure spending is now about average, we have years of under-investment – especially the “lost decades” of the small-government 80s and 90s – to make up. And what we do spend, we spend poorly, owing in part to a stop-start investment programme that, once again, stems from the failure to plan long-term.

Compared to our OECD peers, we don’t invest in either plant or people. When it comes to capital investment – including machinery but also software, intellectual property and the like – we have a woeful record.

According to a report from the now-defunct Productivity Commission, South Korea’s capital per worker was, in 1970, a mere 15% of ours; by 2019, it was almost 50% higher. We’ve long been falling behind. Our investment in research and development (R&D) is also lacking, even if it did increase under Labour.

On the people side of the ledger, we currently permit 12% of children to grow up in poverty. The permanent scars of that early hardship will drastically limit their lifetime ability to be productive workers and entrepreneurs. In Finland just 3% of children are poor: the country enjoys a stronger workforce, and is richer as a result.

Another under-investment story: we don’t properly fund the retraining and skills schemes that can help people move from welfare to paid work. Our spending on such programmes is well below the developed-country average – roughly half the Finnish rate and a quarter of the Danish.

We need, in short, a little less sweating and a lot more investing. Sadly the government doesn’t seem to have got the memo.

Its cuts to investment have been sweeping, and rapid. Social house-building by both community providers and Kāinga Ora has ground to a halt. Scrapped completely is Labour’s plan for a $450m Wellington-based “Science City” to drive R&D and blue-skies thinking. Even Steven Joyce’s old National Science Challenges are being allowed to lapse with no evident replacement.

While the government didn’t inherit a strong economy, its cuts seem to be making things worse: GDP fell 0.5% in the year to June, driven by a construction slowdown, among other things. Yet in this year’s Budget, infrastructure spending is projected to fall sharply across the coming years.

None of this helps turn around our under-investment calamity. Which is where a capital gains tax (CGT) – once more under consideration by the Labour Party – might come in.

The case for it is strong: earnings from selling assets – that is, capital gains – should be taxed just like earnings from salaries and wages. Income is income.

According to OECD data released this week, the absence of a CGT allows many high earners here to pay just half the tax they would at Australian, American or British rates. A New Zealander on $330,000, earning half their income as capital gains, pays a 14% tax rate overall; their equivalents in those three countries pay 28%.

We’re letting our high earners get away very lightly. By contrast a CGT would, a decade after its introduction, bring in around $5.9bn, according to the best estimates.

The tax’s defect, though, is that it applies only to gains made after it is brought in, so it takes a while to gather speed. In the first years, it would bring in ‘just’ hundreds of millions of dollars, and couldn’t solve every immediate social problem. Extra funds for health, welfare and education would have to be found elsewhere.

CGT revenue could, though, be earmarked for a slow-building investment in our shared prosperity: increased R&D credits for firms, for instance, or a Kids Kiwisaver scheme that creates an asset base for poorer children. A sensible-looking move with the additional merit of actually being sensible, such investment is exactly the sort of thing that – underpinned by a proper long-term plan – could put our economy on the right path.

The Spinoff: Has David Seymour ‘saved’ school lunches – or enshittified them?

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You mightn’t think that giving kids free lunches would be “one of the most direct ways to tackle intergenerational poverty”. But that’s what Ragne Maxwell, principal of Porirua College, thinks it is. And that’s what, in her view, remains under threat, despite the National-led government’s claim to have “saved” the free school lunches programme.

The scheme, a signature Jacinda Ardern achievement, currently feeds 220,000 pupils in the poorest quarter of schools, with potentially far-reaching consequences. “Food is the first, and best, medicine,” says Maxwell’s fellow principal Jason Ataera, who runs nearby Tairangi School.

And it’s a much-needed intervention. New Zealand data shows that children who frequently go without food are, when it comes to school results, four years behind their well-fed peers.  

Fortunately, international research finds that school food programmes lift pupils’ marks. They leave children more alert and better able to learn, and physically and mentally healthier. The schemes also create “lifelong educational and health benefits”, according to the Public Health Communications Centre. “[The] improvement in diet quality and broader taste preferences, through exposure to new foods, translates to improvements in children’s mental health, dental health, and reduced risk of chronic diseases later in life.”

Most participating New Zealand schools report higher student attendance, improved behaviour, and rising achievement rates. The latest research shows that children in Ka Ora Ka Ako, as the lunches scheme is known, are “more settled and able to engage with classroom activity and learning … the programme is having a profound impact on the wellbeing of learners.”

Act leader David Seymour, though, has long opposed the scheme, and hinted at a desire to scrap it entirely. Faced with furious campaigning earlier this year, the government announced in early May that it would retain the scheme. But it would cut the cost by around one-third, removing $107m from its $323m annual budget.

Recently released tender documents reveal how this is supposed to work. Until now, schools have been funded to either cook the lunches onsite or use an external caterer of their choice. Under the new system, this arrangement will continue for children in years zero to six, the core primary cohort. But for intermediate and secondary pupils, the ministry will issue centralised contracts for caterers to deliver mass-produced “heat and eat” meals. 

This system, designed to reduce the per-meal cost from around $6 to $8 currently to just $3, could – the tender documents hint – be rolled out to all children from 2027 onwards. The documents also suggest nine “example meals”. Although one is a tuna sandwich, the others are basic but reasonably appealing hot meals: “hidden vegetable butter chicken”, “vege-loaded mac n cheese”, “Mexican rice & bean burrito”, “savoury mince with roasted seasonal veges”, “teriyaki chicken” and so on.

One big problem, though: the government doesn’t know if caterers can deliver what it wants. A March briefing paper, seen by RNZ, admitted officials had not “market-tested or otherwise analysed the proposed $3 per head price. We do not know whether sufficient supply exists to offer lunches to the specified standard at this price across the full range of schools.” Even if it does, officials have already admitted that the cheaper meals may be less nutritious than the old ones.

