The Labour Party’s grabbing of headlines over the alleged poor treatment of suppliers by Australian-owned supermarket chains is an early reminder that the 2014 general election campaign has already started. Labour Party MP Shane Jones used Parliamentary privilege to make such alarming claims that a Commerce Commission Inquiry has been launched.
These claims that a supermarket chain has been demanding retrospective cash payments from New Zealand suppliers to make up for lost profits, comes on top of accusations that Kiwi suppliers are being denied shelf space as a result of “Buy Australia-Made” campaigns – in contravention of the spirit of the 30-year old Closer Economic Relations free trade agreement between our two countries.
Whether any laws have been broken, only time will tell, but what this issue does highlight is the extent of attention grabbing that politicians will engage in to get in the news in election year.
It should also serve as a reminder that many politicians in Parliament are strongly motivated by the idea of regulating and controlling the lives of the public. No doubt Shane Jones is angling to become the Minister in charge of regulating supermarkets. Russell Norman will no doubt want a piece of the action too – namely ministerial responsibility to put the Greens in charge of what supermarkets can and cannot sell! And while that scenario is somewhat far-fetched at this stage, in principle it is not too different from the sequence of events which led to the Greens and Labour promising to nationalise the electricity market if they become the government.
In that case, their foray into proposing electricity price controls was the result of a political stunt aimed at derailing the National Party’s partial privatisation of state-owned energy companies. While their announcement failed to prevent the sales from going ahead, it did nevertheless cause the value of the assets to drop substantially, losing taxpayers many millions of dollars in asset sale proceeds. Not only that, but their threat to run the electricity market if they become the government, has remained in place even though it was driven by politics, not market failure.
Electricity is a unique commodity that it is in constant real-time demand but cannot be stored by generators. As a result, a sophisticated electricity market has evolved that manages supply and demand at every instant in time. Electricity is bought and sold at auctions every half hour in hundreds of nodes around the country as generators pitch their availability of supply to retailers, who meet their price to satisfy their consumers’ needs. It is an exacting business and the consequences of getting it wrong could be devastating.
In fact, the plan by the Greens and Labour to run the electricity market is a man-made political disaster waiting to happen. That these politicians are prepared to tamper with market systems to try to get themselves elected, shows how single-minded they are in trying to advance their political careers.
While problems with markets inevitably occur from time to time, it is the freedom of the free market system and the “invisible hand” of self interest that remains a key driver of human progress. Scotsman Adam Smith, widely regarded as the father of modern economics, in his seminal work The Wealth of Nations published in 1776, explained it like this:
“Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me what I want, and you shall have this which you want, is the meaning of every such offer; and it is the manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love.”[1]
In the lead up to the election political parties will be releasing their policy agendas, and the NZCPR will take a keen interest in what they are proposing. This week’s NZCPR Guest Commentator, Professor Roger Bowden, the former Head of Finance and Economics at Victoria University, has examined the economic policies of the parties as they stand, and in his article Election 2014: An (out of) pocket guide to the economics, provides a summary of the state of play:
“My best guess is that if Labour does get elected, the market will expect more inflation and a weaker NZ dollar. Inflation is never great for real income equality. However, the Labour Party are going to fix that with more progressive taxation regimes. For Mr Cunliffe this will encompass capital gains, extending to second homes and other assets. However, voters will be most concerned with the more progressive income tax. In order to generate the tax income needed to pay for social initiatives the top marginal rate will have to increase, and kick in much earlier than the $150,000 mentioned in dispatches. Down into the swinging voter income range, in fact; and these are the very people to whom Labour and the Greens have to pay court.”
While politicians from all sides of the political spectrum clearly understand the economic impact of taxation when it serves their purpose, they tend to ignore it when it doesn’t. For instance they like to boast about the fact that raising taxes on cigarettes is discouraging smoking. But when it comes to the impact of increasing taxes on work and investment – the very things that should be encouraged to drive our economy forward – they turn a blind eye.
