Social Housing: Stock and Flow Confusion
November 7, 2014
This is the first issue of what will be a regular newsletter, commenting on and reacting to political and other issues. On this occasion, the topic is the debate over social housing reform, one where opposition politicians and many commentators seem hopelessly confused over what is, and is not, important.
It’s been interesting watching the responses to National’s planned reform of social housing. The political responses are not just steeped in ideology, but almost drunk on it. Nobody seems interested in debating the real issue – of how best to provide for the housing requirements of those most in need.
One tactic is to try and frame it as a case of asset sales, as if that is some sort of gotcha – pretty feeble from an ACT perspective, of course.
Governments are always selling things – used cars, old office equipment, farms, and even surplus houses – so it’s hardly a big deal; and of course governments are always buying and investing in things, typically far more than they should.
But secondly, and most importantly, nobody seems to have a clue about the distinction between stocks and flows; between assets and their income flow (or financing cost).
For example, your term deposit is a stock; the interest income is a flow. If the term deposit interest rate is 5%, and I promise to give you five dollars a year for ever, you are in the same position as if you had a $100 of your own to deposit.
When you reach retirement age and start receiving NZ Superannuation payments, you receive a “flow” of income for the rest of your life. Instead, and equivalently, the government could borrow and give you a one-off (a “stock”) payment sufficient for you to buy an annuity giving the same flow of income. Either approach has exactly the same expected outcome.
Stocks can be converted to flows, and vice versa.
It’s the same issue in housing. The government can buy a house (it will be borrowing a “stock” of cash to do so, to buy the asset) and let you live in it at a subsidised rate, giving you a “flow” of rental subsidy. Or the government could sell a house it already owns (an asset that is effectively funded by a “stock” of debt) and just pay you a “flow” of rental subsidy to rent from some provider on the market, whether a purely commercial or a social provider.
What matters is access to the housing: whether that is done via government owning a stock of assets or funding a flow of rental subsidy is entirely a second order consideration, essentially just a financing decision.
Another confusion that springs from not understanding stock and flow distinctions is to argue that the cash from any houses that are sold, should immediately be spent. Absolutely not. Selling the stock and spending that as a flow would be wildly irresponsible. Spending just the flow equivalent of that stock (roughly the interest income, or debt servicing cost of it) would be broadly neutral.
The real issue here is how to get the most effective structure of social housing assistance to those most in need. To start shifting from a system overwhelmingly dominated by the government owning a massive stock of houses, and move at the margin to increase the proportion funded by a flow of rental income support, seems like a total no-brainer.
A healthy system is one where we try lots of approaches, where there is experimentation, competition and a range of options. That is why markets are so effective, because it is a relentless process of experimentation to find out what works best.
We need more of this in social housing, in education (which is why partnership schools are so important) and in the health sector.
When you see responses to these social housing proposals that focus obsessively on whether or not they represent asset sales, you know that the response is entirely ideological – that person is not thinking, not interested in the real issues.
The same applies when people complain that a property developer might make a profit out of building or providing social housing.
That represents another form of ideological ignorance – in fact one even worse than not understanding stocks and flows.
Businesses are funded by a mix of debt and equity: the business pays interest to the owners of their debt (that might be to a bank, or to those who have purchased the business’s bonds in the debt markets); and it distributes profit (the residual, high risk part) which is paid to the owners of the equity in the firm.
Would you seriously expect people to provide equity for no return? Profit is just the label for that highly uncertain return, just as interest is the label for the more secure (because it gets paid before equity owners see anything) stream of interest income from a business.
The proposed reforms show that the government is doing some serious thinking about how best to provide social housing to those most in need. It’s time opposition politicians started thinking too.
Leader, Act New Zealand
In three days’ time I will be elected along with a number of ACT MPs. I think the media will be surprised and ask how it happened?
Let me tell you.
First, ACT has been rising in all the polls. On the latest Colmar Brunton poll, David Seymour wins Epsom and I am elected.
Second, once a party wins an electorate, the number of votes needed to win a Party seat is very low. Each National list MP will take about 60,000 votes, more than the total votes of any one electorate. By contrast, just 28,000 votes will add me to David Seymour. And 44,000 Party votes will give ACT three MPs.
The electorates won by a party are deducted from its list MPs. That is why Labour may get no list MPs.
The ideal way to game MMP is to have a party that wins only electorates and a partner that wins only list seats. Labour and the Greens are now in that situation and may as a result steal the election from National, who would be recording the biggest win in our history if this were a first-past-the-post election.
I predict that ACT will win a number of seats and that ACT will hold the balance of power on Sunday.
ACT’s Deputy Kenneth Wang is the most popular Chinese politician in New Zealand and on some Chinese website polls ACT is in second place ahead of Labour.
We have used the internet to poll and so we know that the land line polls are wrong. As all the land line polls are different, and the differences are greater than the margins of error, even the journalists who report as news what their pollster predicts must know that the land line polls are not credible.
ACT’s polling shows that 11% of New Zealanders support ACT’s message of low tax, less regulation and more personal responsibility.
We have been told by usually reliable sources that TVNZ’s Vote Compass survey also reveals significant support for ACT’s policies. In a campaign that has been dominated by side issues rather than genuine policy debate, this is a more interesting poll finding than the supposed voting intentions conjured up by landline phone polls.
I have today delivered a request under the Official Information ACT to TVNZ to reveal the Compass Vote survey results that will show that many New Zealanders agree with ACT’s ideas.
We have written to TVNZ demanding that they publish the Vote Compass results before the election. As the survey was paid for in part by the Electoral Commission using Taxpayers money I have also forwarded this demand to the Electoral Commission. Voters need to know this information now before the election.
At the last election up to 100,000 right wing voters stayed at home. They were voters who thought John Key was going to win easily and think National is too much like Labour.
To be frank, they are the voters who under MMP had previously elected an average of seven ACT MPs, and they thought ACT had lost its way.
I think I have shown this election that ACT has a fresh team, that we have gone back to our core policies of lower tax and less regulation and that we are worthy of our supporters’ vote.
The numbers coming to our website show there is interest in our alternative to the tax-and-spend approach of all the other parties.
We believe we will do well because we have addressed the issues that matter.
We see commentators express surprise that John Key and National’s popularity have been unaffected by a determined effort to destroy our Prime Minister.
This just shows that voters are smarter than the media gives them credit for.
