Deaths of despair – Our youth are paying a high price for poverty and unemployment
Trigger Warning -This article contains material regarding suicide and mental health, that you may find disturbing.
“Every Life Matters… there is one goal at the core.
One death by suicide is too many. Every Life Matters”
David Clarke, Health Minister, introducing Suicide Prevention Strategy NZ 2019-2029- Every Life Matters
Coming home, seeing your son or daughter has taken their own life. There is nothing that can prepare you for the shock. The grief, the guilt, life will never be the same. Darkness, depression. Strained relationships.
He was out of school for the best part of two years, despondent at not finding work, a stream of rejections, unsuccessful interviews. Money was tight since his father lost permanent employment. Work has been insecure since. The welfare benefits left little money on the table, if any, after paying rising rent and other essential expenses. It’s been tough.
New Zealand’s youth suicide rate is the highest in the developed world.
New Zealand’s economy started declining in the late 1960s when wool prices dropped. Then Great Britain, by far our largest trading partner, entered the European Common Market in 1973. EC agricultural subsidies meant access to lower-priced beef, lamb and dairy from Europe. This was followed by the OPEC oil price hike. Think Big policies by the Muldoon government failed to arrest the economic decline.
“For people who don’t want the government in their lives … this [Rogernomics] has been a bonanza. For people who are disabled, limited, resourceless, uneducated, it has been a tragedy.” –David Lange, New Zealand Prime Minister (1984–89), 1996
The Labour government came into power mid-1984, amid a deep economic crisis. Roger Douglas, Finance Minister and chief architect of the economic reforms argued “Speed was enormously important to the change, are government departments necessary? Are they doing the job? Can they be trimmed? Be ruthless with the answers.” It was a blitzkrieg—shock therapy. Ideology driving change, whereas, in Australia, a far more measured and consultative approach was taken by the Hawke-Keating government.
Layoffs were massive in government departments and state-owned corporations – the postal service, telecommunications, state-owned banks, coal mines. Privatisations, the country’s family silver sold in depths of a recession at rock bottom prices, often to foreign corporations. Farmers went bankrupt, losing farms in their families for generations.
John Patterson of the Social Impact Unit visited those affected in Ohai. State Coal Mines had turned into Coal Corp overnight. “They started by closing two mines and sacking the men who worked there.” The last union meeting was finishing, and the miners were signing on to the unemployment benefit. All the men were there, but where were the women? The district nurse told Patterson that they were at home crying.
All the men were there, but where were the women? The district nurse told Patterson that they were at home crying.
Many who lost jobs invested their redundancy money and superannuation in the stock market; lost it in the market crash of 1987.
Unemployment was between 40 and 50% in South Auckland, many rural towns fared even worse, 80% in some areas. The young could find no jobs. Poverty rates soared.
Teen suicides doubled over the next five years. Youth suicides rose by 80%.
Ruth Richardson, the Finance Minister of the National government that followed slashed unemployment and other welfare benefits, in her infamous ‘Mother of all budgets’. The irrational belief was if the unemployed were desperate, jobs would miraculously appear.
The Employment Contracts legislation of 1991 weakened the bargaining power of unions. A cynical proclamation that a jobseeker can negotiate on equal terms with an employer. Or that terminations would be fair without union protection.
It made no sense that we made it easier to terminate staff while slashing unemployment benefits at the same time. Reducing taxes for the wealthy while at the same time cutting funding for essential services for those most vulnerable. A government for the people became one for just some of the people.
It made no sense that we made it easier to terminate staff while slashing unemployment benefits at the same time.
Globalisation over the following decades saw higher-paid, stable manufacturing jobs move overseas, replaced by more insecure lower paid jobs in the service sector.
The pre-Rogernomics youth suicide rate was lower than the current OECD average. The teenage suicide rate for teenagers increased by 100% during the period 1986 to 1990 compared to the previous five year period, 67% for the age-group 20-24 and 40% for 25-29-year-olds.
Teen suicide rate kept climbing, except in the decade 2001 to 2010. The teen male suicide rate is now 82% higher than the pre-Rogernomics period, for teen females, it is a staggering 6 times higher, a rise of 620%. The youth suicide rate is still 60% higher than the pre-1985 rate. It’s unclear why the female teen and youth suicides have risen steeply than male.
Racial differences are stark. Teen suicide rates for Maori are over 3 times the rate of European and Pacifica island more than 2 times. The teen suicide rate for Maori females is nearly 5 times that of non-Maori.
The teen suicide rate for Maori females is nearly 5 times that of non-Maori.
Statistics for attempted suicides for Maori are similar to European, while suicide rates are much higher for Maori and Pacifica. The health system and society are less successful in protecting Maori, Pacifica even once the peril is evident.
International comparisons are even starker. Our male youth are dying at five times the rate in Australia, the females two times.
Our male youth are dying at five times the rate of Australians.
“My theory is – we don’t really go that far into other people, even when we think we do. We hardly ever go in and bring them out. We just stand at the jaws of the cave, and strike a match, quickly as if anybody’s there.” ― Martin Amis, A Suicide Note
The youth suicide rate in the most deprived areas is nearly four times that of the most affluent.
The unemployed are dying at over twelve times the rate of the rest of the working-age population.
The unemployed are dying at over 12 times the rate of the working-age population.
Our unemployment benefits at 34% of previous income are one of the lowest in the OECD, 38th out of 41 countries, just half of the OECD average. It is easy to imagine the shock of an overnight income drop of 66%, on top of losing one’s livelihood, especially for people with little savings and low disposable income. It’s easy to imagine the stresses in coping with this much drop in one’s income.
Our unemployment benefits at 34% of previous income are one of the lowest in the OECD, just half of the OECD average.
The Labour party promised transformational change coming into power in 2017. They have stopped mentioning the word ‘transformation’. The problem of low core benefits remains unresolved. Welfare is a political issue. Beneficiaries are victims of politics, the ‘dole bludger’ label has meant increasing benefit levels is unpopular.
“You have Scandinavian ambitions in terms of quality of life and public services, but a US attitude to tax.” – Laura Clarke, British High Commissioner to New Zealand, 2020
Changes to our tax system since 1985 and low productivity increases have meant a massive transfer of wealth to those on high incomes. The size of the pie hasn’t increased, just the share for the wealthy. We are one of the very few countries in the world with no capital gains tax and tax income from the first dollar earned. High housing costs have further diminished disposable income of the poor.
We have successfully reduced suicide rates – for those over 55 years. To a level even lower than the pre-Rogernomics era, 36% to 65% lower. Pre-1985 youth suicide rates were much lower than adult rates, just over half of those 45+ years. Now the situation is reversed, youth rate is approximately 60% higher, and it’s worse for the teens. The baby boomers have benefited most by the wealth transfer post-Rogernomics and the property boom.
We have successfully reduced suicide rates – for those over 55 years, now 36% to 65% lower than even pre-Rogernomics era.
Each life lost to suicide has a combined loss of contribution to society, the economy and the individual’s family of $3.4 Million as per the Auditor General. The cost for last year’s 685 lives was approximately $2.2 Billion or 1% of our GDP. This doesn’t include the cost of attempted suicides.
New Zealand doesn’t track suicide statistics by cause. We have no idea if it is depression or drugs, whether it’s sexual abuse or lack of social support. Or a combination of factors which carries a much greater risk. Nor does it track numbers of suicides with prior attempts. Our Chief Coroner releases provisional figures annually. However, final numbers and detailed statistics by the Ministry of Health follow three years later, of little use to evaluate the success of any prevention strategy.
A dedicated Suicide Prevention Commissioner was appointed in 2019, and an Office for Suicide Prevention established. A new Suicide Prevention Strategy for the period 2019-2029, “Every Life Matters” followed. The government has allocated significant funding for mental health and resources, signalled that reducing suicides is a high priority. While the new plan mentions stable employment and access to secure housing as two of the protective factors for suicide, it doesn’t mention any action to improve these areas.
The suicide prevention strategy for Australia touches on training for frontline employees in non-health areas such as social services, income support, employment and the courts’ system. It also emphasises the need to create awareness and training for employees on the other side of the fence, especially those working in employment support settings for referrals and improving employability.
Most suicide prevention strategies are driven by the Health sector, and focus on healthcare, not the broader economic issues that impact suicides.
Most suicide prevention strategies focus on healthcare, not the broader economic issues that impact suicides.
Are we throwing money someway down the cliff? Ignoring a vital part of the picture? Why does a Zero Suicide strategy only target a 20% reduction by 2030? Will this government be bold enough to address our benefits system? Is transformational change a mirage?
Will our young and the poor keep paying with their lives for an economic system that fails them?
Note – Suicide Prevention office and the Ministry of Health was contacted for this article, and no response received.
Where to get help:Lifeline: 0800 543 354 Suicide Crisis Helpline: 0508 828 865 / 0508 TAUTOKO (24/7). This is a service for people who may be thinking about suicide, or those concerned about family or friends. Depression Helpline: 0800 111 757 (24/7) Samaritans: 0800 726 666 Youthline: 0800 376 633 (24/7) or free text 234 (8am-12am), or email email@example.com
Mitigating climate change and adapting to a warmer world
“We do not inherit the earth from our ancestors. We borrow it from our children.”
– Native American Proverb
New Zealand is the 5th highest emitter, per capita among the OECD countries, due to our reliance on primary industry exports. Not where we want to be with our clean, green reputation. Methane and Nitrous Oxide, which are farm-based, comprises 55% of our Greenhouse Gas (GHG) emissions.
The long shadows of climate change are already here. Australian bushfires last year covered an area as large as Great Britain. The images of the blazes dominated our TV screens, vivid pictures of dying koalas and flaming bush. The fires burned for months, beyond human fire fighting capabilities, we just had to let them burn out. The fire season in 2019 started in the middle of the winter in the southern hemisphere. In California, bushfires are an annual occurrence. Still, the fires of 2020 are the largest ever, sparked by lightning strikes on a tinder-dry bush. Cities of Chennai in India and Johannesburg literally ran out of water.
The arctic ice shelf is melting faster than ever, many fear the decline is irreversible. Antarctic ice is melting. Not exactly good news for rest of us that Siberia is enjoying longer crop seasons and their ships can ply ice-free waters for longer.
In New Zealand last year was the hottest on record. The drought that hit Northland was one of the worst. Water restrictions for a city as wet as Auckland seem surreal.
Our temperate climate means we will be less affected than countries like Australia or the Pacific islands. The severity of impact depends very much on the strength of global efforts and ours. Modelling can only give us an indication or a range of outcomes for what the future holds.
We already have frequent droughts, especially in Northland, Hawkes Bay and Canterbury, these are likely to spread and become more severe. Lower rainfall will affect freshwater sources and impact on irrigation for our farms, threaten exports and food security. Forestry is another area where effects of higher temperature are uncertain, as it is with wines. While some vineyards can move to colder regions, wines are sensitive to the soil, humidity, etc., may not find ideal conditions elsewhere. We could benefit from the addition of crop varieties which thrive in warmer climates and higher production from the likes of wheat.
Our primarily hydro based electricity generation will reduce in the North Island. However, South Island is likely to benefit with more melting of snow and ice. Ski seasons will be shorter, impact our winter tourism, although we might see a displacement from Australian ski fields.
More frequent and extensive bushfires will threaten residential areas. Coastal erosion, flooding and sea level rises threaten coastal housing, roads, rail lines, the attractiveness of beaches.
Biosecurity risks will increase with uncertain effects due to the interlinked nature of the ecosystems. The cooling cost will be higher in summer, heating cost lower in winter.
