Steady state economy – jobs for a postgrowth economy

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At the Values Party 40th reunion in late 2012 there was concern that 40 years had passed but in that time the environment had deteriorated and the gap between rich and poor was growing. We said “Have we asked the right questions?” I believe the environmental parties have to date omitted to have a policy on money and omitted to address tax reform properly.

Every year there is a conference called the World Economic Forum Global Risks. In 2013 one academic is quoted as saying “A crisis in one area will quickly lead to a crisis in another. Attempts at managing them are fragmented and simplistic and are not up to the challenge.” They describe us as being hyperconnected nowadays. It is a closed global system. They say we are at a unique point in history.

Tullet Prebon The Perfect Storm by Tim Morgan is saying we have reached the end of growth. So does Richard Heinberg. And things in the finance world are precarious with the biggest debt bubble in history yet to unwind. The GFC according to Nicole Foss was just a rehearsal.

What happens in Greece affects the whole of Europe and affects America. Financial contagion spreads. Rapidly. And it only takes a few hours for a bank to collapse. You could wake up in the morning and now know a thing about it till you turn on your radio.

Here is a Bromhead cartoon. Politicians are always reminding each other that there was a Global Financial Crisis over which they had no control. It landed in the chamber with no warning. Of course economists like Michael Hudson, Steve Keen, Fred Harrison warned years before because they were watching private debt and house prices.

We now talk not of the 1% but of the 1% of the 1%. In NZ. New Zealand is now in the top four in the world for income disparity with USA, Portugal and UK (R Wilkinson and K Pickett, The Spirit Level. See also Born for Love: Why Empathy is Essential and Endangered Maia Szalavitz and Bruce Perry )

Inequality makes everyone unhappy, whether rich or poor. Both the tax system and the money system contribute to growing inequality. They both transfer money from the poor to the rich.

In the middle we have the banks and their relationship to government. They say to Government they don’t want a land tax “You tax labour instead”. On the left we have property, which really consists of unimproved land plus houses and other improvements. The banks love the security of land to back their loans, which they create out of nothing. They are not intermediaries at all. The bank writes the loan first. On the right we have the people and the economy. When you tax labour, sales and enterprise, the people have less purchasing power. Wages don’t go as far. With everything we buy we pay GST, workers pay income tax and companies pay company tax. It suits the banks nicely this system as they gain on rising land prices. They can control the money supply because they create, in our case, 98.5% of the credit we use. Only 1.5% is notes and coins the rest is created as interest bearing debt every time a bank makes a loan. Almost all money is debt money.

Once you get on the property ladder, you can keep borrowing more to buy more property. As the price of land rises, you feel richer. This is a house just north of Auckland, which I found on Trademe.

Now this slide is important. Here is the site, which is serviced by government, local government, organisations, nature and by local businesses. Take a site near a park in Epsom, Auckland. Its park is maintained by a public body, it is near Newmarket and the CBD, it has all the clubs and associations people need around them. Perhaps most desirable from the point of real estate agent selling it is that it is in the elite school zones of EGGS, Remuera Intermediate, Auckland Grammar etc. All these services give value to the site.

Workers and bosses are fighting in a ring held by the landlords. The caption is They are fighting the wrong person. On the right. The tax system of today binds the people. Anyone who tries to run a small business spends a lot of time doing GST returns, and a range of other taxes. They have a justifiable gripe. The tax system should be simpler and make it easy for entrepreneurs.

I have been in the Transition Town movement and we have said that we will ignore central government and just work to make our town more sustainable as the energy cliff approaches. But more and more I have realised that central government is critical because it designs the tax system, the welfare system and allows banks to create the money. There isn’t much awareness among politicians that most of our money is created by banks as interest bearing debt. So there is plenty of oblivion there still. However this is such a critical part of the whole socio-economic structure it can not be ignored.

Strictly government creates the notes and coins as indestructible money. The rest is created as interest bearing debt by private banks. This is the most destructive and dangerous design for creating a country’s means of exchange. Look at the awful consequences. It causes everyone to compete to get the interest to pay back their debt. It causes growing debt because when a loan is paid back the bank needs to lend out even more for the economy to grow and the system to work without collapsing. Wealth is constantly being transferred from net debtors to net creditors, the whole system is unstable because every now and then when the growth of credit stops accelerating , there is a huge bust, a housing collapse. The fact that the money supply (money plus credit) must keep growing means the economy has to keep growing. The consequences are destruction of our habitat. The worst manifestation is during decisions on measures to address climate change, as politicians argue that economic growth must predominate over the habitat.