Voters know that in 12 months’ time the issues that matter will be jobs, the economy, the cost of a house and whether we feel safe.
Mr Dotcom will have left our shores for America and nobody will even remember what “Dirty Politics” was all about. As Helen Clark might put it, we will have moved on.
What the voters will remember is that the election campaign didn’t quite happen. The serious disagreements between the rival parties went unexamined.
What will improve education: more parental choice or more bureaucratic control?
Who is better at making investment decisions: private investors risking their own money or politicians risking taxpayers’ money?
How will we reduce the number of children born into disadvantage – by transferring parental responsibility to bureaucrats and taxpayers or by increasing incentives to work and opportunities to work?
What will do more to reduce the cost of housing: imposing a capital gains tax on those who build and then sell houses or freeing up the supply of land for residential development?
These and many other important matters have gone unexamined because, with some honorable exceptions, the media seem to believe that politics should be reported as if it were a game of snakes and ladders.
The parties’ policies, what they will do if elected, have been squeezed out by the kind of thing Winston Peters specialises in: feigned outrage at the wickedness of politicians and speculations about who will form coalitions with whom.
Yesterday Radio New Zealand hosted the final debate between the leaders of the minor parties. We discussed only two topics. Kim Dotcom’s “Moment of Truth” event and post-election coalition deals. And Radio New Zealand is supposed to be the most serious and thoughtful broadcaster in the country!
* * * * *
Some parties have not announced policies that are sufficiently well worked out to warrant serious discussion – most notably, New Zealand First, the Conservatives and Internet-Mana. They merely wave their hands in the general direction of a vague idea, and call it a policy.
By contrast, ACT has announced a number of serious policies, fully costed and backed up by academic research.
We started our campaign three months ago by publishing a fully-costed budget.
No commentator or rival party has disputed ACT’s figures.
In that budget, we showed how by cutting corporate welfare – the corrupt practice of giving taxpayers’ money to companies that can win favour with politicians and bureaucrats – we could cut the company tax rate from 28% to 20 percent next year. In a subsequent policy document, we showed how we could cut the company tax rate to 12.5% by 2020.
New Zealand now has one of the highest company rates in the world. Most New Zealanders do not realise how far New Zealand’s company tax rates are out of line because of two factors. Australia’s company tax rates are also high and the USA’s tax rates are the highest in the OECD.
Americans know their tax regime is dysfunctional. Even President Obama wants to cut their company tax rate and get rid of all the loopholes (which, by the way, mean that American companies end up paying a lower rate of tax than New Zealand companies pay).
The Australians also knows their company tax rate is too high. The new Liberal government has announced that it is reviewing the Australian company tax rate company.
If Australia reduces its company tax rate New Zealand will find itself at a serious disadvantage.
In parliament, ACT MPs will be pointing out our company tax rates are unsustainable.
People will ask, “Why was this not an issue in the election?” Well, it was, but the media thought other things were more important. We have explained why cutting the company tax rate from 28% to 12.5% will increase investment, economic growth and wages.
Other parties also seek to increase economic growth and wages. But they are all convinced that the answer is more of them and less of you.
They all say that they can pull off some form of Muldoonism. They can pick winners and replace private investment with politically directed investment. They all claim that investment decisions are made better by politicians risking taxpayers’ money than by private investors risking their own money.
This absurd idea has attracted a fraction of the analysis given to the private emails of a blogger who is not a candidate for any party.
Other parties’ solution to low real wages is to have the government make low wages illegal. But wages do not depend on the will of legislators. They depend on the productivity of workers – which depend on their education, the amount of capital they work with and their degree to which they can specialise.
Legislating higher wages in the absence of improvements in these factors will simply cause unemployment. In the presence of such improvements, on the other hand, wages will increase without any need for legislation.
You cannot make people rich by decree. If you could, we would all be billionaires. The only route to wealth is productivity.
Legislate any minimum wage you like. It won’t increase productivity. And it won’t, therefore, help us close the wage gap with Australia.
ACT predicts that in 12 months’ time, when the Australian economy has recovered, the gap between New Zealand and Australia will be an issue again and the planes will again be carrying our best and brightest across the Tasman, and to the US and the United Kingdom too (if the United Kingdom still exists).
ACT MPs in parliament will be asking the government: “What is the plan to close the gap with Australia?” and the public will be asking why was that not an issue at this election?
Well, if you examine ACT’s press statements, it is an issue.
We have put forward a five point plan to catch Australia.
ACT has identified a major reason for housing unaffordability, which is also a significant reason for the country’s slow growth – red tape and, in particular, the Resource Management Act.
The RMA has proved to be a license for local government planners to undermine private property rights in favour of kind of soft socialism. The costs in administration, compliance, delays and uncertainty are huge.
In 1990 the average New Zealand family could afford a house.
ACT predicts in 12 months’ time housing will still be unaffordable because the RMA is fundamentally flawed. ACT’s policy is to admit the RMA experiment has failed, repeal the law and start again.
In parliament we will be telling National that their RMA amendments do not go far enough.
One issue that has had a little air time during the campaign has been poverty and, especially, child poverty.
Claims for increase in child poverty have been uncritically reported. Claims that 20% of New Zealand children live in poverty are derived from a perverse definition of poverty. A child is said to live in poverty if she lives in a household with an income less than 60% of the national median household income.
On this definition, no increase of income would suffice to lift children from poverty if all other households’ incomes increases by more. It is a ridiculous measure of poverty which grossly exaggerates the amount of poverty in New Zealand.
Nevertheless, ACT believes that many children are indeed born into serious disadvantage. We believe kids at the economic bottom of New Zealand need a better deal. And we have a plan to help them. It is based on job creation and wage increases caused by lower taxes and lighter regulation, on welfare reform, and on parental choice in education.
We also acknowledge that many of those households in poverty are there because the adults in the house put their addictions ahead of feeding their children. A fact the Greens and Labour deny. ACT MPs will be supporting moves by Paula Bennett to require drug testing and to provide assistance to addicts to come of drugs.
In 12 months’ time, when Mr Dotcom is just a sour memory, our state schools will still be failing to provide 20% of their pupils with an education sufficient to find work in a globalised economy of growing automation.
ACT has a solution: Partnership Schools (or charter schools, as they are known overseas). The media print the Education Union’s attacks. But they put no effort into discovering and reporting the great progress being made by Partnership School pupils who were failing in state schools.
