The Spinoff: A new suspect in the case of New Zealand’s property investment obsession

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A few years ago I wrote a column arguing that, over a generation, house prices in New Zealand needed to fall 40% if they were to become once more affordable. This was, it’s fair to say, controversial: the online response was heated, even at times furious.

One commenter claimed I was advocating for a “handout” from existing homeowners to prospective ones, suggesting he had so strongly internalised the idea of his home’s current value being an actual property right that – in his mind – any decrease in it was like giving his money to others.

Even more intriguingly, someone else wrote that they felt I was attacking the New Zealand “dream” of owning one house to live in and one for retirement income. “Hah,” I thought to myself. “When did that become the New Zealand ‘dream’?” And then I thought: “Hang on – when did that become the New Zealand dream?” Middle-class New Zealanders have long sought to use residential property for current income. But for their retirement?

This has, of course, only ever been a “dream” attainable by a few. For all their dominance of political debate, the number of property investors in 2021 was just 530,000, according to analysis by data firm Valocity. That’s about one in seven adults. But because they are relatively well-off and influential adults, their dreams matter. One of the arguments already advanced against a capital gains tax, for instance, is that it will harm “mum and dad” investors who have pinned their retirement hopes on a big tax-free capital gain. Never mind that these investors, according to Valocity, own just one-third of rental properties, the remainder lying in the hands of large-scale landlords. Such arguments still have rhetorical power.

So I kept puzzling over the conjunction of retirement savings and rental properties. And then someone, at a social gathering, said to me, surely it’s to do with the collapse of corporate pensions. At which point a lightbulb went on. Many New Zealand firms had, pre-1980s, provided relatively generous pensions to their staff; as with the welfare state, the loose assumption was that powerful players with deep pockets – big businesses and big governments – should look after those with lesser means. The world was a difficult and risky place, and there were limits to how well the average person could “insure” themselves against those risks – could protect themselves against economic shocks, in other words – if acting alone. 

By the 1970s, the state shouldered the main burden, paying New Zealand Superannuation at a rate designed to keep recipients out of poverty. But, then as now, that was insufficient for a comfortable retirement: hence the importance of the company pension, for the admittedly well-off slice of the population that received one.

All this changed in the pro-market revolution that swept the west in the 1980s. The individual was held responsible for their outcomes in life, and the most efficient way to solve problems – including the puzzle of retirement savings – was for people to make their own private investments in the free market. Risks were shifted onto individuals. Firms felt less responsibility to their staff, and cut back their corporate pensions. Many got out of the game altogether, and the remaining players shifted away from relatively generous “defined benefit” schemes, based on the employee’s final salary and length of service, and towards less generous “defined contribution” schemes, based more on the employees’ own savings.

It made intuitive sense, then, that as corporate pensions declined, their former recipients started searching for another source of retirement income, and looked to real estate as their saviour. But did the data back this up?

The answer, according to the data I’ve compiled, is a tentative yes. There is a clear decline in the average value of private pension wealth from 1990 onwards, and an even greater increase in property investment wealth. (In both cases, the total dollar value invested in each category has been divided by the New Zealand population, and adjusted for inflation.) From 2008 onwards, Kiwisaver emerges as a third source of retirement income; a classic “Third Way” policy, it is both individualistic and communitarian, relying essentially on the individual’s contributions but bolstered by state top-ups.

Caveats to this analysis abound, however. Correlation is famously not causation: corporate pensions might have declined, and property investment risen, for unrelated reasons. The housing market has been radically changed since the 1980s, in ways that have nothing to do with retirement per se: think about the decline in house-building volumes, the sale of state housing, the more general retreat of the state from subsidising first homes and mortgages, the creation of tax advantages for property investment, and the much wider trend for the “financialisation” of housing. We have no way of knowing how much investment property has a specific retirement focus.