And while contractors will be paid to cook and deliver the meals to the school gates, Seymour has cut all funding for the actual food service: the microwaves schools will have to buy to heat the meals, the staff to oversee the process and deliver the state-mandated food safety plan, and the composting and packaging disposal afterwards. Any school that wants to keep cooking its own food will face an even larger bill, probably in the tens of thousands of dollars a year.

Not only does Seymour’s scheme subtly shift costs from central government to schools: it also risks damaging the very thing that makes the programme work. Maxwell says it has drastically cut children’s intake of things like fizzy drinks and pies, and led to fewer fights started by “hangry” kids. Porirua College has even shifted its lunchtime to 11.20am, so that pupils spend more of the day with full stomachs – and high concentration levels. Of the recent improvements in the school’s performance, she says, “the biggest single factor would be the school lunches”.

Even more importantly, lunch becomes an opportunity to talk to pupils about healthy eating choices. Reframing a conservative talking point, Maxwell says: “You are not just giving them fish, you are teaching them about fishing.” 

Couldn’t she do that with the butter chicken and burritos that the centralised providers may deliver to the school gates? Not necessarily. Quite apart from the cuts to service costs, Maxwell’s great worry is that the centralised providers simply won’t do what her school’s kitchen does: tailor meals minutely to what her children want to eat. And then the scheme’s most crucial benefits could fall apart.

Porirua College cooks its own meals in part because, Maxwell says, it constantly hears from other schools about the “poor” quality of meals from cost-cutting contractors. And it’s the local tailoring that changes the eating habits of kids who grow up seldom if ever tasting nutritious food. 

Accompanied by fruit and yoghurt, Porirua College’s meals are “attractively presented”, Maxwell says. “This is what’s luring kids into eating things they’ve never wanted to eat. You are talking about intergenerational issues … The kids are learning that healthy food can be delicious, and these are meals they could [in future] cook for their own children. It’s an absolutely magnificent intervention.” Conversely, one foil-wrapped container of butter chicken per child is not going to generate the same enthusiasm – nor the long-term behaviour change.

The careful tailoring of meals has also cut food waste to near-zero levels. On a typical day, Maxwell says, there’s nothing more than “a little scraping [of leftover food] at the bottom of the bin”. The danger is that Seymour’s great centralised “money-saving” exercise will actually generate more waste. As Ataera bluntly puts it: “If you start serving crap, you are going to create the problem you are trying to solve.” In recent years, the term “enshittification”, denoting the gradual degradation of many aspects of modern life, has taken on a certain currency; the fear is that the school lunch scheme will fall victim to the same trend.

If the government wanted efficiencies, Maxwell says, Porirua College’s experience – and the profit margins she hears external caterers enjoy – would suggest more in-house provision was the way to go. For his part, Ataera gave a speech last month warning that the new system might have been designed to work so badly that schools would give up on it: “We have been intentionally underfunded to cause schools to have to close the programmes, and [politicians] can pretend it was the schools’ decision.” Those fears notwithstanding, he’s currently trying to keep an open mind – but the outlook is not encouraging.

The Post: University cleaners demonstrate the case for the living wage

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“Even when they are sick, they go to work, because they have bills to pay.” Sarah (whose name has been changed to protect her identity) is describing the situation for her fellow contract cleaners at Victoria University. And they don’t even always earn enough to eat, Sarah tells me when we meet in the university’s Hub. “[Sometimes] they just don’t eat lunch. I go to the Salvation Army [foodbank] to bring them noodles or other foods.”

This raises serious questions for the university, which will on Monday debate a proposal to pay its cleaners the living wage – but also for the whole country, as we awake from the long economic nightmare than has been Covid and the cost-of-living crisis.

Mortgage rates are falling, inflation is expected to hit 2.5% early next year, and unemployment will soon peak. Through the current gloom, spots of blue sky can be glimpsed.

We can’t assume, though, that this recovery will reach every corner of the nation. Wealth doesn’t just “trickle down”: the 1980s reforms, for instance, delivered grinding poverty amid sudden affluence. Only with specifically redistributive policies will wealth be evenly shared.

And share it we must. One child in eight lives in hardship, growing up in a household unable to afford basic things like heating their home or buying decent clothes and shoes.

Of those poor children, four in 10 have a parent in full-time work. A job, by itself, is not a sure-fire route out of hardship.

These issues can be seen, in microcosm, at Victoria University. Sarah says many of its cleaners have, as their base rate, the bare minimum wage, $23.15. Assuming 40-hour time-sheets, after tax and with top-ups, that comes to around $830 a week.

Workers often have families, and the median Wellington rent for a three-bedroom house is $790 a week. No wonder the sums don’t add up, even with Working for Families and accommodation subsidies. Cheaper rent is available outside Wellington city; but commuting then pushes up petrol costs.

As well as coming into work sick, or using foodbanks, some cleaners – Sarah says – are forced to ask Work and Income for emergency grants. The costs of low pay are effectively passed from the employer to the taxpayer.

All this forms the backdrop to Monday’s Victoria University Council meeting, where student representatives will urge the university to commit to working towards paying the living wage rate of $27.80.

The rate is calculated to allow families to exist with a little more dignity and comfort than the bare-bones minimum wage allows. Several universities already pay it to directly employed staff and – in AUT’s case – contractors. (As do government agencies.)

Currently, union organisers estimate, Victoria has perhaps 500 directly employed staff, and another 160 contracted cleaners and caterers, earning under the living wage.

In 2021, the university’s chief operating officer, Mark Loveard, said Victoria had “made a commitment to the living wage” and was “phasing it in”. Since then, of course, the university’s financial woes have been well-publicised.

