News

Green Party scores massive own goal as their own policy auditor criticises their fiscal plan

“The Alternative Budget released by the Greens does not even stack up in the eyes of their chosen auditor – Infometrics,” said ACT Leader Dr Jamie Whyte.

"Infometrics' review of the Greens' fiscal plan found revenue estimates to be very much on the high side and said it would be much more prudent to estimate considerably lower revenue from the party’s tax hikes.

"The revenue forecasts of the Greens simply did not take into account quite predictable behavioural responses to the massive increase in both the top tax rate and the trust tax rate that is paid by hundreds of thousands of small businesses and family farms in New Zealand. Infometrics had to call the Greens out on this."

To quote the relevant passages in full, so there is no mistaking the dodgy numbers in the Greens' Alternative Budget:

“Our second more substantial concern is that the estimates make no allowance for behavioural responses to the tax change. The type of impact is demonstrated in Figure 1, which presents the way that declared income evolved following the introduction of a 39% tax for incomes over $60,000 in the early 2000s. The majority of post 1999 income growth occurs at income levels below $60,000. In particular there is the development of an income spike precisely at $60,000 – a spike that did not exist prior to the tax change in 1999."

“If the incentive is large enough people will rearrange their affairs to reduce their tax exposure. The Green Party proposals to change the tax rate for trusts and to increase tax enforcement activities reflect an awareness of this propensity, but the revenue estimates do not reflect this awareness. Tax avoidance is not necessarily illegal, but usually reflects a combination of people perceiving that the system is not equitable and an overly complex tax system. The former creates the incentive, the latter the means, for tax avoidance. Taxpayers will be surprisingly fast at changing their affairs, and most changes will be quite legal."

"The Green Party tax revenue estimates take no allowance for a decline in the tax base and as such must be viewed as high-end estimates. We think it would be prudent to base fiscal estimates on considerably lower revenue estimates.”

The full review can be read here: https://www.greens.org.nz/sites/default/files/Appendix-Infometrics-Revie...

“The Greens cannot with any credibility claim that putting the top tax rate up to 40%, and putting up the trust tax rate to 40%, which affects hundreds of thousands of small businesses and family farms, will have no behavioural effects,” said Dr Whyte.

“The Greens cannot have any credible claim to a senior ministerial portfolio after putting out so naive an alternative budget.

"On one hand, the Greens' proposals for a carbon tax are pointless unless there are behavioural changes – people will buy less carbon intensive products. But the Greens then go blind to the obvious behavioural effects of large tax increases when trying to hide their ropey economic analysis and ideological hatred of success, choice and personal responsibility.

"The Alternative Budget of ACT explicitly took account of behavioural of responses of taxpayers to cuts in the top tax rate to 24% and cuts in the company tax rate to 12.5%. Some of the revenue offsets from these behavioural changes are immediate increases – to the order of 10% of revenue.

"The ACT party looks forward to a prosperous New Zealand.

"The Green party wants to tax and regulate New Zealand into poverty."

ACT announces Tauranga candidate Stuart Pedersen

ACT Leader Jamie Whyte is pleased to confirm ACT’s candidate for Tauranga.

“Our Tauranga candidate will be Stuart Pedersen. Stuart has strong ties to Tauranga and I’m glad he has agreed to do his best to grow ACT’s party vote in the electorate,” says Dr Whyte.

Stuart, 53, grew up in the Eastern Bay and now lives in Mt Maunganui with his wife Pamela. Their two children are currently studying in Auckland. He has worked in the economics and investment fields, and is currently a private investor and an active volunteer in the community through Rotary and as Chairman of the Bay of Plenty Sailing Academy Trust. 

“I have been a strong believer in ACT’s principles from the start,” says Stuart.

“I want to live in an open, progressive, liberal and compassionate society where everyone is free to pursue their aspirations, provided they respect others, and where nobody is left behind. Those are the principles which drove ACT’s founders to free us from the creeping repression of the Muldoon era, and the party’s new leadership is really renewing our focus on those sound principles.

“I'm looking forward to showing Tauranga ACT's plans to introduce lower and flatter taxes and a three strike policy for burglary.

“My career in economics and investment taught me that taxes don’t just take cash out of the private sector, they can screw with people’s household and business decisions and in doing so, shrink the economic pie. Lower and flatter taxes, funding a smaller government which doesn’t waste money on middle class and corporate welfare, will help us grow the pie for everyone’s benefit.

