Budget for the Future

Next week's Budget will show continued steady progress away from the massive deficits associated with the aftermath of the global financial crisis and Christchurch earthquakes. The National government will continue to make incremental gains, albeit from a firmly centrist political position.

For every halting step forward, there will continue to be the occasional step backwards.

New Zealand doesn’t need a policy revolution, but we need much more than this tentative incremental change.

Here’s what ACT would like to see in the Budget.

A clear message to investors, entrepreneurs, and the business sector that New Zealand is on the path to a much more favourable business environment.

A willingness to confront big fiscal issues like the structure of NZ Superannuation.

A promise to households that their tax rate won’t be sneakily lifted each year.

A pledge to provide education opportunity to all children; the current monopolistic state education system, while serving most children quite well, fails all too many children.

Recognition that, with 20% of children born in 2014 being dependent on a benefit by the end of the year, more must be done to reform welfare, thereby reducing child poverty.

A commitment to wind back corporate welfare, using the funds to cut the tax rate on all businesses, not just subsidise a few.

The guts to tackle the housing market malfunction at root through substantive reform of the RMA. That means removing the anti-development bias and, with it, excuses for councils to restrict the supply of land for building.

Our specific proposals for Budget 2015 focus on the following priority areas.

The fiscal elephant in the room is NZ Superannuation. Life expectancy continues to rise. In 2006 we had five working people for every one person over 65 years of age. By 2050 we will have just two people for every one person over 65. In just 15 years’ time NZ Super costs, as a percentage of GDP, will rise by 50%. We are just fiddling with the fiscal levers if this is not addressed.

Most people understand that we need to make some changes. NZ Superannuation is one of the simplest retirement income systems in the developed world. So long as we make the necessary changes to keep it affordable and fair across the generations, it is an effective pension system. But it is also a political football, and politicians have proven incapable of making these vital adjustments.

An ACT budget would signal that the future structure of NZ Superannuation would be decided by referendum. An expert committee would be formed to consult with the public and come up with reform options which, together with a no-change option, would be decided by the voters. I am confident that common sense and a sense of fairness would see the public support changes allowing NZ Superannuation to remain a sustainable pension system for all New Zealanders through this century. Oddly enough we have a process for this, but we are only using it to decide on a flag design.

Next, we need to signal the future environment for investors and the business sector. We would foreshadow an eight year programme for reducing the company tax rate by one percentage point each year, until we reached a 20% tax rate. That would signal New Zealand as open for business, stimulating investment and allowing companies small and large to create new jobs and boost wages.

To fund much of this we wouldn’t have to cut core services. Instead we would allow the lapse of programmes that are simply targeted corporate welfare – bureaucrats picking winners and distorting competition through unjustifiable business subsidies.

For households, we would index tax thresholds to inflation, putting an end to the ongoing stealth increase in tax rates. If government wants to increase your tax rates, they should do it openly.

We would make genuine reform of the RMA a priority. Substantive changes here could hugely boost investment, jobs, incomes and the welfare of all New Zealanders. Ensuring that councils focus on allowing development of land would return affordable housing to our major cities, making a huge dent in inequality and poverty.

And for a genuinely brighter future for our children, we would expand the Partnership Schools policy by allowing state school conversion to a Partnership School funding model, whenever school boards choose to do so. This would be a visible manifestation of a core empowering principle for ACT - choice.

These advances would create jobs and reduce poverty by fostering a thriving, innovative economy.

David Seymour
ACT Party Leader

 

ACT’s budget priorities

Next week's Budget will show continued steady progress away from the massive deficits associated with the aftermath of the global financial crisis and Christchurch earthquakes. The National government will continue to make incremental gains, albeit from a firmly centrist political position.

For every halting step forward, there will continue to be the occasional step backwards.

New Zealand doesn’t need a policy revolution, but we need much more than this tentative incremental change.

Here’s what ACT would like to see in the Budget.

A clear message to investors, entrepreneurs, and the business sector that New Zealand is on the path to a much more favourable business environment.

A willingness to confront big fiscal issues like the structure of NZ Superannuation.

A promise to households that their tax rate won’t be sneakily lifted each year.

A pledge to provide education opportunity to all children; the current monopolistic state education system, while serving most children quite well, fails all too many children.