It did, however, make an $8.4m operating surplus last year (boosted by one-off items); as with the wider nation, the talk is of a gradual turnaround in fortunes.

And no-one is asking the university to pay the living wage tomorrow. The request is merely to “work towards” it: to investigate the exact cost, the phasing-in options, and the likely trade-offs required.

Union organisers estimate it might cost $900,000 a year for directly employed staff, and another $400,000 for contractors. Even that would be just 0.2% of Victoria’s $546m revenues.

And there are offsetting benefits. A recent Cambridge University research paper, The Case for Living Wages, finds the salary boost typically leads to lower staff turnover, reducing recruitment and training costs.

Enjoying better health and feeling more valued, staff are often “more motivated and productive”, the researchers find. Four out of five employers say “work quality” has increased.

Given this evidence, the arguments against the living wage lack force. It is, admittedly, a slightly blunt instrument: but any route to addressing disparities within an institution must involve raising low wages. The university already “tops up” cleaner wages, so it is hardly tied to paying “market” rates. And a governing body doesn’t overstep boundaries if it directs pay strategies: when Wellington City Council managers argued as much in 2013, they were rapidly proven wrong.

Helping torpedo their arguments was the legal scholar Matthew Palmer, a former Victoria dean of law. For myself, as a current (honorary) staff member, and indeed a proud Victoria graduate, I think the living wage’s benefits are worth pursuing.

Sarah, unsurprisingly, agrees. “To be able to top up their family [budget], to be able to save for their children’s Christmas, [for funeral expenses] if someone dies … It would make such a big difference for the cleaners,” she says. “It would be a dream come true.”

The Spinoff: Can an election really be fair if one party has four times more money than the other?

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Our elections are not fought on a level playing field. That’s the inescapable conclusion from the first-ever look behind the veil of secrecy that has traditionally shrouded the finances of our main political parties.

Until now, parties’ accounts have largely remained confidential, on the basis that civil-society bodies are entitled to a fair degree of privacy about their activities and levels of funding. But under a law change brought in by former justice minister Kiri Allan, they now have to publish their annual accounts.

This brings New Zealand in line with countries like the UK, who have long mandated such publication on the grounds that, given parties’ crucial role in political contests, there is a public interest in knowing how well-resourced they are and where they spend their money. Such transparency is, in any case, business as usual for parties like the Greens that have been publishing its accounts for years.

So what do the accounts show us? Most obviously, a massive resource imbalance between our two biggest parties, National and Labour. On pretty much every financial measure, the right is smashing the left.

Take, for instance, the relative financial states of health of the two parties as they entered an election year. At the end of 2022, Labour had assets of $3.5m – not bad, one might think, but less than a quarter of National’s $15.8m tally.

The disparities continued into 2023, when National’s revenue of $11.2m was exactly twice Labour’s total. That was in large part thanks to a record haul of donations from wealthy individuals. National spent even more than it earned – around $15.6m – but the resulting $4m deficit (after accounting adjustments) was easily absorbed by its enormous balance sheet. Labour, by contrast, couldn’t afford to run that kind of loss, and spent less than half its rival’s total, around $7m.

Elsewhere, National outspent Labour on staff salaries by two-to-one ($2.2m versus $910,000). And when it came to the most crucial figure of all, 2023 election campaign spending, the same old disparity cropped up: National’s $7.6m budget was nearly double that of Labour’s $4.3m. 

This figure is crucial because it is sometimes believed that the parties spend roughly equivalent amounts contesting an election. The confusion arises because, until now, the only figures officially reported have been the amounts lavished on advertising in the three months prior to the election, the one part of campaign spending that is rigorously limited (and indeed subsidised) by the state.

Election expenses, though, go far beyond the adverts that run on billboards, in newspapers and on social media. Successful campaigns require paid staff and strategists, near-constant polling and focus groups, travel and venue hire budgets, volunteer coordinators, and the creation of ever-larger and more sophisticated voter databases. Then there is the advertising that parties run before the three-month election campaign – the “regulated period” – officially begins.

Although vast pots of money cannot turn around a fundamentally flawed campaign, even National strategists like David Farrar admit that parties “always want more money than less, because it gives you options”. The latest international research also suggests parties with bigger war chests generally win more votes: one large study of French and British elections found that “an increase in spending per voter consistently improves candidates’ vote share”. National’s ability to vastly out-spend Labour, on a nearly two-to-one basis, implies that our elections are not a fair and even contest.

This imbalance looks set to continue. Revenue-generating assets are one foundation of future prosperity, and National’s accounts record $2.3m in “investments” and $2m in “investment property”– the latter underscoring its reputation as the party of landlords – while Labour’s equivalents appear to be $660,000 and $0, respectively.

The parties’ reliance on big-money donors also appears to be a permanent fixture. National, once reputed to have hundreds of thousands of members, now declares just 23,000, who between them generated a measly $160,000 in revenue. Labour does not state its membership, but its revenue line for “levies, membership and affiliation”, some of which is union-derived, totals $750,000. While evidently more substantial than its rival’s sum, this still comprised just one-tenth of Labour’s 2023 revenue. All of which points to a future in which parties’ ability to compete for votes hinges substantially on their success in attracting wealthy patrons.

There is an alternative, as my Victoria University colleague Lisa Marriott and I recommended in our 2022 report Money for Something: capping donations from individuals at around $15,000 a year, and using tax credits to incentivise donations up to $1,500. This would shift the funding of political parties away from large donations from a small number of people, and towards small donations from a large number of people. 

This would reduce opportunities for undue influence and help level the playing field between parties. Elections would become, to a greater extent, contests of ideas, not money. Last year’s Independent Electoral Review made largely the same recommendations, as did a report this month from the Helen Clark Foundation. The intellectual consensus for reform is growing; whether anything changes, though, is another matter.