“National needs a reliable coalition partner so New Zealand can retain a stable government that values freedom, choice, and personal responsibility. They also need sharp, energetic allies who can keep them on task, should they risk falling prey to third term malaise - or arrogance. Dr Jamie Whyte and his team are perfect! So whether you are in Tauranga or elsewhere, the best way to achieve this is by giving your party vote to ACT.”

 

ACT announces Ohariu candidate Sean Fitzpatrick

ACT Leader Jamie Whyte is pleased to confirm ACT’s candidate for Ohariu.

“The ACT candidate for Ohariu will be Sean Fitzpatrick. Sean has close links to the region and I’m glad to hear he will be doing his best to grow ACT’s party vote in this electorate,” says Dr Whyte.

Sean lives in the Northern Suburbs. He has been a personal trainer and professional musician and currently is a small business owner, having opened a full time family oriented martial arts academy in the heart of Wellington.

“My life experience has been that, whatever the circumstances, one can overcome setbacks and achieve wonderful things for oneself and for others, provided one is given a chance to do so. The only voice in New Zealand politics that expresses these values clearly and unequivocally is ACT,” says Sean.

“I'm looking forward to introducing Ohariu to ACT's plans to enact lower and flatter taxes and a three strike policy for burglary.

“The message of the ACT party is inherently positive and is aimed at that which is best in human nature: fairness, tolerance, industriousness and respect. By contrast other parties seek to appeal to that which is most base in human nature; greed, envy, bigotry and indolence. My whole professional and personal life is aimed at encouraging people to seek out the best in themselves and others, so ACT is a natural political home for me.

“New Zealand dearly needs a voice in parliament for individual freedom and personal responsibility. There is no question the best choice for that voice is Jamie Whyte and the only way to make sure that voice is heard is by giving ACT your party vote on September 20th."

Subsidising failure

I’m new to politics. Until now, I never quite clicked how corrupt politics can be. I’ve learnt that most parties buy their votes. The election has become a bidding war.

Which party can use up the most of our money? Which party can make the most decisions for us? The left often reminds me of an adolescent girl with her mother’s credit card. It’s pathetic and irresponsible. With that attitude – and I don’t say this lightly – it’s no wonder we have inter-generational welfare dependency.

I’ve noticed that certain subjects make politicians uncomfortable. Race is one. Welfare is another.

I want to talk about the latter. I worked out why the left doesn’t want to touch welfare – ‘cos no one wants to be the bad guy, right?

The great Thomas Sowell once said, “Welfare is paying people to fail. Insofar as they fail they receive the money. Insofar that they succeed even to a moderate extent that money is taken away from them. We are subsidising people to fail in their own private lives, and they become reliant on hand outs.” Spot on.

It’s important to have welfare as a safety net – to help people out in their time of need, to help them get back on the horse. But the issue we have is welfare dependency. And it’s an issue that crosses generations. People choose to have children they can’t afford to bring up, both in financial and in emotional terms. These parents expect the state to take care of their children. Let’s think about these kids. What kinds of role models do they have? What kind of expectation and self-esteem do they have? Surely it can’t be a great life. Do they know discipline in work and study?  Do they have ambition to reach their potential and contribute to our community? Or do they resent others who are better off, but who are working hard to succeed because they’ve had the chance to learn how? Do these children then turn into repressed, frustrated individuals who are then likely to become criminals? These are questions we need to ask.

I am a 25-year-old woman, and sometime I would like children. I know and understand that bringing up just one child takes an enormous amount of time, money, emotion, energy and determination. I know that I only want kids at a time when I have these things sorted – because any time otherwise would be selfish. I don’t expect the state to bring up my child. I know how important it is for a young person to have strong parental role models in their lives – childhood is the peak of development, where attitudes are formed and learning techniques are developed.

What Paula Bennett has done is great. We’re moving in the right direction, but we still need strong incentives for people to leave the benefit. If you were receiving $400 a week from the government to sit on your couch and watch the Jeremy Kyle Show, and you were offered a part-time job with an after tax income of $300, would the work really be that appealling?

ACT believes reducing company tax to 20% will create more jobs with more hours of employment, encouraging beneficiaries to choose work over welfare. We understand we can’t change the way people think, but perhaps we can break the cycle of welfare dependency, and live in a country where younger generations will want to be responsible individuals, working in our society and reaching their maximum potential.  

