You are sitting in a room with 99 other people. A man wearing a fancy suit and looking important walks in. He takes a dollar off each and every one of you. Once he has deducted a fee, he decides that he is going to hand out money to every one in the room on the basis of his need – that is, the need that he has for their support.
This is how the government operates. In New Zealand, people think that the government allots money on the basis of the needs of the people. But why would politicians be so altruistic – or why would those who elect them be so altruistic? The reason people think that governments help the poor is because they confine their analysis to one area – the area that is called ‘welfare’ . In reality, every single policy that the government undertakes redistributes income. People should not look at welfare and say ‘The government helps the poor’ – they need to look at the government as a whole.
The government takes your money through a variety of measures: taxes, duties, levies, inflation. If the tax rate is a flat rate of 30 per cent, then this means that every worker spends 30 per cent of their working life as a slave (bet you thought we didn’t have that here). We have a progressive tax rate, meaning that people who earn more money have more taken off them.
The first point to realise is that working and producing is an activity that benefits all parties involved, and taxes act as a disincentive to this beneficial activity. The second point to realise is that while the rich do pay more money in tax, they have some clever mechanisms to get around it. Many avoid tax by operating businesses and paying the lower business rate (33 per cent not 39 per cent). Many more operate loss-adjusting companies that allow them to avoid all tax on their personal income, typically through over investment in property. The government provides them with these mechanisms to avoid paying more. Business tax is always paid by workers and consumers. It is paid for with higher prices and lower wages. One of the most harmful taxes is hidden inflation. Inflation occurs when there is an increase in the general price level.
Because the poor have a lower ability (and typically lack the financial nous) to invest, inflation affects them more. They do not have enough money to actually grow it at a rate higher than inflation.
We have seen then that taxes do not necessarily take a lot from the rich, and little from the poor. But what about the benefits? They help the poor, right?
Well, not necessarily. There are benefits for the unemployed, – but why are people unemployed? One reason is that the costs that the government heaps on the beleaguered minority of business owners reduce competition and demand for workers.
The government then further exacerbates the problem by making it illegal for some low skilled workers to actually get a job – thanks to minimum wage, health and safety, and conditions of work laws! The benefit itself creates perverse incentives as well. If you could earn 20K on the unemployed benefit, why would you work a whole year to earn 25K – a whole year for a measly 5K?
Of course, the government does not just give benefits to the poor. The recent ‘Working for Families’ (note: That is you being forced to pay for someone else’s lifestyle choice) benefit scheme distributes money to the wealthy as well. Then there is almost ‘free’ (note: nothing is free – it is merely fully or partially subsidised) tertiary education – a benefit mostly exploited by the middle and upper class. Or there is healthcare, the benefits of which accrue to those who live longest and require the most medical attention – once again, the middle and upper class. Then there is NZ Superannuation – not a means tested benefit, but one that will be paid into the personal account of the wealthiest people in New Zealand. Now maybe this is all fine, because the rich pay more tax. Does anyone really think the best situation we could have is for the government to take 40 per cent of what we earn, and then have us vote every three years for the people who decide to spend it? Why not let us spend it on what we want, without having to pay for the bureaucracy and waste?
Looking at things as a whole, the government creates perverse incentives for those on lower income brackets to avoid work. They also provide opportunities for the rich to avoid tax. Because there are votes in all economic classes – lower, middle, and upper – they all get benefits. If you take money off every one and then redistribute it, everyone will come up with a good reason why they need it. They are poor, they are unemployed, they need to retire, they need an operation, they need a symphony orchestra. We all need different stuff – how could pooling the money, then having everyone vote on what to buy work out? Pay for it yourselves if you want it so badly. If you think people won’t be able to afford the things they need, ask yourself how much of the budget is spent on stuff that people need, and ask yourself how much government retards growth and the ability for people to get jobs.
At heart is the fact that the government cannot make us all richer – they can merely move and redistribute wealth. It is unlikely that the poorest will be the beneficiaries of this auction of stolen goods – their bidding power is low. It is the middle class who have the numbers, and the upper class who have the money, which will always ensure that they win the auction. This is to be expected though – as H.L Mencken said, ‘democracy is the theory that the common people know what they want and deserve to get it good and hard’.