ACT Auckland Campaign Closing Speech
G’day folks,
Six months ago I did a short course in Washington D.C. The course was called the Campaign Management Institute and it was about political campaigning.
I was keen to learn about the politics and campaigning there, but it turned out to be a bit simpler than I thought.
‘Elections are about choices,’ the lecturer said.
Elections are about choices. I started to wonder if they were going to tell me anything interesting. But sometimes the simplest turns out to be the best. And as we close this campaign and turn the choices over to the voters tomorrow, I can see what he meant.
ACT has played an honourable role in offering the voter choices in this campaign, and tomorrow those choices couldn’t be starker.
The first choice is purely strategic, and only in one electorate.
I happen to be a centre-right Epsom voter myself, and to us in Epsom the choice couldn’t be clearer.
I could vote for Paul Goldsmith, and get Paul Goldsmith who’s already going to be an MP off the National Party list anyway. It would be a bit like buying a Christmas present that you already know is in Santa’s sack.
But I’m going to vote for John Banks. I’m going to vote for Banksie because he’s a legend. A guy that started out sleeping under Grafton Bridge and built up his own restaurant chain, adopted three kids from the other side of the world and brought them to the greatest country on Earth, and has already had a bigger political career than almost anyone in New Zealand politics today.
Moreover, as a centre-right Epsom voter, I know that a vote for John Banks is MMP insurance. A vote for Banksie is a vote for Paul Goldsmith, John Banks, and the ACT team.
As the polls tighten up all eyes will turn to Epsom tomorrow night, and that choice will be the choice between keeping John Key as Prime Minster, or turning the Government benches over to Phil Goff supported by a coterie of borrowers, spenders, and no-hopers.
National might just make MMP history and squeak in alone tomorrow night, but they won’t do it twice in a row. Without ACT as a long term coalition partner, National will have a choice of their own. Either move dramatically to the left or spend a very long time in the political wilderness.
Inside the choice of whether to have a viable centre right, there are policy choices.
In all the candidate debates I’ve seen, those choices are crystal clear.
The Labour Party offer 1970s economic policy.
We can keep a flexible labour market where wages and jobs depend on what customers are willing to pay for what workers produce. Or, Labour could take us back to the 70s with a central government agency setting wages for entire industries.
We can keep what is internationally recognised as one of the best central banking systems in the world, a system that keeps prices stable and lets people get on with business. Or, Labour would take us back to the 70s by, as my Auckland Central opponent Jacinda Ardern likes to put it, ‘giving the Reserve Bank Governor more tools’. What she really means is letting the reserve bank play dice with our money supply, a bit like the U.S. Federal Reserve was before the Great Financial Crisis.
We can keep one of the cleanest and simplest tax systems in the world. Or, Labour would take us back to the 70s with a Capital Gains tax, a tax that raises little revenue, is difficult to enforce and comply with, and slows down investment.
We can keep raising wages by raising productivity. Or, Labour, the Greens, the Maori Party, and the Mana Party would take us back to the 70s by trying to put up wages by legislating a much higher minimum wage. You just have to ask yourself, who are all the countries in history that have legislated themselves rich?
We can keep to the consensus that governments picking winners and trying to invest your money better than you can is wrong. I thought that Muldoon’s’ Think Big’ policies had inoculated us against such misadventures. Or, we could have a Green Party Minister playing with a billion bucks worth of your taxpayer money, investing in Clean Energy, taking on the General Electrics, Siemens and Samsungs of the world. You just have to ask yourself, if you knew what the next big thing in the energy industry was, would you be working at it and investing in it or would you be standing for the Green Party?
Maori and Mana would like to have a Financial Transaction Tax. Tariana Turia says it could generate $22 billion per year. She should know that the entire revenue of the Financial and Insurance sectors combined was only $12 billion in 2009. They would be paying 183 per cent tax. We’d have no financial sector and be back to bartering overnight.
We can continue to be the only nation in the world that has made a better fist of bringing together different cultures than anywhere else, or we can go down the path of constitutional biculturalism, where there are different laws for different races, as Mana and the Maori Party would have us.
Folks, beneath the choice of giving the Centre Right a viable coalition, or giving power away to the coalition of the left for a very long time are some very significant policy choices.
But the choice is not just about whether or not we have a centre right government, but whether we have a very good one.
Between giving a party vote to National, or a Party Vote to ACT, there are more choices.
Whenever John Key ducks a hard choice he says he wants to ‘take people with him’. The thing is, I’m not exactly sure whether he knows where he’s going.
With National the Emissions Trading Scheme will soon be taking $100 per month out of a household of four to pay for tree planting and foreign carbon credits. ACT says we should put that money back into the economy and let those households spend it themselves.
With National we’ll be keeping the pension age at 65 come hell or high water. No matter that the Retirement Commissioner says we must raise it, or that half the developed world is in the process of raising theirs, or that in my lifetime there’ll be only two workers to support every superannuitant. ACT says we need to recognise demographic and fiscal reality, and would put the pension age question to a public vote.
With National we’ll be keeping Helen Clark’s election bribe spending that has drained the life from the productive sector with punishing taxes today and irresponsible borrowing to be repaid tomorrow. ACT says we need to get real about government spending.