As one of the world’s leading tax authorities, Dr Daniel Mitchell of the Cato Institute, explains, “All economic theories, even Marxism and socialism, are based on the premise that capital formation is a key to economic growth and rising living standards. In other words, we need saving and investing to create the conditions for more jobs and rising wages. And since the world has learned that it’s not a good idea for the government to be in charge of such things, that means we rely on the private sector to set aside some of today’s income to finance tomorrow’s prosperity.”[2]
This essentially means that Labour’s plans to raise the top rate of income tax and introduce a new capital gains tax are misguided. Not only are they likely to damage the economy, but it is also possible that the disincentive effect could result in less tax being collected overall, not more.
In his guest commentary, Professor Bowden raises another interesting point – just who does Labour consider to be rich? When Helen Clark was Prime Minister, anyone earning over $60,000 was deemed to be rich. How low will David Cunliffe need to set the upper income tax bracket this time around, in order to pay for his increasingly lavish spending promises?
Professor Bowden concludes his article with this warning, “It’s early days yet for election 2014. The parties will no doubt refine their economic policies if only as an adaptive response to criticism from the other side. My own concern is not so much with what has so far been promised, but what will be delivered and the outcome, should this or that party actually achieve the balance of power. For voters, thinking it all through has never been more important. As the saying goes, the road to Hell is paved with good intentions.”
It is only common sense that during election year, we should challenge political parties to be crystal clear about exactly what their election promises will entail. We should be on the look-out for crises being manufactured to justify new regulations, and we should certainly be on guard for any attempt to interfere more in our lives. Look at how interventionist the previous Labour government had become at the end of their term – telling us how to raise our children, what we could and couldn’t eat, what sort of light bulbs we had to buy, even down to the type of shower head we had to use in our bathroom! It is long past time that politicians stopped regarding us as puppets and instead treated us like responsible individuals who are quite capable of making our own decisions and running our own lives.
In every election, the issue of most concern to voters is the economy. Under MMP, we need to decide which voting bloc is most likely to be the best economic manager of the country. The recent global financial crisis has served to remind us of just how crucial good economic management really is, especially since it was Labour’s mismanagement that was largely responsible for New Zealand falling into a recession several months before the global crisis hit.
All around the world, we can see countries that are still struggling to recover – such as France, where their problems have been succinctly described by Allister Heath, the Editor of the British newspaper City AM, in this way: “France’s economic sickness is primarily due to its overbearing state, horrendously high tax levels, insane regulations, absurd levels of inefficient public spending and generalised hatred of commerce, capitalism, success and hard work.”[3]
In the lead up to the election, we should be asking political parties to be explicit on whether their policy prescription will boost the country’s economic prospects and raise living standards – or whether their plans will damage growth and lower living standards through higher taxes and more spending. And if they haven’t caught up with the results of the latest Fairfax-Ipsos opinion poll, which found that the public are overwhelmingly opposed to raising taxes to pay for new spending promises – with 67.2 percent opposed and only 27.2 percent in favour – they should be told that New Zealanders firmly believe politicians should fund new initiatives by reprioritising existing wasteful spending, rather than by increasing the country’s tax burden.[4]
The stakes are high. Our future wellbeing depends on the result of this election. We should challenge the parties and candidates to clarify exactly how they intend to manage the economy, and we should let them know in no uncertain terms, that squandering the fragile economic progress this country has made over the last six years, through reckless tax and spend promises, is not an acceptable option.
THIS WEEK’S POLL ASKS:
Do you support the raising of taxes to pay for politicians’ new spending promises?
– read this week’s poll comments HERE
Click HERE to see all NZCPR poll results
Footnotes:
1. Adam Smith, The Wealth of Nations
2. Daniel Mitchell, High taxes are a recipe for reduced competitiveness
3. Allister Heath, France’s failed socialist experiment is turning into a tragedy
4. Dominion Post, National on a wave of optimism – poll