The data assembled here are also seriously partial, pieced together from multiple different surveys and laced with all kinds of gaps and assumptions. (Individuals’ entitlement to New Zealand Superannuation could, for instance, be rolled into an estimated lump sum, and charted as another form of “wealth”.) This should be seen as a first, rapid pass at answering a crucial question, rather than a definitive answer. 

Even if the data could be corroborated, a further puzzle presents itself. Why, if middling and well-off New Zealanders wanted another source of retirement income, did they turn to rental property and not, say, the stockmarket? The tax advantages for housing offer one simple answer. Another is located in this country’s appallingly low levels of financial literacy. Housing is easy to understand; financial investments seem complex and scary.

There is also a justifiable sense that non-housing investments are not as well-regulated as they might be. All financial sectors experience occasional crises, but New Zealand’s are especially severe: our 1987 stockmarket crash was a particularly brutal version of the type, and throughout the 2000s our regulators were having a pleasant snooze while finance companies engaged in the risk-taking behaviour that eventually saw them collapse en masse, taking $3bn in people’s savings with them. 

In this light, property investment looks a far safer bet. So if the country is to end its over-investment in housing, build up its export sector – and, potentially, introduce a capital gains tax – it may need to provide alternative retirement options, whether that means leaning more heavily on Kiwisaver, or something else. And that, in turn, may require steps to make financial investment safer. One of the most unexpected roots of the housing crisis, in short, may be our failures in financial regulation.

The Post: Manufactured crisis over ACC ignores the bigger picture

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We live in a moment of manufactured crises. We’re told the Government’s finances are unsustainable, when in fact spending under Labour was – at around 32% of GDP – barely above its long-term average of 30%, and heading downwards even before National set its razor gang to work.

Alarm bells are also rung over government debt, even though liabilities of roughly one-fifth of GDP are low by both historical and global standards, and at least one bank economist thinks the government could double its debt levels without troubling the credit-ratings agencies.

This week’s candidate for a manufactured crisis is ACC, which announced a $7.2 billion deficit for the financial year. Numbers like that are cheap fuel for the narrative that the state is broke, that we are drowning in seas of red ink, that vicious cutbacks are needed right now.

Nothing, though, could be further from the truth. The deficit is – at least in one key sense – a good thing.

Of crucial importance here is an $8.7b increase in the corporation’s estimate of how much it will have to pay out for future injury claims. That, in turn, stems partly from court rulings requiring ACC to cover more injuries.

There is, notably, an expected $3b-plus bill from a Court of Appeal decision that sexual abuse victims should be compensated for their loss of earnings from the time they were abused, rather than the date they sought treatment.

What the deficit partly represents, in other words, is one step further into the dawning realisation that we, as a society, have not been adequately wrapping our arms around those who have suffered harm.

It is not – to state the obvious – a good thing that this harm occurred. But it is a good thing to take, on our collective shoulders, the financial burden of trying to redress it. The deficit is a symbol, in cold hard cash, of a determination to do better by those who suffer.

Bear in mind the philosophical foundations of ACC, or the Accident Compensation Corporation as it is more formally known. It exists to help people who, often through no fault of their own, have suffered injury, and who we have rightly prevented from suing the perpetrators of that harm, in order to avoid an American-style culture of hair-trigger litigiousness.

When ACC was established in the 1970s, the intention of its intellectual godfather, Owen Woodhouse, was that it would cover not just those harmed by one-off, easily defined accidents, but also those experiencing long-term medical conditions. The latter, after all, are just as likely to suffer an uncontrollable and long-lasting loss of earnings, and just as likely to need treatment.

Campaigners have, over the years, forced a gradual expansion of what counts as an injury, including some of those experienced by women when giving birth or being fitted with surgical mesh.

The only party with a plan to fulfil Woodhouse’s vision, however, are the Greens, who in 2023 proposed spending around $3b a year to extend ACC’s services to cover health conditions and disability.

Because of the narrow fiscal lens through which they view such things, centrist politicians have always baulked at that cost. This is, however, a false economy, at least when it comes to health in general.