With National we’ll be tinkering with the Frankenstein Resource Management Act legislation. The legislation that has armies of bureaucrats policing the colours people paint their houses at the ratepayers’ own expense, will remain essentially unchanged. ACT says that the RMA needs a radical overhaul so New Zealanders can get on with developing and using their property.
With National our education system will continue to operate like McDonalds, where the bureaucrats in the Ministry decide what children are taught, how, and by whom. ACT says we should return power over how schools are run to the people who know the children and the schools best. Parents, principals, and teachers.
With National there is no good reason to think that New Zealand will close the income gap with Australia, as we haven’t in the past three years. ACT says we should professionally measure that gap and relentlessly pursue its closure by 2030.
These are the choices this election.
There is the strategic choice in Epsom.
There are the broad policy choices between the left and the right.
Then there are the choices about the flavour of any future centre right government.
But beneath these headline choices is a much simpler one.
Do we think New Zealand is worth it?
If we do, then a Party Vote for ACT is a vote for sound economic management. It’s a vote for New Zealand to be a first world country that can afford first world public services and offer first world opportunity to the next generation.
If we don’t then the other parties will take us up the garden path. Some of us will try to vote ourselves rich in the short term but all of us will be poorer in the long term.
When it comes to rational economic management, I can’t think of a better champion than Don Brash.
Like John Banks, Don is a legend.
He has a PhD in Economics and both his Masters and PhD Thesis were published books.
He worked for five years for the World Bank in Washington.
He had a successful career as a private sector banker.
He was the second longest serving Reserve Bank Governor in this country’s history, and the Economist magazine called him ‘the world’s best central banker’.
I don’t think there’s anyone alive today who understands the New Zealand eonomy better than Don Brash.
I can’t think of a better voice to have in parliament during an economic crisis, while New Zealand is in a long term economic decline relative to our trading partners, than Don Brash.
That’s why, in the polling booth tomorrow you need to give your party vote to ACT.
ENDS
Unimaginative Policy Treats Children as Numbers
Labour’s Education Policy continues a theme of treating children as numbers instead of individuals, ACT New Zealand Education Spokesman David Seymour said today.
“The truth is that every child is unique, but Labour prefers to treat the education system as a factory for students,” Mr Seymour said.
“The party that wants to send every child in the country out to exercise at the same time each week, now wants to stipulate investment in laptops 31,000 at a time, reduce schools’ flexibility around the curriculum and the funding of support staff.
“Even the way schools deal with bullying would come under closer Ministry of Education control.
“It is a policy for educrats. When the rest of the world is giving parents, principals and teachers more local control, Labour advocates a system increasingly run from Wellington.
“In Alberta, Canada it is Charter Schools, in England it is David Cameron’s Free Schools, in Sweden it is the voucher system. In Australia over a third of students now attend independent schools. All of these places are giving power back to Principals.
“ACT’s Interparty Working Group Report Free to Learn has shown that good leadership within a school is the most important factor in a school’s success.
“If New Zealand wishes to improve educational outcomes for all New Zealanders – and particularly our infamous long tail of under achievers – then Labour’s great centralisation is a step in precisely the wrong direction,” Mr Seymour said.
ENDS
Privatisation Essential For Growth
“ACT New Zealand SOE Spokesman David Seymour today welcomed National’s initiative on the partial privatisation of SOEs as a sound plan which will see government move back towards its core role of infrastructure provision.
“If we want our economy to grow, we need to shift the government out of the commercial business sector. Compared to public ownership, private ownership produces more wealth per dollar invested,” Mr Seymour said.
“Privatisation is not only a way for the government to get cash but also to make the firms involved more productive. Last year, the Crown Ownership Monitoring Unit reported that the top seven SOEs – including Air New Zealand - had a dividend yield of just two per cent in comparison to 4.5 per cent for the top eight private companies. Even according to the Government’s own figures, government ownership is providing inferior returns.
“Privatisation has been practised in over 100 countries over the past thirty years. In that time, over two trillion dollars of assets have been transferred from public to private ownership worldwide and it has overwhelmingly resulted in an improvement in economic performance.
“Getting the best out of our Government resources is a key policy for ACT and this is an example of the choice ACT presents voters for the next Parliament. The sale of assets to improve performance is recognised as a sensible and uncontroversial policy around the world. It frees up cash for better uses and would make the New Zealand economy more productive.
“ACT is the only coalition partner willing to work with National to turn this policy into a reality,” Mr Seymour said.
ENDS
Compulsory Sport: One Size Does Not Fit All
Labour’s investigation into the introduction of an afternoon of compulsory sport in schools is the nanny-state at its worst, ACT New Zealand Education Spokesman David Seymour said today.
“This compulsory school sports idea is high-minded and dictatorial. ACT believes that New Zealanders should have the right to choose for themselves,” Mr Seymour said.
“Physical education is already a compulsory part of the school curriculum until Year 10. Statistics from Sport and Recreation New Zealand (SPARC) show that more than 50 per cent of secondary school students belong to a school sports team and 56.8 per cent belong to a sports team outside of school.