That is why ACT MPs will be pressing to allow every school to have the advantages of being a Partnership School.
The 20th century American journalist, H L Mencken, said that all elections “soon become and advance auction sale of stolen goods”. This election is a vivid illustration of the fact.
All the other parties simply compete to offer people goodies paid for from money confiscated from other people and, often, from themselves. The racket has become so absurd that the Greens have now announced a plan to give everyone who has a child a flax basket full of goodies. Even the Greens are willing to destroy plants if they believe it will buy them some votes.
The Taxpayers Union has their bribe-o-meter, which reveals the gruesome facts about how much extra tax all parties except ACT will be imposing on us after the election. But the media is generally uninterested in the issue.
Would New Zealand First have its support if the media reported that Mr Peters has promised more spending than the Greens, Labour and the Conservatives combined? His claim that he can fund it all by cracking down on tax evasion is laughable. New Zealand has one of the toughest tax regimes and lowest rates of tax evasion in the world.
ACT produced a plan to fully fund all our proposals. It has been galling to go to the trouble to use Treasury figures, to have our policies professionally costed and then see commenters just make up figures with regard to ACT. The same commentators then print no commentary on the absurd promises of the Greens, New Zealand First and the Conservatives.
In 12 months’ time, when the taxpayer has to pay, people will ask why this was not an issue in the election. Well, it was, but it was not covered.
Let me make another prediction.
Next year there will be over 100,000 burglaries. Those burglaries will affect around 250,000 people who will ask, “why was this not an issue in the election”?
That is why in parliament, ACT will be presenting legislation to send professional burglars to jail.
I am confident ACT will get its 3 strikes for burglary through and the law will dramatically reduce the number of burglaries in New Zealand, just as our 3 strikes policy has reduced violent crime.
* * * * *
When voters go to the polling booth on Saturday, many will ask: “Who will always vote for less tax, less nanny state and more personal responsibility?”
There is only one answer.
That is why I predict many will Party Vote ACT.
It will be ACT, not New Zealand First, holding the balance of power for the next three years.
We will support John Key and a stable centre-right government. And we will make it a more principled and reforming government
Tauranga, 15 September 2014
Extract from speech
ACT has a five point plan to double the rate of economic growth. The Treasury long term forecast for growth is 2% a year. We can lift it to 4%.
Two percentage points may not seem like much. But it is. Over just 15 years, it will make the difference between the economy growing by 35% and growing by 80%. That is a huge difference.
ACT’s plan is based on sound economics. It will deliver more than any plan of any other party.
While National can take credit for getting us through the Global Financial Crisis, the pre-election forecast shows the economy is slowing.
Labour has no answer. They simply want to return to the old Muldoonist policy of picking winners – giving taxpayers’ money to industries that David Parker thinks are the future.
So do the Greens. Although, of course, they disagree with Labour about which industries are the future. Which goes to show what’s wrong with the policy of picking winners.
Who is likely to make better investment decisions: private investors risking their own money in search of profits or politicians risking taxpayers’ money in search of votes?
ACT is the only party that understands that wealth is created by the enterprise of the population, not the self-supposed genius of politicians. We are the only party that understand that our economic progress requires less political interference, not more.
Our carefully costed five point plan for economic growth will set enterprising New Zealanders free to get on with their business.
1. Cut the company tax rate from 28% to 12.5%
Economic research shows that high company taxes raise little revenue but inhibit investment, growth, job creation and real wages. New Zealand now has one of the highest real company tax rates in the OECD. Cutting the company tax rate will grow the economy. It can be funded mainly by eliminating “corporate welfare”, the corrupt practice of giving taxpayers’ money to who can win favour from politicians and bureaucrats.
Economists reckon that cutting the company tax rate by this much would, on its own, increase the long term economic growth rate by at least one percentage point.
2. Cut the top rates of incomes tax from 33% and 30% to 24%
In our Alternative Budget published in May, we showed how cutting middle-class welfare would allow us to reduce the top rates of tax significantly. By middle-class welfare we mean the transfer of taxpayers’ money to people who are not hard up. The most obvious examples are interest free student loans and Working for Families for people on incomes above the 30% income tax threshold of $48,000.
High marginal tax rates are a serious deterrent to work, risk-taking and investment in education. Lowering them will not only encourage enterprise. It will encourage enterprising foreigners to come here and enterprising Kiwis to stay here.
3. Cut red tape
Before New Zealand had the Resource Management Act, housing was affordable. The RMA has allowed Councils to drive up the cost of land and development.
The RMA has had a similar effect on business. The cost of a new business proposal has risen enormously. Many entrepreneurs faced with significant RMA costs and delays simply give up.
Reforming the RMA will not only make housing affordable again, it will make many business proposals viable.
But the RMA is only part of the problem.
National has generated more red tape than Labour. Having a “one size fits all” new earthquake code will put billions of dollars of costs on home owners and businesses.
Last Saturday’s newspaper reported that the developer of an adventure boating experience says the new safety code is so over the top he will go out of business. Bob Jones wrote last week about spending $4,500 on a resource consent to alter a building’s window.
ACT has proposed that a cost-benefit test be applied to all government regulations. This will remove billions of dollars of cost and waste.
4. Welfare Reform
Welfare reform is an important part of ACT’s economic plan. New Zealand has 200,000 able bodied adults on welfare.
Moving adults from benefits to work does not merely reduce government spending and increase taxes. It increases the incomes of those who move into work. It is the best way to lift the incomes of New Zealand’s poorest households.
We applaud the measures taken by National. But more can be done to incentivise the able-bodied to move from welfare to work.
In the 1990s, President Clinton introduced time limits on the receipt of federal welfare assistance to families. No one could receive federally financed welfare assistance for the equivalent of the sole parent benefit for more than 5 years over their lifetime.
These time limits on reduced single parent welfare cut caseloads by two thirds over all, and by 90% in some states.
The subsequent declines in welfare participation rates and gains in employment were largest among the single mothers previously thought to be most disadvantaged: the young (aged 18-29), mothers with children aged under seven, high school drop-outs, and black and Hispanic mothers. These low-skilled single mothers were thought to face the greatest barriers to employment.
Employment of never-married mothers increased by 50%; employment of single mothers with education less than a high school graduation increased by two thirds; child poverty fell dramatically.
