Act Party

Roger Douglas: How to judge the 2014 budget

First publshed on the National Business Review

Budget day is coming up. Finance Minister Bill English has promised that this will be yet another "responsible budget".

But what does it mean for a budget to be responsible? How can we tell if a budget is responsible or reckless?

Unless we understand some fundament economic truths, then we will not be able to determine whether Mr English delivers on his promise. Set out below are a number of principles that we must keep in mind when assessing this year's budget.

Principle 1 - There should be no free lunch

A government should only take an extra dollar from the private sector if it can show the money will return more to New Zealand than it would have returned had it been left in the private sector. Every dollar of government spending is a dollar that is not being spent by an individual in the private sector. When a government borrows to spend, it is only deferring tax increases.

Principle 2 - All spending has an opportunity cost

Whenever the government spends money, it is necessarily not spending it elsewhere. When the government spends money, the question is not "does this spending have benefit?" but is instead "does this spending have more benefits than any alternative way of spending this money?" For example, when it comes to tertiary education, is it right for the government to not only forgo $500 million plus in revenue (interest free loans) but also make the poor pay for the tertiary education of the children of the wealthy?

Principle 3 - Incentives matter

The determining factor that explains how people behave is the incentives they face. When work pays, people are likely to work. If you punish hard work and subsidise idleness, you should not be surprised when you see more people out of work. A good example of the power of incentives can be seen by the consequences of Labour introducing free physiotherapy as part of ACC in 2004. It was meant to cost $9 million; by 2009 it was already costing $139 million. An increase of 1400%.

Principle 4 - Demographics matter

The costs attributable to one generation should be paid by that generation and not loaded on to the next in an unsustainable way. Most people know the makeup of the nation is changing. The effect of rising health costs when combined with an older society will be massive. Changes must be announced to entitlement programmes such as superannuation and health to ensure they are affordable in the future. To continue to run them as de facto pyramid schemes is the height of irresponsibility.

Principle 5 - Focus on the dollars

Focus on what's important. That means seriously looking at the big spending items and considering all the options. Ask the hard questions - is what we are doing actually working and is it returning value for money? Should this department exist, what programmes if any should we open up to a competitive bid process? The reality is close to 70% of government spending takes place in health, education and welfare. Refusing to change the funding or delivery these services is giving up on fiscal prudence; government spending will continue to increase.

Principle 6 - Productivity matters

The link between output and income is important if we want to understand the source of economic growth. Without an increase in real output, there can be no increase in income or living standards. One of the biggest areas where we can address output is in the public sector where productivity growth has at times been negative. Sorting out this problem will enable all of us to be better off. Cutting waste has real benefits to the ordinary person - be it in higher wages, better jobs or better goods and services.

Principle 7 - Transaction costs

Reducing transaction costs would enable New Zealand to achieve higher levels of economic growth. Greater investment in key infrastructure will allow us to expand our productive capacity and stripping away manmade barriers to growth such as tariffs would enable us to achieve gains from trade.

Principle 8 - Tax reductions

When Mr English says tax cuts may be unaffordable, he has it the wrong way round. Only high levels of government spending are unaffordable. If we continue to indulge the whim of every special interest group with tax money, then taxes will be higher; for example, superannuation at 65, interest-free student loans, Working for Families for high income earners and subsidies for industry. When taxes are cut, it is often pointed out the wealthy benefit most. In reality, progressive tax rates discourage work and innovation from the most economically productive. High taxes on the wealthy do not just mean less money for them; they mean fewer goods and services for all to consume.

Conclusion - The choices

This year's budget can continue down the redistribution path as they have for the past 20 years. But long-term that is a path to low growth and poverty.

Alternatively, we could aim to increase our productivity and stimulate economic growth. That will require a change of direction and a change of culture, change I do not believe Prime Minister John Key and Mr English are capable of.

This year's budget should celebrate free enterprise and entrepreneurship. It should adopt policies that encourage innovation and competition. New Zealand should move away from tired, old state monopolies (education, health, welfare, etc) and introduce new ways to deliver our social services. We can be wealthy again but only if we are prepared to change.