“Labour doesn’t trust schools or school principals to make the right decisions for students and instead believe it is better that schools are dictated to by politicians in Wellington.
“Rather than introducing more restrictive policies, ACT believes we should create more choice and diversity in the education system to ensure all students have the opportunity to attend a school that caters to their needs.
“This could mean attending a school with an emphasis on sport or one that focuses on academic achievement. The main point is it should be parents, not politicians, who make the decisions.
“Instead of dictating to schools as Labour would, ACT would ensure parents had more choice in their child’s education by changing school funding so it follows the child. ACT would also empower principals by giving them greater flexibility to cater for their students’ unique needs.
“The reality is, the highly centralised ‘one-size-fits-all’ approach to education is failing many of our students and this idea from Labour would only add to the problem,” Mr Seymour said.
The Generation Y Manifesto
David Seymour, No. 6 on ACT Party List and Candidate for Auckland Central
Speech to ACT Auckland Regional Conference, September 3rd 2011
The Demographic Shift
Ladies and Gentlemen,
ACT has always been a party not of today’s governance but of tomorrow’s future.
Helen Clark and John Key. They are governors for the day at hand, we are thinkers about tomorrow.
The original ACT manifesto, Unfinished Business, came not just with that year’s budget but 20 years of budgets, audited by five different accounting firms.
Today, when Don Brash speaks around the country, he speaks about the long term trends that have shaped our economic history as a way of identifying what needs to be fixed going forward.
My fellow ACT members, we are and always have been a party of the future.
Our party’s genesis was in the reforms of the 1980’s. A time when the baby boomer generation came to the fore and said, enough is enough. We will no longer tolerate these crazy convoluted policy practices where the Prime Minister can literally put up the price of petrol in the morning and then put it down again in the afternoon. We want a rational policy debate leading to the world’s best public policy being delivered here in New Zealand.
Our party’s existence has largely been based on the dream that there will be another such period, when public policy can again be decisively improved.
Folks, I believe that such a time is on its way. Just as the 1980’s were the product of generational change, we are about to see a similar change occur in the coming decade.
There are almost exactly 1.7 million New Zealanders between the ages of 40 and 80. There are also almost exactly 1.7 million New Zealanders between 10 and 40. You can see that in the next decade generations X and Y will become the majority.
Three decades of Baby Boomer hegemony that were launched with the Roger Douglas revolution will come to an end and a new generation will take its place.
The question is, what do we want? Or, as our well-spoken leader would put it, what would we like?
The Negatives
It’s easy to identify a lot of negatives that we’d like to be free from. Let me briefly digress from the future theme and give a brief account of where we’re at now.
In the past 60 years we’ve gone from being the sixth wealthiest nation on Earth to somewhere around the 36th. Some predict that the people of Kazakhstan and Botswana will be richer than us in 15 years. Now, I’ve got nothing against the good people of Kazakhstan or Botswana, but it worries me that our living standards have slipped so far and so fast.
We are world leaders in country abandonment. Out of the developed world, only Ireland has a higher percentage of its people overseas. And they are world champion people exporters. When it comes to losing people we are down there with the worst.
There are some New Zealanders who cannot leave, because they are in prison. We lock up twice as many people as Australia, and only the Americans, Mexicans, Poles and Czechs lock up more than us. And yet, and this is sad but true, our imprisonment rate is actually low for our crime rate.
We were once a place where three quarters of homes were owned by their occupants, and people could buy a home for three years’ income. The national home ownership rate has fallen from three quarters to two thirds in my lifetime. In Auckland the percentage is in the fifties. It’s the poor, the young, and ethnic minorities that are being squeezed out first.
Why? Because house prices have roughly doubled in real terms over the past 20 years. Our leader will have a lot more to say about that when he speaks in a few minutes’ time.
I could go on. It is clear from any look at the hard numbers that we are in the longest, slowest, most laid back, friendly and scenic societal collapse in the history of collapsing societies. But make no mistake it’s a collapse nonetheless.
The Generation Y Manifesto
However we needn’t be so dour. There remains an awful lot to look forward to in New Zealand and for the rest of this speech I’d like to outline what I like to call the generation Y manifesto.
It is an agenda for a generation and agenda for ACT, and ultimately a reason for my generation to support ACT. Because we are putting the issues on the table. We are putting forward the most important challenges and aspirations of our generation and our big sisters of Gen X and our little brothers the millennials. We are putting these issues on the table in a way that is economically rational.
Housing
I alluded to one of the biggest aspirations we face as a problem. Don Brash will address the issue of housing affordability in much greater detail very soon. But here is an aspiration of the Generation Y manifesto:
Housing should again be a commodity that all people consume rather than an asset that some people hoard. There are places in the world today and times in our history here where people could afford houses for 2-3 year’s income. It’s not a question of government having built or subsidised them, it was a simple question of supply and demand.
I want to see a time when a couple earning $70,000 combined can buy for $200,000. Today that is almost impossible with house prices in Auckland almost 7 times income. All it will take is a realisation that comprehensive long term planning of the type Auckland is currently intensifying has never delivered affordable housing anywhere it’s been tried, and there is no justice in building pretty cities for the rich while locking everyone else out.