Rebecca Blank is the leading economist working in the field of welfare reform, and she has been the Acting Secretary of the Department of Commerce in the Obama administration. In 2002 she said that “nobody of any political persuasion predicted or would have believed possible the magnitude of change that occurred in the behaviour of low-income single-parent families”.
ACT believes that we should follow the Americans and introduce time limits here(with those who exceed it receiving strictly controlled payment cards instead of cash). It will help tens of thousands of unemployed people back into work. Nothing will do more to reduce youth unemployment.
5. Increase the number of Partnership Schools
20% of pupils leave school with so little learning they are unemployable. They can barely read or do arithmetic.
ACT has shown Partnership Schools (or charter schools as they are called overseas) work for disadvantaged pupils. We would allow all state school boards to choose to opt out of Ministry of Education control and become Partnership Schools.
The improved education of the pupils attending them will bring huge benefits not just to the pupils but the whole economy.
* * * * *
ACT has set out its fresh new policy ideas and the research to support them.
No other party has any practical policies to grow the economy.
Why not vote for the party with solutions?
On Saturday, Party vote ACT.
Dr Jamie Whyte, ACT Leader
11am Sunday 14 September
Tasca Café, Newmarket, Auckland
ACT will hold the balance of power after the election on Saturday.
In every poll taken last week, ACT has gone up. Not in every poll published last week mind you but in every poll that was taken last week.
In the latest Colmar Brunton poll – the most reliable of the pollsters – ACT is on 1.2%.
Our messages are getting through. We are winning support. 1.2% (28,000 votes) means I will be elected as a list MP, giving ACT two MPs and allowing John Key to be Prime Minister again without the “help” of Winston Peters.
In a week’s time ACT will be in a position to give the country three more years of stable Centre/right government.
The MMP system and its ramifications remain unclear to many voters. It is worth going through them yet again.
To elect Party List MPs, a party must receive 5% of the Party vote or hold an electorate. 5% is a high threshold. No Conservative-type party has managed it in 18 years of MMP. The Christian Democrats were well funded and they failed. The Conservatives, with their confused and uncosted policies, will also fall short in this election.
The parties that will break the threshold are National, Labour, the Greens and, probably, New Zealand First.
The only other parties that will be in parliament are parties that can win electorates: the Maori Party, United Future’s Peter Dunne, Internet-Mana and ACT.
Of these, only two parties have enough electoral appeal to elect Party List MPs: Internet-Mana and ACT.
Hone Harawira now regrets his deal with Dotcom and is struggling to hold his seat from Labour’s Kelvin Davis. And Internet-Mana is falling in the polls. If Hone loses they will sink without trace.
It is a huge electoral advantage to hold an electorate.
The people of Epsom are doing their bit. Left wing commentators and desperate talk-back callers claiming to be Epsom voters say the electorate does not like being in a position to choose the next government.
I have been campaigning in Epsom. I am yet to meet an Epsom voter who objects to the role.
This week National released their Epsom poll. It puts ACT’s David Seymour over 50%.
ACT’s winning Epsom is important not just because it means all ACT Party votes then count but because it increases centre-right representation in parliament – a fact that even political science professors fail to recognise.
MMP stands for Mixed Member Proportional. “Mixed Member” refers to the fact that there are electorate and list MPs. “Proportional” refers to the fact that the number of MPs a party has is roughly proportional to their Party vote.
Electorate seats that a party wins are deducted from the seats it wins on the list to make the total representation in parliament proportional. So if National had won Epsom last election, the party would have lost its last list MP and the total number of centre-right MPs would have been the same.
ACT winning Epsom meant an increase of one seat for the centre-right and turned out to be the vote John Key needed to be Prime Minister.
The other effect of the electorate seats being deducted is that, at the last election, National needed 63,000 party votes per list MP. At this election, about 28,000 party votes (or 1.2%) will bring me in as a list MP and 44,000 will bring in me and Kenneth Wang – at an average of 22,000 party votes per list MP.
We are currently polling 1.2% – enough for David Seymour plus me. But I think things are actually better than that.
ACT has always been under-recorded in the polls. The famous Republican pollster, Gen Ulm, tells us that telephone polls no longer work for a party like ACT. Our supporters have smart phones and polls based on landlines are over recording parties like New Zealand First.
ACT may already be on 3 or 4 MPs.
* * * * *
ACT has never failed to elect an MP in the history of MMP.
That is because of our real electoral advantage.
Many New Zealanders want to be free to make the decisions about their lives and they are willing to accept the consequences of those decisions.
Anyone who wants lower taxes and less nanny state has only two options on election day. They can either stay at home or they can vote for ACT.
We may be a minority, but those who favour personal freedom do so passionately.
I support free market capitalism because it has produced remarkable wealth for humans. Over the last 200 years, free markets have lifted humans out of the grinding poverty that was taken for granted for all previous human history.
Despite what the parties of the left say – and especially grumpy old Winston – there has never been a better time to be a New Zealander.
But even if socialism did work, even if David Parker and Russel Norman really could run a planned economy, I would still reject it in favour of freedom of choice and taking responsibility for my choices.
I know that at least 10% of New Zealand shares my values. They and I know that ACT is the only party of freedom.
I have demonstrated in this campaign and in the debates that I am a person who genuinely believes in personal responsibility. I can be trusted to go to parliament and be true to the values of freedom and responsibility.
We have selected a new team who can also be trusted to reflect our values. David Seymour is leading in Epsom not simply because he has door knocked on thousands of doors. He is leading because when the Epsom voters met him they like what they see. Kenneth Wang came to this country with nothing and has founded and run his own successful company.
ACT’s support will continue to climb this week.
Victoria University has run an interesting study about how voters decide who to vote for and when they decide. ACT voters are late deciders. ACT people are busy. Many of our voters will make up their minds over the coming week.
And they will do that in part by visiting our website. Victoria University says potential ACT voters are the most likely to check out all the party websites.
Here is what they will find. National has the slickest site but it focuses on John Key. It is the John Key party. If you have the most popular politician, why not?
It does not take long on the Labour website to realise this is a party that has lost its way. On the Greens’ site you rapidly discover that this is a party of watermelons: green on the outside and red in the middle.
But the websites get worse after that. New Zealand First is a leadership cult. The Taxpayers' Union says New Zealand First promises are more than Labour and the Greens combined, but none of it is properly explained or costed. There are no serious policy papers on the New Zealand First site.