Sir Roger Douglas is a former minister of finance

 

Richard Prebble returns to politics in key ACT role

Former ACT leader Richard Prebble is returning to politics as the party’s Campaign Director for the 2014 election.

Acting party president Barbara Astill announced Richard Prebble’s appointment as Campaign Director after a board meeting yesterday.

“The appointment of Richard Prebble as Campaign Director means ACT goes into the election with the country’s best election strategist,” said Mrs Astill.

“Richard Prebble is a campaigning legend. He was the architect of ACT’s greatest campaigning victories, including taking ACT from a virtual zero in the polls in 1996 to winning Wellington Central and taking seven MPs into parliament. Under Richard ACT increased its vote in every election. As a Labour MP Richard won the biggest general seat majority in parliament not once but twice.

“Richard Prebble has presented the ACT Board with a campaign strategy to win not only the Epsom electorate but also nine MPs. The ACT Board has endorsed the Prebble campaign plan, which will be presented to the ACT Party Conference at the Villa Maria Estate, Mangere, this Saturday,” said Mrs Astill.

“I have come out of political retirement because Parliament needs at least one party willing to ask the question, where is the money coming from for all these political promises?” said Richard Prebble.

“ACT needed fresh leadership and new ideas. I urged Dr. Jamie Whyte to stand for the leadership. Jamie will take ACT back to the original principles of the Association of Consumers and Taxpayers which made ACT the effective third force in politics.

“I have been reading Jamie Whyte’s articles in the Wall Street Journal for years. He has an extraordinary knowledge of the world economy that will make him a very valuable member of parliament that any party would love to have.

“I have known David Seymour since he was a top engineering student at Auckland University. As someone educated in Epsom, David will be a very good MP for the electorate.

“ACT now has both the policies and the people. It is my job as director to ensure the voters learn about Dr. Jamie Whyte and ACT’s positive, practical solutions. The support will follow.

"A vote for ACT ensures not only that John Key remains Prime Minister, but that a future National-ACT government remains on the course of good financial sense.”

Right Thinking: ACT Annual Conference

DON’T MISS THE THRILLER AT THE VILLA

You gotta be there! Simple as that. No ifs, no buts, no maybes. This is where we get our ACT together. And you’re part of it. So be part of this. Be part of the party. And bring some friends. Everyone’s welcome - the more the merrier. Click here to register now!

Saturday, March 1, Villa Maria Estate Winery, just down the road from Auckland airport. Renew. Restart. Rebuild. That’s the message. That’s the mission. That’s the reason we want you to come. Because this Conference matters. It’s our chance to show ACT matters. And to showcase ACT matters. With a lot of fresh thinking and a lot of fresh faces.

Saturday, March 1, Villa Maria Estate, Mangere, Auckland:  

  • Get a taste of the Whyte Stuff.
  • See more of Seymour.
  • Hear our keynote speaker, Aussie Tim Wilson, who once said Human Rights Commissioners were a waste of space. But now he’s got the job - although he prefers to call himself ‘Freedoms’ Commissioner. Find out why.

Meet the leader (if you haven’t already). Hear why he thinks New Zealand is the best governed country in the world (because he does, though he’ll tell you there’s not much competition). And why it’s ACT’s job to make the best better. Jamie’s not starry-eyed about the challenge in front of him. He knows ACT’s got a hard row to hoe and a long way to go. But he’s up for it. He knows what he stands for and why he’s he’s standing for - to make the best better. If you like that approach and think you’ve got a bit of the Whyte Stuff yourself, be part of the thriller at the Villa. Richard Prebble thinks Jamie will be a sensation in parliament. Come and judge for yourself. 

And don’t forget David. Young, smart, hard-working, totally focused, some say our Epsom candidate was always bound for higher things. He certainly got an early start. When he was a 13 year old student at Auckland Grammar, David Seymour was picked to play the young Sir Edmund Hilary in a TVNZ dramatised documentary of the great man’s life. Now has a mountain of his own to climb. If you want to see more of Seymour in the House and you think he’s the answer in Epsom (which he is!) then be at the Villa for his speech as well.