ACT has a plan to double cycle use

"The National party yesterday announced a $100 million cycle-way that just happens to go through the marginal seat of Hutt South," said ACT Leader Dr Jamie Whyte.

"The Greens want to spend many hundreds of millions on cycle-ways. ACT’s contribution to this bidding war for the cyclist vote would double cycle use and cost nothing," said Dr Whyte.

"We need only abolish the law that makes wearing a cycle helmet compulsory. Since 1994, when Parliament established an instant fine of $150 for failing to wear a helmet, cycling has declined by over 50%. Overseas experience also indicates that laws making it compulsory to wear a helmet dramatically reduce cycling.

"This nanny state law does not even save lives," said Dr Whyte.

"On the contrary, it costs lives. Before the legislation, few people died from cycling accidents and, of those who did, only 20% died from head injuries alone."

"Research reported in the New Zealand Medical Journal (see http://journal.nzma.org.nz/journal/125-1349/5046/) shows that, over a 10 year period, only 20 Aucklanders were killed in cycle accidents and only 4 might have been saved by wearing cycle helmets. This same New Zealand Medical Journal article concluded that life years gained from the health benefits of cycling outweighed life years lost in accidents by 20 times" said Dr Whyte.

"The diminished health resulting from the reduced cycling caused by compulsory helmet-wearing costs 53 premature deaths a year. ACT would simply abolish the $150 fine for not wearing a helmet. That would save $100 million on cycle-ways in marginal seats, double cycle use and save 53 lives a year,"  said Dr Whyte.

The Letter - 18 August 2014

The coming global economic shock

Dr. Jamie Whyte delivered today the first of a number of major speeches.  In this speech Dr. Whyte who has worked for fifteen years as a strategic risk advisor to global banks sets out why he believes there are major global economic shocks that will hit New Zealand, why we are not prepared and ACT’s three point plan to assist New Zealand ride out the shocks.  The speech is on ACT’s website www.act.org.nz  The speech is part of a series Dr. Whyte is delivering on the real issues facing New Zealand.

 

Vile, malicious gossip

Mr. Hager published a claim in his book that some “inappropriate texts” had been used to blackmail Rodney Hide to surrender the leadership of ACT.  A bombshell allegation.  If true, devastating to ACT.  It is a very serious criminal offence to blackmail a Minister.  If true very damaging to Rodney who is now retired from politics and a happily married man.  Mr. Hager did not check these claims before going into print.  Rodney was shocked to learn of it.  He knows of no blackmail or texts.  Rodney contacted the people mentioned in the story – not ACT members – who totally deny the claims. There are no texts, there was no blackmail.  The Letter which claims to be reasonably well informed about ACT, has never heard the allegations before.   Mr. Hager’s breathless allegations appear to be dissolving.  On the day of the launch he claimed the National Party had hacked the Labour Party’s  website, a very serious charge.  Within 24 hours it turns out Mr. Hager is referring to the fact that the Labour Party published on their website a list of their donors, an action the Labour Party has apologized for.  On TVNZ when asked “what is the most serious allegation in the book” Mr. Hager says it is Judith Collins revealing the name of the civil servant in charge of Bill English’s ministerial house!  We do not live in a secret society.  The names of civil servants is public information.

 

Who does it hurt?

The Greens and Labour.  The Greens because although they claim not to get involved in “dirty politics” they have immediately got involved and issued complaints to everyone.  Labour because they are at 26% and falling.  This story is sucking up media space.  When Hager published “Seeds of distrust” making the absurd claim that Labour was trying to secretly introduce genetically modified corn it derailed National’s campaign.  (ACT was not derailed and said within hours that it was rubbish and in 2002 had the party’s best result).  The central thesis of the book is absurd.  Judith Collins is not in charge of National’s campaign and never likely to be.  Steven Joyce is.  There is not email from Joyce.  No Joyce, no Key, no story.  

 

The winner

 Cameron Slater.  He cannot buy publicity like this.  On TV he looks as happy as a pig in mud.        

 

The compass is faulty

TVNZ has taken a great idea from Canada.  Analyze the parties programs on an attitudinal survey, a  double axis, Left-Right and then liberal-conservative.  Post a survey on the TVNZ website and tell participants from their replies which parties’ policies are closest to their wishes.  Of course the survey is only accurate if TVNZ picks issues of concern.   ACT welcomed the TVNZ Compass Survey because the party’s surveys show that 11 percent of the country share ACT’s values and 8% of those surveyed say when they realize what ACT really stands for that they will consider voting ACT.  But this survey is biased towards issues of concern in America.