There will be a disproportionate impact on Maori/ Pacific due to over-representation in primary industries and fewer resources to mitigate the effects of climate change. The elderly will experience more heat-related health issues.
Insurance costs will increase, and we might have to fund a govt scheme as we have for earthquake insurance. We will need financing for climate adaptation and mitigation costs.
Indirect effects of Climate Change have the potential to affect us on many fronts. Meat-less movement could lower beef and lamb consumption in key markets with some relief from growth in fast-developing economies like China and potentially higher prices. Tourism could be affected by the likes of ‘No-fly’ movement and especially from long- haul destinations.
We could see climate refugees from the low-lying Pacific island nations and costs to lend a hand with their climate adaptation efforts.
Threats for New Zealand were detailed in the IPCC report of 2014 on regional risks and the National Climate Risk Assessment released by the Ministry for Environment in August 2020.
There are three broad pillars of climate action necessary to decrease carbon emissions and limit the temperature rise.
decarbonising the electricity system and reducing farm based emissions
Methane and Nitrous Oxide Emissions
The most important and the most challenging issue for New Zealand is reducing farm-based emissions. Methane, which is mainly emitted by our cows, lamb and nitrous oxide, is primarily emitted by nitrogen-based fertiliser. The methane is emitted by insects which reside in cattle and lamb, not by the animals themselves. (Release of Methane is by cows burping not farting!).
The answer lies in better farming practices and technology. The government is funding research into a scientific solution, primarily targeted at feed additives. The solutions can lie in oils and fats, natural supplements like seaweed and tannin or synthetic chemicals.
Electricity generation from wind and solar now costs less than fossil fuel energy. Costs are likely to decrease further as we scale up the use of renewables, and technology keeps improving. We already generate 80% of our electricity from renewables due to our traditional hydropower base.
Stability of renewable power is still an issue. Solar generation stops at dusk and wind could stop blowing anytime (although this is less likely with offshore wind turbines). The government is investigating pumped hydro to stabilise the supply of electricity. We may require fossil fuel power as a backup.
The target date for 100% renewable electricity is now 2030.
Fuel switching is still at an early stage worldwide; a majority of cars manufactured are still petrol-powered, and we have a vast inventory of these cars. NZ government announced a rebate scheme to encourage changeover to Electric Vehicles (on hold at present), in Norway 31% of vehicles are already EVs. Most of our industries also are powered by fossil fuels and will take some time to replace, due to the long lifespans of plant and machinery.
We have been working on this for a while now, direct cost savings being a great incentive. Energy-efficient cars, buildings, equipment, all have boosted energy efficiency and will continue to improve. Our Energy Conservation Authority (EECA) provides funding to industry for energy efficiency improvements.
Adapting to Climate Change
Research on how our agro-industries can cope better will need to be ramped up. Reducing methane output will be critical. Adapt wines/grapes to a warmer climate. Change crop seasons. Trialling new varieties which might thrive in a more temperate climate. Some farms and forestry can relocate to colder southern areas. Research likely changes in fisheries and quotas.
Water conservation efforts will be needed as well as recycling greywater and rainwater harvesting. Strengthening vulnerable coastal areas with shrubs and rock walls etc. to reduce flood damage.
Relocating seaside homes and infrastructure which we can’t protect, also residences at high risk from bushfires. Bush fire protection measures like back burning during winter will need more attention and fire protection efforts strengthened with more helicopters, workforce etc. Bolstering early warning systems and evacuation plans to cope with increasing and more severe extreme weather events.
We will need heat pumps etc. to cool residences in warmer areas and better insulation, especially for the elderly. Assist those on low incomes, from effects like higher food prices. Review protection for those working outdoor in warmer areas- agriculture, forestry, construction in the summertime. Review government and other institutional structures required for Climate Adaptation. Review finance/insurance to support Climate Change Adaptation
Our pacific island neighbours will need support and funding to implement effective Climate Adaptation strategies. We will need to counter the ‘No-fly’ movement and promote tourism from growth markets, short-haul, and local markets.
The National Climate Adaptation report by the Ministry of Environment is due by 2022.
Climate Action– Slow and steady or just slow?
We have set the base for action. The Zero Carbon Act was passed in November 2019 with bipartisan support. Key targets are to achieve Net Zero emissions except for methane by 2050. Reduce methane emissions by between 24 to 47% by 2050. Setting interim 5 yearly emissions budgets. An Interim Climate Commission set up in 2018 has been formalised upon finalisation of the Zero Carbon Act. The commission has issued reports on agriculture and changeover of electricity generation to renewables.
However, action has so far been slow and baby steps, it’s always harder where the rubber meets the road. The current government banned offshore oil exploration, but not onshore. ACC is planning to reduce high carbon investments –but only to 50% of the current value and only by 2030. Government has abandoned the target to make just the public service fleet electric or hybrid by 2025 been. Action has been much slower and softer than the rhetoric, the urgency required by the words ‘climate emergency’ would suggest.
However, action has been slow and baby steps. The current government banned offshore oil exploration, but not onshore. ACC is planning to reduce high carbon investments –but only to 50% of the current value and only by 2030. Government has abandoned the target to make just the public service fleet electric or hybrid by 2025 been. Action has been much slower and softer than the rhetoric, the urgency required by the words ‘climate emergency’ would suggest.
We need to accelerate the pace of change, move faster if we are to avoid emergencies, disasters and the need for rushed, expensive ambulances at the bottom of cliff solutions.
Climate Change – Possible benefits for New Zealand
Renewables – Almost all the electricity required by New Zealand, including for electric-powered vehicles, will be generated in New Zealand. Saving most of the $10Bn we currently spend every year on importing fossil fuels.
New crops – We might be able to grow food crops that currently grow in warmer climates, increase the production of food crops like wheat.
Extended growing seasons – In colder areas
Ski resorts and tourism – We could see more visitors from Australia, as their ski resorts become less attractive.
Tourism – Tourists who usually go to Australia at hotter times of the year, changing over to New Zealand or increasing time spent here.
How can you help?
Activism! – Slow Climate Action is mainly due to politics and the fossil fuel lobby groups. Help to keep up pressure on politicians and unfriendly climate businesses. What you can do personally helps, but what the government or companies can do, matters a lot more. Protesting or supporting protests is one of the best things we can do.
Clothing and shopping – Shop smart, buy less and use longer. Consider buying pre-loved clothing. Buy environment-friendly and durable where possible.
Food – Eat less beef and lamb, more fish, vegetables/fruit, and chicken. Meatless Mondays or Vegan Wednesdays, it’s good for your health as well. Buy local produce. Waste less by planning your food purchases.
Trees – Plant trees, get involved in community reforestation, coastal protection programs.
Holidays -Take more local or short-haul holidays.
Home – Use power-saving ideas at home. LED bulbs, air-drying clothes, using energy-efficient equipment, shorter showers, running full laundry loads etc. every little bit helps.
Prepare for likely local impacts like flooding and coastal erosion.
The 3 Rs – Reuse, Recycle, Repair.
Transport -Make your next car an EV. Use more public transportation.
Waste – Waste less and use composting. Composting can reduce your food waste by as much as 75% and save on your fertiliser cost.
Work – Encourage and support your employer’s efforts on climate action.
“The cruelty of high inequality countries is to induce starstruck dreams upon their young people, but refuse to fund pathways to get there”
George Lakey, ex Professor for Issues in Social Change, Swarthmore College
The social-democratic economic model.
High taxes, high wage costs, short hours of work, long vacations, even longer maternity leave, free childcare, free college education, extensive social welfare programs that pay an unemployment benefit of up to 80% of your wage,
And highly productive economies sound like an oxymoron, a fantasy too good to be true.
How would you encourage entrepreneurs and compete in a globalised economy when your costs are so high? In a world where low labour cost and low taxes are deemed essential for success.
This book dispels the myths that prevail, putting Scandinavian success down to culture, a homogenous population, size of the countries etc. An anomaly.
The arduous journey these nations undertook to transform their economies, from the Viking spirit of war and adventurism to capitalism with a human touch, a caring society. The struggles of the Nordic people to achieve a more equal country over more than a hundred years. The battles to overcome missteps that arose, trying to follow the neo-liberal models that changed the Anglo-American economies in the 1980s. The recovery from virtual bankruptcy that engulfed Iceland following the Global Financial Crisis of 2008. A clue -they didn’t bail out the reckless bankers. And they resisted pressure from the IMF to implement harsh austerity measures.
Scandinavian countries have a higher rate of startups than the USA, free higher education builds human capital, an excellent social welfare net encourages risktaking.
Businesses are encouraged to be competitive, except by cutting wages and benefits. Strong unions provide a balance between employers and employees. Successful cooperative ventures dispel the myth that private ownership or listed companies are the only viable economic models.
Scandinavians support high taxation, as they know they get a high level of services in return– “To get a lot, we pay a lot”. The economic system was built for everyone. It is not a system that encourages the notion in high inequality countries that the winners are supporting losers.
Social welfare programs, while comprehensive, encourages a strong work ethic. The focus is on getting people back to work. Sole parents are encouraged to work by providing free childcare. Teenagers are supported into employment or apprenticeships, providing a smoother transition from school.
This book by George, an American who lived in Norway for many years tells the story of the Nordic economic model. The successes, the challenges, warts and most importantly, lessons for the rest of the world. How we can achieve a highly productive economy where people are treated with dignity and the balance between business and society is highly equitable.
The wealthiest 1% owns three times the wealth as the bottom 50%
“A nation will not survive morally or economically when so few have so much, while so many have so little.”
Sen. Bernie Sanders
The wealthiest one per cent of our population today owns three times the wealth of the bottom 50%. A European New Zealander owns five times the wealth of a Maori and ten times the wealth of a Pacifica family.. Egalitarian New Zealand is no more. We wrote the obituary way back in the 1980s. Some of us own three or four houses, while many own none. Cost of renting a home could be as high as 40 or 50% of income. The median price of owning a house in Auckland is nine times of annual salary when below three years’ pay is considered affordable. The younger generation is locked out of homeownership, many consigned to be life long renters.
New Zealand’s indigenous Maori people depended mainly on agriculture, fishing and hunting. First waves of settlers arrived from England around the time the Treaty of Waitangi in 1840, looking for a better life than crowded, class-ridden Britain. They set up colonies in Wellington, Christchurch and many other places.
Early economic activity was mainly agriculture and gold mining. Sheep farming started in the 1850s provided a boost to the economy, wool was in high demand for the textile mills in England. In the 1880s discovery of refrigeration started export industries for meat and dairy. Pre 1914 exports were mainly these commodities and imports consisted of manufactured goods. New Zealand became a wealthy country, however, reliant on commodity prices.
The economy grew during World War 1, disruption in Europe boosting demand for agricultural exports. However, post-world war depression was traumatic for the country. The economy started to recover in the 1930s due to stabilisation of commodity prices, devaluation of the currency and boost in exports to Britain with the signing of the Ottawa Agreement, which favoured Commonwealth countries.
New Zealand also imposed heavy import controls to contain a balance of payment crisis, and this insulated economy continued until 1984. Post World War boom in the 1950s was not favourable for New Zealand as Western European countries, and Japan began subsidising their farmers and restricting agricultural imports. Our protected economy provided full employment; however, import restrictions increased costs and reduced competitiveness.
The entry of the UK into the European Common Market was a body blow to the economy and oil price shocks further rocked New Zealand. A succession of failed policies, including a failed Think Big program led to an economic crash.
The Welfare State- The Safety Net
Steve Maharey, then Minister of Social Development and Employment made a speech in Sep 2000 about our welfare state.
The original vision of social security was to grant not only freedom from poverty but also dignity and a sense of citizenship.