If you’re a fan of free thinking and you like your ideas edgy, then the Conference keynote speaker, Tim Wilson, is a man you must not miss. Tim was named by The Australian newspaper in 2009 as one of their ten emerging leaders. In 2013, the emerging leader was named again, this time by the Australian government as their new Human Rights Commissioner, despite earlier arguing that the position’s not needed and should be scrapped. Maybe that’s why he wants to be called ‘Freedoms Commissioner’. Exactly what you’d expect from a member of the Steering Committee of the Sydney Opera House Festival of Dangerous Ideas! Don’t miss Tim Wilson’s own mini-festival of dangerous ideas - it’s guaranteed to be a highlight of the Conference.

And here’s something else you can’t miss!!! He never speaks at Conferences. Organizers of $600 events invite the inventor of the world’s first truly amphibious car to be a guest speaker. And he turns them all down. He’s the man everybody wants and nobody gets. But we have!!! Alan Gibbs is perhaps New Zealand’s most successful businessman, inventor of the Aquada car, successful here and overseas. And he’s speaking at the Villa. Be sure you hear him.  

But wait, there’s more!!

  • Like Catherine Isaac on partnership schools; why they work and why we need more of them.
  • Ruth Money from The Sensible Sentencing Trust on law and order and policies that work.
  • Professor of Economics at the University of Auckland, formally from Imperial College in London, Professor Robert MacCulloch on why the market works and how to keep it working. Your chance to hear one of our finest fiscal thinkers putting the case the mainstream misses.
  • Principal of the Mt Hobson Middle School Alwyn Poole on his vision for the future of our schools.
  • Our own straight talking Southern man, former Fed Farmers President Don Nicolson standing tall and speaking up for farming, farmers and provincial New Zealand.

It’s all happening Saturday, March 1 at the Villa Maria Estate.

Don’t miss the Thriller at the Villa. You gotta be there! To register, just go to the website or click here!

Your future needs you. So enlist today. Join the Whyte Brigade and be part of the campaign.

行动党领袖和Epsom选区候选人

      今天上午行动党董事会选出了新的党领袖和 Epsom 候选人。

      董事会在独立审计人员的见证下依无记名投票的结果做出决定。

      董事会相信,行动党的新领袖和 Epsom 候选人将积极地与选民分享党的理念,并将提高行动党在年内大选中成功的几率。

      新的领袖将在二月二十八日行动党年会上任,在此之前,他将担任侯任领袖。

      我很荣幸地宣布,行动党 Espom 选区候选人为 David Seymour, 行动党新领袖为 Jamie Whyte 博士。

      董事会认为三位候选人都十分出众, 同时感谢三位在竞选中作出的承诺,献出的精力和表现出的激情。

      董事会要特别感谢党主席 John Boscawen, 他一直以来对党的贡献是有目共睹和难能可贵的。

 

   

      行动党代理主席

      Barbara Astill

    

ACT Leadership and Epsom Candidacy

This morning the ACT Board met to choose the new leader and a candidate for Epsom.

The Board's decision was made by a secret ballot, which was conducted by an independent auditor.

The Board is confident that its decision will give ACT its best chance of successfully contesting this year's general election with a Leader and Epsom Candidate who can powerfully and positively share the Party's vision with voters.

The new leader will assume the role at the Party's AGM on the 28th of February, and until that time, will serve as the leader-elect.

It is my privilege to announce that the person who will stand as the ACT candidate for Epsom is David Seymour and the new leader of the ACT Party will be Dr. Jamie Whyte

The Board acknowledges that it had three outstanding candidates seeking selection and thanks all of them for their commitment, energy, and passion.

In particular, the Board wants to acknowledge Party President, Hon John Boscawen, who's record of service to the Party in a variety of roles throughout ACT's history is recognised and valued.

Barbara Astill
Acting President

Right Thinking - the word from Wellington Dec 20

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As good as it gets?

Finance Minister Bill English released the Budget Policy Statement and the Half Year Economic and Fiscal Update this week confirming we are through the worst of the GFC.  Treasury forecast an average growth rate of 2.6% over the next five years.  They characterise this as relatively strong.  However, it is significantly lower than forecast growth in a protein hungry Asia which accounts for about 44% of our trade and slightly less than Australia whose growth may, or may not, stay on forecast.  Of course some of New Zealand’s growth results from the re-build in Canterbury.  