The middle grey line is the M3 or the measure of the total money and credit in the New Zealand economy. This is from 1998 to 2012. The bold line is inflation and the dotted line at the bottom is the notes and coins, which are only 1.5% of the total now. The money supply is mostly credit issued by banks for mortgages and business loans. The exponential growth is not possible on a finite planet.

For 50 years we have had a system requiring the growth of GDP. Here is theWorld Trade Organisation consoling two parents of a dead child. “Let’s not say he died.. He gave his life that the global economy might grow.”

It is always best to get a quote from the mouths of bankers themselves, in this case the Rothschild family. Nathan Rothschild is saying that when you control the money supply of Britain, you control the British empire. His brother Mayer Amschel Rothschild said something similar.. “Permit to issue and control the money of a nation, and I care not who makes its laws. And Michael Kumhof, IMF economist and former Barclays Bank manager says the key function of banks is to create money. They can do it whenever they want.

The investment banks of the world are now the most powerful, too big to fail and too big to jail. Investment bankers influence governments as the CEO of a bank might move into a position as head of Treasury. Campaign donations, bailouts. No one has gone to jail over the Global Financial Crisis. Derivatives (which now total $659 trillion or ten times the global economy) were at the heart of the GFC and all banks including the Australian banks, are involved. Morgan Stanley, Citibank, JP Morgan, UBS, Deutschebank. “Financial journalist Adele Ferguson said on Feb 18, 2008. “Even if 1% of these contracts default because third parties get into trouble, the whole shareholder wealth would be wiped out and our banks could be broke”

Any architect or builder will tell you if a house is too rotten or old or badly constructed, it is better to start again. As a Canterbury homeowner might say of their home, the economy is “mega munted”. Best to start again.

Greetings from the new economy. You will see here farmers markets, cooperatives, renewable energy and so on. This slideshow is just about one part of our policy.

Well many commentators like Nicole Foss have said that the Global Financial Crisis was just a rehearsal, and the huge debt bubble has much further to unwind. So resilience in a financial crisis is in itself sufficient reason for currency reform. The change in behaviour from competitiveness to cooperation is something Bernard Lietaer talks about. But the third one is also critical if we are going to build a viable and thriving post fossil fuel economy. And that means tax reform associated with the currency. In the next slides you will see how we set the conditions for this to happen.

Innovation and investment is at the heart of any dynamic and developing economy. We continue to use fossil fuels because they underpin the macro-economic power structure - we have many superior energy technologies which have been suppressed - over 5000 patents bought up by big oil.

This means the land, water, fish, and minerals. Those who occupy the best land or have control of the best natural resources should compensate the rest of the people for the privilege of that monopoly use. And currency is part of the commons. Our party wants to reclaim the commons of land and money.

Land and money are really inseparable. But the banks have their grip on the land through their mortgages. We need to deprive them of this link.

The unburdening of money can be done by untaxing labour and sales and taxing the monopoly use of the commons. No income tax, no GST and no company tax, but tax on the use of what is provided by nature. This is the best tax system to get money flowing into production.

We are all concerned about the huge unearned profits to be made from land speculation. Both Labour and the Greens have a Capital Gains Tax in their policy, but it is a very weak version they are proposing. It is better for the public to reap the gains year by year, not wait till the land is sold.

The 1% have their wealth in the form of land, whether it is in shares or not. Most corporates like McDonalds have huge proportion of their assets in land. And land prices keep rising, so their assets keep rising. Those who have shares in the multinationals always win because the price of land keeps rising.

As soon as possible this revenue should be shared with the people. It might be a small Citizens Dividend for a start, but the next time it is issued it will rise, and then again. This gradually reforms the welfare mess and gets away from income tested benefits and messy schemes like Working for Families.

The period might be say two years from the time Treasury buys the land. This has an effect in that the Tax Credits will circulate smoothly but steadily until the time they are due for redemption for taxes. They can go out of the country but they need to be back in by the stated date. But the key to this whole thing is that the trades using these credits will be free of tax.

The revenue received in land rates will be shared between central government and the particular local authority where they land was situated. No more rates are payable on that land either. So this is the beginning of a major change in the way that local authorities are funded. The proportion has yet to be decided.

You might think of an overseas trip or think of buying a new property. But remember you still have to pay your land rates every year. Would that work?

Well I am going to have to pay a good sized land rent on the property from now on so I can plan to turn my windfall into an investment which brings me income. After all remember trades in the Tradeable Tax Credits follow special rules and I am waking up to the exciting possibilities...