The depression of the 1930s heralded the modern welfare state. Labour party which came into power in 1935 introduced a five-day, 40-hour week and a minimum wage; pensions were increased. The Social Security Act of 1938, which followed is the cornerstone of today’s social security system. The Act introduced a range of new benefits, including provisions for sickness, unemployment, orphans and emergency coverage. This placed social security on a more systematic footing and established a framework that survives to the present day.
Targeted, as opposed to the universal provision of social assistance, has long been our dominant model of social security. It operates within a framework of benefits and pensions funded from general taxation. That is, based on the principle that social security benefits bore no relationship to the amount an individual had paid in tax or the length of time in employment.
New post-war provisions such as universal family benefit to support the education and maintenance of children in 1945 were widely welcomed but added significantly to the cost of social support. During the prosperous 1950s, 60s and early 70s, this did not present significant problems. Unemployment was almost non-existent, and the concept of state-funded benefits to those in financial need was widely accepted by both major parties.
The Royal Commission of 1969 called on the government to renew and enlarge its commitment. The family benefit was doubled, and other benefit levels slightly increased. One of the most pressing concerns addressed by the Commission was the plight of sole mothers leading to the introduction of the Domestic Purposes Benefit for single parents in 1973. Social Security spending increased further in 1977 with the introduction of the National Superannuation scheme, replacing the means-tested system.
The State Advances Corporation lent 95% of the house value at an interest rate of 3% locked for 40 years, governments of both major parties believed homeownership was necessary for a healthy society. There was adequate social housing. Rent was income-based, and a maximum of a quarter of their wages.
Reforms 1984 – Rogernomics and Mother of All Budgets
“For people who don’t want the government in their lives … this [Rogernomics] has been a bonanza. For people who are disabled, limited, resourceless, uneducated, it has been a tragedy.”
David Lange, New Zealand Prime Minister (1984–89), 1996
The Labour Party came into power in 1984, in a crisis situation; with a political agenda of deregulation.
‘Towns full of weeping women’ an article in Stuff, April 2017 by Philip Matthews talked about the reforms. Roger Douglas, Finance Minister, chief architect of the reform program argued “Speed was enormously important to the change, are government departments necessary? Are they doing the job? Can they be trimmed? Be ruthless with the answers.” It was ideology and trend of the time that drove the reforms rather than pragmatism. Reaganomics and Thatcherite neoliberal economics promoted heavily by a few prominent economists like Milton Friedman as the right cure.
The purpose of the 1987 State-Owned Enterprises Act was a radical transformation “To strip government trading departments of their social objectives. Turn them into profit-making businesses,” as an online history of the State Services Commission puts it.
It was a blitzkrieg.
The government is pouring money “straight down the drain” by subsidising State Coal Mines, Douglas claimed in an interview to the Waikato Times that every mine employee cost the country $122,000 a year.
John Patterson was one of the victims of the restructuring when the department of Lands and Survey vanished into history. He finished on March 31, 1987, and started with the Social Impact Unit on April 1. The unit’s role was to monitor the effects of restructuring on communities and individuals and to identify needs.
He would knock on doors across Southland. First stop: the mining communities of Ohai and Nightcaps. State Coal Mines had turned into Coal Corp overnight “They started by closing two mines and sacking the men who worked there.” The last union meeting was finishing, and the miners were signing on to the unemployment benefit. All the men were there, but where were the women? The district nurse told Patterson that they were at home crying.
Where were the women? The district nurse told Patterson that they were at home crying.
Unemployment was not high nationally, but in smaller towns like Tuatapere, it was around 80 per cent. In South Auckland, it was between 40% and 50%. Revolution was permanent. Tens of thousands were laid off.
Patterson became “the expert on unemployment” across the south. “Restructuring department after department kept going month after month and lives were shattered, for a while,” he says. “In one way or another, they started getting their lives back, and life went on. What got me, looking back on it, was the way people rallied around each other.”
Deregulation in 1984 led to a rush to invest in the stock market, what appeared to be a way to get a decent return. The stock market crash in 1987, came just six months after the initial wave of redundancies, many people invested and lost, their redundancy money, their superannuation.
Many people invested in the stock market and lost, their redundancy money, their superannuation.
While there was a cruelty in laying off so many people at once, assistance was offered. The Social Impact Unit was one example. Paterson has positive memories of the Community Employment Group created by the Department of Labour. It funded community organisations and took the kinds of risks that seem, 30 years later, to have been relatively daring.
Ruth Richardson, who became the Finance Minister of the National government which came into power in 1990, was even more ruthless.
Mother of all Budgets is still f*cking us today
Laura O’Connell Rapira wrote on Spinoff on September 2019 in an article titled “How Ruth Richardson’s Mother of all Budgets is still f*cking us today”. Ruth believed jobs would miraculously appear for people if she cut their income support. She ruthlessly slashed the unemployment, families and the sickness benefits. Benefits were reduced by 20% and stayed at those rates until 2016. Unchanged through periods of a booming economy and governments of both major parties.
It’s a strange ideology that believes in cutting support to sick people, solo parents and working-class families. It makes no sense when a government makes thousands unemployed and cuts their benefits at the same time and reduces taxes for the wealthiest 20%. Top tax rates were cut from 66% to 33%. GST of 10% introduced affected those on lower-income disproportionately and applied on almost everything, including food and medicine.
A strange ideology…. that cuts support to sick people, solo parents and working-class…. and reduces taxes for the wealthiest 20%.
The average income on welfare benefits dropped from 72% of median annual wage to 58%, in just three years of Ruth Richardson from 1990 to 1993, the damage done was lasting.
Bernard Hickey, in his article on ‘Interest’, contends that there was a clearcut worsening of wealth, health outcomes for people born after 1984, which he calls the ‘Baby Bust’ generation.
Those born in the 60s and 70s took advantage of the housing boom, starting in the 1990s. Many owned their houses, making it easy for them to purchase additional houses to rent, using the equity in their homes as collateral. They received tax rebates for any rental losses while reaping benefits from the increases in house values. House values rose further with an influx of migrants from Hongkong and opening the property market for overseas buyers. House values increased from 3 times median annual wage to 6 times nationally, 9 times in Auckland.
Baby Busters were effectively locked out of the housing market.
Economic Reforms Australia 1980s and 1990s – The Hawke Keating effect
Paul Kelly, a political journalist and author who later became the editor in chief at the prominent newspaper ‘Australian’, made an address at a journalist conference in 2000 about the Australian economic reforms of the 1980s and 90s.
The 1980s saw the globalisation of the Australian economy. The 1990s saw the contest between globalists and anti-globalists. A series of events saw an economic liberalisation and triggered a transformation of the Australian economy. Keys to our success in the 1990s is due to decision-makers retaining best policies from the 1980s and discarding the worst. A new framework to underwrite a more neo-liberal and open economy was not constructed in the 1990s.
Keys to our success ….. due to decision-makers retaining best policies from the 1980s and discarding the worst.
First, there was a pervasive sense of national stagnation and decline symbolised by the economic recession of the 1980s. Second, there was a new Labour government, which believed a new approach was essential. The Hawke-Keating government was both free from political dogma and old fashioned economic orthodoxy which undermined and destroyed previous governments.
Third, there was a set of new ideas waiting for the new government to seize upon, with broad support from government agencies such as the Treasury and the Reserve Bank, the Parliament, and Media. Freer trade, smaller government, deregulation of markets, lower tax rates within a fairer system, a more flexible labour market, low inflation, an attack on rent-seekers and a more market-oriented economy.
Fourth the government had a social contract with the trade union movement. The Accord represented a choice by the unions to give priority to economic growth rather than seek to increase wages by industrial might. Fifth, the government’s reformism would be based on gradualism and a search for consensus. The changes were negotiated more than imposed. The Hawke- Keating government shunned a “big bang” approach.
Reformism would be based on gradualism and a search for consensus…changes were negotiated more than imposed.
Sixth for the Hawke government social and economic equity was vital in the transition to economic liberalism. Equity was an essential part of the economic agenda, and aim in its own right. The tax-transfer system was highly effective in nullifying most of the income inequity arising from the market-oriented financial system. The two neighbouring countries, New Zealand and Australia’s, approach to the economic reforms differed significantly. (Inequality in Australia has grown since then with mainly conservative governments in power.)
Child poverty in New Zealand has doubled since the 1980s. Food can be short; children go to school hungry unable to focus on learning. Schools in our decile one schools often lack in facilities, limited with access to technology, low in participation in sports and other activities due to lack of funding for gear. Houses can be cold and draughty, causing health problems. Our poor tend to live far from urban centres, work in less secure jobs, often working part-time and pay a high cost for transport. We rank 24th out of 33 countries in the developed world for inequality.
We rank 24th out of 33 countries in the developed world for inequality.
We have a real problem with poverty and inequality in the developed world today. People in many countries feel the prevailing system has not served them well, that the mainstream parties on both sides of the spectrum, right and left, have failed them. That politicians looked after the rich and powerful, at the expense of the poor and weak.
Populous movements woo the people as the alternative who can deliver a more equitable system. Populists already lead countries like the United States, the United Kingdom, Brazil, Poland, Hungary, Austria, Turkey, India. Populous movements are increasing their popularity in countries like France and Italy, even Germany. Many have no intention of helping the poor, more interested in looking after themselves and their cronies. They seek undemocratic means of staying in power than rely on the ballot box. They resort to classic ploys like attacking immigrants to distract the attention of the populace.
The Nordic Model
Chuck Collins posted an article on the website Institute for Policy Studies in July 2016, ‘We should take a lesson from Nordic countries’. Reviewing the book ‘Viking Economics’ by George Lakey.
The Nordic countries – Norway, Sweden, Denmark, and Finland – typically have considerably less income and wealth inequality, thanks to both robust social safety nets and progressive taxation. They also top indexes of industrialised countries measuring the quality of life indicators such as longevity, health, work-life balance, and vacations.
Norwegians a century ago didn’t like the results of a wealth gap: the hunger and poverty, crime, elderly friends left in isolation, young people without hope of a good job. Norwegians also didn’t like the attitudes that went with inequality; an inclination toward arrogance among higher-income people and the feeling among lower-income people that they were losers defeated by the system.
The decades-long transition was brought about in several of the Nordic countries through strong popular movements of workers and social reformers that campaigned and won political power. When out of power, they pressured governments through mass protests, including nonviolent direct action when the system was unresponsive.
The Nordic model is a “universal services state” that focuses on poverty alleviation, a robust social safety net, and full employment. But, with a commitment to work as a central part of their anti-poverty strategy for those able.
The quality of life for workers is much higher, and the work-life balance is considerably healthier than in the United States. The average number of hours worked in a year is more than three hundred hours less than in the USA (and New Zealand). Social mobility is increasing in the Nordic countries and declining in the US. The Nordic model focuses on economic security, efficiency, and productivity and believes they are connected.
Their success undermines the view that the ideal capitalist economy is one where markets are unrestrained. Lakey contests the misconception that high taxes and regulation in the Nordic countries stifle business and entrepreneurship. Productivity is considerably higher, even with a shorter workweek. The rate of start-up companies in Norway and Denmark is substantially higher than in the US. Researchers found Nordic entrepreneurs greater risk-takers because they don’t need to worry about the education debt, retirement, unemployment and medical care.
Nordic businesses compete in the global economy, but they are discouraged, through laws and social contracts, from cutting wages as part of their competitive strategy.
Nordic businesses are discouraged..from cutting wages as part of their competitive strategy.
Their understanding of who the job creators are is not limited to the entrepreneurial class and investors. Although Nordics value the vision, risk and innovation contributed by entrepreneurs, they think the workers do a large share of the egg-laying. Which is why they invest so heavily in human capital and get higher productivity than many countries. Their track record with cooperatives, state-owned and municipal-owned enterprises gives them a positive perception of other sources of egg-laying.