Interestingly, Treasury note the strong increase in net permanent migration to New Zealand (17,500 in the year to October), half of which is from Australia and two-thirds of that, returning New Zealanders.  This may be a good reason to stop advocating for an extension of Australian welfare entitlements to New Zealanders as all our Prime Ministers ritually do.  

The size of government is set to grow

Mr English confirmed that Budget 2014 will achieve a forecast surplus $86million which is paper thin compared to a NZ$72 billion spend, but it’s a surplus nonetheless.  Revenue is rolling in while expenditure is constrained.  Net core Crown debt peaks at 26.6% of GDP and drops to a 22.3% by 2017/18 largely due to the improvements in the cash position.  Revenue in 2013 was NZ$61.1 billion and is set to hit NZ$84.9 billion in 2017/18.  Core Crown expenses in the same period start at NZ$70.3 billion and hits NZ$79billion in 2017/18. Treasury say we can expect a surplus of NZ$5.6 billion at the end of the forecast period assuming ongoing spending restraint.

Houston we have a revenue problem

Treasury say that tax revenue is due to grow by about 5.8% p.a. over the forecast period.  They correctly identify the risk of a change in emphasis away from expenditure restraint.  Nominal increases in core Crown expenses are driven by social programmes: social welfare benefits (the biggest of which is super and it accounts for most of the increased spend), health and education.  From an ACT perspective an expansion of poor quality social spending could start under either a National led government in its last term or an incoming Labour-led government in 2017.

Election 2014 – giving some back or more tax and spend

With more than a third more revenue forecast in 2017/18 than in 2012 the big question for election year is whose narrative wins.  The conventional wisdom is that an improving economy helps the incumbent Government.  This is likely true, however improving finances will also lead to political demands for more spending.  

Already the child poverty ‘industry’ is in high gear essentially advocating more welfare and trying to make their issue and election issue.  Labour will probably run on the gap between rich and poor, (inequality) and echo their UK counterparts.  This they will do, all the while ignoring the drivers of upward social mobility, which are not about more welfare programmes, but about better educational achievement.

National’s narrative is steady-as-she-goes and is about good economic stewardship.  Will National make even the gentlest philosophical argument about taking less in revenue from taxpayers when it conflicts with the repayment of debt line?  We know they will not undertake to address the future cost of superannuation.  They have done some reform in welfare and education and nothing particularly substantial in health, although Tony Ryall will almost singlehandedly ensure that health is not an election issue.

Making the case for slimming the State in 2014

The best way to keep on pressure to restrain spending is to focus on public debt repayment and limiting new spending which makes politicians and bureaucrats consider value for money and the quality existing programmes.  But spending self-control won’t be enough.  History is against a record of on-going restraint, politicians and bureaucrats are simply not incentivised for it.  Touchingly, Treasury have confidence that today’s politicians are keen to prepare the books for the GFC#2 sometime in the future.   Returning some revenue to the New Zealanders who generate that wealth in the first place is the only sure-fire way to slim government over the longer run and generate a higher rate of economic growth. 

Traditionally, making the early case for tax cuts falls to ACT.  In 2002 we campaigned on tax cuts.  By 2005 both Dr Brash and Dr Cullen were too.  In 2008 National campaigned on tax cuts, implemented the first tranche and ditched the rest of the programme because of the GFC. 

As New Zealand moves into the post GFC economy, the real world arguments about whether the New Zealand State should aspire to do so much for so many citizens, who could probably make better arrangements for themselves with more of their own money, will and should return.

The Wrap

RT will return on 10 January 2014.  We wish everyone a Happy and Safe Christmas and a prosperous New Year.

Right Thinking - the word from Wellington Dec 13

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Avalanche of bad news and the adjournment

As the American writer and wit Mark Twain observed, no man’s life, liberty or property is safe while Congress is in session.  This week, the Parliament wrapped up business for the year with most MPs returning to their electorates and regions.

