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Jobs, shelter, food and clothes for

all

New Paradigm Economics Beyond

GDPMortgage relief and jobs in a post fossil fuel

economy

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New Economics Party proposal

This slideshow has been created by Deirdre Kent with members of the New Economics Party of New Zealand. Deirdre is the author of Healthy Money Healthy Planet –Developing Sustainability through New Money Systems

Contact her deirdre.kent@gmail.com or on twitter @deirdrekent

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Six Sections to the slideshow

1. Symptoms, the presenting problems.

2. The Role of Government

3. Diagnosis

4. A New Approach Needed

5. The Cure. Proposal in ten steps, with its results

6. Actions to take

Section OneThe symptoms of a separate worldview – global hyperconnectedness, energy cliff,

climate change, tax havens, habitat destruction

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Global connectedness now

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Financial contagion

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Issues – economic, social and

environmentalWater security, food shortages, debt, youth unemployment, derivatives fraud, terrorism, cybersecurity, rising greenhouse gas emissions, energy crisis, land mismanagement, storms, floods, droughts, demonstrations, riots, war, refugees, tax avoidance, austerity measures, currency crises, banking crises etc.

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A world in crisis

Have we stretched things to the limit?

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Risks are hyperconnected

“A crisis in one area will quickly lead to a crisis in another. Attempts at managing them are fragmented and simplistic and are not up to the challenge.” – David Sherman, Business Strategist, Northeastern University, Boston after World Economic Forum Global Risks, 2013

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We are a single closed system

“Human society is becoming so integrated that it is like a single closed system that encompasses the entire globe. The crisis we are facing now is actually very unique. We are all close together in the same system and we can no longer do whatever we want.”

Dr Michael Laitman, biocybernetics, ontology, Israel in the movie Crossroads: Labor Pains of a New World View. http://www.youtube.com/watch?v=5n1p9P5ee3c).

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Global Warming

There is little time left to reverse climate change and life on Earth will become more unbearable with frequent storms, droughts and floods. Severe weather events damage the New Zealand economy and raise food prices for all.

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Drought on the West Coast

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Tax havens are a result of poor tax

policiesGovernments lose a great deal of their tax revenue because they don’t tax land. Unlike other assets, land can’t be hidden in offshore tax havens. A 2012 report from the Tax Justice Network estimated that between USD $21 trillion and $32 trillion is sheltered from taxes in unreported tax havens worldwide. That is over a third of the global GDP. In New Zealand between $1b and $5b is lost in tax evasion.(1)

1. Dr Lisa Marriot, Victoria University on Mind the Gap documentary, TV1, 29 Aug, 2013)

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It’s catchy

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People need sufficient food, clothing, housing and satisfying work for human dignity. They also need loving relationships and enough leisure.

We MUST reverse environmental damage like climate change, loss of species, depleted soils, deforestation etc.

The economics of happiness

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Why should I care?

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

New Zealand is now in the top four in the world for income disparity with USA, Portugal and UK (R Wilkinson and K Pickett, The Spirit Level. See also Born for Love: Why Empathy is Essential and Endangered Maia Szalavitz and Bruce Perry)

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After a certain level of wealth, people don’t get any happier. The widening gap between

rich and the rest hurts all.

(Inequality A New Zealand Crisis ed Max Rashbrooke)

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Poverty in New Zealand

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As energy returns decline, governments

get desperate

It used to take one barrel of oil to get 100 barrels of oil.

Now you get less oil for your one barrel of oil.

(EROEI is Energy Returned on Energy Invested)

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The economy needs energy

We can’t continually have economic growth as measured by GDP because it is dependent on energy and energy returns are falling. So GDP growth is falling.

The result is that

• Governments smile favourably on fossil fuel exploration.

• Banks lend on fossil fuel exploration and extraction. They also lend on mergers and acquisitions so that corporates can influence governments.

• The post fossil fuel economy will need many new inventions, new businesses and the liquidity to allow them to succeed.

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Section Two

•The Role of Government

24economysecurity

A tax system to suit the banks

banks

government

the peoplehouses and other

improvements

landtax labour, sales,

and enterprise

no land tax you tax labour

loans

valueexpressedin interest

bearing debt

laws

less

pu

rch

asi

ng

p

ow

er

tax

paym

en

ts

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All Levels of Government are

important

Why is central government important? Community champions have been advocating strong, vibrant local economies for decades. But central Government policy has never yet provided the right conditions. Governments should make the rules, then get out of the way.