Imagine that for a moment, owning a piece of Auckland or New Zealand again becomes a normal progression on the way to a better life, rather than an anxious dream.
Education
Imagine if we were to have an education ecosystem. What do I mean by that? Consider the difference between our education system and our restaurant industry. Here today and across Auckland we can find restaurants that feed every possible taste. Cuisines from different countries, some food that comes fast, some that comes slower, some that comes with entertainment, some that doesn’t.
Our education system, however, resembles McDonalds. All of the recipes, the décor, the staffing, and the measurement is defined in some distant head office, and by recipes, décor, staffing and measurement, I mean the curriculum, teaching styles, teacher qualifications and assessments set by the Ministry of Education and enforced by the ERO.
Frankly, I’d rather the government ran the restaurants and we had a diverse ecosystem of educational opportunity.
But imagine if we had both. Our generation is about specialised tastes. We don’t have to buy the music at the store down the road; we can download what we want, where we want, whenever we want. We’re not likely to tolerate an education monopoly forever.
Imagine if ACT’s education policy gave us a wide and diverse education ecosystem. With education options as diverse as each child is unique and special.
Diaspora
Imagine getting our diaspora back. The funny thing about our diaspora is that when you return from overseas the question immediately becomes, have any of my friends come back?
I had my birthday a few weeks ago and only five people came. One of my friends pointed out that there was actually a bigger gathering of people I went to school with in Melbourne that same night. Imagine, though, if staying in New Zealand became the default option, and we could again have pride and certainty of place here. That’s what we’d like.
Income and Economic Opportunity
If that’s going to happen we will need to have greater economic opportunity here in New Zealand. Incomes are one thing but opportunity is important too. We want to be a place where there is not a looming presumption that to really get anywhere you have to go overseas, and that working in New Zealand will always be the b-league. I can imagine, in my lifetime, the wider Auckland region growing to become the premier hub of the South Pacific, with Sydney and Melbourne being branch offices.
Of course, that will require a fundamental shift toward making over taking in our public policy.
If we are going to have real opportunity for our generation then the tax and regulatory environment must again favour investment, risk taking and entrepreneurship, rather than politically popular middle class welfare and the notion that just one more regulation can give us a risk free existence.
A key plank of the Generation Y Manifesto has to be a fundamental shift in the incentives that our public policy gives in regard to wealth creation.
Nationhood
Imagine a country that epitomises globalisation. This city is already a truly international city. Some schools have students who collectively speak over fifty languages. Within my lifetime there will be no single ethnicity that makes up a majority of our population.
In order to succeed as a truly multicultural society we must have simple laws that apply to all people equally. The idea that a single group amongst many will hold a trump card position in legal and regulatory matters for historical reasons will seem increasingly preposterous as it becomes increasingly obvious that we are a global, tolerant melting pot.
The rule of law has to be part of the Generation Y manifesto as New Zealand evolves this century.
Finally, we must become a country where political debate is more sophisticated. We require more frank, public, and informed discussions about, for examples, whether we should raise the pension age, or whether it’s smart for all taxpayers to pay student loan interest subsidies to our most educated and able earners.
That is a vision of a prosperous society that all people can afford a stake in. A tolerant society where the law treats everybody equally. A nurturing society that unleashes entrepreneurship in aid of all of our children’s educational development. A prosperous society that eschews middle class welfare and needlessly interfering regulations in favour of making behaviour instead of taking behaviours.
That, ladies and gentlemen is the generation Y Manifesto.
Conclusion
But I’m getting ahead of myself. At least the next several elections will be normal politics under John Key or someone like him.
What ACT can do now is start nudge John Key’s National government in favour of more sensible policies. Policies that might make the Generation Y manifesto realisable in the not-too-distant future.
We must nudge John Key to abandon electorally popular but economically devastating middle class welfare.
We must nudge them to reduce regulatory burden on land users.
We must nudge them to stick to their 1936 principles of equality before the law.
We must nudge John Key, who is a popular and competent governor of today, to think more about tomorrow.
My fellow ACT members, ACT has always been a party of the future, and I’m looking forward to going into it with you.
ENDS
Larger problems exacerbate drinking culture
If the opportunities to make a difference in their own lives are trivialised ... youth will choose their next best opportunity.
ANY good economics pupil in year 11 will tell you that the cost of everything is what you give up to get it.
By that logic the "cost" of a weekend's binge drinking can be 48 hours of life; drinking, recovering, drinking and recovering again with nothing but sclerotic memories and an empty bank account to show for it.
That's without considering the risk of catastrophic costs, which should be widely understood after too many alcohol related tragedies.
The question at the heart of the youth alcohol abuse debate should be why so many youth have decided that such a destructive activity is worth giving up their other opportunities.
Most of the popular explanations are variations on the theme that alcohol has become more seductive. The lowered purchase age and more outlets have made it more available; the synthesis of alcopop drinks has made it more digestible, advertising has made it more desirable. The logical conclusion is that if only these could be reversed, youth would switch back to safer, more productive activities.
Or perhaps the root of our troubles is that other opportunities have become less meaningful for youth.
Over the past decade, their efforts and choices in education, the housing market, and the economy have been trivialised, meaning they have less to lose by getting sloshed.
