[OPE] Hardcore Neoliberalism Down Under

(Sir Roger Douglas is the former Labour Party Finance Minister in New
Zealand, who from 1984 forced through the world's most radical neoliberal
reform program - marketising, corporatizing and privatising everything in
sight, cutting subsidies down to near-zero levels, to make this remote
country the most "business-friendly" economy in the world, at least
according to the World Bank; the OECD later considered the reforms had
really been a bit too extreme).

Brian Fallow: Privatising gains and socialising losses
New Zealand Herald Wednesday Feb 11, 2009
By Brian Fallow

Sir Roger Douglas' prescription for the economy is nothing if not radical.
His longstanding belief in the liberating and economically transformative
properties of tax cuts and competition is undiminished.
But this time there is twist. People would be able to opt into the regime he
proposes - a flat tax rate kicking in above a high tax-free threshold, in
exchange for taking care of their own needs for superannuation, heath care
and accident compensation.

But they would be free to stick with the "failing" status quo of high taxes
and monopoly-run health, welfare, education and superannuation services, he
says. In other words, we would have two very different tax and entitlement
systems running in parallel. Apart from the administrative complexity and
cost, there is an obvious problem. People who pay most tax under the present
system would have most incentive to opt out of it, while those who benefit
most would have every incentive to stay in.

At present people in the top tax bracket ($70,000 plus since last October)
provide nearly half of the income tax take and a fifth of the Crown's
revenue from all sources. But they represent just 10 per cent of the
taxpaying population and, all else being equal, a similar proportion of
claims to New Zealand Super, healthcare and so on. Even without a rapidly
ageing population, the chances of a big fiscal hole opening up there seem
high.

But Sir Roger is sanguine: "This will easily pay for itself over time, and
it is not hugely negative even in the short term." To be fair, yesterday's
Orewa speech was a broad-brush affair. A more detailed and quantified paper
is yet to come. The Douglas plan is to have no tax payable on the first
$30,000 of income or $50,000-plus for those with children. Above those
thresholds a flat rate of tax would apply starting, Sir Roger reckons, at
25c or 30c in the dollar and reducing steadily to 15c over the next 15
years, with the corporate tax rate.

Individuals opting into the system would be expected - that is, required -
to buy "catastrophic" health insurance and cover against major injuries, and
would have individual accounts for superannuation.

It all sounds very self-reliant. But when insurers fail, like HIH in
Australia or AIG in the United States, the pressure for a taxpayer bailout
is overwhelming. And on the retirement income front, too, people would be
entirely at the mercy of the market and any repeat of the massive wealth
destruction of the past six months. There would be a guarantee that people
would receive no less under the new system than under the existing one. It
sounds like the old game: privatise the gains, socialise the losses. That's
pretty popular these days.
http://www.nzherald.co.nz/best-of-business-analysis/news/article.cfm?c_id=1501241&objectid=10556078

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Received on Tue Feb 17 14:16:05 2009