Not treating long-term illness saves the government money superficially, but only by forcing blameless individuals to shoulder those costs themselves, even when they can ill afford it. More seriously still, from a social point of view, the problems stemming from that long-term illness end up rebounding on the very Treasury that has tried to shrug them off.

The government’s own research into long-term illness suggests that “indirect” costs like lost productivity – never mind the wider social effects – are “at a rough approximation” equal to the amount that would have to be spent to treat them. That’s what fiscal conservatism amounts to: having to wear the same costs, but without having even treated the problem. It’s a specialised form of madness.

Which brings us to another contributor to ACC’s fiscal deficit. Its rehabilitation timelines are blowing out, in part because it’s so hard to get people treatment in the health system at present.

That, in turn, stems partly from the system’s current dysfunction, but also from the fact that, according to 2020 research by the Association of Salaried Medical Specialists, we spend an annual $6.7b less on health than the average of 14 other major economies.

Finance Minister Nicola Willis was quoted this week as saying that increases in ACC levies are “unsustainable”. And, given the continuing squeeze on household budgets, we need to find ways to cushion the levies’ impact on ordinary Kiwis.

But, ultimately, the real unsustainability lies in passing the burden of ill-health onto society, and in aiming to run fiscal surpluses at the expense of social deficits.

The Spinoff: The slow drift towards ‘user pays’ risks turning New Zealand into a two-tier society

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When thousands of people are signing up for private health insurance even in a cost-of-living crisis, you know something has gone badly awry in our hospitals and GP clinics. Last week, the private insurer Southern Cross Health announced it had gained 15,000 new customers in a year, bringing its membership to more than 955,000.

Nor is this unexpected. At least one iwi has made headlines for buying private health insurance for its staff. And more and more companies offer it as an employee benefit.

But while each move is entirely defensible on an individual basis, especially given the current pressure on public hospitals, the collective danger is obvious: an ever-stronger drift towards something like the American health system, which, centred on private insurance, both wastes unfathomable sums of money and denies healthcare to millions.

And it’s not just health. The government wants to aggressively expand toll roads, even where there may be no decent free alternative. The currently under-construction replacement for the Manawatū Gorge road, a vital conduit in the lower North Island, could cost car drivers $4.30 a trip and trucks $8.60, a potentially unaffordable sum for regular commuters in a low-income region.

Tararua District mayor Tracey Collis says neither of the two “alternative” routes – which include the steep and windy Pahiatua Track – are of an acceptable quality for long-term use. “We don’t want a road that the rich can take and you leave the others for the poor,” she told a recent protest. All the more so given that, once the Gorge road replacement opens, the two alternatives will become her council’s responsibility to maintain – and it won’t be able to afford the bill.

Where there are feasible alternatives, of course, toll roads may not seem so troubling. Driving, after all, uses up resources in a manner that we may want to discourage. But what about the impacts on the poor? Research by the Infrastructure Commission shows road charging takes a bigger chunk out of household budgets for low-income families than for rich ones. Will more poorer households simply stop being able to get from A to B? Or will the untolled roads that serve them sink into greater and greater disrepair? These questions have had remarkably little attention.

For some time, the user-pays approach has been growing and fostering social divides in supposedly egalitarian New Zealand.  Compulsory “voluntary” school donations, for instance, have rendered our “free” public education system rather less than free, even if the last Labour government rightly pushed back against that practice. The private fundraising carried out by rich schools vastly outweighs the minimal “equity” funding received by poorer ones. The principal of Porirua College, Ragne Maxwell, told a recent meeting that New Zealand has a “three or four-tier education system”, given the resource disparity between state schools, let alone that between state and private. 

In health, we levy GP fees that simply don’t exist in some advanced nations. Cost barriers prevented one in seven New Zealanders from getting care even before the current crisis. The danger now is that such disparities worsen, and harden, and that we sleepwalk still further into a society divided by ability to pay.