Take education.
The introduction of the NCEA in 2002 removed a hard-nosed examination system where results were measured to the percentage point.
The differences in academic performance are now compressed into three grades; credit, merit, and excellence.
This shift has diminished the penalties and rewards associated with good and bad performance at high school.
When the NCEA was introduced, universities struggled for a way to select students suitable for their different courses.
They generally made entry easier.
Meanwhile, the removal of interest from student loans while studying (2001) and then forever (2006) all but vanished the financial costs of tertiary education.
Students see only static repayments in the distant future that they can discount against hoped-for high incomes.
Statistics New Zealand reports that 32% of 18 to 24-year-olds were studying in 2006, up from 24% in 1996.
This has been celebrated as a society up-skilling itself, but it has also reduced the meaning of tertiary education.
Legions of advertisements for too-good-to be-true careers in beauty therapy and tourism are the extreme but real edge of this phenomenon.
For many, this free-for-all has made tertiary education like standing up at the rugby.
You have to do it because other people do, but it doesn't improve your situation.
The result is thousands of youth in education devoid of real meaning.
The middle aged and elderly have experienced an unprecedented windfall in the form of rising house values over the past decade, but this too has helped trivialise the choices youths make.
The Kiwi dream of home ownership was once a juicy carrot for work and thrift.
Since the early '90s, house prices have roughly doubled relative to income, and now it's more of a juicy pie in the sky.
In a recent report, Motu Economic Research predicted that this trend will continue: "There will be a sizeable reduction in home ownership among young people as the population ages ..."
Youth are told they are inheriting a natural environment on the brink of collapse, and that further economic activity may catastrophically damage it. For example, they are regularly told that if all humans were to share our developed world lifestyle, the resources of two and a-half planet Earths would be required.
Reasonable people may disagree about the validity of such statements, but the impact on youth is clear: They come to believe that our way of life is unsustainable, even immoral, and any success they have in it will be nullified by environmental costs.
If the opportunities to make a difference in their own lives are trivialised by lax education standards, made unobtainable in the form of unaffordable housing, and guilt-ridden by way of environmental doom saying, youth will choose their next best opportunity.
For many, that seems to be what one poet called "a faint desire for oblivion".
Even ignoring the impracticality of taking alcohol away from the young, doing so would leave a much more serious problem untouched in our society.
The only real long-term solution to youth alcohol abuse is to attack its root cause; the diminishing ability of youth to make a difference in their own lives.
Pre-paid student loans the answer
As election year enters its second quarter there is a growing chorus in political discussion that can be boiled down to debts, deficits, and diaspora. Those can be boiled down further to New Zealand's low productivity in comparison with other countries, especially Australia, where most of the diaspora resides.
It's a situation which appears to present impossible choices.
Higher productivity requires better educated workers working with more capital, but with the Government budget already stretched there is little room for either more spending or the stimulus of tax cuts.
Lateral thinking is required to get more out of less across the entire economy, and here is one suggestion for the tertiary education sector based on a review of how students have been funded for the past two generations.
The ideal tertiary funding system would put the right people in the right courses at the right time, maintain equality of opportunity, and ensure that students take their education seriously. Courses would select entrants based on the personal attributes of the would-be student, and their economic prospects in the New Zealand economy as graduates.
A generation ago, the relatively few students who passed rigorous high school examinations were virtually paid to study. This system of academic rationing was unresponsive to market demand, favoured students from well-to-do schools, and provided an incentive not to graduate but extend the good life on campus as long as possible on the taxpayers' dollar.
Then, in the 1980s, market-based principles that emphasise the individual as the best decision maker came into vogue. Today, academic entry standards are considerably lower and are no longer the only rationing device. Instead, students are required to co-pay a portion (usually just under a third) of their course costs by cash or student loan with the taxpayer subsidising the remaining two-thirds. In theory this gives them a financial incentive to use their unique personal knowledge to select a course and then work harder once they're admitted.
This approach of economic rationing relies crucially on the decision making skills of 17 and 18-year-olds. They are asked to make a decision that will set the initial course of their career, put them tens of thousands of dollars into debt, and cost the taxpayer twice as much again.
All this despite having had little life experience outside the artificial world of high school, and probably little concept of what it really means to borrow, say, $20,000.
Who is surprised that the past two decades have produced so many low-quality outcomes and outright scandalous misuses of taxpayer money?
If a problem defined is a problem half-solved, then the most urgent need is that entrants to tertiary education become better decision makers.
Specifically, they would benefit from more experience in the labour market and a better grasp of the monies involved (both their own and the taxpayers') before choosing a course. Making government subsidies for course costs conditional on pre-paying a nominal portion of their student loan would help both causes. The pre-payment needn't be much, perhaps $1000.
But it would have to be paid out of taxable income earned by the prospective student (not transferred from their parents).
The current loan repayment formula takes 10% of income over $19,084, plus voluntary repayments. Applying the repayment formula to prepayments would simulate actually having a student loan before getting one. In practical terms, it would mean a normal tertiary entrant would have worked for about a year full-time at the minimum wage.
Such students would approach educational choices with a much better grasp of themselves, the wider economy, and the loan they are taking on.
