Fiscal policies have been exploited worldwide to advantage big business with its ability to move capital and profits around, seeking the lowest tax rate. Social good has not been the business of business. Business has been detached from its community.
There is plenty of evidence that the old economic paradigm is flawed, deeply. The market economy and the economic theory of the 1990s has created some highly undesirable outcomes for many. Income in-equality globally is climbing which results in social unhappiness which in turn can lead to political instability. It is apparent in the UK, the US and elsewhere across Europe. Here in NZ, we have been insulated somewhat as we are a small isolated economy which is not preyed upon to that extent.
But the market has not supplied affordable housing or a good standard of living in New Zealand. How can we now re-balance our economy to create a fairer society with more evenly distributed income and more social equity? This does not mean adopting a society where effort is not rewarded, or where entrepreneurs are discouraged from risking their capital and energies. It means a re-balancing.
How can we think about this differently? Perhaps one answer might be to change fiscal policy to take advantage of the natural desires of most humans to compete but at a human level, not a corporate one. In other words, make the units of production smaller so that competition is fierce, but the power held by small groups is lower. What does this mean?
Simply put, fiscal policy could reward small business instead of big business. It is a myth that size brings efficiency. Size brings bureaucracy. Instead of the large corporates like Facebook and Google taking advantage of tax regimes and moving their money around to limit their obligations, they should be heavily taxed and small business should have a much lower marginal tax rate, as of right. Instead of large corporates being promised preferential labour rules, we prioritise smaller businesses.
What could happen? If small businesses were advantaged, think of the immediate benefits to New Zealand. Employment would be more evenly distributed regionally as entrepreneurs can locate wherever they want, small business would have more equity for re-investment if their tax burden was eased and could create more jobs, or invest in equipment. From all these relatively small tax advantages, we would see the natural economic evolution. All the micro and mini businesses, which might otherwise have died through lack of capital, can thrive. The natural economic ‘seedbed’ can be nourished to develop the next iteration of a much more broadly based economy.
Further fiscal stimulus could be directed at businesses which offer more to the public good, such as businesses investing in smart tech, green tech or in people.
There are other levers such as incentives and grants, but fiscal policy is the most direct route to changing the economy. What of direct investment by overseas conglomerates, nations and rich individuals? This was one of the key drivers of growth under the last National government. This utilises our infrastructure and assets, with all super profits sent offshore, and minimal tax paid. All the farms sold to offshore concerns create super-profits indefinitely for the overseas owner, to benefit one Kiwi farmer in the present. It is short-sighted and ultimately will undermine our capacity to develop our own wealth. We cannot sell all our assets in the present and expect to have wealth in the future.
Now is an excellent time to think not of one strategy, or one answer, but about rebalancing our economy to build resilience and future wealth by investing now in our entrepreneurs and our small business owners.