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National prescribes bad medicine for the poor

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Frank Macskasy Blog Frankly Speaking

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National’s tax cuts are coming back to bite us firmly on our collective arses.

In April 2009 and October 2010,  National cut income tax and raised gst from 12.5% to 15%.  Key and English insisted that the tax cuts/gst rise were “fiscally neutral”.

Like so many of National’s statements, that “fiscal neutrality” turned out to be a fiction,

The Green Party has today revealed that the National Government has so far had to borrow an additional $2 billion dollars to fund their 2010 tax cut package for upper income earners.

New information prepared for the Green Party by the Parliamentary Library show that the estimated lost tax revenues from National’s 2010 tax cut package are between $1.6-$2.2 billion. The lost revenue calculation includes company and personal income tax revenues offset by increases in GST.

“The National Government said that their signature 2010 income tax cut package would be ‘fiscally neutral’ – paid for increased revenues from raising GST. That hasn’t happened. The net cost for tax cuts has been about $2 billion,” Green Party Co-leader Dr Russel Norman said today. “

See:   Govt’s 2010 tax cuts ‘costing $2 billion and counting’

As taxation revenue dropped,  National’s deficit has risen alarmingly,

The government took in $1.57 billion less tax than expected in the first nine months of the fiscal year, reflecting a tepid economy, Treasury figures show – reflecting what the Finance Minister says has been a ‘difficult year’.

The Crown took in $39.8 billion in tax in the nine months ended March 31, against a forecast in the Pre-election Economic and Fiscal Update estimate of $41.3 billion, according to the government’s financial statements. “

See:  Govt tax take down by $1.57 billion

Massive borrowings over the last three years has not staunched the bleeding of government revenue. Soon after the April 2009 taxcuts, government revenue had begun to drop,

The Crown accounts for the year to June, released yesterday, showed an all-up deficit of $10.5 billion, compared with a surplus of $2.4 billion the previous year.

The state’s core operations – such as health, education and defence – recorded a deficit of $4.5 billion as tax revenues fell while spending grew. “

See:  $250 million: What our Govt borrows a week

After the October 2010 tax cuts, that borrowing had risen, and by mid-2011 stood at around $380 million a week,

”  The Government is borrowing $380 million a week and next week’s budget will carry a record deficit of about $16 billion, Parliament was told today.

Finance Minister Bill English said the Government’s financial position had deteriorated “significantly” since late 2008.

“The pre-election update in 2008 forecast that the deficit for this year would be $2.4 billion,” he said.

“It’s much more likely to be around $15b or $16b.”

That level of deficit, as NZPA has previously reported, will be the highest in New Zealand’s history and Mr English confirmed that today.  “

See:  Govt borrowing $380m a week

See:  Government debt rises to $71.6 billion

History lesson over.

Test: what can we deduce from tax-cuts – especially made during a recession?

  1. Government revenue will fall.
  2. Government will have to borrow to make up the short-fall.
  3. Goverment will have to either increase taxes or cut services and/or increase User Pays charges for the public.
  4. All of the above.
  5. We don’t have to do anything, because National is a fabulous fiscal manager;  John Key waves his hands; and money magically falls from the sky.

If you, the reader picked anything except Option 4 – feel free to re-read the above and go do some further research on Basic Economics 101.

If you picked Option 5, then you are a  hopelessly committed National supporter.  Seek professional help – stat.

The fact of the matter is that none of the tax-cuts were ever affordable.

Common sense will tell even the most die-hard National groupie that if you reduce revenue, then one  has to cut expenditure and services; borrow to make up the shortfall; raise  user-charges; or all three. There ain’t no other way.

National has borrowed billions – that much is crystal clear from media reporting using  Treasury data.

What the New Zealand public also need to understand is that National will also be cutting expenditure and services and raising user-charges.

National has begun a programme of increasing user-pays charge for,

  • Prescription Charges

Prescription charges will increase from $3 an item to $5 an item in next week’s Budget, as the Government moves to offset the cost of extra health spending in the “zero Budget”.