How did we get here? Some of our user-pays practices, like GP fees, are long-established, deriving from commercial distrust of collective provision and European settlers’ “rugged individualism”. Other practices are a hangover from the 1980s “Rogernomics” drive, in which state services were regarded less as a collective good to which people are entitled as a mark of their citizenship (even though that is what they really are), and more as a private benefit to the consuming individual.

These tendencies are now being exacerbated by two crises, one imaginary and one of the imagination. The imaginary one concerns the financial state of our government, which we are constantly told is “broke”. In fact it is no such thing: successive governments have saved money in good times and borrowed to get the country through bad times, as is standard practice. Government debt is low, by international and historical standards; one bank economist thinks we could double it without risking a downgrade by ratings agencies.

If we have a problem, it’s that we don’t raise more tax revenue. The European nations with the best public services generate around 40% of GDP in taxes, whereas we take in just 30%. If we taxed at the same rate as the Germans and the Dutch, the New Zealand government would have another $20-$30bn to spend each year fixing up health, education and transport. 

No one, then, should fall for the siren song that increased private spending must fill the gap left by the state. Southern Cross is already pushing this line, its chief executive Nick Astwick telling RNZ that private insurance will be part of the solution to the “massive demand” for health as the country ages.

But making people pay for services doesn’t magic money out of thin air; it just shifts spending from the state to the individual. If the individual can’t afford that, the net result is injustice, denial of care and social division. And if it’s less efficient to run a health system via private insurance than tax-funded provision, a country actually ends up getting less healthcare for the same amount of money.

This is emphatically – indeed, disastrously – the case in America. Not only does its health system leave tens of millions of its citizens without adequate care, it wastes vast sums of money, as insurers fight to preserve their profits by denying claims, private hospitals battle with insurers (and patients) over payment, and every part of the system has an incentive to relentlessly overcharge.

The result is that, despite delivering terrible health results overall, America spends, on a per-capita basis, roughly twice as much as its developed-country counterparts. The waste is so vast that it would pay for the insurance costs of the 30 million Americans without cover – or even, most startlingly, the entire budget of Britain’s National Health Service. The lesson for New Zealand is clear: shifting towards a user-pays health system would actually reduce the amount of care the country can provide – as well as making that care more unequal.

So much for the fiscal “crisis”. We do, though, have a crisis of imagination. Why is the public health system in such a state? Partly thanks to the pandemic, of course, and its attendant social strains and public-sector burnout. But partly, too, because Labour decided that the best thing it could do to a public health system in the middle of a once-in-a-century pandemic was to tear it apart structurally and then try to reassemble the pieces. 

Leave aside, for the moment, the fact that restructuring is rarely the solution to anything, and think about the paths not taken. Labour could have turbocharged prevention and community care. Or it could have bet the farm on technology: AI, remote tech-assisted care, telehealth. Or it could have taken big steps towards a system with no financial barriers to care whatsoever.

Any of these visions – whatever their respective strengths and weaknesses – would have at least embodied values, beliefs, inspiring ideals. Instead we got a soulless technocracy – one that, judging by current results, doesn’t even work very well. And the same lack of vision can often be seen in Labour’s approach to public services. So it’s no surprise that people acquiesce in, or cannot be motivated to complain much about, a slow drift towards user-pays. In the absence of a more compelling vision, what else would they vote for? 

A new vision for public services, in short, is urgently needed. Although there is little evidence that the health minister, Shane Reti, wants to do anything but restore the public system, Act has been vocal about its desire to privatise the whole shebang. The response must be to point out that, yes, health – and other public services – are underfunded. And, yes, we need to reinvigorate the view that public services are fundamentally a collective good: the benefit society derives from having healthy and well-educated people is vastly greater than the benefit to any one individual; and no one should be denied access to those essential goods because of an inability to pay.

