Sir Roger Douglas - 2025 Taskforce: Removal Of Tariffs Far From Radical

The 2025 Taskforce report made a raft of recommendations to improve our economy and hopefully catch Australia by 2025. As we now know, Prime Minister John Key and his Finance Minister Bill English dismissed the report as soon as it was released, claiming it was ‘too radical’.

Now even I don’t agree with all of the recommendations that the Taskforce has made. However, I have taken the time to actually read the report and found more than one idea which seems sensible and far from radical – one of which is the removal of all remaining tariffs by 2011.

I think many New Zealanders would be surprised to learn just what products have tariffs imposed on them. Books, cutlery, lamps, cosmetics, ornaments, wallpaper, memory sticks, iPods and skateboards are just some of the items we have to pay more for here in New Zealand.

A tariff is a tax you are forced to pay when you import goods. The Government imposes this tax on certain products imported from overseas, in order to protect special interest groups within New Zealand from competition. This might sound like a noble thing to do at face value and of course the industries protected by tariffs will campaign hard to keep them, but it actually does more harm than good.

In reality it means that New Zealanders are forced to pay artificially high prices for goods that they could actually get cheaper. This hurts consumers – especially those on low-incomes. If an individual is able to buy the same type of good at a cheaper price, they are left with more money to spend elsewhere. If an individual is forced to pay a high price for a good imposed with a tariff, then they will have less money – if any – to spend elsewhere.

Tariffs can also result in the tying up resources in areas which are inefficient. Let’s take cutlery. Now we might not be very efficient at making cutlery, but because there is a tariff in place to keep the price high, businesses continue to invest resources into this area. They do this as they are able to make a profit at the cost of the consumers, who are forced – via a tariff - to pay a higher price.

In reality, we might actually be better at making jandals but, because there is a tax which raises the cost of imported cutlery, businesses continue to invest their resources into the cutlery industry. Therefore the tariff has actually created an incentive for businesses to invest in an inefficient market. Consumers would be better off if the tariff was removed – cutlery could be purchased at a cheaper price and businesses would now be incentivised into investing their money into the jandal industry which we are more efficient at producing.

Worse still is that some of the tariffs are imposed on goods for which there is no domestic industry! There are tariffs on iPods, for example. New Zealand doesn’t even manufacture its own MP3 players, so it’s just an arbitrary tax on certain products.

The removal of tariffs is not a radical idea. Ever since Adam Smith, economists have known it was a good idea. National planned to phase them out in the 90s, Labour then reneged on that, but why have National lost their nerve today? In the current economic environment, we should be doing all we can to keep the price of goods low. It’s time to end this counterproductive form of taxation.