The intensity of study would likely increase also. Breezing into lectures hung over would be a lot less popular when your first semester's course costs just wiped out a year of loan prepayments. The Singaporeans and Israelis achieve similar results through their military service programmes for high school leavers, but New Zealand is not a militaristic country.
Instead, some more commercial experience would better suit New Zealanders.
Predictably, some will object that we need lower barriers to tertiary education, not higher.
But participation is at an all time high. What we actually need is more productive tertiary education, and this suggestion is designed to help deliver it.
Others will complain that some Remuera brats will have their parents' accountant filter money into their loan accounts via pseudo jobs. No doubt some would have the means and the desire to thrust their children into classes filled with older and worldlier classmates, but governments cannot solve all problems.
One thing is certain. If we are going to reverse our declining economic fortunes, New Zealand needs policy innovation. Please accept this one for your consideration.
No Country For Young Men
No Country For Young Men
2010 ACT Conference Address
This is the most carbon intensive speech I have ever given.
Normally a human being speaking excretes only about three hundred grams an hour.
My flights from Canada to here and back in a 747 emit about eight tonnes per passenger.
But I’m going to use my hundred gram allowance for this speech in a way that should annoy the Greens, or at least their big government bed-mates, even more than the eight tonnes it took me to get here.
The first is that we should be on the brink of an intergenerational civil war in this country. There is a lot in this country’s public policy for Kiwis to be angry about, but there are certain things that Kiwis under thirty-five should be particularly angry about.
The second is that this civil war will create a political market opportunity.
The third is that ACT, by virtue of its size, nimbleness, and core beliefs, is the best party to take advantage of that opportunity.
This civil war I’m talking about will be a very curious kind of war.
It won’t be racially based war, or an ideologically based war, or a class based war. It won’t be a war over resources or religion.
No, this will be a war between generations. The battle line will be drawn somewhere around the birth year 1975.
I realise that we’ve heard about the baby boomers ad nauseum for too long now, but let’s be clear that World War Two was the most important events in modern history.
One of its many impacts is that is has created a massive bulge in the demographic charts.
From the perspective of public choice economics it has created a giant voting block of rent seekers which has used big and invasive government to enrich itself at the expense of prior and later generations in almost every way you can imagine.
Let me say this isn’t personal. My dad is in the audience and on a personal level I’m very grateful to many of the individual Kiwis who came before me.
But at a collective level I think the country those of us under 35 are adopting is no country for young men, or women for that matter.
New Zealand has dropped the ball in so many ways.
Let me count them:
- housing affordability;
- infrastructure;
- wealth in comparison to peer countries;
- defense;
- the balance of intergenerational entitlements;
- and climate change.
Let’s start with house prices; they’ve doubled relative to income in the past 20 years; this has been called the single greatest wealth transfer in history.
We are talking of a doubling in prices relative to income since the 1980’s. What traditionally cost three years’ income now costs six; that is notwithstanding the additional interest costs that go with larger borrowings and longer repayment times.
If the average house value today is $400,000 then something like $200,000 per household is moving up a generation as young buy off old.
The funny thing is that the student unions are obsessed with student loans, which are nothing in the broader scheme of the lifetime costs a person faces.
In the time I was at Auckland University, borrowing course and living costs for five years racked up $45,000, almost three times the average.
The median Auckland house price went up about $170,000 and interest expenses inflate that further.
We know from research comparing hundreds of U.S. cities that prohibitive land use planning explains up to 45% of the value of housing in the most regulated markets.
The inflated equity in houses largely owned by the boomers and the elderly is supposed to be the anchor for a generation’s lifestyle.
There’s nothing wrong with retiring off the equity of a house, but adopting planning policies which drive the value of housing up by as much as they have, then mortgaging the next generation for an extra $200,000 of artificial scarcity value is unjust.
On the other hand, much of the inflation in house prices is linked to the infrastructure deficits, which brings me to another area where the balance between generations is not even.
While the infrastructure of the great post war expansion was largely funded by debt and unfunded depreciation, the deficit is now hitting new home buyers in three ways.
Rates are projected to rise at 5-6 per cent per year for the next decade, as they have been for the past decade.
After a generation of Enron style accounting and poor asset management, local government is now struggling to fill an infrastructure gap.
Development charges for infrastructure in new property are raising the price of new housing because what once was borrowed collectively and after the fact must now be borrowed privately and up front, and so is capitalised into housing prices.
Despite paying enough for infrastructure, the planning profession has captured local authorities with their vision that we shouldn’t build any more, and the resulting limits on housing supply have contributed to our problem with house prices.
A more anecdotal way to look at the problem is to see a map of the Auckland Motorway as planned in the 1960’s and compare it to what stands today. It’s like we planned edam and made Swiss instead.
Moving on.
Perhaps the most important duty of any government is to defend its people against external threats. It is a simple reality that a country as small as New Zealand is defenseless by itself.
We have two options to remedy that.
One is to pray for the first permanent benign strategic environment in the history of humanity.
The other is collective security.
Yet our defense spending at one per cent of GDP is less than a third of Australia’s. They spend 2.4% of their considerably larger GDP. No wonder our traditional allies regularly complain about our foot dragging.