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Politicians decide tax, money and welfare

systems

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Won’t local currencies be enough?

Community currencies are great, but they need capable and dedicated administrators and often depend on grants from government and other sources.

Community currencies, however, can’t generally provide finance for housing, farms or other business investment.

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What we need

An economic recipe to feed the hungry, reverse climate change and build good houses. Jobs need to return to the provinces. We have to remove the growth imperative yet have a thriving economy. So let’s find a way to provide liquidity for all the many businesses necessary in a post fossil fuel economy.

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What other outcomes do we want?

People need to get out of debt and worry less about money. Families need enough to feed their children and our youth need training and jobs.

NOTE: What this slide show will not mention is how to “get on the property ladder” as nobody should make money from the “ownership” of land. Life is not a competition and we need to rediscover the economics of co-operation.

Section 3 Diagnosis

•An illogical tax system, a destructive money system, an out of date welfare system and a precarious shadow economy

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It is an illogical tax system

We currently tax labour, sales (GST) and enterprise (company tax). This is illogical if we want to encourage work, trade and initiative. In New Zealand these taxes comprise 79% of our revenue. The tax system has grown in a rather unconscious way and it is time to rethink it.

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Banks reign

Banks get the best security – land. They benefit from rising house prices.

Government has to be content with revenue coming from less secure sources like labour.

We need to weaken the link between banks and land and strengthen the link between Government and land.

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What should we tax?

“We should tax the things we hold or take, not what we do or make.”

Bob Keall in Resource Rentals for Revenue paper

Each site is given value by...

Site

Government

Local Businesses

Local Government Social

Organisations

Nature

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What are resource taxes?

Property owners hold a monopoly on ‘their’ land. Since some land is more valuable than others, those landholders should compensate others for this privilege. Those who have the monopoly use of resources supplied by nature like water, minerals, radio spectrums should compensate others. And those whose products cause harm others should pay up too e.g. tobacco, alcohol, gambling, pollution.

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As landowners gain from rising land prices, wealth is concentrated with landowners and banks.

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The tax system should encourage long term

investments

When you don’t tax land or resources, money goes into bidding up the price of assets not into real production. When you tax labour and sales and enterprise everyone’s purchasing power is diminished. We need to ‘clear the path’ for job creation by untaxing labour and taxing land.

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A destructive money system

Our money system results in widening of the gap between rich and poor, growing debt, habitat destruction from the growth imperative and instability. And because everyone is competing to pay their debt with interest, it also shapes our behaviour towards being competitive rather than cooperative.

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A money system to suit the banks

When banks create money as interest bearing debt

Competitiveness

Growing debt

Wealth concentration

Instability

Growth imperative which leads to

habitat destruction

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The parable of the eleventh round

Once there was an island where ten families swapped goods, chickens, pigs etc

A stranger came and said they should improve the system. He cut up a hide and gave each family ten rounds of leather.

He asked them to pay it back next year with 10% interest.

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Where does the eleventh round come

from?After a year of competitive trading, many families manage to get their 11 rounds.

But some don’t manage it, so have to go back to the stranger to ask for another loan. They go further into debt.

This is what is happening now. For more information on the money system see http://positivemoney.org.nz

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When banks create the principal but not the

interestThere is never enough money in the system for everyone to pay back their debt so someone has to go further into debt to pay the interest.

This means the total money supply has to keep increasing.

This means economic growth must continue – the growth imperative!

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Growth imperative

When climate change talks fail because nations prefer economic growth and when this growth imperative is caused by the currency system, why do we keep it?

A no brainer

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Widening the gap

If the money system and the tax system keep widening the gap between rich and the rest, why do we keep it?

A no brainer!

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A welfare mess

Means tested benefits are costly to administer and result in the benefit trap where you can only earn so much or your benefit is cut. A plethora of government income support programmes result in a complicated and expensive welfare system quite unsuited to the 21st century.

