The Real Philanthropists | Scoop News

On 12 July many New Zealanders were stunned by Prime
Minister Chris Hipkins’ unexpected announcement (called a
‘Captain’s Call’) that there would not be a capital
gains or wealth tax on his watch: Prime
Minister Hipkins rules out wealth and capital gain tax; end
of story.

What made it so stunning was that it was
preceded by the publication in April of meticulous research
by the Department of Inland Revenue on the level of tax
avoidance not by the rich, but by the ‘super-rich’: High-Wealth
Individuals Research Project.

Ignoring
research on tax avoidance by super-rich

The
research was commissioned by Minister of Revenue David
Parker. In his media release on 26 April, Parker commended
its rigour: Wealthy
New Zealanders pay much lower tax rates than other
earners.

Parker’s media release included the
following observations:

The data, based on full
income information from 311 of our wealthiest citizens,
shows that the average person in this group pays an
effective tax rate of just 8.9% tax on their economic income
– that is, income from all sources, including capital
gains on investments.

In contrast, most New
Zealanders pay tax at more than twice that rate. For
example, someone earning a salary of $80,000, with no other
income, pays 22% tax on that income, excluding
GST.

The difference is mainly because the very
wealthy earn only a small portion of their income from wages
and salaries, unlike most New Zealanders.

Tax
avoidance may be immoral but it is not unlawful. It is an
action taken to lessen tax liability and maximise after-tax
income. It is not tax evasion, a deliberate failure to pay
or underpay, which is unlawful.  

Parker and
Minister of Finance Grant Robertson had been working on a
tax switch involving introducing a tax on untaxed income of
the ‘super rich’ in order to fund a tax threshold at
$10,000 per annum. For those on low incomes it would have
meant a boost of $20 per week.

Not only did Hipkins’
pull the plug on its inclusion in last May’s Budget. He
also prevented it becoming part of Labour’s policy for the
election on 14 October (and for as long as he continued
to be prime minister).

A stark difference between
Parker (at least) and Hipkins is that the former had read
the works of French economist Thomas Piketty, in particular
his Capital in the Twenty-First Century. In contrast
Hipkins evidently had not.

Piketty’s essential
argument, based on an impressive amount of historical
economic research, was that when the rate of return is
greater than the rate of economic growth then inequality
increases as a consequence.

Further, contrary to
capitalist mythology, inherited wealth is a major driver
behind this situation.
 

Reactions

Hipkins’
announcement generated considerable media coverage such as
by experienced political journalist Vernon Small (who had
previously also worked in Parker’s ministerial
office).

On 16 July Small wrote a strong opinion piece
in the  Sunday Star Times: Hipkins
sinks long-term hopes of a fairer tax system.

If
Small was critical of Hipkins’ announcement, economist
Susan St John was scathing. But his was not just about the
Prime Minister.

She was damning of the ‘modesty’
of the Parker-Robertson proposal, which would have benefited
those on low incomes by a mere $20 a week.

Her point
is well made, given the wider context of the extensive level
of poverty and deprivation in New Zealand, in her article
published by The Daily Blog  on 17
July:   Scathing
rebuke.

The proposal rejected by the Prime
Minister was reducing the level of tax avoidance by the
‘super-rich’, not the rich. To some extent
metaphorically (to some extent not) it would have been the
0.1% rather than the 1% who would have been required to
reduce their tax avoidance.

Aside from a sense of
outrage, the Hipkins announcement got me to thinking of the
role of philanthropy.

What about
philanthropy

One of the justifications of
the super-rich for their extreme wealth is the philanthropy
some engage in. A philanthropist is someone  who a
person who seeks to promote the welfare of others,
especially by the generous donation of money to good causes.
At least that is the image.

Imagine the horror of a
recent investment conference of the super-rich in the
palatial five star Savoy Hotel on The Strand in London
organised by Spear’s wealth management
magazine.

Established in 2006,
Spear is Europe’s leading wealth
management authority with a wealth management and luxury
lifestyle media brand. Its flagship magazine has a
readership made up of extremely wealthy individuals and
families (average assets of £5
million+).

The conference was
reported by Rupert Neate, The Guardian’s Wealth
Correspondent [sic] on 30 June: Super-rich
warned to beware of pitchforks and torches unless they do
more. 

Attendees were warned by
“progressive advisers” that there was a “real risk of
actual insurrection” and “civil disruption” if the
“yawning gap inequality gap between rich and poor was
allowed to widen…”

This led on to critical
observations about the philanthropic efforts of the wealthy
which had earned a “bad reputation”. There was too much
focus on feelgood and too little on actual need.

Many
wealthy wanted to set up their own educational or health
foundations without checking whether there was a need or an
existing charity or government-funded programme working to
address the issue. There was too much of a wish for quick
wins.

The real
philanthropists

So if the super-rich’s
philanthropy is more deserving of pitchforks and torches,
are there real philanthropists around?

Recently I read
an insightful article co-authored by American socialists
Fred Magdoff and John Bellamy Foster published by Monthly
Review (May 2023): Grand
theft capital – the increasing exploitation and robbery of
the US working class.

It has to be qualified by
the fact that the article is about the comparatively harsher
level of “exploitation and robbery” of workers in the
United States. Nevertheless it is relevant to New Zealand,
albeit it on a different scale and with more worker
protection.

The article is well worth a read in its
own right within the context of capitalism’s development
and revising forms since the 1930s. But what struck me, in
the context of the role and power of the super-rich, was a
brief discussion on philanthropy.

In the context of
increasing employer power over and exploitation of workers,
a distinction is drawn between “standard exploitation”
and “actual appropriation” (“theft” is another word
used to describe it).

The latter is where people are
paid less than they need to exist; when they work for
less pay than they can live on. When, for example,
people go hungry so that others can eat more cheaply or
conveniently.

These people (the ‘working poor’ as
they are sometimes called) are, in fact, the major
philanthropists. Their philanthropy is to the wealthy owners
of businesses; their philanthropy allows these owners to
accumulate even more capital than if these ‘real
philanthropists’ were paid a living wage for their
work.

The differences are that the ‘working poor’
don’t volunteer to be philanthropists. They are forced to
do so because they have no economic power. The super-rich
are the beneficiaries of this extracted
philanthropy.

Read, absorb and
act

Compounding this “actual
appropriation” is that whereas the ‘working poor’
can’t reap rewards from tax avoidance, the super-rich can,
do and do so easily without remorse.

Prime Minister
Hipkins needs to focus on the ‘bread and butter’ of the
former instead of focussing on the ‘wine and caviar’ of
the latter.

He needs to first read and absorb Thomas
Piketty and then act on
it.

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