Recognition that, with 20% of children born in 2014 being dependent on a benefit by the end of the year, more must be done to reform welfare, thereby reducing child poverty.

A commitment to wind back corporate welfare, using the funds to cut the tax rate on all businesses, not just subsidise a few.

The guts to tackle the housing market malfunction at root through substantive reform of the RMA. That means removing the anti-development bias and, with it, excuses for councils to restrict the supply of land for building.

Our specific proposals for Budget 2015 focus on the following priority areas.

The fiscal elephant in the room is NZ Superannuation. Life expectancy continues to rise. In 2006 we had five working people for every one person over 65 years of age. By 2050 we will have just two people for every one person over 65. In just 15 years’ time NZ Super costs, as a percentage of GDP, will rise by 50%. We are just fiddling with the fiscal levers if this is not addressed.

Most people understand that we need to make some changes. NZ Superannuation is one of the simplest retirement income systems in the developed world. So long as we make the necessary changes to keep it affordable and fair across the generations, it is an effective pension system. But it is also a political football, and politicians have proven incapable of making these vital adjustments.

An ACT budget would signal that the future structure of NZ Superannuation would be decided by referendum. An expert committee would be formed to consult with the public and come up with reform options which, together with a no-change option, would be decided by the voters. I am confident that common sense and a sense of fairness would see the public support changes allowing NZ Superannuation to remain a sustainable pension system for all New Zealanders through this century. Oddly enough we have a process for this, but we are only using it to decide on a flag design.

Next, we need to signal the future environment for investors and the business sector. We would foreshadow an eight year programme for reducing the company tax rate by one percentage point each year, until we reached a 20% tax rate. That would signal New Zealand as open for business, stimulating investment and allowing companies small and large to create new jobs and boost wages.

To fund much of this we wouldn’t have to cut core services. Instead we would allow the lapse of programmes that are simply targeted corporate welfare – bureaucrats picking winners and distorting competition through unjustifiable business subsidies.

For households, we would index tax thresholds to inflation, putting an end to the ongoing stealth increase in tax rates. If government wants to increase your tax rates, they should do it openly.

We would make genuine reform of the RMA a priority. Substantive changes here could hugely boost investment, jobs, incomes and the welfare of all New Zealanders. Ensuring that councils focus on allowing development of land would return affordable housing to our major cities, making a huge dent in inequality and poverty.

And for a genuinely brighter future for our children, we would expand the Partnership Schools policy by allowing state school conversion to a Partnership School funding model, whenever school boards choose to do so. This would be a visible manifestation of a core empowering principle for ACT - choice. 

These advances would create jobs and reduce poverty by fostering a thriving, innovative economy.

David Seymour
ACT Party Leader

What should be in Budget 2015

Today ACT Leader David Seymour outlined policy changes he would like to see in Budget 2015.

They included:

  •          A referendum deciding the future structure of NZ Superannuation, to achieve a sustainable and fair pension system for NZ through this century.
  •          The indexation of tax brackets to inflation so stealth tax increases don’t unfairly cut into household incomes.
  •          An eight year programme of one percentage point per year reductions in the corporate tax rate, to boost investment, jobs and wages. This could be largely funded by winding down existing programmes of targeted corporate welfare.
  •          Fundamental RMA reform to remove its anti-development bias, freeing up land for affordable housing and boosting investment.
  •          Expanding the Partnership School model by allowing state schools, if their boards choose, to convert to the Partnership School funding model, thereby giving greater options and a wider range of choice for parents and their children.

“New Zealand doesn’t need a policy revolution, but we need much more than National’s tentative incremental change,” said Mr Seymour.

“The government needs to provide a clear sense of its economic direction today for New Zealanders to prosper tomorrow.

“Enacting a future-focused Budget would accelerate growth, allow businesses and entrepreneurs to create more jobs, and encourage investment needed to raise living standards.

“ACT’s proposals on Superannuation, company tax rates, household taxes, RMA reform, and school choice would reduce poverty, create jobs, and foster a thriving, innovative economy.”

Mr Seymour has released a short summary of his proposals, which can be read here.

Debate on Budget Policy Statement

Delivered by ACT Leader David Seymour. 11 March, 2015
Video of the speech can be viewed here.

