Fair Or Unfair to Middling ?

Gareth MorganEconomics

Gareth Morgan, Director of Gareth Morgan Investments

Desperately out to capture votes before his party is dropped into a black hole, Paul Keating has been tossing blues around this last week. Amongst his initiatives was the introduction of a payment of $30 per week to parents at home caring for children. This payment is targeted at the people who aren’t poor enough to qualify for welfare assistance, yet without high enough income to receive the income tax cuts Hewson has promised as compensation for GST. As has happened in NZ, Australian social initiatives are targeted at the poor and income tax cuts at the higher incomes group. In the middle lies the bulk of voters – squeezed by a higher total tax burden and racked by substantial job loss as microeconomic reforms work their way through.

The consequence of this barbell emphasis on fhscal redistribution has in NZ at least, been to foster high political despondency amongst the middle income group. This cohort have been subjected to a number of economic strains since the mid- eighties which are manifest in various social breakdowns: (1) Accelerated obsolescence of white collar skills from the commercialisation of the microchip, exposing the economy to international competition, and the domestic rationabisation deregulation has wrought – has thrust significant numbers onto a labour scrapheap with little prospect of that fate being ended soon. (2) An income vice gripping middle earners’ discretionary income is a result of a higher tax burden and the permanent removal of negative real mortgage interest. (3) The emergence of significant numbers of latch key kids as income pressures keep both Mum and Dad full time at the office. The pathetic spectre of children going to school with their medicine in their satchels, and being home alone during holidays and after school, is an indictment of the distorted priorities income-pressured parents have given child care.

Should there be wonder that the middle income group find themselves so much alienated from the wondrous results of economic reform? In NZ their disillusionment was last year voiced emphatically in the referendum on the political system. But we may well yet see NZ politicians follow the initiative Paul Keating has made and design specific fiscal measures to appease this group’s hostility. There is a raw political opportunity here to confront the economic rationalist policies which have been widely unpopular, notwithstanding their potential to deliver medium term benefits, and no matter how necessary they’ve been.

The current economic policy disintegration in the UK is an example of the sudden political reversals economic policies which fail to deliver tangible benefits soon enough, can generate. Desperately seeking economic recovery, that government is now all but abandoning Thatcherism, at least in its original form. The budget deficit is ballooning, monetary policy is targeting growth not price stability, and the Pound is in steep decline. 3 million unemployed has before in Britain been the threshold which breaks policy commitment.

Clinton’s pro-active fiscal policy and Britain’s about face, both suggest NZ may well fall victim to the pressures of voter disillusion yet.

Fair Or Unfair to Middling ? was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.