Residents in Nordic countries don’t complain about their higher taxes because they clearly benefit from the expenditures. “For their high taxes the Norwegians have gotten overall affluence, stability, opportunity, a high level of services that make life easier and more secure,” writes Lakey.
From renewable energy policy and valuing racial differences to restorative criminal justice and responding to radical Islam, Nordic countries have valuable lessons for the rest of the world.
In most Nordic countries, the transition from youth to adulthood follows a different path than our focus on college and high-paying jobs. First, there is a deep culture of lifelong learning, folk schools, debt-free vocational training, and support for work transitions and parents. Working-class jobs are valued and well-compensated in the Nordic countries. In contrast, Lakey observes that a “Cruelty visited upon young people in high inequality countries is to induce star-struck dreams. But refuse to fund pathways to achieving satisfying life choices, including high-wage working-class jobs.”
“Cruelty visited upon young people..is to induce star-struck dreams..But refuse to fund them”
“Movements need organisers, communicators, advocates, funders, nurturers, researchers, trainers, musicians and artists, nonviolent warriors, and ‘foot soldiers’ as well as visionary designers,” he writes. “All those were present in the Nordic movements that challenged a thousand years of poverty and oppression, took the offensive, and built democracy.”
The Nordic model can serve as both an inspiring model and a reminder of the many ingredients required for social transformation.
Dutch historian Rutger Bregman called for ‘Taxes, taxes, taxes’ at the World Economic Forum (he was not invited again). He called for a top tax rate of 70%. The question was asked, which prosperous country has a tax rate of 70% – the answer that came back, the United States until the 1980s (New Zealand had a top tax rate of 66%). ‘End this, Winners take all economy’ said Anand Giridharadas, a reformed Mckinsey consultant in his best selling book.
The present Labour government has taken a few steps to address inequality. More state housing. Healthier, better insulated rental housing. A winter heating allowance for beneficiaries and superannuitants. Fees free for year one of tertiary education. Lifting minimum hourly wage and indexing to median salary.
Perhaps the largest problem we face today is our polarised political system. The right-leaning National Party, when it is in power, increases inequality by pandering to those on higher incomes and businesses. The left-leaning Labour Party is hesitant to undertake significant reforms, as these will be politicised by the National Party.
The largest problem we face today is our polarised political system
Inequality.org.nz a website run by Max Rashbrooke, who has written an excellent book ‘ Inequality – A New Zealand Crisis’ argues for action on three major fronts.
A fairer tax system
Higher taxes are essential for improving benefits for the poor and the middle class. High tax countries like Sweden, Denmark, Finland, none of them resource-rich, all have GDP per capita at least 24% higher than New Zealand. Our GDP per capita, in real terms, has been stagnant, despite repeated tax reductions for the wealthy and corporations.
Max calls for a higher top tax rate, wealth taxes, capital gains tax and a financial transaction tax. We need to close loopholes in our tax legislation and crackdown on tax evasion. IRD reported that more than half of ultra-rich, with over $50Mn in assets, declared incomes of less than $70,000 per annum. Just a 1% return would be $500,000! The wealthy invest in many asset classes and earn more than 5%, in the long run. (This is the reason that Bill Gates gives away billions of dollars a year, and still has a wealth of over $100 Bn).
Raising taxes is politically unappealing. We can also reduce taxes that impact those on a low income. Reduce GST rate or exempt essentials like food. Introduce a tax credit for those on the lowest income tax slab.
Higher wages for those on low income
A living wage. Invest in providing jobs that pay higher wages. A limit on high incomes. We can improve education in low decile areas by increasing funding and widen the free lunch program. Widen free tertiary education, perhaps starting with polytechnics. Make the apprentice support program permanent.
Raise welfare benefits
Raise welfare benefits to the same level as NZ Super. More state housing and income-related rents.We also need affordable housing for the middle class and essential workers like the nurses, teachers, police. We need Kiwibuild, not more housing for landlords.Improve health services and accessibility for those on low incomes.Many of these services require an upfront investment but generate an economic return over the long term.
Not everything requires money. Let’s stop the payday lenders with their cash trucks, charging over 500% interest, a limit of double the loan amount doesn’t go far enough. (Australia caps the maximum rate at 4% per month). Let’s reduce the pokie machines taking poor people’s money, paying out a few cents on the dollar. Let’s make our criminal justice system focus on rehabilitation, not punishment. Eliminate the Bail Bond Act, which breeds more criminals. Let’s get our social workers to show more compassion. A sugar tax, prominent signage, taking sugary products off school cafeteria, cost nothing and have been shown to have a real impact on obesity and related health issues like diabetes and heart disease. Rezoning land has no cost, except for infrastructure.
Let’s stop the payday lenders with their cash trucks, charging over 500% interest,
There is a lot to do, some of these are expensive, upset armchair experts with a distaste for welfare support. Is there an alternative? Not unless you want to risk radical change, a populous leader or worse.
Change happens slowly in politics, which is not a bad thing. Gradual changes in the right direction, building consensus, is a much better option than changing right and left. What we can’t do is stand still or follow the same policies which led to this place we are now. Keep a system that works for the rich and powerful, and not for the poor, the middle class, the younger generation, the Maori and Pacific communities.
Now is the right time to rebalance the system, lift citizens left behind by globalisation. We need politicians from left and right together working for the good of the country, rather than sniping for political gains. Reducing inequality is not only the right path for the economy, but it is also the right path morally.
It is whatour national anthem calls for ‘Let our cause be just and right’.
The science, the risks, limiting the damage and adapting to a hotter planet earth
“We do not inherit the earth from our ancestors. We borrow it from our children”
Native American Proverb
Adapting to Climate Change
Climate adaptation is actions we can take to reduce harm and lower risks from climate change on communities and nature. We have been adapting to local weather conditions for centuries. The Dutch built an elaborate system of dykes to safeguard low lying areas. The Japanese adapted their skyscrapers and homes to minimise damage from earthquakes. We have improved insulation and heating for our homes and offices to cope with cold winters.
However, Climate Change elevates many risks and brings new risks we have not experienced before.
Bangladesh, a country crisscrossed by 144 rivers, is one of the countries most vulnerable to tropical storms and flooding. Two-thirds of its land lies less than 5m above sea level. With three of the world’s mightiest river systems and its situation in the world’s largest delta, riverbank erosion is taking away precious land every year from this small nation with a growing population.
Seventy per cent of Bangladeshis, live in rural areas and account for 75 per cent of the poor. Most rely on agriculture for their livelihood. Each year they are disproportionately affected by the effects of climate change.
People strive to avoid the effects of flooding by building elevated houses and roads. Virtually villages raised above flood level with “Floating schools”. Many use tube wells, wells with a top that is raised high enough that contaminated floodwater cannot enter them. Many cities have flood shelters, large raised platforms where people can find refuge from on-rushing floods.
Nearly all 147 million Bangladeshis are forced to adapt to intense rainfall and water-borne disease exposed conditions. Increases of salinity, a lack of food distributors, and the effects of seeing slum dwellers survive on floodwater.
The need to rebuild better led Bangladesh to enact a Climate Fiscal Framework in 2014, the first country in the world to develop a multi-year, multi-sector approach to funding climate resilience. The plan includes estimates for the long-term costs of combating the effects and tracks climate-related expenditures across 20 government ministries, including agriculture, housing and energy. This plan was followed in 2018 by an eight-decade climate adaptation plan for the delta region, home to 30 million people. The first decade of Delta Plan 2100 focuses on strengthening infrastructure, such as building higher embankments to resist storm surges.
CNN reported on Cyclone Amphan which began forming over the Indian Ocean in May this year. This year’s hurricane season was forecast to be one for the record books due to unusually warm water temperatures; a consequence of the climate emergency. The country faced the mammoth task of relocating 2.4 Million in its path. COVID 19 posed the additional challenge which required physical distancing. In a matter of days, 10,000 more shelters were prepared, on top of the 4,000 already in place. It’s 55,000 first responders were mobilised. Well rehearsed evacuation drills sprung into action.
Cyclones are becoming fiercer and more frequent. Cyclone Amphan was the costliest on record in the north Indian Ocean, leaving destruction estimated at $13bn (£10.4m). In Bangladesh, it washed out 415km of roads, 200 bridges, tens of thousands of homes and vast tracts of farmland and fisheries. More than 150km of embankments meant to contain storm surges were damaged. More than 200 people died. This cyclone has been catastrophic, but planning makes countries better prepared when calamity strikes. It is not enough to deal with the immediate effects of a natural disaster; communities need to better prepare for the next storm.
After Cyclone Amphan, we will need to rebuild schools, hospitals and houses stronger. With increased resilience, so they can resist cyclones, and storm surges in coastal areas. Double up as shelters when the next disaster hits.
Bangladesh is unlikely to be the only country struggling with health, economic and climate emergencies this year. So international collaboration is vital: we can learn from successes around the world and support each other. It’s by pulling together that we will emerge more robust and resilient.
Bangladesh experience provides a snapshot of adaptation measures required by the most vulnerable nations and challenges posed by extreme weather events, the sheer scale of problems and investment required.
Climate adaptation requires work on many fronts.
Sea level rises require strengthening coastal flood defences. These can range from mangroves and shrubs to seawalls to more sophisticated installations such as those developed by the Dutch. Restrict developments in flood-prone areas. Electrical grid planning such as underground cabling rather than overhead. Strengthened building codes and zoning changes to minimise harm from bushfires and floods. Relocate buildings and infrastructure at risk.
Disaster risk management. Early warning systems and shelters. Bush fire protection measures like back burning during winter. Strengthen fire protection with helicopters, workforce etc. Enhance awareness of risks and protection systems.
Water Management. Reforestation, reducing discharge and pollution of rivers, developing crops and livestock that need less water, desalination plants, water-saving technologies, enhanced irrigation techniques
Land-use changes – Increase forested areas, use better crop management techniques, reduce water usage and harmful chemicals, preserve wetlands. Food Security and Agriculture – changeover to or develop resilient crop varieties, more efficient farming practices etc. Reduce wastage from farms to our tables. Adapt wines/grapes to a warmer climate. Change crop seasons, adapting our crops, trialling new plant varieties which might thrive in warmer weather. Research likely changes in fisheries and quotas. Possibly, relocating some farms and forestry more towards colder southern areas.
Tourism – Promote local, drive time and short-haul tourism.
Assist low income, and vulnerable populations like the elderly adapt to a changing climate. Heat pumps etc. to cool residences in warmer areas, better insulation. Review protection for those working outdoor in hotter areas- agriculture, forestry and construction in the summertime. Assist those on low incomes, from effects like higher food prices. Climate Refugees – Assist vulnerable countries to adapt.
Finance and Insurance – Provide finance (green bonds, etc.) and incentives (encouraging EVs, solar panels, energy-saving equipment) for climate mitigation and adaptation. Consider public reinsurance for climate-related disasters. Taxation to promote climate adaptation such as higher levies for fossil fuel-powered vehicles, carbon taxes, emission levies. Better social support for those displaced by industrial changes.
Review government and other institutional structures required for Climate Adaptation.
Maximise potential benefits from climate change – More temperate climates will benefit from longer summers and shorter winters. Higher temperatures help in many locations from more crop and fish varieties.
We human beings are fond of saying we have adapted to changes life has thrown at us, but sometimes we have just muddled through.
Climate Change – The road ahead and the roadblocks
New Zealand is one country that appears to be taking Climate Change seriously. It has a centre-left government and Greens are a coalition partner. It passed legislation to go Zero Carbon by 2050 with bipartisan support.