A few weeks ago I attended a citizenship ceremony in Auckland. I could talk about all of the facts and figures of the Budget Policy Statement and about the projections for our economy, and all of them are very good, but the most sincere endorsement of where this country is headed I saw in 431 souls from 57 different countries who were making the ultimate endorsement of New Zealand by taking on New Zealand citizenship and throwing their lot in with the good ship Aotearoa.

It is amazing that one of the things that we hear the most complaint about from some people around the House is actually one of the most positive things we have going for us—that is, people voting with their feet and increasingly coming to New Zealand. This is the result of the terrible Rogernomics experiment of the last 30 years: more and more people want to come and live more and more prosperous lives in the most beautiful country on earth.

It has been interesting to see the debate around this Budget Policy Statement unfold because the Opposition members are really in a bind. They want to criticise the Government for certain things but those things are also exactly the things that they would do so much more of.

Take, for example, the criticism we heard of child support legislation—or, at least, the implementation of it by the Inland Revenue Department. Of course, what they are not saying is that for every little bit of difficulty we have had introducing that law, it would have been infinitely more complex and difficult to have a tax-free threshold, to have a capital gains tax, to start having supermarkets dividing up their floor space to decide which parts were GST-claimable and which parts were not—all of which were promised by the Opposition during the election. Today they come and criticise the Inland Revenue Department for not implementing relatively simple child support legislation, but how much worse would it have been had they had their way at the election? Well, they did not.

Another example is watching the indignation of a certain member about Solid Energy. He can criticise and criticise Solid Energy and its performance as much as he likes, but he forgets that, as he does this, he indicts the very ownership model that his party defends and says it would like to expand—

Hon Clayton Cosgrove: No, just your incompetence—your Government’s incompetence.

DAVID SEYMOUR: The conceited answer from the member, who has identified himself now, is that there is nothing wrong with the policy or the model; it is just that it would work better if good people like him were running it. I believe that is a fatal conceit and the truth is that what is missing from this Budget Policy Statement—

Hon Clayton Cosgrove: I raise a point of order, Mr Speaker. I seek leave to table a time line, which is not publicly available, detailing in excess of—

The ASSISTANT SPEAKER (Hon Trevor Mallard): The member will resume his seat. It is not appropriate to interrupt a member’s speech in order to seek to table a document.

DAVID SEYMOUR: The truth is that this Government should actually be going further in the opposite direction to the one he would advocate. There is never a right time to sell a business with an uncertain future and the best time to sell is at any time—actually now. This is not a business that the Government should be in and there are a number of other State-owned enterprise businesses that the Government should be getting out of.

Opposition members all tell us about the revenue stream that the taxpayer gets from these assets but they never talk about the risk. Well, the Government should not be in the business of accepting the risks inherent in commercial enterprises.

Another thing that is missing, I am afraid to say, is actually tax reform. I had somebody come to see me in my electorate office just the other day and it brought home the practicalities of having a number of different punitive tax rates. Every year—we heard this morning—$750 million gets left on the table by people paying too much tax and I found out that about just $8 million of that is low-income people getting their cheques from the Auckland Energy Consumer Trust, withheld at the top rate when they should be paying a lower rate.

If this Government really believes in success, really believes in meritocracy, and really believes in a practical and easily applied tax system, then what it should be doing is moving top tax rates that have minimal fiscal impact but send a message to every New Zealander that “Your efforts do not really make a difference and if they do, we are going to take, not just more money in proportion to what you earn, but more of it off you.”

What I will finally close on is to say that what is really missing from this Budget Policy Statement is not a forecast for this year or next, but where we will be in decades to come if we do not adjust our long-term settings for policies such as superannuation affected by demographic change. I look forward to talking to more and more members around the House about what exactly we can do about that. Thank you.

Newsletter - A year of inequality debate

Inequality and poverty issues were big news this past year.

The English version of Thomas Piketty’s book, Capital in the Twenty-First Century, was published in April.  It provided an impressive collection of historical data on trends in wealth distribution. Much less impressive was the interpretation of the data and the theory that went with it.

The book was greeted with enormous enthusiasm by the political left. No surprise there. People – on both the left and right of politics - tend to accept uncritically information or views which align with their prior beliefs.

But one of the great virtues of a free and open country, and of the democratic process, is that your political opponents will scrutinise your arguments and you theirs. It’s a contest of ideas.