The Post: Profound incuriosity mixed with hypocrisy a potent mix

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To lose one child, as Oscar Wilde might have observed, is a misfortune; but to lose 200 looks like carelessness. And that’s the situation in which the associate housing minister, Tama Potaka, finds himself.

Earlier this week he marked the milestone of 1000 children having left emergency housing. Around half those kids now live with their parents in social or transitional homes; another 300 are in private rentals. So far, so good.

The whereabouts of the remaining 200, though, are a mystery. And detective Potaka is – well, he’s not on the case, actually. “I’m not worried that some are now homeless,” he told Stuff’s Glenn McConnell this week. The kids are out of emergency housing, and that’s all that matters.

It’s not the first time this government has seemed incurious about the outcomes for its poorer citizens. Last week, welfare minister Louise Upston admitted she didn’t know what happened to welfare recipients when their benefits got cut. Are they being plunged deeper into poverty and despair? She isn’t sure.

There is, in fact, a fine National Party tradition of not knowing about such things. In the early 2010s, Upston’s predecessor Paula Bennett also got “tough” on welfare recipients, dispensing sanctions – full or partial cuts to people’s benefits – at a record rate.

Although quick to claim victory when welfare rolls began falling, Bennett was remarkably incurious about what had happened to the people she pushed off benefits. It wasn’t until her Labour successor, Carmel Sepuloni, had taken office that we got the full picture.

Official research then revealed that the falling welfare rolls were “mostly” due to a strengthening job market. And even then, nearly half the people who’d left welfare were back on it 18 months later, cycling in and out of low-paid work, low-value study and benefit receipt. Around the same time, research by UK charities was showing that sanctions “increase hardship, destitution and foodbank use as well as damaging physical and mental health”.

Profound incuriosity about such issues would be a problem for any government. But it is especially hypocritical for one that has so much staked on delivering better results than its predecessor.

In opposition, National ridiculed Labour for claiming that increased outputs – more programmes delivered, more money spent – signalled increased success. Labour’s $2b boost to mental health services was a classic case. That, as the Nats rightly pointed out, wasn’t an ultimate outcome, a result, a victory.

What would true success have looked like? More people getting the treatment they needed or, indeed, being free from mental illness. And that, famously, did not eventuate.

Widely proclaiming Labour’s “failure to deliver”, National took this talking point and wound it into their rediscovery of Bill English’s social investment approach, which promises to measure whether state programmes achieve results and then shift funding from the least successful to the most.

For that to work, though, National would have to be measuring outcomes. And the evidence of the last fortnight strongly suggests it is not.

Sanctioning people, and reducing welfare rolls, are not outcomes, they’re just outputs: changes in administrative numbers. If people leave welfare only to live in ever-deeper poverty, or make themselves a burden on their family, or resort to crime, their lives have got worse, not better.

To know if welfare reform works, in other words, the government would need to know what happens to former beneficiaries: whether they end up with higher incomes, sustainable and fulfilling work, and – most importantly – higher levels of life satisfaction and purpose.

Getting people out of emergency housing is also not an outcome. People being sustainably housed is. And, in fairness to Potaka, it looks like that has been achieved for some children. But he can’t claim victory for the others unless he knows where they are.

This issue is all the more serious because, following his decision to tighten the criteria for entry into emergency housing, the number of people rough sleeping in Wellington has significantly increased, according to local charity DCM. The two may not be correlated, but there’s a high chance they are.

More kids may have parents living on the street: the opposite of success. And I’m hearing from multiple NGOs and philanthropists that more people are seeking their help because state aid has become harder to get. Again, this isn’t success, just a shifting of the burden from one balance sheet to another.

A final irony: if 500 kids and their families have moved into social housing, that can only have come about because a staggering 3453 new public homes have been opened since December last year. But that’s not an achievement to be claimed by National, which has brought state-housebuilding to a shuddering halt.

Those houses were all commissioned, constructed and paid for by Labour. A triumph of delivery, you might say. But that is yet another fact that National has little interest in knowing.

The Spinoff: What happened last time we had a beneficiary crackdown?

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When asked earlier this week what happens to welfare recipients who have their benefit removed, social development minister Louise Upston said she wasn’t sure. There is, though, evidence from the past, because New Zealanders have been here before, and have kept the receipts.

A tough line on beneficiaries, after all, follows a National election victory just as night follows day. In 1991, Ruth Richardson slashed benefits by around one-fifth of their value. In the next National government, John Key’s welfare minister, Paula Bennett, sanctioned tens of thousands of beneficiaries – cutting their payments, essentially – in an attempt to force them off welfare and into paid work. Over 80,000 were sanctioned between July 2013 and September 2014 alone.

Bennett was not especially interested in finding out what happened to people afterwards. But others, fortunately, were. When Victoria University master’s student Alicia Sudden interviewed beneficiaries in 2016, she encountered many who found Work and Income’s punitive approach degrading. One said it “made me feel anxious that I would be doing something wrong all the time”. Another woman had her benefit cut for missing a Work and Income appointment because she had had to see her doctor urgently.  

Many of those Sudden interviewed had come off the benefit but returned relatively quickly. And this finding was borne out by a large-scale 2018 report on the impact of Bennett’s reforms. More people had moved from welfare to work in 2013-14 than in 2010-11, before the reforms, but that was “mostly due to the improved labour market”, the report found.

It also showed that, of those leaving the benefit, nearly half – 45% – were back on it 18 months later. Many had moved into low-paid, precarious work, or seasonal jobs, or study for low-level qualifications – and found themselves rapidly back on the benefit. Churn, in short, was high, even in a booming labour market. 

Other research has questioned the assumption that people’s lives will automatically be improved by paid work. Evidence reviewed by the 2019 Welfare Expert Advisory Group (WEAG) found that although, in general, employment improved beneficiaries’ mental health, low-paid and stressful work could have the opposite effect. Over the ditch, researchers on the Household, Income and Labour Dynamics in Australia survey have come to more or less the same conclusion: certain kinds of work are worse than being on a benefit.