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The Shadow Economy

Off the balance sheets of banks is a huge and dangerously precarious shadow economy. Derivatives are bets on the value of something else, usually a stock or bond, a security or an interest rate. The notional value is the size of the thing that you are betting on and that is now over $700 trillion* or 10 times the size of the global economy. A default could lead to an even greater crisis than the 2008 global financial crisis. In this game of musical chairs there is only one seat for every 100 or more players. *Bank of International Settlements 2013

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“Derivatives are

financial weapons of

mass destruction”

Warren Buffett

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Starve the banks!

The gigantic and growing shadow economy is very weakly regulated, even after the Global Financial Crisis. Derivatives were at the heart of the Global Financial Crisis. Banks are now both too big to fail and too big to jail. The wealthiest top 1% can now easily influence Governments.

So if we can’t control them, let’s just starve them by starting up a second national currency. Yes, we are advocating the unthinkable!

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The big four Australian banks use

them tooWestpac, BNZ, ANZ and ASB, which hold 92% of NZ mortgages, are all Australian owned. But they are really global companies. Major shareholders include HSBC Custody Nominees, JP Morgan Nominees Australia, National Nominees, Citicorp Nominee .

They are all hugely exposed to toxic derivatives. “Even if 1% of these contracts default because third parties get into trouble, the whole shareholder wealth would be wiped out and the banks could be broke” Adele Ferguson, senior business writer and columnist for The Age and Sydney Morning Herald.

Section 4 A New Way of

Thinking

•Why we need a systems approach and a completely new model.

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Time to think differently?

We can’t solve our problems with the same level of thinking we used when we created them.” Albert Einstein

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New type of thinking?

“You can’t change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” Buckminster Fuller (engineer, designer and inventor)

e.g. Wikipedia replaces Encyclopedia Britannica, Model T Ford in 1908 changed the transportation system, email is replacing postal mail

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A glimpse of hope

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We plan a second currency designed to

flow like blood

This currency will flow freely to all parts of the country unimpeded by taxes on work, sales or enterprise. It won’t pool in any city or coagulate in anyone’s bank account. It will incentivise its users to invest long term. It will nourish each local economy and reward enterprise and work.

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A good currency flows like blood

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Designing a currency

A well designed currency system is a powerful agent for change. It can build in incentives for import substitution. It can shape behaviour towards co-operation and generosity. In the event of a financial crisis it can be the deciding factor between resilience or collapse.

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Currency design can affect behaviour so that generosity

becomes the norm

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Currency creation is a country’s sovereign

right

New Zealand should have tino rangitiratanga (or absolute sovereignty) over its right to design its own currency system and not let privately owned banks take charge of this. We want an ecosystem of currencies, not a monoculture.

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So the challenge is...

We have to bring about major reforms to the currency system, the tax system and the welfare system but do it in a way that doesn’t shock the economy.

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It really is a living system

We must treat all the above problems as a whole system containing patterns which mustn’t be broken. We must keep the relationships. This means we have to choose where to intervene to get the most leverage. Treating one thing in isolation won’t work.

A family is a system. Family therapists presented with a troubled child treat the family as a whole system, choosing the most effective intervention.

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Intervention Level in order of effectivenessParadigm – deepest held beliefs driving the system

Goals –what the system is trying to achieve

Structure – as a whole, e.g. enhancing connections

Feedback and delays – self-regulation, self-reinforcement, adaptation

Structural elements – subsystems, actors and the physical structure of a system

(Source: http://www.donellameadows.org/)

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Which intervention gives us the biggest bang for

our buck?Systems theory says change major paradigms (the common assumptions and beliefs) about the currency system and the basis of taxation.

And we need to change the goals. The true aim of a vibrant economy is not growth. Growth of GDP is what is killing the planet. People can thrive without economic growth. The economists assumption that we can keep going as we are is wrong.

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UBI would shock economy

Universal Basic Income or a full Citizens Dividend, if suddenly introduced, would shock the economy with inflation. These three reforms of tax, currency and welfare reform if done separately would all shock the economy. But when done together and introduced gradually as a small but growing Citizens Dividend, they won’t disrupt it.

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The new thinking is..

We aim to create a new parallel national currency and link it to a very different tax and welfare system. This currency will grow slowly. We must introduce it gradually and monitor its effects closely to avoid inflation.

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Imaginal cellsWhen a caterpillar has eaten enough, a new type of cell (called imaginal) emerges with a new type of thinking. They start to build a butterfly.