But there also has to be a plan for how those services can run differently – better, more efficiently, more in tune with the demands of the 21st century. When core public services run well, it no longer makes sense for people to pay to go private. A vision that is practical, as well as compelling, is needed to ward off the slow drift towards unfair and inefficient user pays. After all, we have seen, over and over in the last few decades, what results when core public services are marketised, when fees and private provision are introduced: a world in which the good life, with all the access to the public realm that it requires, is increasingly reserved for those who can buy it.

The Post: Governing by gut instinct: when science surrenders to ministerial reckons

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Sometimes common sense can be catastrophic. Take Transport Minister Simeon Brown’s insistence that all-day speed limits around schools are unnecessary, since midnight drivers aren’t going to crash into kids. Sounds sensible, right?

Wrong. Auckland Transport research shows that of the deaths and serious crashes occurring within 400 metres of the school gate, 85% happen outside drop-off and pick-up hours. Schools, after all, sit in the heart of their neighbourhood: children, parents and other community members are crossing local streets all day long.

Auckland Transport’s modelling found that a permanent 30kph limit on school-adjacent roads, combined with other changes, would eliminate 54 deaths and serious injuries city-wide every year. It would also deliver $9 in wider benefits for every $1 spent. Lowering speeds only during drop-off and pick-up times saved a mere three deaths and serious injuries annually, and returned just 20c for every $1 spent.

Brown’s option is, in short, a colossal waste of money, and will allow 10 times more deaths and serious injuries than the alternative. That’s disastrous in itself. But it’s doubly damning for a Government supposedly in love with data.

In retrospect, the coalition agreements’ loud insistence that decisions “will be based on data and evidence” can be read as prospective virtue-signalling: a gesture emptied of actual meaning. Parts of the Government seem, if anything, to be at war with science.

Brown recently eliminated the position of chief science adviser to his ministry. And no wonder: the last incumbent, professor Simon Kingham, argues that “no science adviser would tell them [ministers] that the policy they’re pursuing at the moment is sensible”.

Brown isn’t alone. The Department of Conservation has also jettisoned its chief science adviser. As of July, over 200 government science roles were on the chopping block.

Data and analytics teams, which evaluate departments’ programmes, have been cut at the Ministry for Social Development and elsewhere. The Budget even snuck through a 40% reduction in state support for the prime minister’s chief science advisor. Nothing says “we love science” like hacking back the budget of the person most responsible for presenting you with hard evidence.

Elsewhere, Wellington’s $451m Science City project, designed to turbo-charge innovation, has been scrapped. Even past National policies, like the $68m-a-year National Science Challenges, aren’t being renewed.

Concurrently, ministers have made a swathe of deeply unscientific decisions. Children’s minister Karen Chhour is putting a military-style “bootcamp” framing around programmes for troubled youths, when almost all the evidence says bootcamps don’t work.

Construction minister Chris Penk wants to wind back new home-insulation standards – even though they’ll cut heating needs by 40% and have overwhelming industry support – because a few “builders and developers in Tauranga” told him they added $50,000 to construction costs. But government-by-anecdote always falls flat: actual modelling shows the standards cost more like $2000– and can even reduce the price of building, if implemented intelligently.

Penk’s efforts pale in comparison, however, to the shambolic policies perpetrated by Associate Health Minister Casey Costello. She’s cut taxes on heated tobacco products despite there being clear evidence that such items are more toxic than vaping – indeed they may be as bad as cigarettes – and no solid evidence that they reduce smoking rates. Her much-touted “independent” advice, released on Thursday, was a random collection of largely outdated articles and opinion pieces, many unrelated to the product in question.

All this must be deeply embarrassing to the ministers still committed to data-driven policy. Education Minister Erica Stanford’s curriculum changes, for instance, are broadly based on evidence that teachers need greater clarity about what they should be doing, and better learning materials.

But even those policies have been funded by cutting schemes to raise teachers’ Māori-language skills, which have powerful qualitative support (though not yet quantitative data). Herein lies one of the Government’s flaws: its commitment to evidence is far weaker than its purely ideological belief that public spending must be cut back to 30% of GDP.