Along similar lines, research by another Victoria University master’s student, Leah Haines, found in 2021 that the wellbeing of poorer mothers “is not systematically improved by employment”. Nor is this wholly surprising, given that childcare is often inadequate, the shift into work creates costs (for new clothing and transport needs, for instance) not covered by wages or government support, and jobs can be inflexible or precarious.

Also harmful are the widespread sanctions applied in welfare crackdowns, typically involving a benefit being cut by 50% or 100% for a set period of time when recipients fail to meet certain criteria. All welfare systems, unless they hand out no-strings-attached cash, will involve sanctions at some point. But there is a contrast between Labour’s limited use of them as a last resort and National’s more full-throated, first-resort approach. The latest crackdown does, admittedly, introduce softer sanctions – having Work and Income manage beneficiaries’ incomes, or compulsory community service – that can be used before benefits are cut partly or wholly. But it nonetheless envisages more punishment as a general principle.

Back in 2019, WEAG noted that increased sanctions had “compound[ed] social harm and disconnectedness” for parents. Overseas research comes to similar conclusions. A 2015 British report on the Conservative Party’s extensive sanctions found that “removing benefits increases hardship, destitution and foodbank use as well as damaging physical and mental health”. This extends to the children of beneficiaries, who – whatever one thinks of beneficiaries themselves – are obviously innocent in all this.

And while inflicting such damage, sanctions don’t even achieve their goal of speeding the transition from welfare to sustainable work. A 2016 review of the then-current evidence, by Britain’s National Audit Office, found that sanctioned beneficiaries may be “more likely to get work, but the effect can be short-lived, lead to lower wages and increase the number of people moving off benefits into inactivity”. (“Inactivity” is often code for “giving up on the system entirely”.) 

A more recent British report found that a sanction “leads the average claimant to exit less quickly into PAYE [regular work] earnings and to earn less upon exiting”. This is supported by 2022 Dutch research showing that threatening beneficiaries with sanctions “was still detectable in people’s lower employment and earnings [compared to those not threatened] three years later”. 

While this may seem counter-intuitive to some – how can a financial threat make people slower to leave welfare? – the answer lies in better understanding beneficiaries’ lives. The government’s mental model appears to be that if welfare recipients are doing the things that get them sanctioned – missing job interviews or Work and Income appointments, for instance – it is because they are lazy or abusing the system.

In point of fact, research suggests many beneficiaries lead complex lives beset by social forces beyond their control. They face a constant, daily struggle to pay bills, they often live in damp and mouldy houses that make them ill, their children have frequent health and behavioural issues, and they themselves are often in poor mental or physical health. 

Any sudden bill is a nightmare. Many hours each week are taken up explaining their situation to government agencies and charities. And they live surrounded by people whose equally complex lives will often suddenly impose on their own. (One beneficiary I know had to abruptly leave a contract job to rescue a friend from a domestic violence situation; such occurrences are relatively frequent for those in poverty.) Beneficiaries also live with a degree of hardship that means they may not be able to afford the petrol or the bus fare to get to a job interview or Work and Income appointment.

If they miss an interview, then, it is far more likely to be due to a sudden life shock than to sheer laziness. And imposing a sanction just adds a further element of chaos to an already chaotic life. It destabilises people even further, diverts even more of their attention to the struggle to pay bills and just survive, and limits even more sharply the time they can give to job-hunting or studying.

There are many ironies in the current crackdown. One is that Act, a supposedly libertarian party that believes people know how to spend their money better than the state does, is the biggest advocate of forcing beneficiaries to let the government manage their finances. Another is that the way to incentivise the wealthy is – apparently – to give them more money through tax cuts, but the way to incentivise the poor is to take money away from them. 

Yet another is that the government has set itself a target to get 50,000 people off the benefit even as our counter-inflation policy increases unemployment by exactly the same number. The final irony is that a government that prides itself on evidence-based policy is committed to a beneficiary crackdown that is not – as far as anyone can tell – supported by evidence.

The Post: Compulsory purchase of mall could create unrealised potential

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It takes a lot to unite the Wellington City Council right now, but the owners of Johnsonville Mall may have just about managed it. Or so it seems from the council’s threat this week to compulsorily purchase the local “eyesore” that is the mall.

This represents, at least rhetorically, a break with the habits of the last 40 years. We have long been told that the best a state body can do is to steer, not row: to create the conditions for firms to do their thing, but not act directly itself.

This is hands-off, laissez-faire government. Hence we see, for instance, ministers subsiding low-end landlords through the Accommodation Supplement rather than building state houses en masse.

This has not been very successful, and helps explain why so many things in New Zealand cost so much and work so badly. Yet steering is still the limit of our ambitions. The housing debate has been dominated by the question of rezoning land: changing – one might say steering – the places where developers can build.

That reform, much-needed, has already delivered benefits in places like Auckland. But it is incomplete: developers, left to their own devices, will not automatically provide affordable, high-quality housing. We have, comparatively speaking, neglected state housing, currently 43,000 homes short of its 1990 level (when adjusted for population growth).

So it is striking that a Wellington City Labour councillor, Ben McNulty, has majority support to commission a plan to hasten redevelopment of Johnsonville Mall, potentially including compulsory purchase. He has the backing of conservative colleague Diane Calvert, who rightly says it’s time for action “rather than just solely relying on [mall owners] Stride”.

For non-Wellingtonians, the short back-story is that the mall is a disaster: a half-empty, low-slung sprawl of neglected shops right next to a major train station, when it should be the hub of a beautiful, medium-density, low-emissions development sporting shiny new retail, revitalised public transport and affordable housing. Under Stride, the mall’s long-established owner, redevelopment is forever promised, and never delivered. “Always tomorrow” could be their motto.

