How did the wealthiest 300 Kiwi families each make $50 million in 2021 when our economy busted?

The Inland Revenue Department's "High Wealth Individuals Research Report" states that "The Project population’s annual economic income varied over the Project period from $1 billion in 2017 to $14.6 billion 2021". Hold on. It was 2017 when Labour came to power and between that year and March 2021 the economic income of the wealthiest 300 families rose 15 times. Most remarkably, each family made $50 million, on average, over a period of time during which Stats NZ says "Average annual GDP declined 2.3 percent". I doubt there is any other five year period in our history in which that has ever happened.

The IRD defines economic income as: "the sum of annual net income (base income); realized capital gains; accrued capital gains (for assets not sold); non-taxed distributions from companies & trading trusts; Trustee taxable income (& capital gains on assets in trusts); Taxable income of land-rich entities (this replaces distributions from those entities & is in addition to capital gains on real property) & Imputed rental on owner-occupied housing".

The IRD report confirms that during the 2021 financial year, Labour presided over what appears to be the biggest ever rise in inequality in our history - at least between the top 0.001% & the rest. What was the reason? My hunch is that it was a combination of the poorly designed wage subsidy scheme & Reserve Bank's $50 billion money printing program.

How much was paid in wage subsidy in the year ended March 2021? The Auditor General states: "Between March & December 2020, the Government paid businesses more than $13 billion through the Wage Subsidy Scheme as part of its response to Covid-19". I have no issue with the wealthiest 300 families in NZ and don't believe any more capital & wealth taxes should be introduced than we already have. However, the way our Finance Minister structured the wage subsidy scheme meant it was a gift of public money to large firms. The scheme only had to add a clause like, "should the firm receiving these funds report a profit at the end of the year not materially different from last year's, then these funds must be refunded", for the taxpayer to have been saved $15 billion.

The upshot is that David Parker's IRD "High Wealth Individuals" report's main finding has little to do with the desirability or otherwise of capital taxes - indeed the report does not say a thing about the optimality of our tax system. Instead it stands as official confirmation that our Labour government - a government that stood for equity more than anything else - has delivered more unequal and divided outcomes than any other before it.

Sources:

https://oag.parliament.nz/2021/wage-subsidy/overview.htm

https://www.stats.govt.nz/information-releases/gross-domestic-product-march-2021-quarter#:~:text=Economic%20activity%2C%20as%20measured%20by,in%20the%20December%202020%20quarter.

https://www.ird.govt.nz/-/media/project/ir/home/documents/about-us/high-wealth-research-project/hwi-research-project/final-report-april-2023/report-high-wealth-individuals-research-project.pdf?modified=20230423203807

The biggest issue of Election 2023 will not be debated (since both Nats & Labour have no answer)

Both our major parties agree that the single biggest issue in this election will be the cost-of-living, as predicted by DownToEarth Kiwi back in 2021, way before National & Labour woke up to the fact (when we ran a headline, "The Next Election will be a Cost-of-Living Election). Surveys now show voters' number one concern is cost-of-living.

So what plans do National & Labour have to reduce the cost-of-living? Take a look at their websites. Labour want to address such issues by increasing benefits; National want to by cutting taxes (though not by much). Both parties want to take cash out of one person's pocket and put it in anothers so they can better "afford" to pay a bill. Yet those bills will still be the same size. Neither party has a plan to reduce the cost, nor price, of anything.

The remarkable feature of both parties "policies" is no mention of how they will increase competition & choice. Yet it is competition & choice that drive prices lower & increase quality. We face lack of competition in domestic air travel where Air NZ dominates, construction where Fletchers dominates, food where the two supermarket chains dominate and banking where the Big Banks dominate (aided by Big Media, which gives their Chief Economists a daily platform to advertise by letting them gabble on about nothing).

In the public sector, the same problem exists. The Education Department, under Hipkins "leadership", didn't want Charter Schools competing with State schools to enhance competition & choice. In health-care, private providers are not able to compete alongside public ones, without you having to pay out of your own pocket for the former. However, other nations have designed systems to allow choice & competition between public & private providers, so you can choose where to go, with the bill covered by social insurance.

However neither Labour nor National have anything useful to say on these issues of competition & choice that lie at the foundation of our cost-of-living problems & falling quality of public-sector services. In this sense, listening to the election debates between our two big party leaders will be a waste of time. By the way, what does the White House have to say about competition? Something not to be found anywhere on the Kiwi Labour & National Party websites, namely:

"Healthy market competition is fundamental to a well-functioning U.S. economy. Basic economic theory demonstrates that when firms have to compete for customers, it leads to lower prices, higher quality goods & services, greater variety & more innovation .. When there is insufficient competition, dominant firms can use their market power to charge higher prices, offer decreased quality & block potential competitors from entering the market - meaning entrepreneurs & small businesses cannot participate on a level playing field & new ideas cannot become new goods & services.

Research has also connected market power to inequality. In an economy without adequate competition, prices & corporate profits rise, while workers’ wages decrease. This means large corporations & their shareholders gain wealth, while consumers & workers pay the cost. The pandemic has further underscored the dangers of an economy that depends on a few companies for essentials, exemplified by the supply chain problems we face when a small handful of corporations creates bottlenecks for a critical product".

What is the moral of the story? A vote for either National or Labour will not lower the cost of living in NZ. Our two party duopoly has become the counterpart of the oligopolies that exist across a swathe of our economy and which are even being protected by those two parties.

Sources:

https://www.downtoearth.kiwi/blog/search/cost%20of%20living%20election

https://www.whitehouse.gov/cea/written-materials/2021/07/09/the-importance-of-competition-for-the-american-economy/#:~:text=Healthy%20market%20competition,improve%20working%20conditions.