The government dropped a commitment to move to electric on its vehicle fleet by 2025. A coalition party blocked legislation to provide a rebate of $3,000 for purchase of electric vehicles. Its policy on fossil fuels only bans offshore drilling.
Fighting Climate Change and the Pandemic will require innovation, science and the world working together
The COVID 19 began in Wuhan, China December 2019. A deadly, highly contagious disease had spread to Hongkong, the United Kingdom, Canada, Spain, Sweden, Singapore by the end of January 2020. On 31st January, the World Health Organisation (WHO) declared an International Health Epidemic and issued guidance to countries. By August there are 22Mn cases and nearly 800,000 casualties. Public health systems in many countries were overwhelmed. We saw body bags piling up in the streets of New York. Health professionals forced to work without protective equipment, dying.
The global response to a deadly, highly visible crisis was disjointed and uneven. Many political leaders ignored health experts, scientists and WHO guidance.
While almost all countries signed up to the Paris Climate Accord to limit Global warming to 2 degrees by 2050, the USA has now signalled that it will leave pull out from the accord. Many of the populist leaders recently elected, do not place much emphasis on climate action or work actively to undermine these efforts. IPCC meeting of 2019 to agree on the detail required to meet the Paris Accord target failed to reach a consensus. The international community have been meeting and talking about Climate Change since 1988, with little coordinated action to show for it.
The pace of climate change has not slowed as yet; in fact, CO2 emissions increased a massive 60% since 1980. Mainly due to middle-income countries like China, India emitting more GHGs, as they industrialise and grow their economies.
The main hurdles to Climate Action appear to be political and vested interests like fossil fuel industries. Economically it makes sense now to change over to renewables; their costs have now reduced below fossil fuel-generated energy. It is ignorance and sceptics. It is inertia and priorities.
The best thing we can do is make our voices heard in the corridors of power. March on the streets, use social media and mass communication. Vote for parties calling and working for change, support activist groups like XR and Fridays for schools.
Make our voices heard in the seats of commerce, as consumers and shareholders. Make our personal choices climate-friendly.
It is a time for coordinated global action. We have been here before with smoking and lung cancer, with the ozone layer and CFCs. We have got through slowly. Will we act in time to prevent significant disruption and destruction? Or will we muddle through?
It is up to us to make the best efforts, for the planet, for our children and ourselves.
How can you help?
Activism! – Help to keep up pressure on politicians and climate-unfriendly businesses. What you can do personally helps, but what the government or companies can do, matters a lot more. Protesting or supporting protests is one of the best things we can do.
Clothing and shopping – Shop smart, buy less and use longer. Consider buying pre-loved clothing. Buy environment-friendly and durable clothing where possible.
Food – Eat less beef and lamb, more fish, vegetables/fruit and chicken. Start Meatless Mondays or Vegan Wednesdays. Buy local produce.
Holidays -Take more local or short-haul holidays.
Home – Use power-saving ideas at home – LED bulbs, air-drying clothes, using energy-efficient equipment.
The 3 Rs – Reuse, Recycle, Repair.
Transport -Make your next car an EV. Use more public transportation, cycles, e-bikes.
Waste – Waste less and use composting. Composting can reduce your food waste by as much as 75% and save on your fertiliser cost.
Work – Encourage and support your employer’s efforts on climate action.
How can your business help?
Include Climate Change as a key criterion in your business decisions and practices, especially in areas like procurement
Implement a Climate team to generate ideas the business can implement, encourage staff participation and engagement
Work with suppliers and other stakeholders to minimise climate impact
Work with industry bodies and green organisations to implement best practices
Indirect benefits from Climate mitigation and adaptation
Lower air pollution-related deaths – WHO estimates air pollution causes 4.2 million premature deaths annually. A changeover to renewables and EVs will save lives and healthcare costs related to treating these diseases.
Jobs generation – There will be jobs generated by construction activity as well as operation of renewables, forestry. Most of these jobs will be in consuming countries and provinces, giving a boost to provincial regeneration.
Reduction of road deaths and congestion – As more people use public transport
Reduction of fuel importation expense – Most countries will see a cost reduction. In contrast, fossil fuel exporting countries will face a reduction in their income.
Green New Deal – Proposes to tackle also current economic and social problems such as provincial regeneration, unemployment, inequality, with Climate Action, along the lines of FDR’s New Deal in the 1930s. Employment and economic impacts can be significant.
Circular Economy – Reduce waste by recycling, using more durable goods, efficient use of resources.
Climate Change in figures
Paris Climate Accord – Hold temperature increase from 1880 to well below 2 degrees by 2050. The target from COP 2018 is 1.5 degrees by 2030.
Temperature increase by 2050 at the current pace of emissions 3.5 degrees.
Global emissions – CO2 76%, Methane- 16% Nitres Oxide- 6%, Other- 2%
Increase in annual CO2 emissions since 1980 – 60%, mainly due to growing industrialisation of countries like China and India.
The science, the risks, limiting the damage and adapting to a hotter planet earth
“We do not inherit the earth from our ancestors. We borrow it from our children” –
Native American Proverb
Over 100 fires were burning in Australia, covering an area as large as Great Britain. The Australian bushfire season in 2019 started in July; middle of winter in the southern hemisphere. Blazes tore through bushland, wooded areas, and national parks. Fires destroyed homes in the outer suburbs of Melbourne and Sydney. Thick plumes of smoke blanketed the urban centres for weeks. Many blazes burned for months, beyond limits of human endeavours to put them out.
Australian firefighters with assistance from the USA, Canada, New Zealand and the Australian defence forces struggled nine months to contain the blazes. Over 34 people died, more than 3,000 homes were destroyed or damaged. An estimated billion animals burnt to death. Horrific images dominated our television screens.
The gigantic scale of the fires caught Australian leaders by surprise. Prime Minister Scott Morrison apologised for holidaying in Hawaii in the midst of it. Budget requests for fire fighting equipment ignored in the previous year. Most experts opined that Climate Change was a significant factor in the massive scale of the fires. The political leaders were still reluctant to admit this.
A slow-burning but an existential global crisis, Climate Change is struggling to attract attention, support and funding required to tackle the problem. Many countries ignore scientists and science. Most countries are responding far slower than necessary to prevent serious damage to lives and livelihood, farms and forests, the seven seas and five continents. Three decades since the announcement of the likely scale of climate change, progress is painfully slow and uneven.
Like the old fable aboutthe crab in the boiling pot, enjoying the feeling of warmth realises it’s plight far too late.
My first brush with climate change was when the coral reefs died. The beach resort fifty km from Colombo was one of my favourite places on the planet. The water was shallow and teeming with fish. Calm as a pond; the coral reef acted as a water break. You snorkelled, taking in the beauty of the fish in a rainbow of colours and the stunning corals.
Then a heatwave. The corals died (corals are a living organism), what nature had grown for decades or centuries, the corals that coastguards fought hard to save from vandals and tourists, dead in a few days. It happened around the world, even the Great Barrier Reef in Australia, the largest reef in the world was damaged. I didn’t realise this was due to climate change, putting this down to a freak act of nature until years later. It’s only grown worse since then. Coral bleaching has damaged the Great Barrier Reef three times in the last five years.
I didn’t quite know how an increase of 2 degrees could cause havoc, most of us would hardly notice the change? I could understand that many people would be sceptical. On the other hand, could 97% of climate scientists get this wrong? We watched the movie by Al Gore,’ An Inconvenient Truth’, which made quite an impact, bringing home the reality of Climate Change to an enthralled audience of children and non-scientists.
I watched as Climate Change moved from a fringe movement to a mainstream issue. The hotel chain I was working for set targets for energy efficiency, saving electricity and water, reducing waste, recycling plastics and cans. We made good progress and saved money. Hotels on the luxury end had to be cautious about how we went about it; not seen as penny-pinching, when we were charging $200 per night. However, we could give our customers the option to make a choice themselves. Would they mind if their towels were not changed every day? Not change their bedsheets every day?
I was curious, to know more, what causes climate change. The science behind it. How has it impacted the planet earth so far? What are the likely future impacts on the world? How can we minimise changes to the climate and how can we best adapt to a warmer planet. Try to create some awareness, convince a few more people to do their bit. Convey in a few words, the urgency of the situation, in marketing jargon – awareness, conviction, action.
Our agrarian societies started to change in the late 18th century. The invention of the steam engine in the 1760s by James Watt sparked the Industrial Revolution, beginning in Great Britain. Machines now mass-produced goods previously crafted painstakingly by hand. We migrated from rural farmland to cities to work in factories. Ironworks, flour mills, cotton and paper mills, distilleries, waterworks and ships used coal-powered steam engines. The demand for coal, one of the dirtiest fuels skyrocketed. Petroleum use began in the 1850s. Natural gas started large scale production post World War2.
The road and canal networks expanded in the early 1800s, steam-powered boats and ships became commonplace. Trains started plying by 1830. The early 1900s saw the transportation industry upended again with the advent of the motorcar and flying. The industrial revolution continued with more industries starting up and spreading across the world. Industrialisation is associated with prosperity, a pathway to economic growth.
Worldwide population growth is closely associated with the industrial revolution. The Industrial Revolution changed the way humans work. The standard of living increased in ways never before seen. Improvements in diets, advances in public health, medicine etc. led to population growth. The global population estimated at 1Billion at the start of the 19th century reached 2 billion in 1927. It grew exponentially during the 20th century, reaching 7.4Bn today.
The Climate Science
How does Global warming happen? Solar radiation hits the earth and gets reflected skywards. These rays get trapped when they hit the layer of greenhouse gases (GHGs), consisting mainly of Carbon Dioxide (CO2, 76%), Methane (16%) and Nitrous Oxide (6%). The GHG layer acts like a thermal blanket enveloping the planet, trapping the radiation and warming the earth. Industries burn fossil fuels emitting CO2. Farm animals belch out Methane and fertilisers emit Nitrous Oxide. Forests and trees suck some CO2 out of the atmosphere.
More CO2 is emitted as countries around the world industrialise and grow their economies. Farm animal population grows to feed a growing, more prosperous society and modern farming practices use fertiliser to boost crop yields. More area is converting to farmland, diminishing forest cover. The GHG layer gets denser, emissions grow, and we take out less, warming the planet.
It’s like leaving your car out in the sun. Sun’s rays beam into the car, heating the interior. The glass windows trap and block the heat from escaping. It gets uncomfortably hot inside.
Global Warming – Are we all in this together?
Why do we need a global effort? The Greenhouse Gas Layer is the same density all around the planet. It grows evenly, whether its China, USA or New Zealand spouting the fumes, making this a global issue, unlike pollution which mostly stays local. When Australian bushfires burn, the smoke and haze mainly stay over their skies, but the CO2 emitted floats all around the world.
The warming, however, will not be distributed evenly everywhere, 2 degrees in California, may mean 4 degrees in Antarctica. The warming effect is more, closer to the poles and at higher altitudes. Impacts will differ according to the risks for the geographic areas. Rising sea levels will affect small island nations and warming will affect Australia and countries in sub-Saharan Africa more than colder climates. Bushfires will impact Australia, California and the Amazon forests far more heavily. Some regions will even benefit from Climate Change; Siberia already has longer crop seasons and sea lanes open more days in a year than before.
We won’t know precisely how Climate Change will affect us. Models can only predict a range of outcomes, and much depends on – our efforts to minimise the impact – perhaps the most crucial variable of them all. What is certain is that the change will be significant, and we will have our work cut out.
Climate Mitigation – Reducing emissions
CO2 Emissions – 76% of Greenhouse Gases
There are three broad pillars of climate action necessary to reduce CO2.