The Conservative website is even more superficial. It is a hodgepodge of inconsistent policies stolen from different parties. No attempt is made to cost their promises. Even their core policy of binding referendums seems to be slipping into something not quite binding.
Potential ACT voters will not bother with the other sites so neither will I.
ACT does not have the flashiest website but we do have the most substantive – fully-costed policies with carefully researched background papers that cite our sources.
The Taxpayers’ Union’s independent economist says that ACT has costed its policies and that ACT alone is not trying to bribe voters with their own money.
Spend time on the ACT website and you will find ACT is the only party with a plan that distinguished economists agree will return New Zealand to full employment.
The other parties talk about poverty. On our website, we have a practical five point plan to reduce poverty: economic growth from tax reform, reduced housing costs from regulatory reform, improved incentives to work from welfare reform, better education through Partnership schools and less addiction by supporting National’s policy of making treatment a condition for welfare.
20% of New Zealand children leave school unable to read or do arithmetic well enough to be employable. Only ACT has a plan to give our youth an education suitable for the world of robots and global competition.
Spend time on ACT’s website and you discover that ACT has practical policies to combat crime. We have credibility here because our three strikes policy has already reduced violent crime. Three strikes for burglary will reduce our appalling burglary statistics.
Getting tough on home invasion will tackle what is one of the worst crimes. And we are is going allow shop keepers to defend themselves from violent criminals.
I challenge every voter to take the tour of the websites. ACT is the party of fresh ideas and practical solutions.
* * * * *
I also ask voters to look at the leadership I offer and compare it with what is on offer.
Before entering politics I wrote two books about the shoddy arguments that politicians commonly use. So I entered with low expectations about what I would encounter.
But I am afraid my expectations have turned out to be not quite low enough.
The most astonishing thing has been the willingness of my rivals to simply make things up.
Winston Peters, for example, claims that he can come up with $7 billion in annual revenue to fund his wild promises by cracking down on tax evasion.
Some journalists have asked how he knows there is this much tax evasion and how he can possibly stop it. He simply replies that he knows what he is talking about because he was involved in exposing a famous tax evasion scam many years ago.
It’s like arguing that you can bench-press 200 kilos because you once picked up a kitten.
Even worse: if he knows of this $7 billion of tax evasion, why has he not already informed the IRD? What’s he waiting for? The baubles of office?
Colin Craig, the man who would be Winston, seems to be learning from the master.
His tax policy has become a farcical farrago of invention.
Initially, Mr Craig claimed that he would create a $20,000 tax-free threshold and impose a flat rate above $20,000. This flat rate remained a mystery both to the voters and, apparently, to Mr Craig.
Mr Craig had announced no cuts in government spending. So the tax rate imposed above $20,000 would have to suffice to maintain the current total revenue from income tax.
We calculated that this meant the rate would need to be 34%. That’s higher than the current 33% top rate but would kick in at just $20,000. Imposing a 34% marginal tax rate on people earning just $20,000 is economically crazy.
No no no, said Christine Rankin at a candidates meeting in Epsom. The rate would be between 20% and 25% with the shortfall made up by a $4 billion new excise duty on alcohol.
Excise duty on alcohol – at for example $2 a bottle of wine – now raises about $670 million. The Conservatives plan to increase this to $4 billion or, in other words, by a factor of 7. The duty on a bottle of wine would rise from $2 to $14. A bottle of wine that now costs $18 would cost $30!
We pointed this out.
Then Mr Craig announced that he would only phase in his $20,000 tax-free threshold, starting with $5,000.
Well, even this will entail a revenue loss of $1.6 billion. What spending will be cut?
Answer: he will cut some unspecified wellington bureaucrats and reduce the number of MPs.
Suppose that the total cost of an MP is $1 million annually, including office staff and all the attendant costs. If parliament were reduced from 120 MPs to 100, that would save $20 million, which is 1% of the $1.6 billion required. The remaining 99% of savings required are, of course, left unspecified.
He is just making it all up as he goes along, coming up with a new mistake as soon as the previous one is exposed.
The unabashed left, on the other hand, have succumbed to self-aggrandising fantasy.
Their every policy involves a transfer of decision-making from private citizens to politicians and bureaucrats.
How will Labour increase economic growth? By shifting responsibility for making investment decisions from private investors risking their own money to David Parker risking taxpayers’ money.
What extraordinary economic insight Mr Parker must be possessed of! With no skin in the game and only a fraction of the information available to private investors, he can make better decisions than they can.
How will Labour, the Greens and Internet-Mana increase the incomes of those on low pay?
They will simply force employers to pay their staff more. Never mind all the complexities of the labour market, the ever-shifting demand for various kinds of labour and the supply of them. Never mind the great variation in living costs around the country. Never mind the effects of high minimum wages on employers’ plans to hire new staff or on the non-monetary conditions they offer their employees.
Meteria Turei, Hone Harawira and David Parker can do a better job of setting pay than can millions of voluntary contracts between employers and employees.
What god-like insight these people must believe themselves to possess.
* * * * *
When I make such points, my rivals and some commentators dismiss me as a philosopher.
They hope to make a political virtue of their inability or refusal to reason properly.
It isn’t a virtue.
This country faces problems that call for some straight thinking.
We need some MPs in parliament who are willing and able to think.
And many voters know it.
That’s why ACT is going to do well on Saturday.
That’s why we will be holding the balance of power in the next parliament.
During this election campaign, there has been much discussion of child poverty.
The discussion is confused by a definition of poverty unrelated to real, dollar incomes. A child is said to live in poverty if she lives in a household whose income is less than 60% of the median household income. On this measure, doubling everyone’s income would make no difference to the number of people living in poverty.
Even on this wonky definition of poverty, the common allegation that poverty is increasing is false. Child poverty rates (so measured) have fallen from about 34% 20 years ago to 16% today.
Nevertheless, no one can deny that the opportunities of many children are reduced by the relatively low incomes of the households they live in.
Like the other parties, ACT wants to see those at the economic bottom of New Zealand doing better. And we want their children to have better prospects in life.
Unlike the parties of the left, however, we do not believe that the answer is yet more welfare and yet higher taxes. We believe that the poor will benefit most from a dynamic, job-creating economy and from better education.
More specifically, we have a 5-point plan to reduce relative poverty and raise incomes:
1. Cut the company tax rate. There are almost no households in poverty where the adults have jobs. Cutting the company tax rate will create jobs and opportunities for those who are now unemployed.