Remember the campaign to divest from fossil fuels is getting stronger by athe year and no one can be sure of the future of investments. 10% of the NZ Super Fund is invested in fossil fuels.

Yes those are the three wise men. We think that prudent people would pay their taxes in advance because of the lead-in time necessary to make a profit from wise spending. Maybe they would pay 2-3 years tax ahead of time.

The circulation of tradeable tax credits will stimulate import substitution manufacturing. Maybe the wool insulation business would thrive, natural paint manufacturing and a whole raft of other businesses using New Zealand sourced materials and labour.

Coal, fish, oil, use of the biosphere in pollution, water for irrigation. All need to be taxed at source.

Tax credits are issued at par and redeemed at par. What happens in between depends on the sentiment of the market. They might drop just after they are issued because people won’t trust them. Then they might rise when the first Citizens Dividend is distributed, and keep rising till above the dollar, then drop to the par on the date they are due.

Land in the very centre of a big city will bring the biggest land rates, where you can build high. Land in small towns and in rural areas will bring the lowest land rates per hectare. Land in the QE Trust, or with other covenants or restrictions on it will attract lower land rates. Land under historic buildings or for conservation purposes is already serving a public purpose so will attract lower land rates.

Yes the tax credits are spent into existence, not lent into existence with interest. And we have used Treasury. We have taxed land and resources and untaxed labour, sales and enterprise.

In any price of any goods, take off GST, then take off the interest built in, then take off the allowance for income tax and company tax and you will be surprised how much prices drop.

The Productivity Commission said land prices now comprise 60% of an Auckland property. So the price of an Auckland home would drop by 60%. The property owner when selling would just get the price of the house, but not lose anything. In smaller towns the land value may be as low as 30% of the property value so it would drop less. However unlike the present rating system in most councils, there are now no penalties for improving your house or your rural land.

The Land Rates Index would be started by working out the land rates for a sample of properties in a wide area and setting that base level at 100. The next year it might be 100.5. The arrival of infrastructure will affect the index. If a railway line was extended to the district the index would rise. The index would also rise if a significant business came (in 1986 the fast ferry came to Waiheke Island and the property prices rose). It would also drop to zero if an earthquake rendered the land red zone.

Yes when in the central Middle Ages 1140-1290 there was a money system with a circulation imperative and no other taxes were imposed but land tax, the investment in maintaining houses, waterwheels, wine presses and in building was huge. This was the period where ordinary people built the huge cathedrals as cathedrals attracted pilgrims and that brought revenue to the town.

This is the Milan cathedral, one of the most famous in Europe.

The key thing is that the scheme is voluntary. Each hapu and whanau will have its stories.

We made it voluntary because you want to introduce the tax credits gradually into the economy so as not to shock it. All of these reforms (monetary reform, tax reform and welfare reform) would shock the economy is introduced and we have suggested a slow introduction. But what about those whose land is compulsorily bought? For those who own land but don’t pay tax here, the scheme is compulsory. That includes family trusts and businesses whatever the entity. And the mortgage free are most likely to opt in, especially if their property lends itself to further development. Established land trusts will probably opt in and spend the windfall investing in their low carbon footprint businesses.

Kiwibank, Co-operative Bank, TSB, Southland Savings Bank. Anyone with mortgages from these banks could probably cash in their tax credits to pay off their mortgage. But the big battle will be with the Australian owned banks who will fight it tooth and nail.

Two currencies have existed in China but it was illegal to trade them so it was hard for tourists. But again the key thing is that there is tax reform associated with the tax credits.

I have touched on the greater affordability issue. New businesses that are not dependent on fossil fuels will thrive. For decades we have been talking about clean green businesses but Clean Tech Centres haven’t yet really flourished and their businesses struggle for finance. (Remember banks lend on fossil fuel extraction projects, real estate and on company mergers but are reluctant to lend for small businesses) In fact there is only one left in New Zealand, the Otaki Clean Tech Centre, whose logo is up here. The potential for jobs from this sector is huge.

Just think. All that business of hiding money in tax havens like the Cook Islands won’t be possible any more as you can’t hide land or resources that come from the land. And the IRD won’t have to deal with all the tax deductions and complications and parity issues when it comes to Tradeable Tax Credits. And income support schemes like Working for Families will eventually be unnecessary.

Top left is a lone koala after deforestation in Australia. Bottom left is the Wellington south coast after a freak storm in 2013, and the polar bear is threatened with the melting of Arctic ice. The reform we propose needs to happen in every country to reverse all the bad trends in the environment. It is going to take a while.