It’s unclear if the council has the courage to act on its compulsory-purchase threat. But it should.

This would, admittedly, terrify right-wing economists, who believe property rights are sacrosanct. And so they should be, 99% of the time: but not always. Compulsory purchase, after all, was used – albeit controversially – to build the new Kāpiti Coast highways. And one can’t argue that roads matter more than houses.

Some might say those compulsory purchases were justified because roads can take only one route. But perfect development sites are equally rare. If we are to urgently house more people, and rapidly minimise carbon emissions, we can’t let Stride stall progress for another 20 years.

One counter-argument is that, if there were development opportunities, Stride would have spotted them far before any councillor could. But the potential here is plain to see. And the argument that all-knowing firms automatically maximise opportunities is pure market theory, not reality.

Companies will, for instance, wrongly oppose cycleways because their owners over-estimate the proportion of customers who drive. Some businesses are simply sluggish, settling for a low-risk, land-banking life. Or they may lack the cashflow for redevelopment, and be unable or unwilling to borrow.

Property firms may also under-invest when they can’t capture redevelopment’s wider public benefits: better housing, lower emissions, improved transport. If rebuilding costs $100m, say, and the commercial benefits are $105m, a firm mightn’t take the risk. But if those public benefits have an estimated monetary value of another $45m, redevelopment suddenly makes sense. And the only body that will act to capture those benefits is a public one: in this case, the council.

McNulty’s colleague Iona Pannett is worried about his plan, arguing the council isn’t a good developer. But it needn’t be.

The council’s task is to purchase the site at a fair rate and, assisted by experts, draw up a master plan, delineating the broad outcomes the city desires: more retail, enhanced rail services, affordable houses. Such planning – admittedly complex – then catalyses private investment. For good urban development, British research suggests $1 of public money is needed to “crowd in” $4 of private cash. Once a master plan is out to tender, dynamic firms can do their best work: sensing retail opportunities, managing development risk.

A last counter-argument against compulsory purchase is that it has often been used to confiscate Māori land. And that’s true enough. But what if part of the new development was handed to iwi, and used for papakāinga housing or similar? An instrument of injustice could become an instrument of justice.

The compulsory purchase question, of course, goes much wider than Wellington. Every city will have a prime site where the private sector is land-banking or otherwise sitting on its hands, and compulsory acquisition could unblock progress. If the capital led the way, others might follow.

The Spinoff: Healthy homes standards worked, but many landlords are still refusing to comply

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Amidst the generalised despair about the last government’s failure to deliver on certain key promises, it’s easy to forget it had some major wins.

Take, for instance, the healthy homes standards, introduced in 2019 in an attempt to do something about the extravagantly bad quality of this country’s rental housing – something that consistently makes overseas observers shake their heads in bafflement. The standards are not especially demanding. They require only that a rental property has a fixed source of heating, is insulated where practicable, has extractor fans in both bathroom and kitchen, boasts functioning water pipes and gutters, and does not have massive holes in its walls. These are not, on any objective measure, unreasonable demands, even if some landlords treated the law change like they would a declaration of war.

But have the standards made any difference? Although objective data is in short supply, the Ministry of Housing and Urban Development does commission an annual survey of renters and landlords, the 2024 edition of which has been released to the Spinoff under the Official Information Act.

The survey reveals some good news. Nearly one-fifth of rental owners say they were compliant with the standards even before they were introduced; taken at face value, these are the good landlords, of which the country needs a far larger supply.

Even more pleasingly, the data suggest the standards have made a substantial difference. Some 84% of renters say their property has an “acceptable” form of heating installed (heat pumps, for the most part), up from 67% in 2020. Similarly, 77% of renters say they can heat their living room to a “comfortable” temperature all year round, up from 50% in 2020.

Perhaps most tellingly, the proportion of renters saying their home has a problem with damp or mould has fallen from 57% in 2021 to 44% today. The proportion citing problems with heating their home or keeping warm in winter has likewise fallen, from 55% to 42%.

When it comes to ventilation, 79% of renters report their property has an extractor fan in good working order in the bathroom, up from 64% in 2020. Similarly, 81% say there is a fan in the kitchen, up from 66%.

These marked improvements since 2020 plausibly tell us two things. One, the standards have begun to work. This is reassuring: it shows us that when the state does something, when regulation is enacted, improvements follow. Second, if there is to be further progress, it will come once again from regulation: the “market” so beloved of neoclassical economists had decades to raise rental standards to an acceptable level, and failed abysmally. 

We are, as a result, only at base camp on the mountain of rental reform. Recall that around four in 10 rentals, according to their occupants, are still to some extent damp, mouldy or difficult to heat. Within that, 6-8% have a “major” problem with mould and cold. On one measure, this proportion has not changed since 2020.

Likewise the situation with drainage. According to renters, roughly one-fifth of properties have unresolved drainage issues; within that, 10% of renters are not aware that their landlord has any immediate plans to fix the problem. 

We can also take that staple of low-grade New Zealand rental housing, the gaping hole in the wall. Just under a quarter of renters report their properties have “unreasonable” gaps and holes that cause “noticeable” draughts. Within that, in 14% of cases their landlord has no apparent plan to address the issue. Some 15-18% of rentals, meanwhile, have no appropriate source of heating, depending on whether one believes renters or landlords.

Most concerning, when landlords are asked whether they have prepared their properties to meet the Healthy Homes Standards, around 8% still say “no, not really” or “not yet”. Similarly, around 7% of landlords are officially described as being “in denial” about the legally mandated standards, a figure that is unchanged since 2020. 