Decarbonising the electricity system
The most important of these is decarbonising the electricity system, stop burning fossil fuels to power our energy needs and changeover to renewables.
BP is one of the few oil majors which has publicly committed itself to changeover to renewables. Below are some excerpts from an article on the website ‘Follow the Money’ by Havan Vatanen headlined ‘BP knew the truth about Climate Crisis 30 years ago’.
A documentary made by BP in 1990 called ‘What makes the weather’ articulates the potentially disastrous consequences of human-made climate change. (Excerpt – https://www.ftm.nl/artikelen/bp-video-climate-change-1990-engels) . The narrator explains: ‘Our whole energy-intensive way of life and its dependence on carbon-based fuels is now a cause for concern. When coal, oil, or gas burn, they release carbon dioxide and other reactive gases. Since the industrial revolution, their use has increased hundredfold. In the last forty years, the mass burning of the tropical forests has freed even more carbon dioxide into the atmosphere. It has taken time to realise what damage this extra carbon dioxide can do’.
In May 1997, then BP CEO John Brown in a speech to the Stanford University became the first head of an oil major to accept the emerging consensus on Climate Change publicly. Browne called it‘unwise and potentially dangerous’ to ignore the possibility of catastrophic climate change. He also said that ‘if we are all to take responsibility for the future of our planet, then it falls to us to begin to take precautionary action now’. In 2000, BP launched a $200 million campaign to rebrand its name to‘Beyond Petroleum’.
However, BPs actions didn’t quite follow the script.
BP was a member of a lobby group which influenced George W Bush to withdraw from the Kyoto Protocol in 2001. It was a member of a lobby group who blocked legislation to reduce GHGs in 16 states and promoted numerous anti-environment laws. In 2017, BP lobbied Trump administration to open up the Alaskan Arctic for oil and gas drilling.
Between 2011 and 2013, they sold all their wind and solar assets.
Since 2010 BP has spent only 2.3% of its budget on non-carbon energy. In 2020, BP put out a statement that they will increase investment in low carbon energy from $500 million per year in 2019, just 4% of it’s Capital Budget, to $5 Billion per year by 2030. It will reach net zero by 2050. It is targeting to increase its renewable capacity from 2.5 GWh per year to 50 GWh, a 20 fold increase.
Will they? Move from 4% of their capital spending to 40%, on renewables by 2030. Even if they keep to their plan, they will be spending 60% of their annual capital spend developing fossil fuels.
Norway is a country that prides itself as a leader in renewables. It is generating 98% of its electricity from renewables, mainly hydropower. 30% of its cars are electric.
Norway is also one of the largest oil-exporting countries.
Norway’s first major oilfield came online in 1969. In 1972 the state-owned oil company Statoil was formed, and the government introduced the principle that at least 50% of oil licenses should be state-owned. Norwegian government benefits directly from oil, unlike countries like the UK. Norwegian state still holds 67% of it’s renamed oil and gas giant Equinor.
Norway has an economic surplus every year since it started oil production. Norway’s oil wealth is held by its sovereign wealth fund, the largest in the world with a value of trillion dollars. In 2019 the fund decided to divest its investments from oil exploration companies.
Norway derives 25% of its tax revenue from oil and gas. The giant new oilfield Johan Sverdrup oilfield started production in 2019 and is forecasting to produce oil until 2060 at least.
68% of Saudi Arabia’s revenue in 2019 was from oil and gas. 52% of Russia’s revenue came from oil and gas. Global fossil revenue in 2018 was $3.7 trillion. Renewable energy currently supplies only 25% of worldwide energy production.
Large industries do die or transform substantially when lower-cost alternatives come on stream. Telecommunications is one such trillion dollar industry which was upended by the advent of the internet. Coal revenue has declined by over 95% since peaking in the early 20th century.
Still, the scale of the challenge to transform the energy industry is daunting.
Electricity generation from wind and solar now costs less than fossil fuel energy. Costs are likely to decrease further as we scale up renewables, and the technology keeps improving. What keeps us from moving faster is the 3 I’s – ideology, inertia and ignorance. The short term and adversarial politics. The parties and voting blocks of climate deniers. The lobbying power of the fossil fuel industry. It’s also the trillions of dollars needed to fund renewable infrastructure.
Storage of renewable power is still an issue currently (except for hydropower). Solar generation stops at dusk. The wind could stop blowing anytime (although less likely with the offshore wind). Hydropower can dwindle in a drought. We may require fossil fuel power as a backup in the short term until economical storage options come online. Pumped hydro is a currently available renewable option for short term storage and grid balancing.
We should meet growing energy needs with renewables; however, we continue to expand fossil fuel generation. Adani coalfield in Australia, Keystone pipeline in the USA and Canada, giant new Johan Sverdrup oilfield in Norway are all examples.
The other major area which will make an impact is sucking the carbon out of the atmosphere, by planting trees and growing our forested areas. We face an uphill battle to increase or even maintain forestation in many parts of the world, as we have seen recently with the Amazon forests.
Fuel switching is still at an early stage; we are still manufacturing mainly petrol-powered vehicles and have a massive inventory of them. The market share of electric and hybrid cars is still tiny, 2% of the light vehicle market, and heavy vehicles near zero. Another trillion dollar market to transform. Electrification of rail shows more progress.
Most of our industries use fossil fuels and will take some time to replace, due to the long lifespans of plant and machinery.
We see good progress on energy efficiency as this provides a direct cost-saving and high return on investment in many cases. Energy-efficient cars, buildings, equipment, all have boosted energy efficiency and will continue to improve.
Reducing Methane and Nitrous Oxide – 24% of Greenhouse Gases
These two gases are mainly farm-based. Beef and Lamb, Dairy farming is high in Methane emissions. Chicken is less Methane intensive. With ocean-based fisheries, we only have CO2 emissions from fishing vessels powered by fossil fuels. With farmed seafood, the emissions are low and primarily depend on the feed used. Fruits and Vegetables are the most climate-friendly food.
There are many options currently available to reduce Methane and Nitrous Oxide emissions from improving farm and production efficiencies to using low emission feed for animals and reducing Nitrogen-based fertiliser. There also several options currently being explored and in the pipeline. The website – https://www.agmatters.nz/ is an excellent source on farm-based emissions. Changing our food choices; less red meat, more fish, fruit and vegetables can reduce emissions significantly.
Have we been doing enough to slow down Climate Change? No, the vast majority of countries have done little so far.
Whatever we do, climate effects are likely to hit us in the short and medium-term. Some problems are already visible or highly probable to affect many parts of the world.
Glaciers are already shrinking in the Arctic and some parts of Antarctica. The resulting sea levels will rise and cause coastal flooding in low lying areas. Small island nations will be profoundly affected, and some islands could disappear or made uninhabitable.
Extreme weather events like heatwaves, droughts, floods, hurricanes will increase and be more severe. Bushfires will be more frequent and affect larger areas.
Lower rainfall and impact on freshwater sources like some of our rivers will impact crop yields and animal husbandry. The hydroelectric generation will reduce as rivers dry up in the summer. Warmer, drier weather will impact forestry. Conflicts over water rights, sometimes violent especially in subtropical countries. Ski seasons will shorten.
Fisheries will thrive in colder regions and suffer in tropical seas. The cooling cost will rise in summer, offset by lower heating cost in winter.
Increase in biosecurity risks. Coral reefs will die, some species of animals will struggle to adapt, some will go extinct.
Heat-related health impacts. Especially on the elderly, outdoor workers and low-income people.
Developing countries and vulnerable people who have fewer resources to adapt will be more severely affected. We will see climate refugees from island nations and some drought-stricken countries.
Sources – Climate Pledge Collective, Climate Action – Solutions for a Changing Planet -SDG, Follow the Money, IPCC Reports 2014, The Guardian,
My paternal grandfather lived in a rambling old house. Families tended to be large those days, 7 to 8 person households were typical. Our home, set in a large garden, dotted with coconut trees and plenty of space for outdoor activities like cricket and football was idyllic.
My father had a few tales that he used to tell us often. One of these was about his education, how he passed the entrance exam for secondary school at a young age. He was keen to continue his education, but jealous brothers persuaded his grandfather not to support it. He started work as a clerk in a government department. Public sector wage scales were low in those days. A tiff with grandfather left him out of any property inheritance.
Maternal great grandfather was a successful businessman, owned a string of retail shops and an extensive property portfolio. Grandfather was a lawyer and a politician, in the days that politicians were honest. They regarded their work as a service to the community, financed their political campaigns primarily out of their own money.
He was also a gambler, another expensive pastime. The main form of gambling was British horse racing. Every suburb in Colombo had a few betting shops, and we had one down our street. Mainstream newspapers carried results from previous day’s races. My grandfather gambled away a fortune. My grandmother owned the properties; however, it was not difficult to get her to sign on the dotted lines to sell them. After all, he was a lawyer. When grandma realised what was happening, only the house they were living in was left.
There we were, my mother with little money and father with a lower middle -class income in a developing country, a large family to support. He tried to study and be a professional accountant, which would have increased his salary. He talked about getting up pre-dawn, drinking coffee and soaking his feet in a cold water bath to avoid falling asleep. Marriage, children and a full- time job proved too much of an obstacle in the end.
We were living pay-check to pay-check, sufficient money to put food on the table, not much left for anything else. Most companies paid a ‘bonus’, an extra month’s pay, on special occasions like Christmas or the local New Year. That paid for any ‘extras’, like clothing and text-books for school.
Often though, the money ran out before we could buy shoes, one of the more expensive pieces of attire. The adage ‘you can tell a gentleman by his shoes’ was apt back then. Shoes became tight and scuffed, bit into my toes, scraping the skin before we could afford to replace them. Toes retreated inwards and upwards; a cycle repeated many times. My toes had become permanently deformed. We could only buy shoes with a high front end, to avoid painful toes and torn skin.
Poverty was a lack of cash. My parents spent very little on alcohol, perhaps on a special occasion or when we had visitors. There were no takeaways or restaurant dining or vacations. The only thing you could call exorbitant was the sky-high interest on payday loans, sometimes the only option to put food on the table.
My toes are still deformed.
Scars of child poverty are often lifelong. Poverty itself is often permanent, sometimes intergenerational. Effect of poverty-related issues like poor health and lack of education are often lifelong. Work opportunities are usually at the low end of the wage scale, jobs precarious and work, hard physical.
Eradicating child poverty is necessary and beneficial to society. If you want to have lower healthcare cost, a more productive workforce, a happier community, we need to spend more money upfront, early in a child’s life.
Global Financial Crisis, 2008. Wall Street was in meltdown. The crisis sparked by reckless lending by American banks had spread way beyond the USA. They were giving loans to the rich, the poor, the poor and elderly, without any risk review. Banks granting the loans knew they shouldn’t be giving out these loans, they wouldn’t get their money back. ‘No doc loans’ and ‘liar’s loans’ issued by major banks and some smaller banks. Stuff which appeared like a scene out of a fantasy story playing out in real life. Banks for whom risk management should be the first precept in the bible ignored all rules, laws, principles and ethics.
Financial deregulation had led to ‘exotic products’, bad loans bundled up with the good and sold as triple-A-rated. You could mix good apples with rotten, sell them at the price of good apples, making a profit. Pack them in brown paper bags; people bought the apples without being able to check their condition. They, in turn, would sell these to someone else, who sold to someone else, who sold to someone else etc. all making a profit. It does look and feel like a fantasy story.
Banks in other countries would join the charade; they didn’t want to miss out on lucrative profits. Then it came down a house of cards.