New Zealand has one of the highest Company Tax rates in the OECD. It raises little income and is stopping investment, growth, jobs and real wages. By lowering the company tax rate to 12.5%, funded mainly by ending tax hand-outs to selected companies (“corporate welfare”), we can restore full employment and increase real wages. This single measure will do more to create jobs and lift incomes than all the other parties’ spending plans put together.
2. Cut red tape. Government red tape as measured by statutes and regulations has increased under National, stifling economic growth and making housing unaffordable. ACT wants regulation generally reduced and the Resource Management Act replaced with planning laws based around the Common Law. This will make housing affordable again.
3. Reform welfare. Virtually everyone in poverty is on a benefit. Welfare must become a hand up not a hand out. In America the use of lifetime limits has transformed welfare. A lifetime limit for able-bodied adults (with those who exceed it receiving strictly controlled payment cards instead of cash) will motivate long term beneficiaries to return to work. We can then be more generous with those who really need our support.
4. Improve education for poor children. Too many New Zealanders leave school with no employable skills. Many cannot read or do arithmetic. New Zealand’s real inequality is in education; the best in the world for 80% and awful for 20%. President Obama supports Charter schools because allowing communities to set a program that suits the community works. The 5 pilot schools in New Zealand have seen dramatic improvements in pupils who were failing in state schools now. ACT wants all schools to be able, where the board and parents wish, to become Partnership Schools.
5. Deal with addiction. There is not enough money, even in the deep pockets of Treasury, to fund drug and alcohol addictions. ACT supports moves by the present government to require those on the unemployment benefit to pass drug testing and to assist addicts to become drug free.
Those at the economic bottom of New Zealand need the opportunities provided by a vibrant economy and a good education. And they need incentives to pursue these opportunities.
They do not need more generous welfare, as the political left are promising. That will only undermine incentives to study and work. And, through the deadweight cost of the increased taxes required, it will reduce economic growth, wages and the job opportunities available.
The other parties make a great display of their concern for the poor. But concern is not enough. Their policies will increase the number of people who are stuck at the bottom.
Only ACT’s policies offer the poor a real chance of getting ahead in life.
“National’s tax cuts are modest because they are an election bribe for the redistribution of income.
“I am sure when Treasury does its review they will say that the cuts will not assist either growth or jobs,” said Dr Jamie Whyte.
"ACT on the other hand puts forward prosperity boosting tax cuts that will attract investment to New Zealand, increase economic growth, create jobs and lift real wages by far more than National’s very modest tax cuts.
"The rest of the OECD has been reducing the company tax rate. New Zealand now has one of the highest company tax rates in the world.
"ACT’s prosperity boosting tax cuts can be funded without touching the spending on education or health.
"Reduce company tax to 12.5% and just get rid of corporate welfare and treat all companies the same.”
"It is kind of Mr Peters to say that I am not a politician," said ACT Leader Dr Jamie Whyte.
"Parliament does not need any more politicians.
"What parliament needs is people who can think logically.
"I realise it makes him uncomfortable that I can add, which is the reason I know (even if he does not), that his promises now cost more than Labour and the Greens put together."
"It is kind of Mr Peters to say that am not a politician," said ACT Leader Dr Jamie Whyte.
"Parliament does not need any more politicians.
"What parliament needs is people who can think logically.
"I realise it makes him uncomfortable that I can add, which is the reason I know (even if he does not), that his promises now cost more than Labour and the Greens put together."
ACT’s Campaign Opening
Ellerslie Event Centre
11am, Sunday 7 September
It is nearly 20 years since the ACT party was born.
Many people no longer remember why it was named ACT.
They may imagine that it was on account of our determination to actually do things in parliament rather than simply occupy the seats and collect the salaries.
That’s true but it isn’t the right answer.
I don’t need to tell you here that ACT was an acronym, short for the Association of Consumers and Taxpayers.
ACT was created because its founders, Roger Douglas of the Labour Party and Derek Quigley of the National Party, objected to what their parties had in common.
In 1996, both the National and Labour parties believed in taxing people heavily to fund government services that people had no choice but to consume.
Douglas and Quigley wanted New Zealand to be a society in which taxes were light and people had a say in what they consumed – even when that consumption was funded by taxpayers.
School vouchers are the perfect example of this goal. They allow all parents, no matter what their incomes, to exercise a choice that only the wealthy now enjoy – a choice between schools competing to provide their kids with an education that suits them.
In the 18 years since its beginning, ACT has had many successes. For example, John Banks got our Partnership Schools policy passed into law, with the help of his upcoming replacement in Epsom, David Seymour.
Partnership schools are state-funded but they only get that money if they can convince parents with a choice in the matter to enroll their children.
Despite such policy successes, ACT’s original raison d’etre remains. 18 years on, New Zealanders are still over-taxed and they are still over-regulated. National and Labour are no less disappointing today than they were 20 years ago.
Anyone who really believes in personal responsibility and individual liberty, anyone who believes that the answer to every problem is not “the government should do something”, still has only one party to vote for. ACT is still the only party that wants big individuals and small government.
* * * * *
Nor has ACT’s significance changed over the short term.
Three years ago, the people in this hall and the voters of Epsom, decided who would be Prime Minister. Because the ACT candidate for Epsom won a majority of 2,300, John Key became Prime Minister. And we were spared a Labour-led government.
History is repeating itself.
National is well ahead of any other party in the polls. But the parties of the left, including New Zealand First, could still get enough votes to form a government.
A Frankenstein Labour-Green-Internet-Mana-New Zealand First government may be unthinkable, but it is not impossible.
It is over to us again.
The people of Epsom are doing their bit. David Seymour is door-knocking his way to victory.
Now we need get a number of ACT Party list MPs elected. We need just 1.3% of the party vote – 28,000 votes – for me to join David in parliament. Another 16,000 votes will add Kenneth Wang.
If ACT succeeds, New Zealand will have three more years of stable center-right government. If we fail, New Zealand faces the prospect of a chaotic left-wing Frankenstein government.
* * * * *
It’s not pretty, but we should look at that monster.
Part of the monster – the crazy tangled mess of hair stitched onto the scalp – is the Internet-Mana party.
This is a party of hard-left socialists – Hone Harawera, Laila Harre, Annette Sykes and John Minto – funded by a convicted fraudster wanted for copyright violation in America.
