“Conventional politicians ignore structural reform because they think they are in power to please people, and pleasing people does not involve making them face the hard questions. They use the latest polls to fine-tune their image and their policies, in order to achieve better results in the next poll. In other words, their aim is really to be in perpetual power. Their adherence to policies which focus on their immediate problems rather than the country’s future opportunities, brings accumulating difficulties. It becomes increasingly clear to people that the problems have not been solved and that opportunities have been thrown away. And so, such governments are voted out.”
Roger Douglas wrote that in his book “Unfinished Business”, published in 1993. His book provided a vision for where New Zealand could be in the year 2020 if citizens instead of institutions, became the focus of government. He believed people should be able to look forward to a future where they had a job, a home, a good education for their children, access to health care, security, dignity, pride, and a sense of self-worth.
What he believed they didn’t want was to be told what to do by a dictatorial government that took away their options, leaving them with no power and no real control over their lives.
Fundamental to his vision of a future of empowerment and prosperity for citizens was the need for governments to have the courage to undertake necessary on-going structural reform. While the 1984 Labour Government displayed a great deal of courage when it made some of those hard choices like reducing income taxes from a top rate of 66 percent to 33 percent and company tax from 45 percent to 33 percent, removing subsidies, import licensing, reducing tariffs, deregulating the financial markets, floating the dollar and selling inefficient government enterprises, their reform programme later came unstuck when David Lange lost his nerve on the introduction of a 23 percent flat tax and the sale of further loss-making assets.
Irrespective of populist criticisms, there is no doubt that the major reforms of that era have stood the country in good stead. If that were not the case, those enduring policies would have been reversed during the nine years that Helen Clark’s Labour Government was in power.
The problem is that few governments since that time have had the courage that those politicians in 1984 demonstrated. Instead, they have had their eye on the next election and are afraid to alienate the political middle ground for fear of reprisal at the ballot box.
The problem is that when reform is driven by political popularism, vested interest groups protecting their patch can build public sympathy, making change difficult. That’s why piecemeal reforms in education and health, where the unions have a powerful hold, have proven so difficult. That is in spite of the fact that performance in these sectors leaves much to be desired.
The fact that in New Zealand in 2010 a large percentage of children still leave school unable to read, write and do simple arithmetic, is a disgrace and an indictment of our state-run system.
And in health, things are not that much better. Imagine your loved one being so sick one Saturday that you rush them to hospital only to find that a proper diagnosis can’t be carried out until Monday when the specialist staff are back at work – but by then it is too late… Or that you have just had a baby and when you tell your midwife about your symptoms she is so worried she orders an ambulance – only to find yourself and your new baby waiting in the emergency department all day before someone can see you …
Whether we like it or not, these are symptoms of a government driven economy that is quickly sliding into third world status. It hasn’t just happened, of course – it’s been coming on for a few years, but the pace of our decline has picked up since 2005, when government spending started to blow out of all proportions.
The point is that the only ones who can reverse this slide in our living standards are those elected politicians who have been given the responsibility of running the country. It is their spending and policy framework that is now directly responsible for our current predicament.
The reality of course, is that these areas are hugely complex, which is why it is very helpful to be able to read the new report of the 2025 Taskforce. The 2025 Taskforce was formed as a result of the National and ACT parties 2008 Confidence and Supply Agreement. Its key purpose is to examine ways that the income gap between Australia and New Zealand can be closed and to identify progress that is being made annually towards that goal.
I asked Dr Don Brash, the Chairman of the Taskforce and former leader of the National Party, to explain to NZCPR readers what the taskforce has found. In his article Can we catch Australia by 20245? Yes we can, but… he explains:
“In our first report, issued last year, we judged that Australian incomes were on average 35% above those in New Zealand. This year, we did not try to quantify whether the gap had increased or decreased because some of the data was not available, but concluded that, because Australia has so far weathered the international financial crisis somewhat better than we have, it is very unlikely that the gap will have narrowed over the last year.