Go to http://tvnz.co.nz/breakfast-news/vote-compass-you-can-have-your-say-video-6059269

 

Abortion is an election issue?

One question asks “Abortion up to twenty weeks should not require medical approval” No Kiwi voter asks that question. The survey says “The government should restore free tertiary education”.  Tertiary education in New Zealand has never been free. We showed the questions to our pollster Gene Ulm.  His response: “Yikes.  Looks like Labour has had their input.  Several suggestions; Kiwis are over taxed compared to the benefits received.  We need a tax system that works for all kiwis”.  They are questions that would identify ACT voters. Political parties are far ahead of academics when it comes to polling.  Academics cannot afford the $60 thousand cost of a large attitudinal poll.  ACT has ten years of attitudinal polls.  We know TVNZ has asked the wrong questions and is misleading voters.   

 

Will Labour fall below last election?

In the pundit poll Labour has fallen again to 26.9%.  The Roy Morgan poll appears to have been an aberration.  National is on 51.8%.  The left/Right gap is widening to over 12%.  The Internet/Mana Party is eating into Labour’s vote.  The left is heading for a disaster.  Like the PM we still expect the National Party vote to drop below 50% but so far it is holding very well.  ACT is confident that as the realization grows the party is winning Epsom  then Right/Centre voters who think the government is too National-lite will vote ACT.       

 

 

 

 

Understand MMP better than a Political Science Professor

At the risk of making this Letter long we are reprinting in full a posting on Kiwiblog.  It is the best explanation we have ever read on how MMP actually works.

A Guest Post by Peter McCaffrey:

Whatever your personal views on MMP, the referendum result in 2011 made it clear that our electoral system is here to stay for the foreseeable future.

MMP is exceedingly complicated.

I spent a large chunk of time during my political science degree at Victoria University learning it intimately, and still have to look things up occasionally to make sure I’ve got them correct.

While many people now understand that the Party Vote is the most important vote in deciding the makeup of the legislature, the intricacies of overhangs, top-up seats and the Saint-Lague formula are lost on most people.

It’s common to see mistaken or just plain wrong comments on news media websites and blogs and that’s fair enough really.

No one actually needs to understand the Saint-Lague formula in their daily lives, and putting in the required effort to properly comprehend it would be a complete waste of your time.

Unless, that is, you want to take on the responsibility of explaining the system to others, whether in day-to-day conversations, as a commentator in the media, or as an academic in the classroom.

Which brings us to Q&A on Sunday, and the comments of one of their guests, which provide an excellent opportunity for a refresher course for anyone interested.

Raymond Miller has a doctorate in political science, has written a book about our political party system, served as the head of the Political Science department at Auckland University, teaches courses on elections and is conducting research in to electoral systems.

And yet, he seems to have absolutely no clue about how MMP works, and why the Epsom electorate is so important in this and previous elections.

On the show, Dr Miller claimed that if David Seymour won Epsom but ACT didn’t win enough party votes to bring in extra MPs, then National would have been just as well off with Paul Goldsmith winning the seat.

But this is just completely, objectively, factually wrong.

I hope with this post, I can clear up some of the confusion.

By now, no-one out there should be in any doubt that if ACT receive enough votes to elect extra MPs with David Seymour, then that is extra MPs for the centre-right, obviously.

But what about the scenario that Raymond Miller suggests of ACT not getting anyone other than David Seymour elected?

There are two possible ways this could happen:

Scenario 1) If David Seymour wins Epsom, but ACT receive between 0.0% and ~0.4% of the vote.

In this situation, David Seymour would be what is referred to as an “overhang” MP.

This means that ACT won more electorates than their party vote entitles them to.

This also happened to the Maori Party in 2011.

The Maori Party won 3 electorates, but only received enough party votes to be eligible for 2 seats in parliament.

In these kinds of situations, rather than saying that someone who won an electorate may not sit in Parliament, sensibly, the overhang MP is still elected to parliament.

The size of parliament is actually temporarily increased to 121 MPs, meaning the Maori Party received their 2 seats according to their party vote, and then one extra seat for their third electorate MP.

So even if ACT receives so few votes that David Seymour is an overhang MP, the centre-right still receive a whole extra 1 seat.