The GDP acronym had to come up in this speech eventually.
The experience of Canadians, Americans, and Aussies shows that our Neo-European Anglophone country might have expected to be about fifty per cent richer had it grown commensurate to our peers.
So does our previous relative wealth, we were as wealthy as if not wealthier than all of them sixty years ago, but we dropped the ball.
We are now in a situation only slightly better than hopeless. Economically, we are facing a perfect storm.
We need to grow faster just to keep the GDP per capita gap level, let alone catch up. Basically, if Australia grows at 3 per cent next year, we need to grow at 4 per cent, just to keep the dollar gap in GDP the same.
Because we have a smaller GDP per capita, we need higher tax rates than others to achieve the same level of public spending in dollar terms. In real dollar terms New Zealand and Australia have very similar public spending per capita. What’s more the political appetite for public expenditure means that we can treat that expenditure as something of a sunk cost.
But maintaining similar real dollar spending with a smaller private economy means higher taxes. Australia has about 35% of GDP to our 40% in public spending depending on which figures you use from which side of the financial crisis.
Yet we need much lower tax rates if we are to achieve the growth rates I started out with.
Nowhere does a gap in living standards become more obvious than in healthcare. Doctors, nurses, medical equipment and drugs are all highly fungible on the world market. What would you do if you were a young doctor with a student loan? Bonding them to stay here is a band-aid solution, the futility of which does little more than draw attention to the real problem.
Making the tax rate problem worse is the demographic shift that occurs when a smaller generation is brought on to support a larger one.
One British estimate suggests that the 1945-65 boomers over there will take 118% of what they put in from the welfare state. In the absence of better evidence, I can’t see why our ratio would be much different.
If you assume a median household income of $60,000, say 40% of GDP is government spending, and education, health, welfare, and superannuation are two thirds of government spending then you have $16,000 per year per household cycled through the welfare state. If you do that for forty years and take out 18% more than you put in, then you have about $120,000 of other generations’ money benefiting the boomers.
Finally, regardless of how frail the case for it being such an actionable concern really is, climate change is a political reality.
It has become a spiritual balm, a political cause du jour, a business opportunity, and the basis for the professional reputations of too many people for it not to be an actionable concern.
Through the lens of intergenerational politics, this cost will largely fall on the younger generations.
Altogether, generation x and y have inherited a country with some of the most unaffordable housing in the world, poor infrastructure, weak defense, a living standard that will a require a miracle not to fall further behind the rest of the world, social programs that will fleece incoming taxpayers as dependency ratios change, and apparently we’re supposed to deal withal of that without emitting any more greenhouse gases!
Even if you say that defence issues won’t materialise and the world will see sense on climate change, even if you take a defeatist attitude about economic growth and say we’re just too isolated and we just don’t have the economies of scale for a global economy so we were always destined to be poorer than Estonia by 2020, and even if you say the obligation to build infrastructure is neither here nor there amongst generations…
Even if you accept all that, and I don’t, then just the housing affordability and welfare state issues amount to $300,000-400,000 in today’s dollars that have shifted up a generation as a direct result of public policy.
Given all of that, there must be at least a chance that we of the spoilt brat brigade have a point. There should be a political market for a party that explicitly reaches out to the 38 per cent of voters who are under forty (and will one day be a majority) with what I would call the Generation Y Manifesto.
There is a space for a party to explicitly reach out to those generations as say the climate change emperor has no clothes, and that we want to continue the consumption levels of previous generations;
That we want to be able to buy a house for three years’ income, as generations before us did;
That we don’t want to be loaded with punitive development cost charges when we do, infrastructure is a public good and one of the few things governments really should do;
That we do actually value peace and freedom. That’s why, while New Zealand has effectively been de-militarising, there is a renaissance in dawn parades and Gallipoli visits amongst people two generations removed from any serious conflict.
Hell no we won’t go to Iraq, but pulling our weight in our ANZAC relationship by spending more on defense and less on cycle tracks? Hell yes.
We want public services that work for us, rather than leave breadcrumbs when available.
Finally New Zealand is beautiful, but right now you can earn 50% more doing the same work in Canada or Western Australia. If you understand the concept of opportunity cost then we have some of the most expensive scenery in the world.
We don’t want to pay a thirty per cent income penalty for loving New Zealand.
Furthermore, I think that ACT is ideally positioned to address the point.
If I had to sum up ACT I would say that we are a niche market party of big pictures and small government.
The policy paradigm that has given generations X and Y something to complain about is the complete opposite.
It is the result of majority rule. The boomers and elderly elected Muldoon, Bolger, Clark, and Key, they made up 62% of the electorate and rising in 2008.
We are the right party to engage in intergenerational politics.
But how?
Let’s start with housing. Actually let me start by saying; some of my best friends are planners.
Now, their job is basically to look at urban development and say, how can we maximise the number of synergies and the range of options that people have for developing places to live.
Somehow, around the world they have captured local government and we now have housing twice as expensive as it was 20 years ago.
You just have to ask yourself, what else has changed?
- Has our productivity for building houses and infrastructure decreased such that the real price of those goods has gone up?