The new charge will cover up to a maximum of 20 items from January 1 next year, raising $20m in the first year and $40m after that. “

See:  Prescription cost to rise to help pay for Budget

  • Raising the compulsory student loan repayment rate and cutting student allowances,

Up to 5000 students will be affected by the National-led Government’s cut to student allowances, Tertiary Education Minister Steven Joyce revealed this afternoon.  The Government announced a raft of changes to student loan and allowance schemes last week, including a stop to allowances after 200 weeks. “

See: Allowance cuts to affect up to 5000 students

”  The changes would see more than 500,000 people forced to pay back their student loans more quickly and people studying for more than four years would no longer be able to claim an allowance…

… The repayment rate for loans will be increased to 12 per cent from 10 per cent for any earnings over $19,084.

See:  Outrage at student loan changes

  • Government has cut back on the state sector, sacking 2,500 employees, including  60 frontline bio-security border staff.

The cost to our economy, should the Queensland fruit fly take hold, would be in the hundreds of millions. And if foot and mouth ever took hold, the cost to our economy could be in the order of  $10 billion over a two year period!  National is gambling with our economy, simply for the sake of a few million dollars.

Pests such as the Varroa mite and the Psa virus have already taken hold in our environment. The latter, the Psa virus, could impact on our $1.5 billion kiwifruit export industry.

See:  Kiwifruit disease Psa explained

See:  2500 jobs cut, but only $20m saved

See:  Risks involved in cutting MAF Biosecurity jobs

  • Teachers numbers “capped” and class numbers increased.

The ratio of teachers to students in New Zealand schools is set to be changed, Education Minister Hekia Parata announced today.

For year one the ration will remain at one teacher for every 15 pupils while the ratio for those preparing for NCEA exams in years 11-13 will be standardised to one teacher for every 17.3 pupils…

…  The Government is also putting a cap on the number of teachers by keeping it at the present level.

Parata says the Government is not reducing teacher numbers, but claims $43 million can be saved by not hiring any extra teachers. “

See:  Teachers ‘pushed out the door’ in Budget shake up – Greens

The implications of this cost-cutting exercise are mind boggling. Not only will be see class sizes increase, but there is the strong possibility that students with special needs will miss out. Larger class sizes will put extra pressure on teachers and students; make one-on-one teaching harder; and will possibly force many teaching staff to quit or move to Australia.

At a time when our society desperately needs more educated and trained young people, this is a counter-productive step that beggars belief.  Only a bean-counter (unmarried, no children of his/her own) could devise such a crazy proposal.

Ian Leckie, the New Zealand Educational Institute national president, said,

Essentially every child gets less attention, and if we’re ever going to be concerned about what happens for our children, we want them to get the best of service, put more children in the class, it makes it harder for the teacher, harder for children to succeed.”

New Zealand’s youth unemployment currently stands at 83,000 – up from  58,000 last year. How many believe that National’s plan will improve on that dire situation?

See previous blogpost:  Bennett confirms: there are not enough jobs!

How many believe that is not a desperate cost-cutting exercise?

And how many suspect that the “cap” will quickly become staffing cuts – as happened with state sector workers?

  • Government closes down Gateway Scheme – where those on low incomes were assisted to buy there own homes,

Prime Minister John Key says a scheme to provide up to 100 affordable homes at Auckland to people on low incomes is not needed because low interest rates mean there is greater capacity for people to buy their own homes.

Mr Key has been explaining the Government decision to scrap its Gateway scheme to help those on lower incomes buy homes in its flagship Hobsonville Point development, in Auckland.

It would have provided affordable homes in a flagship Auckland housing development but has been wound up with just 17 houses built. “

See:    Low interest cuts need for cheaper houses – Key

See:    Key backs cut-off for cheap homes plan

There will be other cuts to social services and/or rises in User Pays charges.

The net effect is that those who received tax cuts under $40,000 will find that the cuts have been swallowed up. Low and middle income earners may find that they are now not only no better off – but are having to put up with higher government charges and  less services.

Those on $100,000+ p.a.  have done very well.

Those earning $70-$80,000+ p.a. may escape  relatively unscathed.

Low income earners, on minimum wage ($13.50 p/h) or just above,  facing higher prescription charges,  will effectively  be paying for tax cuts for the high-income earners, wealthy, and asset-rich.

If the tax cuts were designed to reduce government expenditure; increase user-pays; and raise incomes for the top 10% – then National has achieved it’s goal.

National is continuing it’s 1990s agenda, albeit more slowly, and stealthily.