[Note: If there are two overhangs in a parliament, meaning there are 122 MPs, then 62 votes would be needed to form a government instead of 61 votes, but even under this unlikely scenario, David Seymour would still effectively count as an extra 1/2 seat for the centre-right.]

Scenario 2) If David Seymour wins Epsom, and ACT receives more than ~0.4% but less than ~1.2%.

In this situation, ACT receive enough votes that David Seymour won’t be an “overhang” MP, but not enough to elect a second MP.

This is where MMP starts to get really complicated.

To explain, let’s start with a background on how seats are allocated under MMP.

The number of seats a party receives in parliament is determined almost entirely by the party vote they receive, according to the Saint-Lague formula.

Typically, parties win a large enough party vote to entitle them to more seats in parliament than the number of electorates they win.

For example, in 2011, National received 47.31% of the vote, entitling them to 59 seats in Parliament.

National candidates won 42 electorates, which was then topped up with 17 list MPs to ensure National had the 59 MPs they deserved.

Had Paul Goldsmith won Epsom in 2011, National would still only be entitled to 59 seats in total, as their party vote hasn’t changed, but would now hold 43 electorates, meaning the number of top-up electorate seats they would receive would simply be reduced to 16.

So, Paul Goldsmith winning Epsom would have cost ACT a seat, but not gained National any extra MPs – result: one fewer MP for the centre-right.

But where did that ‘spare’ seat go?

As ACT wouldn’t have won an electorate seat, ACT’s votes would now be wasted votes, and this would change the Saint-Lague calculation.

It is technically possible that the election’s party vote result could fall in such a way that during the calculation, the Saint-Lague formula determines that National receives this ‘spare’ seat.

But it’s much more likely that the ‘spare’ seat is awarded to Labour, or the Greens, or New Zealand First, leaving the centre-right with one fewer seat, and the centre-left with one more.

This is exactly what would have happened had Paul Goldsmith won Epsom in 2011, as the Saint-Lague formula would have awarded the ‘spare’ seat to Labour.

You can see for yourself using the Election Commission website’s Saint-Lague calculator:

http://www.elections.org.nz/voting-system/mmp-voting-system/mmp-seat-allocation-calculator

Just load in the 2011 election results, but change ACT to have won 0 electorate seats, and National to 43.

ACT drops from 1 to 0 seats, National stays on 59 seats, and Labour increases from 34 to 35.

On that result, the Labour, Greens, NZF, Mana and Maori Parties would have had enough seats to form a government.

It’s possible the Maori Party might have chosen to continue working with National.

But then, rather than John Key being able to pass legislation with UF and ACT or with the Maori Party, National would have needed both United Future AND the Maori Party’s votes on every single bill in parliament.

The Maori Party would have held the balance of power on every single vote.

It’s not merely an exaggeration that ACT winning Epsom in 2011 decided the entire election.

If you know any Epsom voters, show them this article, and make sure they understand they might also decide the 2014 election.

ACT’s three point plan to respond to the coming global Economic Shock

Speech to ACT Party Members and supporters
Newmarket,
9am Monday 18 August
Dr  Jamie Whyte, ACT Party Leader

ACT’s three point plan to respond to the coming global Economic Shock

New Zealand is a small trading nation. This makes us especially vulnerable to global economic shocks or downturns.

How can we ride out the coming global economic shocks? How can we avoid being thrown into recession by international events over which we have no control? This is the big question for the country.

Not that you could tell it was by observing this election campaign. From the petty bickering and name-calling of our politicians and journalists, you might think that everything is plain sailing for New Zealand. There are no serious threats to the nation’s well-being, and the only question is who should get their hands on the tiller.

This impression is reinforced by the National government’s near perfect inactivity. In six years, they have done almost nothing to reform New Zealand’s economy. They thrive on the Prime Minister’s immense popularity rather than the success of any actions they have taken.

Well, I will make you a prediction. I predict that by the next election the gossip in Mr Hager’s book will be forgotten and the real issue affecting New Zealanders will be some global economic shock.  Journalists who today are fascinated by the Hager gossip will wonder why they were not asking our politicians about their plans to deal with global economic instability.

Being the bearer of bad news may not make me popular. Persian Kings used to throw the bearers of bad news down a well. That made the bearer go away but not the bad news. It won’t work in a democracy either. Voters who reject parties bringing bad news won’t prevent global economic shocks from occurring. They will just make effects of those shocks more devastating.