What does all this tell this? If we take the issues with dampness, heating and drainage, roughly 20-40% of rentals – that is, hundreds of thousands of properties – still display some level of defects. Within this, somewhere between 8% and 15% of rentals are extremely damp, mouldy or otherwise unsafe, and their landlords are utterly unrepentant. 

Why have such problems not been regulated out of existence? A clue may lie in the inspection regime. Labour is to be saluted for one epochal shift: rather than requiring tenants to report problems, as was previously the case, Jacinda Ardern’s government gave officials the power to proactively launch investigations.

It did not, though, support this shift with sufficient resources. Two years ago, the inspectorate tasked with assessing New Zealand’s 600,000-odd rental properties boasted a grand total of 37 staff. In response to the Spinoff’s enquiries, the Ministry for Business, Innovation and Employment (MBIE) has revealed that the number today stands at … 35. 

This inspectorate, MBIE insists, has not been harmed by the new government’s cost-cutting regime, nor has it been instructed to dial down its regulatory efforts. But National hardly need do so.

Even under Labour, the rental inspectorate spent an awful lot of time “educating” landlords about the standards set out in law and very little time actually – you know – enforcing them. In the last year, rental inspectors issued 316 warnings, but took just four landlords to the Tenancy Tribunal. The result – as the survey shows – is that the very worst landlords continue to flout the law, safe in the knowledge that they are extremely unlikely to be prosecuted.

Little change can be expected from the current government. But while they are in opposition, Labour and the Greens should draw up plans for another, more comprehensive, phase of regulation. The slumlords deserve no second chances, no first warnings. One or two of them need to be put out of business, and their properties snapped up by better owners. Only then will the remaining slumlords be frightened into compliance; only then will the nirvana that most developed countries have long since achieved – a stock of predominantly warm and safe rental homes – come finally within reach.

The Post: The poverty pipeline which delivers the victims of abuse in care

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The Royal Commission’s report into the abuse of children in state and church care is a landmark moment of accountability: an event during which powerful institutions finally acknowledged harm done. That’s its past-facing component.

Real accountability, however, also faces forward. Apologies, support and financial redress for victims must follow. And we, as a country, must ensure such evils are never visited again upon the vulnerable.

That is largely a question of what goes on inside so-called “care” institutions. But we should also consider why so many children come to be in care in the first place.

That pipeline has been fed by racism, and by a culture of separating children from their families instead of supporting those whānau to heal. Another central force, though, is poverty.

In 2019, researcher Angie Wilkinson and I wrote a background report for the Royal Commission in which we compared family stress to cracks in a dam, building up slowly, sometimes imperceptibly, until the pressure forces a break. A family becomes unable to cope; their home stops being a safe environment.

These stresses are felt in multiple ways. Poorer parents, unable to afford basic items like food and clothing, warm housing and school supplies, may feel they are failing. This stress can worsen their anxiety, depression and anger, compromising their ability to be patient with their children or invest in them emotionally.

Struggling constantly to pay bills and deal with unexpected costs, parents may end up withdrawing attention from their offspring. Erratic or unsociable working hours, including night shifts, make parenting harder still.

Families living under severe financial pressure, surrounded by others in similar hardship, may struggle to forge the social connections that could have buoyed them up in tough times. It’s no surprise, then, that New Zealand researchers have found poverty can “sap parental energy, undermine parental sense of competence, and reduce parental sense of control”. And this stress and anxiety is often absorbed by the children themselves.

As well as poverty, there’s inequality. In societies with sweeping disparities of wealth, poorer families feel themselves to be at the bottom of a steep hierarchy, leaving them with stigma, a loss of control over their lives and psychosocial stress. This has been strongly linked to heart disease and other stress-related health conditions.

Once again, it’s no surprise that global research consistently finds a close connection between poverty, inequality and the maltreatment of children. One British academic, Paul Bywaters, notes that deprivation is “the largest factor explaining major differences [from area to area] in key aspects of child welfare, such as the proportion of children entering the care system”.

Here in New Zealand, we know that “substantiation” – an official finding that abuse has occurred – is 13 times more common in the poorest fifth of neighbourhoods than in the richest fifth. That can occur because of official bias against certain communities. But it also points to the role of poverty.

Māori children, experiencing both racism and disproportionate rates of poverty, have been hit hard by every aspect of the system. In 2019, they made up around two-thirds of all care placements.

And the whole system is, in many senses, a depressing downward spiral. According to a 1999 paper by Moana Jackson, an estimated 85-90% of Mongrel Mob and Black Power members had once been wards of the state.

In that environment, they faced, to quote Mongrel Mob founding member Gary Gerbes, “sexual abuse by the people that ran the place [and] absolutely shocking violence... Those places destroyed our f...in’ heads, man”.

As cited in Jarrod Gilbert’s book Patched, Gerbes’ response was to say, “F... the system - if that is the way they are going to treat us, then we will treat them the same way. We are going to give them what they gave us - and [via the Mongrel Mob] they got it alright.”

Breaking that ugly cycle is colossally complex. But tackling deprivation could play a part. Bywaters’ work shows that lifting families out of poverty has a “statistically significant” impact on rates of child abuse and neglect. American researchers Lindsey Rose Bullinger and Kerri Raissian, meanwhile, estimate that a $1 increase in the minimum wage leads to a near-10% decline in reports of neglect.

All the more reason to worry, then, that it emerged this week that National had quietly downgraded its ambitions for reducing child poverty. Labour’s target had been to reduce material hardship rates from the 13.3% it inherited in 2017 to just 9% this year.

Admittedly it failed: the rate last year was 12.5%, owing to the cost-of-living crisis, and has probably risen since. But National’s new target is for 11% of children to still be in hardship in three years’ time. That’s twice the rate of some European countries.

It’s an unacceptably low level of ambition – and one that will, alas, keep the pipeline of care placements flowing freely.