So how has Piketty’s book held up? A recent lengthy review by Deirdre McCloskey described the many problems with the book, and John Cochrane (University of Chicago Business School) has helpfully provided a condensed version. It is well worth a read.

Cochrane summarises McCloskey:  the book is “wrong as simple microeconomics ….and growth economics; the evidence is contrary to its thesis…. and it advocates policies - confiscatory taxation by a centralized world government - that would turn back the trade-based betterment (a better description than ‘capitalism’, as it is innovation that drives income growth) that has saved billions from grinding poverty.”

McCloskey notes that Piketty’s definition of wealth does not include human capital - the skills and education of the workers. Add back in human capital to the accounting, and you find that workers own most of the nation’s capital, “and Piketty’s drama from 1848 falls to the ground.”

The year ended with more publicity on academic work on inequality, with the Guardian newspaper featuring a working paper from the OECD. The headline was: Revealed: how the wealth gap holds back economic growth.  This headline was enough to excite those on the political left, but the subheading was even better:  OECD report rejects trickle-down economics, noting a ‘sizeable and statistically negative impact’ of income inequality.

The political cream on top was that the report identified NZ and Mexico as the two countries whose growth was most held back by rising inequality:

Does any of this stand up?

Let's start with the Guardian’s subheading, where they ever so predictably reach for the notion of “trickle-down economics”. This expression is a pretty standard fantasy of the political left, not so much a straw man as the left’s imaginary friend.  There is no such academic theory.

What about the OECD report itself, rather than the overheated journalistic version?  Was Russel Norman’s excitement in the House justified?  Had he read it, or just the Guardian report?

As always with these matters, you need to wait a bit until other academics have tested the report – its methodology, its data analysis and conceptual coherence.

An economist at the NZ Initiative, Eric Crampton, has helpfully reviewed the OECD paper on his blog, Offsetting Behaviour. You can read it here.

Crampton notes several odd aspects of the report’s conclusions.

“They find that net inequality (after tax-and-transfer) hurts economic growth, that gross inequality (pre tax-and-transfer) doesn't hurt growth, that changes in human capital (education) do not affect growth one way or another - there's a slightly negative effect of education on growth in the set of specifications, but it's not significant; and, investment doesn't affect growth one way or another.”

As Crampton notes, these are strange results. Typically we would expect investment in capital equipment and in human capital to be important for growth.

But it gets weirder still.

Digging into the report, the results suggest that all that matters is the difference between the average income and the level just below - the 4th decile. The difference between incomes at the top (the 9th and 10th deciles) and average incomes have no influence on growth.

If you took that result seriously your policy recommendation would be to increase the tax on average earners to give money to people slightly poorer than them. An odd result. Nobody now seems to be defending the data analysis in this report.

But if you did, you would wonder what the mechanism might be for inequality to affect growth?

The report suggests it would be via reduced investment in education in the lower decile cohorts.  But remember, the report found no effect of education on growth.

The authors decided this result must be wrong, and instead made the case for increased spending on education. That judgement in turn is based on other OECD papers which do find a strong effect of education on growth. Awkwardly, many of those very papers also find that inequality increases growth.

Go figure.

Let’s be positive here. The authors cite OECD research that suggests that “across 21 OECD countries human capital has a robust, positive and significant impact on long run growth”.  Yes, it does, see the McCloskey comments on Piketty earlier.

Referring to that research the authors write:  “The evidence strongly suggests that high inequality hinders the ability of individuals from low economic background to invest in their human capital, both in terms of the level of education but even more importantly in terms of the quality of education. This would imply that education policy should focus on improving access by low-income groups, whose educational outcomes are not only worse on average from those of middle and top income groups, but also more sensitive to increases in inequality.”

Well, there is a policy that does just that. It is called Partnership Schools.

Ponder that over the holiday break, and wonder why the political left does not support this policy.

Merry Xmas!

David Seymour
Leader, ACT New Zealand

Newsletter - Stocks and Flows

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.

 

David Seymour
Leader, Act New Zealand

In 12 months’ time, here is what will matter

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

ACT’s five point plan to grow the economy

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.

ACT is Holding the Balance of Power

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.

ACT’s 5 point plan to reduce poverty and raise incomes

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.  

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