I am known as a “philosopher turned politician”, as the Herald recently put it. I was indeed a philosophy lecturer at Cambridge University for several years. However, I have spent a larger and more recent part of my career as a strategy consultant in the banking industry. About half of the projects I led involved advising global banks on how to measure and manage the risks they were taking.

I can assure you that the global economic situation will not provide New Zealand with plain sailing. Our bickering and steady-as-she-goes politicians are being negligent.  Those of us advising the banking industry are very concerned about the risks of another economic shock that could have devastating consequences, especially to small exposed economies such as New Zealand.

The global economy is today in a precarious situation. And, since the global financial crisis that started in 2007, developments in New Zealand have made us even more vulnerable to the next crisis.

Why is the global economic situation precarious?

The short answer is that the imbalances that have built up in recent decades and resulted in the financial crisis have not been corrected.

What is an economic imbalance?  It is jargon for an unsustainable position.  Your personal finances would be described as imbalanced if you have borrowed to the hilt on your mortgage and credit cards so that all of your income is going to repay interest and just a minor increase in the rate of interest would mean you could not make the payments. 

A growing number of countries have governments and citizens in just that position.  Interest rates today are at historic lows: the European Central Bank’s overnight rate is actually negative – you have to pay to deposit money with it.  But, as New Zealand itself has proved this year, interest rates must eventually rise and, if governments and populations remain highly indebted, we will see real carnage.

The global financial crisis of 2008 occurred because banks in the US and Europe lent excessively and recklessly. Why did they do that? 

Government regulations designed to make banks safe actually made them take on risks.  Deposit insurance and the implicit government guarantee created by banks being “too big to fail” meant they paid no price for excessive risk-taking. This created what is known as moral hazard. 

The policy response to the crisis has not solved this problem. On the contrary, necessary or not, the government bailouts of insolvent banks have only reinforced this moral hazard. The banking system of the world’s major nations remains a serious threat to economic stability.

The second underlying problem is excessive government spending and unfunded government liabilities. These problems are well-known in Europe. Governments there have spent so much on their various vote-buying programmes, and promised so much to future retirees, that they are effectively insolvent. Many already have debt greater than 100% of their GDP, and no prospect of honouring their promises to future retirees. If governments were held to the accounting standards of companies, they would be wound up.

The problem is just as bad in the US, where federal government debt is now $18 trillion and, according the American economist Laurence Kotlikoff, its unfunded liabilities created by entitlement programmes exceed $200 trillion. Not $200 billion. $200 trillion.

The government of the USA can continue paying its bills only because the rest of the world keeps lending it money.  We do that because the USA has the world’s reserve currency. But reserve currency status is not permanent.  Not very long ago Sterling was the world’s reserve currency. Some countries are trying to challenge the dollar’s reserve status.  It will not be easy but the challenge itself may lead to instability.

Then there is China. China’s explosive economic growth has been carrying much of the world with it. New Zealand and Australia have benefitted greatly from it. Much of China’s growth has been based on structural economic reforms – notably, on the shift from a planned economy to a market economy. The gains from these reforms are sustainable.

However, some of the growth has also been based on a reckless government-backed expansion of bank lending. Much of this lending has been to poor-quality businesses. The solvency of Chinese banks is imperilled and dependent on their government’s backing. Indeed, if Western accounting standards were applied to Chinese banks, many would now be declared insolvent.

Over the long run, the systematic misallocation of capital in China cannot be sustained. Chinese banks will eventually either fail or contract their lending or suck-up economic resources through more and more government subsidy.

Commentators used to say that Japan had found a new economic paradigm. Japan was going to be bigger than the USA.  Japan was different and its imbalances did not matter. Well, Japan has now been in recession for over a decade.

China must at some point tackle the imbalances in its banking system.  This will slow China’s economic growth. The knock-on effects for the global economy will be severe, especially when so many other governments’ finances are on a knife-edge. The knock-on effect of a recession in China for New Zealand will be severe.  China is now our most important market.

We cannot fix these problems from New Zealand. We can only manage our own affairs, making ourselves less vulnerable to the effects of a global downturn from these sources or the others that may blind-side us.

How can we do that?

ACT has a 3 point plan to prepare for the coming global economic shock.