Some of the more affluent countries were able to bail out the banks. Greece was less affluent. The structure and politics of the EU are not conducive to helping these countries in an economic crisis.
The government of Greece collapsed. Fresh elections saw the left-wing Syriza party, campaigning on an anti-austerity platform win 10% of the votes. The newly elected government collapsed within a few months. Yet another election; Syriza won 36% of the vote, enough to form the next government. The dramatic swing to the left reflected the deep dissatisfaction of the Greek people. Yanis Varoufakis found himself as the Finance Minister of the new Syriza led government.
Post -World War11 Greece was led twice by the armed forces, following coups overthrowing democratic governments. Yanis’s father was a political activist who was imprisoned by a military-junta, tortured to make a false confession, which he resisted. This experience left a deep impression on his young son.
Yanis was an obscure economics professor in an American university; shoulder tapped by Syriza party to be their economic advisor and later appointed Finance Minister.
To say that the Greek government was in an economic crisis at that time was an understatement. They were nearly bankrupt and fighting for survival. Negotiations held with a ‘troika’ of three parties- European Union (represented by their finance ministers – Eurogroup), European Central Bank and the IMF. A tough negotiation, made worse by troika’s prejudice towards a left-wing government.
The new government, with a strong mandate from the Greek people, expected flexibility and a realistic approach from the troika. What they found was an inflexible foe, who wanted even tighter conditions than they had conceded to the previous government. The Eurogroup led by the Dutch Finance Minister Jerome Djesselbohm proved to be the harshest party in this negotiation. They embarked on a course of ‘maximum pressure’, which nearly brought the Greek economy and the banks to a complete shutdown. The inflexible position effectively shut off the possibility of a deal. While many people in this story came off poorly, Jerome was probably the most disliked.
Long hours of negotiations came to an impasse and conditions the troika were demanding were extremely unpalatable and unrealistic.
Syriza was extremely unhappy with the ‘deal’ that was offered but agreed to hold a referendum so that the Greek people could have the final say. Syriza would campaign against the deal and outline what rejecting the agreement would involve- leaving the EU and a hard road ahead. The Greek people would retain their pride and independence, instead of bowing to the troika. The Greek people voted to reject the deal.
Then came an entirely unexpected twist in the saga. The Greek Prime Minister and leader of the Syriza party, Alexis Tsipras blinked. He rejected the will of the people and opted to accept the deal offered by the troika.
Yanis resigned as he could not agree to reject the people’s will, the primacy of the people. Nearly a third of Syriza MPs refused to back Tsipras, triggering the 5th election in 6 years. Syriza won the election, which Tsipras considered as a mandate to reject the referendum vote and accept conditions laid down by the EU.
A few passages from the book are so memorable that they stick in my mind till now. Christine Lagarde head of IMF at the time admitted privately to Yanis that the deal was not viable. Still, they had too much politically invested, and it was too late to back down. As ‘adults in the room’ they had to go ahead with the deal, hence the title of the book.
Greece would be in ‘debtors prison’ for a very long time. The troika was pushing for a fire sale of Greek government assets, at a time where the market was at it’s lowest ebb. At one point they were insisting that even the Parthenon be on the block! Suicides by Greek pensioners, whose pensions were cut by 30% or more. Remarks by Larry Sommers to Yanis, ‘You need to be an insider to get a deal. If you are an insider, you cannot criticize other insiders’, effectively saying criticism of those in power meant shutting off the possibility of a deal.
German Finance Minister Wolfgang Schauble ‘we cannot negotiate a deal just because there is a new government’. A government of an EU nation elected with a mandate from their people to renegotiate terms of an agreement had no right to do so. Yanis expected negotiations with the EU to be tough and challenging; but most disheartening was the lack of support from his party. Especially the Prime Minister, Deputy PM and people he considered close friends.
Lack of support from American President Barack Obama, whose words turned out to be empty. The only American politician to support him was Bernie Sanders, an obscure senator from Vermont at the time. Writing to Christine Lagarde that American funding of EU shouldn’t inflict more pain on the Greek people, threatening to block funding.
The book is a blistering criticism of EU, IMF and ECB, prominent figures in those establishments and their approach towards economically less affluent countries like Greece and Spain in a crisis. The Greek economy shrank by 30%; a result worse than the US economy at the height of the Great Depression. The unemployment rate reached 26% (youth unemployment rate of 50%) and is still around 15%, ten years on from the crisis. Economic targets proved to be unrealistic, debt repayments which were supposed to end by 2040, look unlikely. A recent proposal by the IMF aims to end repayments by 2080! Greece is in ‘Debtors Prison’, and it appears for a very long time.
EU approach to economic crisis now caused by COVID19 appears just as ineffectual. Funding released is far less than required, with some commentators casting doubts whether EU itself will survive.
The wealthiest companies and people in the world are avoiding paying billions of dollars in taxes every year, money that could have paid for better public services, decent pay for our essential workers and help the neediest people in our society
The accountancy firm Grant Thornton worked out that the UK’s 54 billionaires paid income tax totalling just £14.7m (0.01%) on their £126bn combined fortunes.The Observer, 2007
In 2018, Amazon paid $0 in USA federal income tax on more than $11 billion in profits before taxes. It also received a $129 million tax rebate from the federal government. Apr 4, 2019- CNBC.Com
Apple has faced mounting criticism in recent years for avoiding taxes in the US and Europe. Wednesday, it offered critics 38 billion replies. More precisely, Apple said it would pay an estimated $38 billion in tax .…, but it’s also a pretty good deal for the company; they saved $50bn. Wired, Jan 18, 2018
General Electric is a multinational giant that made $27.5 billion in profits from 2008-2012 but got a total of $3.1 billion in federal tax refunds and paid an effective tax rate of negative 11.1 per cent, according to Citizens for Tax Justice
Our wealthiest companies and billionaires are siphoning off billions of dollars from the public coffers every single year. And leaving a hole in public coffers that could have paid for better schools, hospitals, decent pay packets for our teachers and nurses, better housing and welfare for our neediest citizens. They do it in plain sight, flaunting it in our faces. They make billions of dollars in profits for their shareholders while paying little or no tax. You and I, the ordinary taxpayers, make up the shortfall getting less and less in return.
Apple said it would pay an estimated $38 billion in tax .…but it’s also a pretty good deal for the company, they saved $50bn
The international tax system is broken. The losses to people and countries throughout the world are staggering. You are probably wondering if we know which companies are not paying taxes, why don’t we just knock on their doors and collect the amounts owed. It is legal to ‘avoid’ taxes; using loopholes in our tax laws. You might ask why we don’t seal the holes which are causing this leakage? Large, powerful companies use an army of lobbyists and millions of dollars in donations to politicians to keep the loopholes open, change current laws to their benefit, get tax rates reduced. Even when the IRS charges them, they often fight in court using expensive law firms to delay judgement for years. Landing taxpayers with millions of dollars in legal fees.
It’s not just the large multinationals who avoid paying taxes; it’s also the billionaires and some smaller fry.
Robbing a bank or stealing a car, spells a lengthy jail sentence. You can hardly be regarded as a respectable member of the society, live in a fancy suburb. Or play golf with the most powerful people in the country.
Tax avoiders can don a cloak of respectability – exploiting gaps in the laws they helped create – saying they abide by all the laws and pay all due taxes.
The Panama papers leak and investigations cast a light on how rich listers’ and powerful politicians use tax havens. Lux leaks showed how major corporates used Luxembourg to avoid taxes.
A Brief History of Taxation
History of taxation is as long as the history of civilisation. First records of taxes were in Egypt around 3000 BC, where a fifth of all crops was given to the Pharaohs. Taxation was also prevalent in other ancient cultures like Greece, Roman, Aztec, Mughal emperors in India.
Early forms of taxation related to sales, purchases, import duties, taxes on property and even a head tax. During Greek and Roman times property taxes were levied to provide additional funding to fight wars. Modern forms of taxation began with the growth of imperial Europe and industrialisation, when taxes on doing business, became as valuable as taxes on farming.
Then as now, taxation was often a topic of political controversy. It was the refusal of American colonists to pay tax to the British which sparked the war for independence and the slogan – “No taxation without representation’. Resentment of taxation was also a significant factor in the French Revolution.
First World War saw an escalation of taxation and taxes continued to be high after the war to fund increased public services. The New Deal in the USA in the late 1930s, the 2nd World War, the funding required for public services like health, education and the Cold War led to high levels of taxation being a permanent feature in most countries. Rise of capitalism also required taxes to be levied to transfer wealth and reduce levels of inequality.
The last major shift in taxation began in the 1980s with the advent of neoliberalism. Ronald Reagan and Margaret Thatcher supported by neoliberal economists like Milton Friedman started a shift towards smaller government and lower taxes. A belief that this would spur economic growth which had stalled following the oil price hikes in the 1970s. Spur growth, it hasn’t, economic growth between 1950 and 1970 was higher than the periods following.
We have a seen a wide divergence in tax and welfare policies since the 1980s between countries like Scandinavia, France, Germany and the Anglo-American countries – USA, UK, Australia, New Zealand. Anglo American countries have moved to cut taxes and reduce public services and welfare, along with deregulation leading to sharply increased inequality. European countries have managed to retain relatively higher levels of taxation, a good standard of public services and lower levels of equality.
The starkest extremes are in the USA. Tax cuts have been so lopsided that the wealthiest 400 billionaires now pay a lower level of tax than everyone else including the bottom 10% of earners. The billionaires now pay less than half the rate they used to pay in 1962, while their wealth has increased a staggering 24 times at the same time.
Impacts of reduced taxation
“The missing money means schools not funded properly, hospitals not built. For Russian people it’s not funny money, it’s killing them.” – Elena Panfilova, the Moscow head of Transparency International, on élite Russian money stashed in Europe
Since the 1980s we have been cutting taxes for the rich and corporations while cutting benefits for the poor, Robin Hood in reverse. Tax cuts sometimes by more than 50% and a plethora of loopholes have led to poor healthcare, education, food insecurity, higher mortality rates etc. Deregulation and vastly reduced influence of unions has led to very insecure jobs while at the same time reducing the safety net for those who lose jobs.
In developing countries, the effects are far worse. Governments are struggling to provide even the most basic services, people starve or even die due to lack of food and healthcare.
“At some point . . . such conduct passes from clever accounting and lawyering to theft from the people.” – US Internal Revenue Service, in a case dealing with KPMG’s “phoney tax losses.”
“The agents who create and maintain this secrecy space include some of the most powerful and privileged elites with society. It is bankers, lawyers and accountants who create and operate the corruption interface linking illicit activities to the mainstream economies.” – John Christensen, Director, Tax Justice Network
“Offshore companies bled Guinea’s resources, facilitated by western lawyers, accountants, advisers.” – Alpha Condé, president of Guinea, Jan 2014
The enablers- tax accountants, lawyers, bankers make large sums of money helping these companies to avoid taxes. These professionals, along with trade associations like The Institutes Chartered Accountants and CPAs lobby to influence tax regulations favourable to their clients, loopholes open. Our accountants and lawyers, use our public education systems to get their education, use the same knowledge to rob public coffers that paid for their education.
Our accountants and lawyers, use our public education systems to get their education, use the same knowledge to rob public coffers that paid for their education.
The Big 4 Accounting firms like KPMG and Deloitte are particularly pernicious in lobbying and peddling their ‘products’ to help avoid taxes. PWC wrote Luxembourg’s tax regulations to establish the tax haven.
They will tell you that tax avoidance or using loopholes in the law is legal and acceptable if not ethical. What they conveniently forget is that they influenced and lobbied to keep these holes open, in some cases reopen those that have been closed. They even push authorities to punish whistleblowers with criminal charges. In Luxembourg, it was the good guys, the whistleblowers who were charged, on a complaint by PWC. They push schemes which are likely to be considered illegal, because any penalties will be wet bus tickets, compared to the money they stand to make.