The problems deepen as one moves further away from the centre. ACT and New Zealand First ministers are particularly prone to privileging ideology and governing by gut instinct.

So far, the flagbearer for evidence-based policy has been the “social investment” approach, which will – in theory – use data to work out which programmes best help vulnerable people early in life, and shift funding accordingly. But it got just $51m in this year’s Budget, and is yet to make any measurable difference.

For the moment, social investment seems to be coming a distant second to ministerial reckons. This has real consequences: not just for our day-to-day lives, but for the very state of our democracy.

One of the biggest drivers of sagging trust in governments, according to a recent OECD survey, is their tendency to ignore evidence. If social investment, or something like it, doesn’t arrive very soon, any good intentions this government still has could disappear in a spiral of mistrust.

The Spinoff: Here’s what’s at stake in the Labour tax debate

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An essentially arcane subject for ordinary folk, tax has taken on a symbolic – indeed, almost existential – dimension in the modern Labour Party. To some members, the 2023 “captain’s call” in which party leader Chris Hipkins ditched a wealth tax proposal has become an emblem of betrayal. Restoration of a radical tax policy is thus essential. 

For others, talking about tax is a vote-loser, distracting the party’s attention away from the more meat-and-potatoes concerns of the median punter. Yet others would like to see tax reform, but of a more modest nature. 

What, then, are the different taxes being debated – and why do they arouse such passion? As with the Bird of the Year competition, there are a staggering array of options, each with its own doughty champion. Almost all the public chatter, though, concerns two main contenders: a capital gains tax (CGT) and a wealth tax.

The mainstream option: a CGT

New Zealand is virtually the only developed country that does not systematically tax capital gains – that is, the income people make selling assets like investment properties and shares. No one has ever satisfactorily explained why we remain a holdout, although it may be related to the fact that two of our most sacred pastimes – buying investment properties and farming – can generate relatively little income day-to-day, and rely heavily on massive untaxed capital gains at the moment of sale.

Powerful vested interests, in short, have traditionally opposed a CGT. And Labour has reason to be wary of this debate. It campaigned on a CGT in 2011 and 2014, and although that wasn’t the reason it lost both elections, successive party leaders – Phil Goff and David Cunliffe – got tripped up when asked about it in debates. It also formed the backdrop to the party’s recent psychodrama in which Jacinda Ardern put a CGT to a tax working group in 2017, lost the argument through being unable to defend her own policy for two years, and then ruled it out during her political lifetime.

Now, though, Hipkins’ post-election policy reset has put it back on the table, alongside a wealth tax. Of the two, it is the more mainstream option, as can be seen by yesterday’s endorsement from the head of ANZ, Antonia Watson, and the backing of groups like the chartered accountants’ peak body. 

A CGT is easy to explain: people pay tax on the income they make selling assets, just like others pay tax on their salaries and wages. It cannot be especially hard to administer, given that virtually every other developed country does so. Politicians do have to choose how high to set the tax – it can be levied at a flat rate, at varying rates but lower than conventional income taxes, or exactly the same rate as those income taxes – but this is not a stumbling block per se.

Estimates vary, but probably 70% of a CGT would be paid by the richest 20%. Perhaps its most obvious drawback, though, is that it isn’t retrospective. If, for argument’s sake, a CGT was introduced in 2027 and someone sold an investment property in 2030, they would pay tax only on the increase in value in those last three years. 

That, in turn, means a CGT would generate “only” hundreds of millions of dollars in its first year, and not reach its full revenue potential – estimated at around $6bn – for a decade. Labour would have to withstand the brutal hand-to hand combat required to pass major tax reform – but without much immediate pay-off. To get around this, it would need to find some way of “bringing forward” the revenue, effectively borrowing against the promise of a future income stream.