I wonder – is this what 1,058,638 New Zealanders voted for, when they cast their ballot for National. More user pays?

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Information

Tax Cuts April 2009

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Frank Macskasy Blog Frankly Speaking  tax cuts april 2009

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Tax Cuts October 2010

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Frank Macskasy Blog Frankly Speaking tax cuts 2010

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By contrast,

Health Minister Tony Ryall said the $5 cost would be applied to the first 20 items of medicine per family each year, so no family would pay more than $100 a year for their prescription costs.

The current maximum for prescription costs was $60 a year. “

See:  Meds price hike: ‘Children will die’

The last word goes to Mana MP, Hone Harawira,

”  Doctors are saying right now that children’s health is being threatened by the price of medicine now. You have to assume that if Government raises that price then children will die as a result of that measure.

I don’t believe that any Government could be so callous.

Absolutely I think that these measures, although it is going to be difficult to prove, will lead to children dying, through the inability of their parents to afford the charges for medicine that are being proposed by this National/Maori Party Government.

Every price rise impacts poor people in a far greater way than it does people on the kinds of levels of income that him and his mates are on. So yes it is going to hurt every poor person in this country – Maori, Pacific and Pakeha”.

See: Ibid

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Additional

Government delivers April 1 2009 tax cuts, SME changes

Budget 2010: What the tax cuts mean for you

Prescription cost to rise to help pay for Budget

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Greed is good?

28 August 2011 54 comments

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As we look back on the last 25 years of neo-liberal “reforms”, including User Pays; the canning of “Labour’s” superannuation savings plan in 1975 (by Muldoon – after being elected into office with his infamous “Dancing Cossacks”  TV ad); and National’s continuing high popularity in the polls, despite their avowed proposal to sell-down 49% of several State assets,  – it seems abundantly clear who has been  pulling the “strings”.

No, it’s not Washington. Nor the Bilderbergers. Nor the UN/New World Order/Illuminati.

The answer is mind-numbingly far more prosaic:  it’s us – the Baby Boomer generation. The 1960s and 1970s rebellious youth  weren’t just an “aberration” – they were a clear signal that the Baby Boomers had arrived; could be inclined to  incredible selfishness (hence the term the “Me Generation”); and we voted individually for personal gain – on a collective basis.

Yep. We have seen the “enemy” – and it’s us; graying; self-centered; resentful of the young (who we’ve well and truly shafted);  and looking back at ourselves in the mirror, wondering where it all went wrong.

The case of  Surgeons Ian Penny and Gary Hooper, who tried to rort the tax system using Trusts  and companies – even though they had graduated BEFORE student loans and fees were implemented in 1992 – is the clearest example ever of our collective unbridled selfishness.

To re-cap;

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A court battle is over for two surgeons who challenged Inland Revenue over claims they tried to avoid tax bills worth tens of thousands of dollars.

The Supreme Court has ruled unanimously against Ian Penny and Gary Hooper, saying they underpaid themselves from their own businesses to avoid the top personal tax rate.

The issue arose after the previous Labour-led Government raised the top personal tax rate to 39%, compared to the company rate which was then 33%.

The orthopaedic surgeons openly paid themselves a lower salary than the market rate, arguing that they had a choice about how they operated their business.

They tried to challenge a Court of Appeal decision that found in favour of Inland Revenue, which said the surgeons had paid themselves salaries too small to be commercially realistic.

It said they were therefore able to avoid paying the top tax rate, while the balance of their businesses’ profits went as dividends to family trusts.

The trusts funded items such as a loan for one surgeon, and a holiday home for the other.

Inland Revenue said using those business structures to create artificially low salaries amounted to tax avoidance, saving each man between $20,000 and $30,000 a year for three years, beginning in 2002.

Supreme Court Justice Blanchard on Wednesday delivered a judgement supporting that argument, ordering Mr Penny and Mr Hooper to pay Inland Revenue $25,000 in court costs.

Mr Hooper told [Radio New Zealand ]Checkpoint the court has created a salary benchmark that is higher than the one countless private practitioners have been using.

He says they have been following Inland Revenue advice and calculating their salaries based on public hospital rates.