Their lunatic policies include shutting down all the prisons (perhaps on the suggestion of their fugitive sponsor).
In a televised debate, Hone explained that prisons are unnecessary because if boys are sent on Kapa Haka courses, they commit no crimes.
If only they had Kapa Haka in Germany, Kim Dotcom would not be a wanted man!
As I said to Hone at the time, it’s a very nice idea. But let’s not get ahead of ourselves. Why don’t you send all the boys for Haka training and then, after the crime rate falls to zero, we will close the prisons. In the meantime, let’s keep them open – just in case you are wrong about the transformative power of Kapa Haka.
* * * * *
The Greens are the monster’s face, grinning inanely below its swivel-eyes.
In the nicest possible way, they intend to force everyone to live as the Greens prefer. They will tax the things they don’t like, such dairy farming, and subsidize the things they do like, such as solar panel manufacturers.
The Greens are not so much a political party as a religious movement, worshipping snails and ferns and all that makes up Gaia, except us humans of course.
For the Greens, humans fall into two categories: the helpless, who smart green politicians must save, and the wicked, who smart green politicians must stop.
In virtue, and intellect, Russel Norman and Meteria Turei are so vastly superior to everyone else that it is their moral duty to subjugate us.
* * * * *
The big flabby torso of the monster is the Labour Party.
It was briefly a thing of beauty and strength. We have the Labour government of Roger Douglas and Richard Prebble to thank for the fact that New Zealand is not now a basket-case like Argentina.
But the Labour Party has gone horribly to seed.
Nothing reveals this more clearly than its finance spokesman, David Parker – the man who now occupies the position once held by the great Roger Douglas.
Mr Parker fancies himself the smartest boy in the fourth-form. But he has not even the weakest grip on basic economics.
At the recent Queenstown Chamber of Commerce political debate Mr Parker explained his party’s desire to reduce immigration to New Zealand. He claimed that economic output requires increasingly little labour to produce. So immigrants cause unemployment.
This nonsense has been peddled by economic fools since the invention of the weaving loom. In fact, I imagine it got started when someone first thought of killing animals with a sharp stick instead of bare hands.
For the sake of Mr Parker’s education, here is what really happens when workers become more productive. People produce and consume more.
And not just more of the same, but entirely new things. Even Mr Parker has surely noticed that, over the past 30 years, as worker productivity and the population have both risen, unemployment has not increased.
Instead, we are consuming more than we ever have. And we are consuming better goods and services than ever before.
Everyone, please, get your cell phones out and wave them in the air so that Mr Parker might understand.
* * * * *
Finally, we come to Winton Peters and his New Zealand First, the stumpy little legs of the monster. Little legs that remain idle for 2 years and 10 months out of every three years and then spend two months running around furiously kicking everyone in sight – foreigners, journalists, bankers, you name it: everyone except pensioners.
After all, it’s common sense.
That’s Winston’s slogan: it’s common sense.
I am not sure what “it” refers to but that doesn’t really matter. Because, as my old PhD supervisor used to say, “sense isn’t common”.
And there is no better example of this fact than Winston himself.
Winston’s big economic policy for this election is removing GST from food. That would reduce government revenue by 3 billion dollars.
But Winston has no plan to cut government spending by 3 billion dollars. On the contrary, he plans to increase government spending massively.
Where will he get all the money?
Winston’s answer: by cracking down on tax evasion.
Honestly. He claims that he can raise 7 billion by cracking down on tax evasion.
That’s not sense, common or otherwise. That’s bollocks.
When a politician tells you that he is going to fund his spending promises by cracking down on tax evasion, you know he is either a fool or a charlatan. And Winston ain’t no fool.
* * * * *
I am not so sure about Winston’s main rival, however.
Colin Craig has a tax policy that no self-respecting charlatan could propose.
He says that the first $20,000 of income will be tax free. Above that, he will apply some unspecified flat rate.
Imagine you wanted a $500,000 mortgage and you went to your bank. The lending officer says: “you’re in luck, we have a special deal on mortgages this week. You can get the first $250,000 at a zero rate of interest. On the second $250,000, we will charge you some other rate of interest.”
“What rate is that?” you ask.
“Oh never mind that, for now”, the lending officer replies. “Just sign the contract and you will find out when the first payment comes due”.
Only a complete idiot would sign the contract. And even the greedy and devious bankers of Winston Peters’ fevered imagination would not dream of making such an offer.
Yet this is the tax policy that Colin Craig is offering the people of New Zealand.
It is all too easy to think that other people are just like you. I fear Colin Craig is putting too much faith in the gullibility of voters.
* * * * *
So much for the monstrous alternative to a National-ACT, centre-right government. I don’t want to spoil your lunch.
What about our friend the National Party?
Without doubt, they are far better than the alternative. John Key beats David Cunliffe, hands down.
And yet … and yet, National disappoints.
When in opposition to Helen Clark’s government, National said Working for Families was a terrible policy that made ordinary middle-income kiwis welfare beneficiaries.
They said interest free student loans were a crass election bribe. They lamented the massive expansion of the Wellington bureaucracy.
ACT cheered them on.
Now, after 6 years of a National government, we still have Working for Families. We still have interest free student loans. The number of bureaucrats is unchanged.
National is a party of competent managers. They don’t make a terrible mess of things – except for Muldoon.
But they show too little commitment to the principles they espouse. They show too little commitment to what has made New Zealand the great country it is.
Like all successful countries, New Zealand was built on the rule of law, private property rights and trade. And our continued success also depends on them.
Chip away at these institutions and we will lose the prosperity and freedom that we now enjoy.
Labour, New Zealand First, the Greens, Mana-Internet and the Conservatives are all openly hostile to the institution of private property.
All want to ban the sale of land to foreigners. I have heard the leaders of all these parties justify this policy by claiming that “we should not be selling our land to foreigners”.
When Lochinvar station was sold to Chinese buyers, we were not selling our land. The Stevenson family was selling their land.
Land in New Zealand is not collectively owned; it is privately owned. New Zealand is not yet a communist country.
Winston Peters lives in a street near mine. He cannot come knocking at my door demanding entry to “our house”. Nor should he presume to tell me who I can sell my house to. I own my house and Winston owns his.
That’s what John Key should have told David Cunliffe when the topic came up during their televised debate. Instead, Key quibbled that the National government already applies Labour’s proposed test for an acceptable land sale.