- Has the size of houses grown beyond productivity growth?
- Has New Zealand reached a critical land shortage?
Or have we had artificial constraints put on development?
And if you try to argue with the people responsible you won’t get anywhere because there is now an entire profession based on principles of central planning that would be laughed out of court in any other part of the economy.
Owen McShane recently made a brilliant observation that New Zealand may not be very unionised but it is very professionalised. In other words, rent seeking behaviour didn’t go away, it just went to University and come back smarter and better organised.
I’m not sure that’s progress.
But I think planners are a bit like reserve bankers; no matter how complicated they may make their business sound, they know how to respond to the right incentives.
So let’s appoint a planning tsar to each market and give them a five year appointment with a half million dollar bonus if they reach a house price to income ratio for the final year set by the local council with some level of consistency.
It will be the best job in the world. The less you do the more you get paid.
Whether the resulting reductions in house prices put home owners with mortgages into negative equity is a matter for how aggressive the targets are. What I am confident about though, it that this particular brand of public servant needs some visible incentives to make housing more affordable. Because right now they have none.
Let’s turn to tertiary education. Costs are through the roof and results in many cases are dubious at best. The reason is that we have unwittingly abandoned all rationing of tertiary education and therefore all incentives to use it wisely.
Once upon a time bursary was bloody tough. I know because when I did it our preparation was to sit each of the previous ten years’ papers.
Don’t you love Auckland Grammar?
The dumbing down that was revealed by the difference between the early nineties and the beginning of this century was extraordinary .
Then bursary disappeared completely and the deal was that tax payers would foot about 70% of the bill if the student was confident enough in the value of their study that they would pay the other 30%. That was supposed to be the incentive to use tertiary education resources wisely.
Then they were able to borrow from the government at 7%.
Then it was 0% while studying and 7% after graduating.
Then it was no interest on student loans ever.
Now you might have thought that would be the end of bribing middle class tertiary graduates with public funds, but the Nats are almost impossible to underestimate.
Now there’s a 10% discount if you bother to voluntarily repay anything at all.
Apparently now the interest write-off is being extended to people like me who live overseas too.
I give up.
But seriously, we now have the worst of both worlds and don’t see how going towards either of them –either back to central planning where tertiary education is rationed academically, or back to price rationing by reducing entitlements- is economically desirable or politically palatable.
It’s one thing to pay for your own education, it’s quite another to be subsidising a national tertiary education slush fund.
So how about this: You are not entitled to subsidised education until you have pre-paid $5,000 into your student loan account, in addition to normal taxes, through your tax return.
In other words, before you go to university you will have spent at least a year working full time and dealt with something similar to having a student loan, an additional tax rate plus voluntary repayments if you’d like to get it done faster.
The result, I venture, will be much more carefully considered education consumption. Much more serious study, and a much smaller market for the swindlers who ply the unsuspecting with low grade courses.
Altogether a different attitude to the cost of government services, higher productivity in tertiary education, and a better educated workforce.
I hope that those two ideas give some of the flavour of the kind of New Deal I have in mind for generation X and Y. Housing and education are perhaps the most obvious issues.
All of the others are really just a matter of economic growth. Paying for legacy entitlements and filling infrastructure gaps is easier the richer you are.
I think ACT has the prescription for growing wealthier. Don Brash has the prescription for that. The question is; why is the electorate so slow to embrace it?
I think Roger Kerr gave us part of the answer with his recent observations of our media’s inability to digest the 2025 task force report. There is something to the fact that policy digestion in this country revolves around whether or not New Zealand is going towards or away from what our other Roger would do.
However borrowing a leaf or two from the book of my Canadian friend Brian Crowley, I suspect that the demographic spike is about to undo the bad work it has wrought, and that this will be to ACT’s benefit.
As demographics shuffle through this mortal coil, I believe we will have a sea change in attitude. In a time of dramatic labour shortage it will become clear for the second time in our history that anyone who wants a job can have one. Social and political tolerance for welfare dependency will vanish.
Secondly, there will likely be a train wreck as a number of demographic and global factors make our recent experiment in creating a Scandinavian style welfare state demonstrably unviable.
- Unaffordable housing;
- Tax and job competition from workers in low tax jurisdictions in the developing world who are literally leaner and hungrier than us;
- The injustice of generational transfers through the welfare state becomes clearer.
On the one hand there will be a private response to the policy driven transfer of wealth up a generation, parents will support children more (I hope). And the political counter-reaction will be yet more government spending in order to smooth the perceived inequality.
On the other hand, most of what I have described could be seen as the seeds of an anti-big government generational movement. I can think of three ACT MPs who were cured of socialism by visits to socialist countries.
I think our whole generation has had a more general inoculation and it’s going to recognise more and more as dependency ratios increase, as housing remains unaffordable, and as international economic competition intensifies that big government has failed it.
So once more with feeling, we in the spoilt brat brigade have legitimate grievances regarding the way that public policy has split the intergenerational pie. We will present a political market for any party that wants to take it. But the party best positioned to represent the values of generation X & Y in the face of a majoritarian bully is the party which already has a compelling narrative on open markets and limited government, the party which has a history of being contrarian, the party called ACT.
Thank you.