An Inland Revenue deputy commissioner welcomed the ruling, telling Checkpoint it clearly states and reaffirms what the department’s commissioner felt was the case all along. Carolyn Tremain says IRD has yet to fully absorb the implications and consequences of the ruling.

PricewaterhouseCoopers John Shewan, who appeared as a witness for the surgeons, said the case is important for individuals and firms. He said tens of millions of dollars may now be claimed by Inland Revenue from cases it still has open on this matter.

Source:  Radio New Zealand

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Specifically,

Surgeons Ian Penny and Gary Hooper set up companies, owned indirectly through trusts, to buy their surgical services and paid themselves artificially low salaries.

After 2000, Hooper’s personal income fell from $650,000 to $120,000 a year. Penny’s dropped from $302,000 to $125,000, and then to $100,000, while the income of their companies grew.

Source:  Dominion Post

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What makes this case of case of tax avoidance stand out is that none of it was ever necessary in the first place.

Dr Ian Penny received his Bachelor of Medicine Bachelor (MB ChB) of Surgery from Otago University in 1981.  He became a Fellow of the Royal Australasian College of Surgeons in 1990.

Dr Gary Hooper received his Bachelor of Medicine Bachelor (MB ChB) of Surgery  from Otago University in 1978 and became a Fellow of the Royal Australasian College of Surgeons in 1985.

In simple terms, they graduated as doctors in the late ’70s and early ’80s. Tertiary education then was still nominally free. Plus,  student allowances were available to most students,

“Up until 1992, nearly every student (86.4 percent) studying at a public tertiary education institution in New Zealand received a living allowance or grant while they studied.

 Prior to the mid 1970s, student support was based on a system of bursaries and scholarships. In 1976, a new system of government-funded tertiary bursaries was introduced. This included a study or living costs grant that was available to most students.”

Source: NZUSA

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Student fees and student loans came into effect in 1992, during the Bolger-led National Government, when Ruth Richardson was Minister of Finance (and coincidentally the same year that Shortland Street came on air).

In simpler terms, Dr Penny and Dr Hooper enjoyed the benefit of near-free tertiary education before fees were raised in 1992. They had no student loans to repay, as  medical students currently do, and may well have benefitted from receiving a Student Allowance.

Contrast their free tuition with that of medical students, in the 21st Century:  “on average medical students will graduate with around $80,000 of debt and nearly 90% will have a student loan“, according to the  New Zealand Medical Students’ Association in April, last year.

So with a free education; in receipt of student allowances; and no student loan; Dr’s Penny and Hooper were, as Revenue Minister Peter Dunne stated;

… the important thing about this decision is to bear in mind the scale of what was happening. This wasn’t people minimising their income because they were reinvesting in their business. This was people minimising their income because they were actually minimising their tax liability but still enjoying the full benefits of the income they were in reality earning.

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So not only did these gentlemen benefit from a free education – but they were now minimising their income because they were actually minimising their tax liability [whilst] still enjoying the full benefits of the income they were in reality earning.”

God, you’ve no idea how sick this incident has  made me.  Let me explain why.

Prior to the introduction of “Rogernomics” in 1984 (and National’s addition from 1990 onward),  education in this country had been free (or as close as possible to free) to nearly all New Zealanders. Education whether at Primary School or University was funded by the previous generation; our Mums & Dads; Grandmothers & Grand dads. The idea was terribly simple; education was a right, and not to be determined by ability to pay.

In turn, as we graduated from schools and Universities, we – my generation, the “Baby Boomers” – were to fund our children through their education, through our taxes.

Except, it did not quite happen that way.

In 1984 we unknowingly elected a Labour Government that had been taken over by a secret cabal of neo-liberals, conservatives, and proponants of the Free Market. A raft of  radical changes were implemented throughout the economy and impacting directly on society.

Despite public objection; mass protests; and even vocal opposition from within the Government by some Labour MPs such as Jim Anderton, Labour was re-elected in 1987.  Curiously, they had increased their majority from 55 to 57.

During Labour’s two terms (1984 to 1990), they cut taxes twice, and implemented a new tax in 1986, called GST.

National followed, implementing User Pays in tertiary education whilst  cutting taxes in 1996 and 1998.

In 2008, despite evidence that the world was plunging into a global recession, John Key promised that National would again cut taxes. As New Zealand went into deep recession; unemployment rose; businesses closed down – National cut taxes in April 2009 and October last year.