Have you ever examined UK trust law? All our bankers and financial lawyers say that if you really want to hide money, go to London and set up a trust – Luxembourg politician talking to UK MP Dennis MacShane, after he had complained about bank secrecy
However hard it is for them to enter the Kingdom of Heaven, the super-rich has no difficulty entering the United Kingdom of Tax Haven. – MichaelMeacher, UK Labour MP, writing about Britain’s domicile rule, 2007.
Tax havens are countries or states or territories, who charge ultra-low tax rates, sometimes zero tax. To help corporate and wealthy individuals avoid taxes in other countries. The name tax haven may sound like a tropical island in the middle of nowhere; the reality is different. The USA now ranks as the 2nd largest tax haven in the world in terms of tax dollars avoided; over twenty states offer significant tax benefits to foreign corporations. Five of the major tax havens are British territories, including the largest tax haven in the world – Grand Cayman Islands. Two biggest financial centres of the world – Wall Street and the City of London are the hubs that act as conduits to tax havens. It doesn’t end there, many prosperous, seemingly respectable countries are also tax havens – Netherland, Luxembourg, Ireland, Switzerland, Singapore, Hongkong, Dubai.
The USA now ranks as the 2nd largest tax haven in the world
Most of these countries are supposed to be bastions of democracy, hold the interests of ‘We the People’ supreme, it doesn’t appear to be the case. In the words of Leona Helmsley, property heiress “We don’t pay taxes. Only the little people pay taxes”. In the words of Warren Buffett – “I pay a lower tax rate than my secretary”.
The effect on developing countries is a significant drain of funds on people who can least afford it, live below the poverty rate of $2.50 per day.
“A Labour Chancellor will not permit tax reliefs to millionaires in offshore tax havens.” – Gordon Brown, Hansard, 1998
Not just a light touch, but a limited touch . . . a million fewer inspections every year UK Chancellor Gordon Brown, 2005, as he launches his “Better Regulation Plan.”“In 1995, Congress adopted legislation intended to limit securities litigation … insulated from the suits, the accountants now willing to take more ‘gambles’. – Joseph Stiglitz, in his book The Roaring Nineties
Ronald Reagan and Margaret Thatcher made taxes unfashionable. Tax cuts for the rich and corporations were staggering, some nearly halved overnight. Politicians are part of the problem. Many of them held a misconception, without any evidence that lower taxes boost the economy or lower taxes encourage greater compliance.
They are also highly susceptible to lobbyists who promote loopholes, especially if they come bringing gifts, hefty campaign donations. Laws are often designed to fail. They are also hypocrites – what they say during the election campaigns are quite different from what they do once in power as quotes above from Gordon Brown illustrate. What they say in private to their backers is quite different from what they say in public. Tax cuts are often followed by slashed welfare for the neediest people in society.
The Good Guys – The Tax Activists
Several activist organisations are fighting against overwhelming odds to make a dent in the tax avoidance/evasion industry. Tax Justice Network https://www.taxjustice.net/, operates out of UK with branches around the world, including in New Zealand https://taxjustice.nz/. They use their website, a monthly podcast, lobbying to create awareness and push governments, regional and global organisations like the EU, OECD.
International Committee for the Reform of International Corporate Taxation (ICRICT) is another prominent activist organisation https://www.icrict.com/the-commission); who include Nobel prize-winning economist Joseph Stiglitz and another influential economist Gabriel Zucman, amongst its members. There also US-centric organisations like Citizens for Tax Justice.
Whistleblowers, journalists and news organisations are essential assets in the fight against tax theft. Several high-profile investigations which have received attention include the Panama Papers, Paradise Papers and Lux Leaks.
Global Tax Action, or is it inaction?
”It does not surprise anyone when I tell them that the most important tax haven in the world is an island. They are surprised, however, when I tell them that the name of the island is Manhattan. Moreover, the second-most-important tax haven in the world is on an island. It is a city called London in the United Kingdom.” – Marshall Langer, a leading pro-tax haven analyst, Tax Notes International, 2001
“The game plan is to be positive but hope as little as possible happens,” is how Paul Oosterhuis, a tax partner of Skadden Arps, the US law firm
There is an OECD initiative to reduce tax avoidance since June 2016. There is some progress; however, significant problems remain and significant roadblocks. The primary and possibly intractable problem is that OECD countries account for 50% of tax avoidance globally, therefore unlikely to agree on any significant reduction to their revenues. For some of them like Ireland and Luxembourg, tax haven revenues ‘stolen’ from other countries are a substantial part of government revenues.
There could be progress if major countries like the USA and UK support these initiatives. Unfortunately, they are both significant tax havens. The Trump administration has even gone to the extent of threatening retaliation against any attempt by countries who are initiating tightening of tax avoidance laws.
EU has been trying to reform international taxation in Europe for years. These initiatives have failed to produce any significant reforms or even transparency, blocked by tax haven countries within the EU.
How are taxes avoided?
Corporates and Rich Listers
The same mechanisms allow tax evasion, tax avoidance, corruption, and organised crime money to flow — it’s all the same. We have left these loopholes open because it’s beneficial to multinationals and the rich. To be able to structure their money to minimise tax, we let a hell of a lot more going on under this. – Anthea Lawson, Global Witness
A recent news item highlighted the ‘Double Irish Dutch sandwich’ used by Google to avoid tax. Tax avoidance typically involves a company that is a subsidiary of a multinational group registered in a tax haven charging for services to companies in the group operating in other countries. Income in the tax haven is taxed at a very low rate, while the company gets large tax deductions in high tax countries.
Royalty payment, Licensing Fees – while R&D for product development or brand building is done mainly in their home countries. For some inexplicable reason, corporates are allowed to register these in tax havens. These payments can be quite large as they are unique and cannot be easily compared to a market price. For companies like Google and Apple, these fees can be $billions for just one year.
High Value, High-Interest Loans between branches –Loans are given to subsidiaries in high tax countries at high-interest rates. Tax on interest income in tax havens is minimal while saving in tax bills around the world.
Round Tripping –Sending money to countries like Singapore, Hongkong as Foreign Direct Investments and getting cash back as Foreign Investments.
Complicated transactions using tax havens – An example would be the ‘Double Dutch Irish sandwich’ which uses Netherland, Ireland and Bermuda.
Using Foreign Trusts – Used primarily by rich listers, income is transferred to a Trust in a tax haven, paying little or no tax on such income. New Zealand is highlighted in the Panama papers scandal as a place used to register foreign trusts. No beneficiary information was required at the time, making it an ideal place to hide assets and income.
How the little guys do it
Trusts – A high earner using a trust to distribute profits to children, who will pay at lower tax rates is a legitimate way to reduce taxes.
An article in Spinoff, written by Michele Duff outlines some of the ways commonly used by small to medium tax cheats. Most of the tax saved by the little guys is tax evasion or breaking the law and punishable if caught.
The hidden economy or the ‘black’ economy is a significant part of small to medium tax evasion. A contractor might tell you that he can give you a lower price if you pay cash, as part of the bargaining process. A restaurant will fail to ring through cash sales and pay some wages in cash, avoiding GST, PAYE and Income Tax, a triple whammy. A construction company will pay some salaries in cash, avoiding PAYE.
Cash is king for tax cheats, including restaurants, retailers, contractors, it’s easy as pocketing it instead of putting it through the books.
They have their helpers too, from friendly accountants who identify loopholes to money launderers and suppliers in the black economy.
How to make them pay
The solutions are not technically challenging, but politically almost impossible, presently
The good news is that we can fix tax injustice, right now. There is nothing inherent in modern technology or globalisation that destroys our ability to institute a highly progressive tax system. The choice is ours– Gabriel Zucman and Emmanuel Saez
Tax Justice Network and economists Gabriel Zucman/Emmanuel Saez propose a Unitary Taxation system. Country by country reporting of revenues can be used as the basis to allocate worldwide profits to each state. Each state will collect their tax based on its Corporate Tax rates. Any uncollected tax will be paid in the home country. This ensures that taxes are paid where the economic activity takes place, rather than where tax rates are lowest. Removing the incentive for companies to book their taxes in tax havens.
Gabriel Zucman and Emmanuel Saez also propose a wealth tax, supported by a global wealth registry and adequately resourced audit function. Furthermore, sanctions against tax havens.
The oft-repeated mantra that the current tax issues due to the advent of digital and online businesses are just a red herring. We do have a problem collecting taxes from digital companies. However, we lose much more money due to the inability to collect taxes from traditional brick and mortar multinational companies. Tax havens didn’t spring up overnight; they have been there for decades.
The mantra that the inability to collect taxes is due to the tax system not keeping pace with globalisation is also a red herring. The problems are due to our politicians looking away and even colluding with the rich and powerful. To weaken our tax system, winking at those who are avoiding and evading taxes.
It is no longer seen as unpatriotic to avoid taxes, not since Reagan and Thatcher started attacking the government as the problem.
“That $500m could pay for 26,000 hip operations, 4,000 doctors or 7500 cops. A boatload of money” -James Shaw – Leader Green Party
“Certain industries are more susceptible to profit shifting and playing games with us. Logically that’s where we put more resources in terms of monitoring”- John Nash, IRD Manager, International Audits
A New Zealand Herald investigation in June 2017, into multinationals operating here highlighted that 20 of them paid only $1.8Mn tax on $10Bn revenue in New Zealand. Just two companies BP and Caltex paid only $4Mn tax on $5Bn of income, some of them even claimed tax refunds! Herald estimated tax lost at $490Mn. https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11607336
Two companies BP and Caltex paid only $4Mn tax on $5Bn of revenue
World Bank estimated the size of our ‘hidden economy’ in New Zealand at $20bn per year, that is 10% of our GDP. If we calculate the loss in taxes at say 20%, that is $4bn every year. Which could have paid for hospitals, better wages for our public servants, a more decent life for our beneficiaries and less tax for all of us ordinary taxpayers.
Progress on tax avoidance and evasion
“The new law will address the problem of companies operating cross-border and using aggressive tax structuring to reduce the tax they pay, the first step towards a better, fairer tax system” – Stuart Nash, Revenue Minister
The Taxation (Neutralising Base Erosion and Profit Shifting) Bill passed in 2018 is a ‘first step’ on tackling multinational tax avoidance. Inland Revenue has also given guidance on maximum acceptable charges for intercompany loans and royalty charges, aimed at putting pressure on these companies. They estimate an increase in the tax take of $200Mn from these changes. We are yet to see if these changes will have the desired effect.
How they do it
No Tax Haven Involved
Company Straight A– Makes profit of $100Mn operating in Country X. Pays Tax of $30Mn at a corporate tax rate of 30%.
With Tax Haven
Company Crooked BB a subsidiary of Company B– Makes profit of $100Mn in Country X
Company Crooked BC, a subsidiary of Company B, is registered in Tax haven Bermuda, where the tax rate is 1%. BB pays tax on royalties of $50Mn at the 1% tax rate, $0.5Mn.
Company Crooked BB now makes only $50Mn after paying royalties; the tax bill is now half of what it should have paid – 30% X $50 Mn = $15Mn
Total tax for Company B who owns BB and BC is now $15.5Mn, compared to Company Straight A who paid $30Mn for the same profit.
A saving of nearly 50% or is it theft?
The triumph of injustice – Gabriel Zucman, Emmanuel Saez
The Hidden Wealth of Nations: The Scourge of Tax Havens – Gabriel Zucman, Emmanuel Saez