An American Dream

Spend tax cut or give it to the needy: PM

John Key wants people who don't need to spend their upcoming tax cuts to donate them to charity, a step he hopes will help develop an American-style culture of giving.

The next round of tax cuts, due in a fortnight, will give workers on $45,000 an extra $11.54 a week in the hand and those earning $100,000 about $24.

Speaking at a Philanthropy New Zealand conference yesterday, Mr Key said those who "can't bring themselves to spend their tax cuts" should give the money to a charity rather than save it.

Key's call for the middle classes who don't need their tax cut marks yet another populist measure to appeal to both sides of the political spectrum at once. Targeted to the audience of philanthropists he was addressing, this statement is carefully cultivated grandstanding and yet another attempt to align his style of Government with that of the broader "change" going on in America.

As Alliance spokesperson Victor Billot highlights, perhaps America is not really the best example of a culture of giving to draw from at the moment. The United States is a society of vast inequalities and Billot's criticism that perhaps Key didn't "step out of his gated community" hit the nail on the head for the illusion of equality we are being sold. The thing that is perhaps most etched in my memory from my travels there is the level of poverty - entire streets of tent cities in downtown Los Angeles, crack deals being conducted by homeless people outside the gated barrier of my friend's house on Sunset Boulevard by the homeless, elderly people in the supermarket who couldn't afford bread and milk, pavement communities in San Francisco, teenagers sitting on the side of the road with signs saying "please I need food". This was before the economic crisis really kicked in - I can't imagine what it is like for many of the people living in carpark buildings for security overnight. As many Americans told me, the US solution for poverty under the Bush administration was to move people along - just look at the 35 municipalities that introduced anti-vagrancy measures to get rid of the homeless. (A scheme National's Nikki Kaye has also proposed as favourable for Auckland in her ALT TV stand off with Judith Tizard).

Private giving through philanthropic institutions has done little in the US to solve the growing divide between rich and poor. The corporate environment cultivated in the United States has led to the concentration of wealth in very few hands. As the World Bank's 2001 Development Report detailed, out of the 100 wealthiest financial institutions in the world, 51 were corporations and only 49 countries. In 1998, the wealthiest three Americans had more wealth than 48 developing nations; Microsoft CEO Bill Gates had more wealth than 45% of the US population (Wines, 2006 :331). In 2001, the top 1% of households owned 33.4% of US privately held wealth, the bottom 80% only 16%. As William Wines points out, this means that if one graphed the income of Americans, they would not reach the average wealth until the 80th percentile - 80% of Americans earn less than the average net worth (Wines, 2006: 331). The evidence suggests that this trend is only growing worse.

This is utter and total faff and Key knows it - trying to compensate for his rationale of giving the highest tax cuts to people earning over $100,000 by looking to an American model of philanthropy is outrageous. The American model is increasingly under fire, even by top economists. Take Yale Professor of Economics Robert Shiller's call to democratise finance by regulating it in the same way as medical professionals for an example. When I was in the States there was a genuine sense of anger over the lack of adequate provisions for healthcare and mental health services, a lack that was encouraged by their model of trickle-down wealth. If there is one lesson we should learn from America it is this: if you cater for the top 1% of the population all the time, the system eventually falls over.

We can't vest the health and well-being of the majority of New Zealanders in the generosity of the wealthy. The statistics from the American model prove that this is a very inefficient way of supporting our people - in fact, it actually increases the gaps in wealth distribution. The problem with putting the highest tax cuts to the middle classes is that they tend to save this money, not pass it on (as seen in Bush's failed stimulus package prior to the crisis). Key's call to the Philanthropy New Zealand Conference does little to bolster the weak policy that they have brought in to protect the Kiwi jobless. As Gordon Campbell has highlighted, the Government's transition package is inadequate for many who are trying to keep their homes. Moreover, the nine-day fortnight only applies to a minority of workers and the fast-tracking of previously planned infrastructure projects is simply not enough to create the level of employment needed. The rhetoric is hollow if there are not the measures there to support it, and Key needs to follow up populist claims such as these with some real policies.