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Jobs, shelter, food and clothes for all

Sustainable economics without

fossil fuels Currency, tax and welfare reform together. New

political solutions for climate change and inequality

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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 so you have to either pay more tax or be prepared to receive less education and poorer health services.

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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 desperateIt 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.

• Banks also lend on mergers and acquisitions so that corporates can influence governments.

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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

purc

hasi

ng

pow

er

tax

paym

ent

s

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All Levels of Government are

importantWhy 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.

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 reignBanks 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

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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 tax labour but not land or resources everyone’s purchasing power is diminished. Money goes into bidding up the price of assets instead of going into real production.

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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 debtWealth 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 keeps 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 EconomyOff 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 $1.2 quadrillion or nearly 20 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.

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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.

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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 bloodThis 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 is 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

rightNew 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. Even if all money is created by Government at zero interest, it doesn’t create jobs because you haven’t swapped income tax for land tax. You need to unblock the riverbed so that money flows into production. Besides, wealth still pools with landowners.

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Introducing land tax alone is political

suicideYou can’t just add a land tax 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 tax is that you must untax labour and sales at the same time and this is tricky to do. 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 OneAllow Treasury to create Treasury Notes, (call them Zeals). They are 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 TwoTreasury offers to buy the land of anyone who volunteers. Treasury uses Zeals to pay. From then on the land is leasehold in perpetuity. A full ground rent is payable on that land.

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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.

..newcurrrency, new rules..Currency

No income tax, GST or company

tax, only resource taxes

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Step Four• The ground rent would be shared by all

levels of Government (in New Zealand we have only central and local Government) and would be set by auction where possible. No further rates (local taxes) would be payable.

Central Government

LocalGovernmentshare revenue

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Step Five• Ground rents would not be linked to

inflation but to the site rental value of the land. A Ground Rent Index would be established for each area by taking a sample. Ground rents 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 lease reviews because they are leases “in perpetuity”. No sudden rises!

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Step Six

• Zeals and New Zealand dollars could be freely traded but there will be a financial penalty for exchange from Zeals to NZD. However, because Zeals 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 Zeals.

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Step Seven• Treasury will refresh and redate the zeals paid

in for tax and from time to time will issue all men, women and children with a Citizens Dividend in Zeals. Thus the ground rents from the land are shared with the people. It will be digital only.

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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 all levels of government.

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Step Nine• The homeowner who has been paid in Zeals

uses it to make a long term investment and to pay taxes in advance. As they must be used for New Zealand-sourced goods or services, Zeals 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 Zeals on labour intensive industries, production will flow to the regions. Organic farming, smaller farms, restoration 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 leasehold land will halve.

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The plan in action

• Here are some examples of what might happen. Most people in this sample are mortgage free, one has a mortgage. (We are choosing mortgage free people to start with because there is no opposition from banks.) One is an absentee owner. In the next slides some are individuals and some are organisations.

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Woman in Auckland

• She is a 42 year old solo mother (one child), full time student who owns her suburban house. Land worth $200,000. Ground rent would be about Z10,000 a year so she pays two years in advance leaving Z180,000. She decides to build a second storey so she can rent it out. No tax or sales tax on all trades in Zeals. No more rates.

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Ecovillage• The land held by their trust is now worth $2

million so they move into the leaseholding scheme and pay off six years of ground rent Z100,000 a year. Remainder of 1.4million Zeals is now invested in a range of sustainable businesses which require buildings and labour and NZ sourced materials. By the end of six years the income in Zeals exceeds the ground rent. The saving on rates is considerable each year.

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City professionals with kids and no mortgage

• Land worth $400k. Use Z50,000 to pay two years ground rent. Use Z100k to lease country land and plant trees for firewood or timber. Use Z250k to insulate and upgrade their house so that they pay lower power bills. A flat is added to bring in rental in Zeals. Their next project with zeals will be to set up an apiary on a friend’s rural orchard.

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Musician on rural block

• Land worth $30ok. Mortgage free. With the zeals they build sheds for a music centre, attracting top musicians who get paid in zeals, no tax. Overseas artists need to spend the zeals before they leave the country, so they use them to buy food while here and make sure they visit him first so they have time to spend them while in NZ. Food forest established after paying for permaculture advice. Cool food storage room built and fences. No further rates, saving $2600 a year.

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Rotary club in small town

• They own a building and sell the land to government, receiving 100k Zeals. Ground rental payable is 4000 Zeals a year. They pay off three years and use the remaining 88,000 Zeals to become a partner in a local business manufacturing and selling its bio-fuel made from old tyres.

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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 set aside ground rent and 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 pay 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 Zeals payout to pay taxes in advance. This is why the Government, after sharing some of the bounty with local government, is able to distribute a Citizens Dividend quite early.

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We have a mortgage

• Our land value is $300,000. So we leasehold our land to the Government and pay a ground rent of Z15,000 a year instead of a mortgage payment on the land to the bank of $15600 a year. We also save $3000 in rates a year, making a saving of $3600 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 ground rent is exhorbitant so I decide to sell all properties. I can only spend these Zeals in New Zealand and I don’t live here so can’t spend them. I could cope with the rates but this ground rent is 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 Zeals 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 times 50Zeals or Z300. I can give up my cleaning job and care for my children myself. Some school fees are payable in Zeals. 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 -Actions

•What you can do to further discussion on this proposal

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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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