In other words, Key accepted Cunliffe’s assumption that the government should decide who a private property owner may sell to.
There is no virtue in meeting your opponents halfway when they have strayed miles off course.
The Overseas Investment Office should be abolished. It has no proper job to do. When foreigners invest in New Zealand, we benefit. There is no injury for the OIO to protect us from.
ACT would also abolish the Resource Management Act rather than streamlining its consenting processes, as National plans to do.
The problem is not with the administration of the RMA. The problem is with the very conception of it. The RMA is an assault on property rights that stifles investment and economic growth. The restrictions it puts on using land for residential development are the reason housing is so expensive.
We did not have an environmental crisis in 1990 when the RMA was made law. But we did have affordable housing. ACT would return to sensible planning laws based on private property rights.
* * * * *
Nor is National fighting hard enough to defend the rule of law. It is a fundamental democratic principle that everyone should be equal before the law.
To know someone’s legal rights, you should not need to know their race.
Under National’s watch, this principle is systematically violated in New Zealand.
We have race-based electorates. Race-based representation on city councils. Race-based rights to influence resource-consent decisions. And race-based admissions to university courses.
A student from a South Auckland state school can fail to get into law school or medical school because her place has been taken by a private school student with lower grades – simply because she is the wrong race.
How can anyone think that’s fair?
National is apparently unconcerned by such injustices.
ACT is not. We will work to eliminate all race-based law from New Zealand.
* * * * *
Nor has National faced up to the cost of providing state superannuation for everyone over 65. As the portion of the population over 65 continues to grow, this will place an unsustainable tax burden on those of working age.
Other countries are facing up to the challenge. Australia is lifting the age of entitlement to 70. New Zealand should face up to it too. ACT would push a National-led government to lift the age of eligibility to 67.
Sometimes it is better to admit you were wrong and break a silly promise.
* * * * *
H. L. Mencken, the mid-20th century American journalist, said that all elections soon become an “advance auction sale of stolen goods”.
This election is a shining confirmation of Mencken’s assessment.
The Taxpayers’ Union has employed a reputable economist to calculate the spending promises of each party. Their “bribe-o-meter” shows that every party but one will increase tax-funded spending massively over the next 3 years.
Winston’s promises are so wild that they are beyond the economist’s ability to calculate them.
Next are the Greens, with a promise to increase spending – and therefore taxes – by $5 billion.
Then Labour at $4.7 billion.
Then the National Party, with $600 million of extra promises spending and taxes.
Even Colin Craig, who claims to favour smaller government, plans to increase government spending $400 million, on top of confiscating privately owned land and preventing you from selling to the highest bidder if they are foreign.
* * * * *
Only ACT resists the temptation to buy votes with taxpayers’ money.
In our Alternative Budget, published in May, we announced a plan to reduce “middle-class welfare” – tax-funded goodies for people who are not hard up. Things like Working for Families payments to people on middle incomes and interest free student loans.
The people who receive these benefits are the very people who pay for them. By cutting middle-class welfare we can reduce the personal taxes paid by the middle class from 33% and 30% to 24%.
We can eliminate an absurd “money-go-round” that creates perverse incentives and slows economic growth.
By contrast, the other parties want to tax the middle-class harder. The Greens and Labour state this clearly. But the Conservatives would also whack the middle class.
Colin Craig plans to apply no tax to the first $20,000 of income while slightly increasing government spending. That will require his unannounced flat rate of tax to be 34% -- slightly higher than the current top rate of tax. Someone earning $40,000 now faces a marginal tax rate of 17.5%. Colin Craig plans to double it.
Under Colin Craig’s tax plan everyone earning over $36,000 would be worse off and households earning between $50,000 and $80,000 would be especially hard hit.
* * * * *
ACT is also the only party promising to eliminate corporate welfare, the corrupt practice of handing over taxpayers’ money to firms who can make friends with politicians and bureaucrats.
By eliminating this crony-capitalism, we could use the $1.4 billion saved to reduce the company tax rate from 28% to 20% next year.
And by rejecting National’s proposed $1.5 billion of election bribes announced in the last budget, we could reduce the company tax rate to 12.5% by 2020.
No other policy being proposed by any party in this election would do more to increase economic growth. Significantly cutting the company tax rate will increase investment and lift wages. Economists estimate that a company tax reduction of this size would increase our long-run economic growth by at least 1 percentage point: that is, by a third.
* * * * *
The parties of the left claim to seek an end to poverty.
But the only way out of poverty is gainful employment. To get the unemployed into work we need a vibrant economy: one that is growing fast and creating jobs.
ACT’s policies of low taxes and light regulation will create such an economy.
The Left’s policies of high taxes, crony capitalism and ever-expanding welfare are economically stultifying. They will only expand the number of people with no serious prospect of getting ahead.
They will only increase the number of children living on welfare.
* * * * *
People also need skills to take advantage of job opportunities.
Our schooling system serves most children well. But it is failing around 20 percent of our children.
Only ACT has an answer.
Thanks to ACT, New Zealand now has five charter – or Partnership – schools. The pupils at these charter schools, who were failing at state schools, are now excelling. The improvement in grades is astonishing. Our charter schools are doing even better than ACT had hoped.
We want many more charter schools in New Zealand. On our education policy for this election, the board of any state school could choose to opt out of Ministry of Education control and become a charter school.
When you vote ACT on 20 September you will be voting to extend charter schools to every community. You will be voting for the only practical, positive solution to poverty: education.
Labour and the Greens plan to close our charter schools and condemn pupils to failure. Those children are relying on you.
* * * * *
So there it is – ACT’s case for your vote.
ACT is the only party that does not buy votes with money taxed from the middle class.
We are the only party truly committed to what made New Zealand the great country it is – to the rule of law, property rights, trade and personal responsibility.
Only ACT MPs will push National to stick to these principles, to live up to these values.
If these are your principles, your values, you have no one else to vote for.
Vote your values.
Party vote ACT.
The Treasury found that two-thirds of households earning between $14.25 and $18.40 per hour had no dependants and receive little in the way of welfare payments.
The red bars in the diagram below show how much goes back to the government in taxes and reduced welfare payments, such as abatement of working for families.
A living wage helps the government claw-back a lot of welfare payments including working for families, it then helps single people who have no children, and last of all, working families on low wages. That payoff matrix is before any discussion, and there must be that discussion, of the job losses from a higher minimum wage.