Most of the public, it seems, will swallow User Pays if they stand to reap a benefit from tax cuts.

The social contract therefore, was well and truly broken between our (the Baby Boomers) generation, and our parents/grandparents.

We had taken their gift – that of free education which they had paid for – but we decided not to pass it on to our children. Instead, we accepted one tax cut after another. And social services were either cut or User Pays applied, to pay for those tax cuts.

To my generation of fellow Baby Boomers, I say this; we’ve well and truly  shafted our own children. We denied them the very same opportunities of a free education that our parents had bequeathed to us. Instead, we voted ourselves seven  hefty tax-cuts; instigated User Pays; and left our children saddled with $13.9 billion in student debt.

Is it any wonder that our children our leaving New Zealand in greater and greater numbers? They’re not just emigrating to seek better paying jobs – they’re sticking it to us for our unmitigated greed. Whether consciously or sub-consciously, our children realise what our generation has wrought, and by god, they are not happy.

No doubt there are some folk who will cheer on Drs Penny and  Hooper. These people  feel that paying taxes is “unfair” and that it is unreasonable for the State to take the money that they have worked hard for.

Perhaps I should take a moment to remind these people what their taxes were, and in many cases  are still, used for…

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Inter-island Ferry, Aramoana

Dams and other power generation projects

Our first television broadcast system

Roading and highways

Hospitals

University education

Dental care for our Children

Our Police and justice system

Railways and other public transport

Schools

State Housing

Infrastructure such as power transmission lines

Social welfare and superannuation

Bridges

Postal and telecommunications systems

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Many of these assets no longer reside in public ownership – but they were originally built and maintained by previous generations of taxpayers; our parents, grandparents, et al.

As the Baby Boomer generation, what have we built and left our children?

$13.9 billion in student debt?

No wonder they are departing our shores…

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But I leave the last word to this expat Kiwi, now living in Australia,

A Victorian-based Kiwi with a student loan debt, who did not want to be named because he did not want to be found by the Government, said he did not intend to pay back any of his student loan.

The 37-year-old’s loan was about $18,000 when he left New Zealand in 1997. He expected it was now in the order of $50,000. The man was not worried about being caught as the Government did not have his details and he did not want to return to New Zealand.

“I would never live there anyway, I feel just like my whole generation were basically sold down the river by the government. I don’t feel connected at all, I don’t even care if the All Blacks win.

“I just realised it was futile living [in New Zealand] trying to pay student loans and not having any life, so I left. My missus had a student loan and she had quite a good degree and she had paid 99c off the principal of her loan after working three years.”

Source: Dominion Post

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Further Reading

Greed of boomers led us to a total bust

New Zealand’s wealth gap widens

Over-55s own most of NZ’s wealth

 

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London Burning. Where next?

10 August 2011 2 comments

The question that many are asking is “why?”.

Ms Penny’s opinion piece is the clearest attempt at understanding why these riots happened (and are still happening, as I write this) in a supposedly peaceful, civilised society.

I would add a further point: it is no coincidence that these riots are happening at a time when the “Arab Spring” has unleashed a human wave of rebellion in middle eastern countries ruled by authoritarian regimes. The common element is a deep disaffection with the status quo. Ms Penny explains it all in a simple, coherent, meaningful way…

I’m huddled in the front room with some shell-shocked friends, watching my city burn.

The BBC is showing footage of blazing cars and running street battles in Hackney, of police horses lining up in Lewisham, of infernos that once were shops and houses in Croydon and Peckham.

There have been hundreds of arrests and dozens of serious injuries. A 26-year-old man shot in a car in Croydon is reportedly the first fatality, but police have not said whether he had been participating in the rioting or was a bystander.

This is the third consecutive night of rioting in London, and the disorder has now spread to Leeds, Liverpool, Bristol and Birmingham. Politicians and police officers who only hours ago were making stony-faced statements about criminality are now simply begging the young people of Britain’s cities to go home. Britain is a tinderbox and, on Friday, somebody lit a match. How the hell did this happen? And what are we going to do now?

In the scramble to comprehend the riots, every commentator has opened with a ritual condemnation of the violence. David Lammy, MP for Tottenham, called the disorder ”mindless, mindless”.