The Spinoff: What the left and right still get wrong about 1980s politics

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For the left, the fourth Labour government’s victory on July 15, 1984 was the beginning of everything bad. A country in which people looked out for one another became, through privatisation, deregulation and attacks on the welfare state, a nation of diminished community, dwindling social cohesion and care, and rampant poverty. For the right, that election – and the 15 years that followed – were a glorious revolution. A Soviet-style economy of stultifying regulation and cossetted industries was swept away, and in its place sprung up a forest of dynamic, entrepreneurial companies.

Both stories, in fact, hold an element of truth. And failing to recognise this has harmed both right and left – the latter especially so.

The left is correct to point out that post-war New Zealand had one of the world’s highest – and most evenly distributed – standards of living. The profits of farm and other exports were widely shared via strong trade unions, near-zero unemployment, state house-building, high income and inheritance taxes, and a reliable welfare state.

But by the early 1980s that economy was in real strife. Lacking diversity, it was hit hard when meat exports to Britain declined. It was also immensely protected, a kind of pre-covid Fortress NZ. It was hard to acquire foreign currency, or even import magazines without a licence. Bureaucrats determined which businesses had licences to import certain goods. Some manufacturers enjoyed a virtual monopoly in their sector, leading to over-priced, poor quality products.

Compounding matters, prime minister Robert Muldoon responded to the 1970s oil crisis and concomitant inflation shocks with a King Canute-like attempt to freeze prices and wages. “You can’t run the economy like a Polish shipyard,” opposition leader David Lange famously said. (Muldoon tried to do it anyway.)

The New Zealand economy in 1984 was not, in short, especially dynamic. Productivity had barely risen since 1970. So when Lange was elected prime minister and, more importantly, Roger Douglas became his finance minister, there was pent-up demand for change of some kind. That promptly arrived in the Rogernomics revolution: subsidies were swept away, protected industries exposed to competition, state assets sold and taxes slashed. Following this lead, the subsequent National government decimated unions, sold state houses and viciously cut benefits.

At the frequent talks I give on economic inequality, an older, more left-wing member of the audience invariably asks a question along the lines of: how were Douglas and co able to perpetrate such a fraud on the New Zealand public? Part of the answer is the exploitation of circumstance: Douglas used a minor crisis – the fact that the country was exhausting its foreign currency reserves trying to prop up the dollar – to pretend there was a more widespread economic catastrophe in train. (There wasn’t: government debt, for instance, was at a manageable – though certainly not ideal – level of 60% of GDP.)

Another part of the answer is blitzkrieg: Douglas deliberately moved fast to prevent opposition. As he told the Spinoff’s Juggernaut podcast, “If you do it quickly, people don’t have time. They can’t adjust.” This repugnant, anti-democratic attitude ignores the fact that countries like Australia made similar adjustments, but more gradually and with less damage to their communities. Douglas’s approach was disgraceful, and built on a lie; but it helped him get his way.

A wider point, though, and one that the older left has never fully grasped, is that egalitarianism had become tarnished with the brush of mediocrity. It was seen as having led to conformity, an aversion to risk-taking and a distrust of success. As the political scientist Leslie Lipson had noted decades earlier: “In its anxiety to raise minima, the country deemed it necessary to lower maxima.” Egalitarianism had become – or been seen to become – “levelling down”, rather than, as the Brits might say, “levelling up”.

The New Zealand economy did have to be made more open, more dynamic, more entrepreneurial. But – and this is the crucial point that the right, for its part, has never quite grasped – more open did not have to mean more unequal. At the time, politicians insisted that it did. Bill Birch, a National minister in the 1990s, said income disparities “are widening and they will widen much more. That doesn’t worry me.” Wealth, after all, was going to trickle down. Newsflash: it didn’t. Between 1984 and 1999, the period of right-wing change, incomes declined for the poorest half of the country.

Economic damage on that scale – which can be sheeted home to the likes of Douglas, Birch, and 1990s finance minister Ruth Richardson, still sitting on the board of the Taxpayers’ Union – is extraordinary. It was also unnecessary. The fact that farmers were over-subsidised didn’t justify slashing benefits by one fifth. The fact that manufacturers were sheltered from competition didn’t justify cutting the top tax rate from 66% to 33%, or attacking trade unions, or selling off state assets at fire-sale prices.

New Zealand could have become the Denmark of the South Pacific: open, dynamic, and still egalitarian. Instead it became a kind of low-rent Britain, even more deregulated but even less successful economically. Since the Rogernomics reforms, New Zealand’s standard of living has steadily lost pace with those of comparable countries. Productivity, though rising compared to the Muldoon era, has actually fallen further behind that of our competitors.

The lesson the right hasn’t learnt from this, and seems incapable of recognising, is that there isn’t anything wrong with trying to shape the economy; it just needs to be done the right way. To succeed, economies need heavy investment in infrastructure, education and health; they need children to be lifted out of poverty in order to guarantee a productive future workforce; they need governments to regulate cowboy firms out of existence, and encourage a shift to higher value exports. All that a hands-off approach to the New Zealand economy has done is let predatory monopolists and oligopolists make hay, while other businesses potter along in their low-value, low-skill, low-wage ruts. Our elevated levels of poverty and inequality, meanwhile, are a constant drag on economic growth.

The lesson the left hasn’t consistently learnt, meanwhile, is that there’s no point in nostalgia. One can’t recreate the 1970s, and shouldn’t try: even leaving aside the Fortress NZ aspects, it was a much more racist, sexist and homophobic time. Better, surely, to ask what a modern, dynamic form of egalitarianism would look like. What does fairness mean in the future? What is an optimistic take on this century’s potential? What opportunities will New Zealand seize only if long-term poverty is swept away and the wealthiest pay their fair share of tax? Since we live still in its long shadow, it is reasonable to keep looking back to 1984 – but only as a springboard into the brighter days ahead.