1.       Reduce government debt

2.       Liberalise economic regulation

3.       Eliminate corporate welfare and economic planning.

Why will these measures make New Zealand more resilient to economic shocks?

Resilience to economic shocks is weakened by three things. The first, and most obvious, is debt. The more indebted you are when things go wrong, the harder it is to ride the storm. We all know this from our personal lives. If you lose your job, your situation is far worse if you are maxed-out on your credit cards than if you have savings.

The same goes for governments. A government that is highly indebted when a downturn strikes will find it expensive or even impossible to borrow the money it needs to keep functioning – to continue providing the education, healthcare, unemployment insurance and other services that governments now supply. This is what happened to Greece in 2011.

The New Zealand government’s debt has increased from about $30 billion in 2007 to $65 billion today, which is 36% of GDP. That is not high by comparison with the US, Japan and European countries. But that is nothing to be proud of. Those governments are outrageously over-indebted. What’s more, small countries have been shown to be able to sustain lower levels of debt, not just in absolute terms but as a proportion of their GDP.

Reducing government debt should be a priority. Even now that New Zealand has emerged from recession, the National government’s efforts in this area have been feeble. No debt will be repaid in 2014.

ACT recommends selling the government’s stake in all state owned enterprises, such as Landcorp (a government owned farming business), the energy generators and Air New Zealand. This would immediately reduce government debt by a third: that is, by $20 billion. And there would be no material loss in government revenue because the government’s portfolio of commercial assets delivers a return of less than 1% on capital – the kind of return that would get any portfolio manager fired.

Risk is also exacerbated by concentration: that is, by having all your eggs in one basket. Again, we all know this from our personal lives. Most of us have just one client: namely our employer. If our employer goes broke or turns against us, we lose our entire income. By contrast, a company with many customers can lose one or two of them without a dramatic loss of income.

The fortunes of a country that produces only a few goods, or supplies only a few services, is more vulnerable than one, such as the US, that produces a vast array of goods and services.

New Zealand’s economy is quite concentrated compared to the many other countries – most obviously, on agricultural output and, for now, on dairy in particular. Alas, such concentration is more or less inevitable for small economies. Divide the US into many little 4.5 million people regions, and you will find that most have more concentrated economies than New Zealand. Taking advantage of comparative advantage means that high-performing small economies will tend to be quite concentrated.

Which brings me to the third factor that exacerbates risk: namely, rigidity. When demand for what you produce falls, you need to start producing something else. Suppose the international price of dairy falls dramatically, perhaps because the Chinese economy goes into recession.

The current concentration on dairy production in New Zealand will not be a big problem if dairy farmers can quickly and cheaply switch production to something where demand has not collapsed. But if dairy farmers are effectively stuck with dairy, then they are in big trouble. And so are the other New Zealanders whose earnings depend on the success of the dairy sector.

The point is not specific to dairy farming. Anything that makes our economy less responsive, less able to adapt rapidly to changes in demand or in the cost of inputs, makes if far more vulnerable to changes in the global economy.

This is where governments do most to exacerbate economic risk – all around the world and here in New Zealand. The most obvious way they do it is through regulation. Governments impose rules that make it difficult to respond quickly and cheaply to changes in the economic situation.

Employment regulations make it difficult for firms to get rid of newly unsuitable staff or to change their terms of employment. And, on account of these restrictions, firms are reluctant to take on new staff. Employment law thus limits firms’ ability to respond to new circumstances. That’s one of the reasons ACT has proposed significant liberalisation of employment law in New Zealand.

Resource consenting also impedes our ability to respond to economic shocks or even to slow-motion developments. It can take many years and hundreds of thousands of dollars to get permission to put your land to a new use. The consenting process is so arduous and uncertain that many people give up before even embarking on it. Good ideas don’t get off the ground. This is one of the reasons that ACT proposes major reforms of the Resource Management ACT. The RMA is an enormous legislative wet blanket lying across the New Zealand economy.

Other political parties seem blissfully or, more accurately, dangerously unaware of the problem. Rather than seeking to diminish the role of the government in the economy, they seek to expand it. For example, Labour has become entranced by forestry. They plan to subsidise an increased production of trees. The Greens, of course, want to subsidize an expansion of “green” businesses. Even National have edged back towards the economic planning of Rob Muldoon, dispensing $1.7 billion a year in corporate welfare for their favoured firms and setting a target of doubling agricultural exports by 2025.