“We judged that the Government has done several things this year which may lead to somewhat faster growth, notably the reduction in personal income tax rates, a start in reforming the RMA, the lifting of the moratorium on new aquaculture projects, some improvements in employment law, and the decision to establish a Productivity Commission.
“But we also noted that there had been several retrograde steps, including an increase in the effective company tax rate (a reduction from 30% to 28% being somewhat more than offset by several other changes in corporate tax), an increase in the already high minimum wage rate (the second highest in the OECD relative to average incomes), a failure to make any impact on what is now a very large structural fiscal deficit, and an increasingly negative attitude towards foreign investment.”
Dr Brash concludes, “Our basic message was that there is no chance at all of our reaching Australian income levels by 2025 on our current track. Indeed, the OECD has recently projected that the gap will widen further to 42% by 2025, and we received advice that, if that’s what happens, we are likely to lose a net 410,000 New Zealanders across the Tasman over the next 15 years. If we are to avert that outcome, there is no time to waste.”
When you cut to the chase it is clear that the main reason that New Zealand has falling living standards and is languishing behind other countries, is not that Kiwis are lazy or lack entrepreneurial skills. To the contrary – our living standards are falling largely because our government is spending too much. And according to the Taskforce, it isn’t even high quality spending. In other words, the government is spending taxpayers’ money like water because it hasn’t got the gumption or resolve to eliminate wasteful spending – it is as simple as that!
As the Taskforce has noted, in 2004/05 government spending was 29 percent of the country’s wealth (GDP). The OECD now puts it at 45 percent. A government that spends so much relative to the size of the economy simply cannot grow at the speed needed to catch Australia. Not only that, but the massive bureaucracy is crowding out the productive sector.
The Taskforce explains that the income gap between New Zealand and Australia is growing so fast that while the average Aussie income is $16,400 more than the average Kiwi at present, if we stay on the current path, by 2025 it is expected to have risen 60 percent to $24,100. If we are to stop the exodus of talented New Zealanders to Australia – as the Taskforce highlighted, some 410,000 by 2025 – we desperately need a government that will make it their priority to arrest the decline and put the country back on a path to prosperity.
In a recent article in the Herald, Brian Gaynor provided a comparison of the performance of the Australian, Singaporean, and New Zealand sharemarkets that put the dismal state of our economy into perspective. Stock exchanges, of course, channel a country’s savings into the productive sector and so their relative size and activity provides an indication of economic buoyancy. He found that whereas in 1990, the Australian Stock Exchange 1136 listed companies, by 2010 it had 1966, in Singapore the number grew from 172 to 773 over the ten year period, but in comparison, the number of listed companies in New Zealand declined from 245 in 1990 to 165 today. And in terms of market capitalisation he found that the Australian Stock Exchange has risen from 33 percent of GDP in 1990 to 127 percent last year, the Singapore Exchange had risen from 88 percent of GDP to 264 percent over the same period, while the New Zealand Exchange barely increased from 20 percent of GDP in 1990 to 30 percent today.
Without a doubt New Zealand’s future prosperity depends on the business sector – especially the export sector – doing well. Yet it is the high levels of government spending and borrowing – $250 million a week – that are keeping interest rates and the exchange rate at higher levels than they should be. Unless this is addressed and the millstone of compliance costs reduced, New Zealand will never be able to get ahead.
While there are, of course, many other factors that affect our growth that are discussed in the taskforce report, it is simply not good enough that government Ministers can go on record whining about how tightening their belt is too hard on the one hand, while dishing out $20 million-plus to Time Warner with barely a blink of an eye on the other. Meanwhile, Kiwi families and businesses struggle to get ahead precisely because of the excesses of the government! By failing to exercise proper constraint, and frittering away vast amounts of taxpayers’ money on poor quality programmes that do nothing for the long term benefit of the country, the government is stealing our wealth and future prosperity. I can’t say it strongly enough.