December is also traditionally the month where Ministers release bad news.  Ministers bearing bad news are like the wildebeest of the Serengeti in migration - there is safety in numbers when pressing towards Christmas.    This is the time when the public are too pre-occupied to be further outraged.  And most journalists are filled with the stories of year and working up their end of year retrospective pieces.   An added advantage this year has been the death of the iconic Nelson Mandela and the speculation as to whether Mr Minto was more deserving of a place in the Prime Minister’s party to South Africa.  

The major event in the Parliamentary calendar (aside from the Press Gallery party) is the adjournment.  It is generally a light-hearted debate where MPs do ritual battle and all in sundry are generously thanked.  You can see John Banks’ stout defence of both himself and the Partnership Schools in Whangaruru and Whangarei, both of which are being targeted by the nasty PPTA.

Yet another failed IT project

In the pre-Christmas avalanche of bad news was a gem of a story about the New Zealand digital archives project being... well... shelved.  The hapless Minister of Internal Affairs, Chris Tremain admitted that he had put the project on hold in February and that, thus far after a spend of $7.4 million, it had not been money well spent.  While Labour’s Grant Robinson appeared in the story, what was much more interesting was that it took him 10 months to latch on to it.  Any government information technology project should be worth an official information request on a monthly basis from any decent Opposition politician.

 A chorus of woe and the ComCom

Finance Minister Bill English announced a kicking-of-the-tires review of the Commerce Commission in the wake of the final determination of the wholesale price of copper over Chorus’ copper wires.  As yet the terms of reference for this review and who will actually be doing it is not clear.

The Broadband decision is not the only cause for complaint; another is the effect ComCom speculation (in a press release) about regulating the pay-tv market.  This speculation had an immediate impact shareholder value in SkyTV.  A further compliant is the effect of regulatory decisions on electricity line companies, particularly those with publicly listed shares and are therefore subject to market disciplines.   The general argument goes that the ComCom is not concerned enough about shareholder value and investor confidence in the regulated industries.

This latest announcement is not the only piece of work underway in the regulatory space.  Mr English’s review of the ComCom could compliment a wider piece of work commissioned by the Minister of Finance and the then Minister of Regulatory Reform, John Banks from the Productivity Commission on New Zealand’s regulatory systems.

The argument that partially privatised government power companies still face political risk isn’t new – the Opposition parties have been in overdrive to generate this very uncertainty all year.  Likewise, argument about the risk to fully privatised ex-state industries that attract further meddling from Ministers.   Recently Dr Bryce Wilkinson has helpfully outlined the sorry tale of government meddling in the telecommunications industry for the NZ Initiative.

It is not immediately clear whether Mr English’s kicking-of-the-ComCom-tires will add to, or subtract from the perception of meddling politicians and bureaucrats.  

Momentum seeps out of referendum campaign

News that the turnout in the referendum against partial asset sales has reached just over 40 per cent will be disheartening for Labour and the Greens.  Turnout figures and the preliminaries show a very minor uptick in the turnout in the last day but the momentum has clearly gone out of the campaign. They won’t hit a 50 per cent (or more) response rate. This citizens initiated referendum was always more about building momentum and political infrastructure than it was about the issue.

RT knew the turnout would be low when we saw the first Electoral Commission advertisements.  Being lectured at by an orange stickman doesn’t build interest in the issue nor confidence that it matters.

Of interest will be how the media writes up the result. With almost one third of respondents approving the sale and just over two-thirds against this is a Labour and Greens fail.  In fact they got less votes against than National won in favour in the 2011 general election.  The story should be about how the campaign lost steam despite large injections of taxpayer money and paid party activists.  After all that is what the campaigning Labour/Greens MPs are.  The best explanation of a turnout of less than half of all eligible voters is that most New Zealanders had worked out that it was a stunt – it simply didn’t matter to them.

It’s also doubtful whether either Labour or the Greens built much campaign infrastructure from the exercise.  Many a leftwing activist will end the year tired and somewhat flat.  In politics as in life, one should not mistake activity for productivity.

Right Thinking - the word from Wellington Dec 6

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A life of hard work, honest endeavour and public service

 

At his media conference this week with ACT President John Boscawen, ACT Leader John Banks said that early in his life he had made a commitment to hard work, honest endeavour and public service. This he said was to try to balance the family ledger.