The radical option: a wealth tax

Whereas a CGT targets the profits people make from selling an asset, a wealth tax is levied on the assets they still own. Over a certain threshold – say, $5m for an individual – any wealth they hold is subject to a low-rate annual levy – say, 1%. In this example, someone with assets (after debts) of $7m would pay a levy of 1% every year on the $2m they hold over the threshold; their tax bill would be $20,000.

Before Hipkins tossed them out, proposals for such a tax had been worked up by officials in 2022-23 under the supervision of revenue minister and general tax enthusiast David Parker. His inspiration was, and remains, the celebrated French economist Thomas Piketty, whose central insight is that accumulated wealth typically grows at 4-5% a year (through interest, dividends, rents and so on), rapidly outpacing the 1-2% rate at which wealth grows for workers. The only way to restrain this galloping inequality, Piketty argues, is to tax upper-end wealth directly.

In the 1990s, a dozen European countries had wealth taxes, though most had been so riddled with exemptions – for farms, family businesses and so on – that they earned little revenue and were easily abolished. That said, countries like Switzerland and Spain still have them, as do various Latin American states. Closer to home, the Greens have advocated a wealth tax since 2020. (Before that, they were CGT fans.)

Wealth taxes get their revenues from the wealthiest 1%. Under a CGT, by contrast, that 1% can afford not to sell their assets, and can then pass them on tax-free to their children. (To avoid that problem, a CGT would have to be buttressed, further down the line, with an inheritance tax.) 

A wealth tax would generate its estimated $4bn instantly – one major advantage compared to a CGT. It does, though, involve greater complexity. Every major asset has to be valued annually, which for family businesses can be especially challenging. Critics argue it would also cause the wealthy to flee overseas; although the Treasury has estimated that just 3% of New Zealand’s wealth would be lost, this would remain a politically potent line of attack.

The tax also potentially creates problems for people with large assets but no immediate cash-flow from which to pay the levy: think farmers hit by Cyclone Gabrielle, or the owners of highly valued startup companies. There are technical fixes for these issues, but they are not always easy to explain, or popular.

Nor, necessarily, is the tax itself, which lacks the simple “income is income” justification of the CGT. Parker sometimes describes the wealth tax as a “capital income tax”, as it effectively assumes that – following Piketty – the rich are generating income worth 4-5% of their wealth every year, and the 1% annual levy is, in essence, a 20-25% tax on that income. Whether the public would find that compelling – or even comprehensible – is another question.

And as it stands, a wealth tax sounds like the more confrontational, more radical option. If businesspeople as a whole remain ambivalent about a CGT, they positively hate a wealth tax. (This is a good or bad thing, depending on one’s point of view.) Comms-wise, advocates point to positive polling and the fact that 99% of people wouldn’t pay it. Critics say the polling numbers collapse once the public understands what the tax actually involves.

A subplot: switch or no switch?

One potential selling point of the wealth tax is that its $4bn revenue could be used to slash income tax rates for ordinary New Zealanders. This would, though, leave Labour without extra revenue for a thousand other things, notably health and education. That could be generated via other levies, but whether the party wants to enter 2026 with a panoply of tax options is debatable.

One final option: do nothing

Wending its way through the party’s labyrinthine internal process, the debate over tax will continue at least into next year. The party could, of course, dodge the issue by campaigning in 2026 on no new taxes. But this would run into serious political problems. Internally, many party members are furious about the tax climb-downs of recent years, and a do-nothing stance may no longer be tenable. Externally, the party would face the same problem as with the tax switch: no extra revenue for public services. Labour would, in essence, have to campaign on spending the same amount of money as National but doing it better – something that, given the now-entrenched perception of its incompetence in office, is likely to be a hard sell.

One final caution: the cake, not the recipe

Although for some activists, a tax is an end in itself, that is not how the general public sees it. According to pollsters, ordinary people worry about – and want more funds for – health and education. They do not often think about tax in the abstract, or necessarily even connect it with public services. Talking too much about tax, rather than the services it funds, runs the risk of trying to sell people a recipe for a cake rather than the cake itself.

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.