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So meanwhile in the undergrowth something is emerging

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If we do monetary reform only

If interest rates drop a surge of money goes into housing – a housing bubble. There has to be something to stop it. A capital gains tax is not good enough. If all money is created by Government at zero interest, it doesn’t create jobs because you haven’t swapped income tax for land fees. Besides, wealth still pools with landowners especially those whose land benefits from new infrastructure. You need to unblock the riverbed so that money flows into production.

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Introducing land tax alone is political

suicideYou can’t just add a land fee because it is an extra tax. People already pay for their mortgage and they pay rates or local taxes. Why should they pay a third? So it is not politically feasible. The point of a land fee is that you must untax labour and sales at the same time. Despite many tax reviews recommending land tax in New Zealand, no government has implemented those recommendations.

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Land and Money the Siamese Twins

If we had monetary reform without tax reform, then we would have a housing bubble. And if we had land reform without addressing the money system as in Hong Kong, the banks get up to all sorts of mischief.

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Land and money are Siamese twins

Section 5 Proposal for a Cure

•Linking a new currency to tax and welfare reform and designing it to circulate without tax impediments.

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The next ten slides explain the ten steps

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Step One

Allow Treasury to create Tax Credits. Make them dated. That means they are acceptable for the payment of tax until that date. They turn into a pumpkin at a certain date so naturally people want to spend them and keep them in the country. Like Flybuys loyalty points they drop off if you don’t use them.

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Step Two

Treasury offers to buy the land of anyone who volunteers. Treasury uses Tax Credits to pay for the land. From then on a land fee is payable for that land but the title remains with the property owner .

Use contract law to set land fee

• Each property owner negotiates with government to set the land fee.

• They will negotiate with government and sign a contract to pay a regular land fee in exchange for having their land paid for. They make sure they have a financial incentive before they opt in, so the final sum agreed will be less than they paid before in mortgage and rates.

Property owner contracts with Government

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Step Three

Link the new currency to a completely new tax system. Trades in the new currency will not incur income tax, sales tax or company tax.

..new currrency, new

rules..Currency

No income tax, GST or company

tax, only resource taxes

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Step Four

The land fees would be shared by central Government and the relevant local Government (in New Zealand we have only central and local Government). No further rates (local taxes) would be payable.

Central Government

LocalGovernmentshare revenue

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Step Five

Land fees would not be linked to inflation but to the site rental value of the land. A Land Fee Index would be established for each area by taking a sample. Land fees would only rise if new public infrastructure was built and would only fall if there was an earthquake or subsidence or, say, a rail link was discontinued. They vary very little over time otherwise and are not subject to reviews, only to the index. So there will be no sudden rises!

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Step Six

Tax Credits and New Zealand dollars could be freely traded. Tax Credits are issued at par and redeemed at par. In between the value will depend on market sentiment. However, because Tax Credits are dated, they would need to be in New Zealand at the time of the expiry date. Importers will need the trading currency NZD and employers will favour the new Tax Credits.

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Step Seven

• Treasury will refresh and redate the Tax Credits they receive, and from time to time will issue all men, women and children with a Citizens Dividend in Tax Credits. Thus the land fees are shared with the people. It will be digital only. It will be on a dual currency debit card like Kiwibank’s Loaded card.

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Step Eight• Resource taxes are imposed at source

on the monopoly use of any part of the commons e.g. Coal, oil and other mining, fisheries, water, radio spectrum etc. Revenue to be shared by central and the relevant local government.

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Step Nine• The homeowner who has been paid in Tax

Credits uses them to repay their mortgage or to make a long term investment. They will also pay land fees in advance. As they must be used for New Zealand-sourced goods or services, Tax Credits cannot be spent on overseas travel or on imported goods. This encourages import substitution manufacturing e.g. wool insulation of homes, food products, clothing, furniture, fuels, natural paints and other NZ-sourced building materials.

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Step Ten

• As people spend their Tax Credits on labour intensive industries, production will flow to the regions. Organic farming, smaller farms, improvement of land will result from more labour input and less fossil fuel input. Businesses with a low carbon footprint will thrive because of this new capital injection. And the price of houses on land paid for by Government will halve.

But what about Maori land?

• Communal ownership of land is not a new concept to any indigenous people.