All such interventions simply make our firms less responsive to economic reality. They produce not what there is real demand for, but what the government is willing to subsidize. And the government’s willingness to subsidise certain things and tax others (as it must to fund the subsidy) responds not to economic reality but to political reality.

Politicians are aiming to get re-elected. Unsubsidized businesses are aiming to produce what people are willing to buy. A subsidized and government-directed economy will not respond properly or quickly to changes in the global economy. This is one of the reasons ACT rejects National’s corporate welfare and the other parties’ proposed return to central economic planning. By eliminating all corporate welfare, we could reduce the company tax rate from 28% to 12.5%. 

Like other Western economies, New Zealand’s is becoming “sclerotic”: slow to respond to economic shocks and changes in patterns of demand. This is not because people are lazy and dull-witted. People are always ambitious and they are now better educated than ever before.

The recovery from the recent global recession is so slow compared with previous recoveries not because people have slowed down but because governments are impeding them. If New Zealand is to thrive in a risky world, the government must spend and borrow less, it must tax less, it must regulate less and it must not try to decide what we should produce.

ACT is the only party in New Zealand that takes the risks we now face seriously. And ACT is the only party that understands that the answer is not more government, but less.

The current political “debate” in New Zealand – the accusations and bickering and name-calling – reveals a political class who have become obsessed with their own affairs and oblivious to the real risks to the population.

My message to the voters is “ask National and Labour what is their plan to deal with the coming economic shock?”

Then vote the party that has a three point plan. Vote for ACT.

 

Contact Ph 02102481006

 

The Greens have become full socialists

"The Green Party launch sounded like the launch of a socialist party.  The environment is now very much a second thought," said Dr Jamie Whyte.

"Mr Steven Joyce's response from National would have had more credibility except National's record on tax is not good.  New Zealand now has one of the highest Company tax rates among small open economies. Indeed, our corporate tax rate is higher than the average in the EU.  

"High company tax is discouraging investment and holding down growth and wages.  If National had a plan to reduce job-destroying taxes, they could have responded to the Green's socialist manifesto with a call to free enterprise and prosperity." 

 

Contact: Dr Jamie Whyte Ph 02102481006

The Sunday Series with Jamie Whyte - 17 August 2014

This week: Dr Jamie Whyte talks about ACT's Company Tax policy.

Same problems, same failed solutions

Shea Terrace, Takapuna

7.30am, 15 August, 2014

 

Same problems, same failed solutions

Extract from speech to North Shore Rotary

“At this election National is promising more of the same. The other parties are suggesting even more of the same. What we need is far less of the same,” said Dr Jamie Whyte this morning.

“Brian Fallow of the Herald wrote a column yesterday pointing out similarities between this election and the 2005 election. Not only do we have an incumbent party trying to win a third term, but the economic situation is similar."

Dr Whyte said, “Fallow could have gone further.  In 2005 Labour’s most valuable asset was the Prime Minister and in 2014 National’s most valuable asset is the Prime Minister John Key, who is even more popular.”

“To make his case about the economic similarities with 2005, Fallow points to a number of economic indicators, such as unemployment, wage rises and house prices."

“But Brian Fallow misses the important point. The economic situation is the same as 2005 in a more fundamental sense. After six years in power, National has made no serious changes to the structure of the economy they inherited from Labour in 2008. We have the same excessive level of government spending and taxation. The same over-populated central and local government bureaucracies. The same burdensome regulations. Even more corporate welfare,” said Dr Whyte.

“At this election National is promising more of the same: tax, spend and regulate. The other parties are suggesting even more taxation, even more spending and even more regulation.

“Only ACT is saying we need less taxation, spending and regulation.

“ACT says we need a fresh new approach after nine years of Labour-lite spending followed by six years of National-lite spending,” said Dr Whyte.

"We need an economy that is dynamic, resilient to shocks and quick to adapt to changes in global demand. That requires the government to play a smaller role and reduce the burdens it places on enterprising New Zealanders. We need lighter regulation, lighter tax and an end to corporate welfare – or government cronyism, as it is less politely called.

"ACT has put forward a positive practical solution: eliminate corporate welfare and slash the corporate tax rate from 28% to 12.5%.  This one measure, which is self-financing, will do more to promote investment, growth, jobs and real wages than all the policies being put forward by the all the other parties put together." 

 

Contact : Dr Jamie Whyte 021 02481006 

Pages