Speaking from his Tuscan holiday villa, the Prime Minister, David Cameron – who has finally decided to return home to take charge – declared simply that the social unrest searing through the poorest boroughs in the country was ”utterly unacceptable”. The violence on the streets is being dismissed as ”pure criminality”, as the work of a ”violent minority”, as ”opportunism”. This is madly insufficient.

Angry young people with nothing to do and little to lose are turning on their communities, and they cannot be stopped, and they know it. Tonight, in one of the greatest cities in the world, society is ripping itself apart.

Violence is rarely mindless. The politics of a burning building, a smashed-in shop or a young man shot by police may be obscured even to those who lit the rags or fired the gun, but the politics are there.

A peaceful protest over the death of a man at police hands, in a community where locals have been given every reason to mistrust the forces of law and order, is one sort of political statement. Raiding shops for technology and trainers that cost 10 times as much as the benefits you’re no longer entitled to is another. A co-ordinated, viral wave of civil unrest across the poorest boroughs of Britain, with young people coming from across the capital and the country to battle the police, is another.

The truth is that few people know why this is happening. They don’t know, because they were not watching these communities. Nobody has been watching Tottenham since the TV cameras drifted away after the Broadwater Farm riots of 1985.

Most of the people who will be writing, speaking and pontificating about the disorder have absolutely no idea what it is like to grow up in a community where there are no jobs, no space to live or move, and the police are on the streets stopping and searching you as you come home from school. The people who do will be waking up this week in the sure knowledge that after decades of being marginalised and harassed by the police, after months of seeing any conceivable hope of a better future confiscated, they are finally on the news.

In one NBC report, a young man in Tottenham was asked if rioting really achieved anything.

”Yes,” said the young man. ”You wouldn’t be talking to me now if we didn’t riot, would you? Two months ago we marched to Scotland Yard, more than 2000 of us, all blacks, and it was peaceful and calm and you know what? Not a word in the press. Last night a bit of rioting and looting and look around you.”

There are communities all over the country that nobody paid attention to unless there had recently been a riot or a murdered child. Well, they’re paying attention now.

Riots are about power, and they are about catharsis. They are not about poor parenting, or youth services being cut, or any of the other snap explanations that media pundits have been trotting out. People riot because they have spent their whole lives being told they are good for nothing, and they realise that together they can do anything – literally, anything at all. People to whom respect has never been shown riot because they feel they have little reason to show respect themselves, and it spreads like fire on a warm summer night.

No one expected this. The people running Britain had absolutely no clue how desperate things had become. They thought that after 30 years of soaring inequality, in the middle of a recession, they could take away the last little things that gave people hope, the benefits, the jobs, the possibility of higher education, the support structures, and nothing would happen. They were wrong.

And now my city is burning, and it will continue to burn until we stop the blanket condemnations and blind conjecture and try to understand just what has brought viral civil unrest to Britain. Let me give you a hint: it ain’t Twitter.

After reading Laurie Penny’s analysis in the Sydney Morning Herald – perhaps we should be asking, “where next“?

Because the disaffection, anger, and resentment shown by the young folk of Britain exists in other countries as well. Governments seem to have forgotten that nations are first and foremost societies – communities of people. Economies are built on societies, not the other way around.

Something to reflect on here in  supposedly peaceful, civilised New Zealand.

What really angers me is  that Baby boomers and neo-liberals castigate the young for their irresponsibility and selfishness.

Pardon?!

Is this the same Baby Boomer Neo-Lib generation that enjoyed free tertiary education, free medical prescriptions,  etc, etc – paid for by our parents and grandparents?

And when it came time for Baby Boomers to pass these same social services onto our children, we held up our hands and said, “Nah. You kids pay for what you want.” And then we introduced User Pays and gave ourselves hefty tax cuts, whilst privatising many of those state assets that used to provide us with good services.

And we expect the younger generation not to be selfish?!?!

Maybe I’m turning into a Grumpy Old Bugger, but I say “a pox on my generation” – my sympthathies are with the younger people who were well and truly shafted by my lot.

As for the neo-liberals and middle classes;  you  got what you wanted; a society of individuals out to get what they wanted; screw society; and devil take the hindmost.

And it was all utterly predictable, 20, 30 years ago.

We have seen the warning signs.