These ACT values were at the fore this week when he put both party and country first.  ACT he said needed a circuit breaker and a change in narrative.  He intended to provide that by announcing he would see out the term serving the people of Epsom as their local MP, but would not seek re-election.  He also said he intended to stand down as Party Leader at the ACT annual conference on 1 March 2014.   This would allow him to focus on clearing his name.  These decisions would maximise the opportunity for the ACT candidate to earn the confidence of the people of Epsom and the new ACT Leader to build a team to earn the necessary party votes for ACT.    

The next election will be close.   Like last time, he said ACT and Epsom can and will make the difference.  He concluded his prepared remarks by saying he believed in a country where everybody has the freedom to achieve.  Whether New Zealand can be a more open, prosperous, and enterprising nation, with its focus firmly on the future, will depend on ACT succeeding.

 

Towards a new candidate for Epsom; towards a new ACT Leader

 

ACT President John Boscawen acknowledged John Banks’  long public service and told the media conference that the ACT Board would meet shortly to open nominations for the ACT candidacy in Epsom and to determine the process for a new ACT Leader.  He said the ACT Board would be considering options to engage and activate the involvement of the membership of the Party so the ACT Board can make the best choice of Leader. He told the media he was absolutely confident that ACT can succeed in 2014.

You can read the Hon John Banks’ prepared notes and watch the full media conference with the Hon John Boscawen here.

 

ACT the party of principle - National the party of power

 

Those within the orbit of the ACT party (and those outside it) have been regularly appearing in the media over the past few days on what’s next for ACT.  Most of this coverage has been helpful.  The Prime Minister said on Newstalk ZB that there was a voting demographic that can be earned by ACT.  He helpfully said that ACT’s pitch was putting more backbone into a National Led Government – but hastily added he didn’t personally agree with the pitch.   Former leader Rodney Hide was on RadioLive reminding commentators that there was a process to go through to earn the confidence of ACT members and the Epsom electorate.  ACT had the opportunity to renew itself with a fresh pitch and new people for 2014.  He said it was unlikely he would seek a return to Parliament but one should never say never.

Dr Jamie Whyte told National Radio that what attracted him to the ACT Party was its values; we are the party of principle whereas National is the party of power.  He said he had spent most of his life teaching others about free markets and individual liberty; he thought it was time for him to shift from talking to taking action.  Hear Jamie here.

 

Tracey Martin wrong on Whangaruru Partnership School

 

Winston First groupies are certainly an odd lot.  Tracy Martin (Winston’s Deputy Leader) and member of Parliament’s education and science committee is no exception.  This week, she wrongfully claimed that Te Kura Hourua ki Whangaruru had run out of money and would not get up and running.  She was even more outraged that the sponsors of the Kura had purchased a farm and wanted to know if the taxpayer could recover the property. 

Ms Martin scrutinised the legislation and policy for Partnership Kura, she should be able to answer her own questions. Partnership schools are not state schools, so they are not provided land and buildings.  Other than the non-provision of buildings and land, they are funded for their establishment in the same manner as new state schools.  Therefore the taxpayer has no direct interest or risk in any property purchased by a Kura.  If a school does not perform there are a number remedies available to the Government under the sponsorship contract including the ability to recover money for services not provided.  Just like any other contract.

 

Abroad

 

A sea of debt, a big deficit but they have growth

 

Chancellor of the Exchequer George Osborne made the Autumn Statement to the Commons this week outlining the UK Treasury’s view about growth.  He said the UK economy would grow by 1.2% next year, 2.0% in 2014, 2.3% in 2015, 2.7% in 2016 and 2.8% in 2017 outpacing forecasts for Germany and France.  He told MPs that borrowing would drop from £159 billion 2009 -10 to a forecast £31 billion in 2017-18 and indicated that the deficit would continue to drop to a predicted small surplus at the end of the OBR forecast period.  A useful summary of the Autumn Statement is here.

 

The Wrap

 

Hamba kahle Madiba

"Everyone can rise above their circumstances and achieve success if they are dedicated to and passionate about what they do."

Nelson Rolihlahla Mandela, (18 July 1918 to 5 Dec 2013) Father of modern South Africa.

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