• This scheme is voluntary with the exception of foreign owned land where conversion will be compulsory.

• A long process of negotiation hapu by hapu and/or iwi by iwi will be required to clarify any proposal for a new law.

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The plan in action

• Here are some examples of what might happen.

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Woman in Auckland

• A 42 year old solo mother (one child), full time student owns her suburban house. Land is worth $200,000. Land fees negotiated to be TC10,000 a year so she pays two years in advance leaving TC180,000. She decides to build a second storey so she can rent it out. No tax or sales tax on all trades in Tax Credits. No more rates.

Young couple buying first home

• The Government buys the land with Tax Credits and the couple buy the house, using an ordinary mortgage. So the young couple only has to pay for the house, not the land.

• They negotiate to pay a land fee to government which would be less than the sum of their land mortgage plus rates.

• The vendor uses mixed currencies to buy their next house.

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Couple on small lifestyle block

• In their early sixties. He commutes to the city. Land worth $340,000. They want to develop the block to produce an income. They pay land fees in advance, then pay for labour and for buying fruit and nut trees. They plant a cash crop (say pumpkin or garlic) which they sell within New Zealand. They pay a permaculturist for advice and for labour to plant a food forest. They insulate the house and build fences.

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Ground rent paid early

• By now you can see the trend. People use their Tax Credits payout to pay taxes in advance. This is why the Government, after sharing some of the bounty with the relevant local bodies, is able to distribute a Citizens Dividend quite early.

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We have a mortgage

• Our land value is worth $90,000 and we are in our early thirties, a nurse and a mechanic in Opotiki. We used to pay 5.5% fixed mortgage or $4950 on our land, plus $2015 in rates a year, total $6965. So we get the Government to pay for our land and our contract settles at $5900 a year, making a saving of $1065 a year.

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I am an absentee owner of five

Auckland homes• The government decides to force me to

sell my land to them. I own five expensive homes in Auckland and the total land fees are exhorbitant so I decide to sell all properties. I can only spend these Tax Credits in New Zealand and I don’t live here so can’t spend them. I could cope with the rates but these land fees are many times higher and I have to sell. The houses are bought by New Zealanders.

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When people receive a small Citizens

Dividend• Remember that Citizens Dividend paid to all

citizens. Imagine finding you have 50 Tax Credits in your bank account or on your multicurrency debit card from Kiwibank. Spend it in a mainstreet shop, Four Square store or supermarket for NZ produced food. Spend it on local entertainment. Use it to pay part of your power bill (the company also needs NZD). The Government has a role in persuading Fonterra, power companies and others to accept it for part payment. Buy New Zealand is now possible!

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A caregiver receives more

• I am the mother of five kids and I struggle financially. My partner and I both have casual work. We decide I will be designated the chief carer so I receive six Citizens Dividends or six lots of 50 Tax Credits. Because I know it will rise, I can now plan to give up my cleaning job and care for my children myself. Some school fees are payable in Tax Credits. I give my 14 year old her share so she can use it for clothes (without going to the mall).

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I am an inventor

• But I make very little money as I love the inventing side but not the promotion or production side. I just want to invent more things. The Citizens Dividend is now helping so much that I am in heaven. I can invent to my heart’s content and even sell my inventions to production companies.

Section Six - Summary and

Action

•What we have done

•What you can do to further discussion on this proposal

What we have done• We have invited property owners to opt in to

a scheme whereby Treasury pays for the land in a new specially designed currency called Tax Credits.

• We have used contract law so we don’t have to legislate. Negotiation discovers a land fee, corrected annually by a land fee index.

• The circulation incentive and fact that they are not burdened by taxes means Tax Credits nourish small business and investment.

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What can you do to help?

• Ideas catch on if they are good. Nobody owns them. This idea could be applied in all countries. Do we have to wait for financial collapse before we solve our political problems? Do we have to wait till our planet is unliveable?

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Things you can do• Visit and join the site of the New Economics Party

http://neweconomics.net.nz. Become a financial member.

• Go to our Facebook page http://www.facebook.com/NewEconomicsParty.

• Discuss the issue with your friends and family and online.

• An article on this is on a blog at http://neweconomics.net.nz/index.php/2013/06/how-to-build-a-life-supporting-economic-system/

• Contact us info@neweconomics.net.nz.

Thank you!

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