In my recent ACT Party conference speech I called for a referendum on options for the future of New Zealand Superannuation, with a view to ensuring we have a fiscally sustainable structure which can accommodate our lengthening life expectancy and the demographic reality of a rising proportion of retired-to-working-age people.
The objective is to ensure that the New Zealand Superannuation scheme is fair across the generations, and sustainable for future governments.
This issue has long been a political football. It is too hot an issue for politicians to handle. My idea is to take it away from politicians of any particular party – including ACT.
I have called for a referendum process akin to that being used for deciding on a new flag – ie establish a group to identify options, and put those options to the public to determine by referendum. One option would be ‘no change’.
A parliamentary committee representing all parties would appoint a non-parliamentary expert group. Their task would be to consult with the public and establish some options on how the New Zealand Super scheme might gradually evolve over time so as to ensure it remains fair and sustainable.
An editorial in the Dominion Post (26 February) was supportive of the idea:
“A referendum could help break the logjam of pension politics and allow the country to finally deal with a serious problem. Everybody knows that we can't keep dodging this issue, even if the politicians insist on doing so.”
An NBR editorial (23 February) noted that making changes now “will hurt a lot less than having to undertake the fiscal and political equivalent of an enforced naked roll in an entire bed of nettles, sometime in the 2020s.”
That observation nicely makes the point that changes planned for New Zealand Super today, if any, are about preparing for the decades ahead, particularly those around mid-century. The need for change is only going to become more apparent with each census – why not stake out a plan now so that future generations aren’t caught unawares?
Because opponents of change typically seek to muddy the waters around this issue, one obvious point must be made: a gradual lift in the age of eligibility would not affect those now retired, nor those close to retirement.
I was disappointed to see a report in the Oamaru Mail, where Grey Power President Terry King, came out strongly opposing the idea of a referendum, describing it as “a cheap publicity stunt”, and asserting, contrary to all evidence, that there is “no justification, financial or otherwise, to increase the age of eligibility”.
This is a sad response, and wildly out of line with the reality of the situation.
I have a simple message for Grey Power.
This is about the New Zealand we leave for the generations ahead.
This is about your grandchildren, not about those currently retired.
Robin Grieve, an orchardist and health and safety consultant, is the only Northland by-election candidate who’s supporting himself in the private sector. “A council bureaucrat, a career politician, a district councillor, and a self-employed businessman walk into a bar…”
National isn’t taking advice on the tough issues. Last Wednesday in Parliament a National back bencher was asking Hon Anne Tolley soft pedal questions so she could hold forth on the generosity of national super. Ms Tolley was revelling until ACT Leader David Seymour asked: had she seen any Treasury reports on the scheme’s sustainability? No. The Minister for Social Development, the biggest spender in the Government, had not read a vital Treasury report.
The Treasury’s Long-term Fiscal Outlook predicts the cost of NZ Super will rise from 4.4 per cent of all economic output today, to 7.9 per cent by 2060. Small beer? It is the compounding effect that should worry taxpayers. The government’s on track to be indebted by 198 per cent of GDP by then. Even the Dom Post is (reluctantly) endorsing ACT’s plan (more on this later).
Not Giving Up
Making Superannuation sustainable is too important to ignore. David Seymour has written to all parliamentary leaders asking them to support ACT’s initiative of having a public consultation and referendum on Super. They should all be on board. Today’s swing voters may appreciate Prime Minister John Key’s pledge to maintain the status quo, but historians will not be so kind. Labour want to help, but dropped their policy of raising the age after losing the election. Hon Peter Dunne wants to explore variable rates for people who take Super earlier or later. The Maori party know, or should know, that the Maori population are younger and it is young Maori taxpayers who are in the gun if things don’t change. The Greens are always talking about sustainability, what about fiscal sustainability? We still hope to appeal to Winston Peters’ affinity for referenda.
Credit Where It’s Due
The NBR is crediting the Taxpayers’ Union with blowing the lid off corporate welfare. Normally think-tank like organisations do lead debate on such issues, but the party of ideas raised the issue months before the T.U. We also remain the ones who can influence it in parliament. The original and best call for ending corporate welfare is here: http://www.act.org.nz/files/AlternativeACTBudget_v3_0.pdf
Breathtaking Resignation Letter
After 13 years heading the Intergovernmental Panel on Climate Change, Rajura Pachauri has resigned saying his work was not only as a ‘mission’ but as ‘his religion, his dharma.’ We like missions and religious freedom as much as the next person, but shouldn’t the IPCC be a place of science? For the record, Free Press subscribes to Matt Riddley’s ‘luke warmer’ school of thought on climate change, which goes like this: “we started with an open mind but the hockey stick, climate-gate, and flat 21st century temperatures all made us a tad sceptical. The problem is real but it’s the size that matters and it’s nowhere near as bad as the alarmists make out.”
No Case for Fireplace Bans
Speaking of science. Last week we were briefed by the Parliamentary Commissioner for the environment. She is respectable on most environmental issues. As it turns out levels of PM25, very small particles that cause the most health damage, are not problematic in Auckland. There is no health case for banning fires on a narrow isthmus where 40 per cent of PM25 is salt. It probably won’t make much difference but we’ll ask anyway: what was Auckland Council thinking?
Military training assistance to Iraq
David Seymour spoke in parliament in favour of playing our part in Iraq. You can watch his speech here or read it here. We think of the Kiwi effort as a tiny contribution to nation building, the sort of thing the so-called progressive left used to support – and obviously will again, when they return to power. So Labour is playing this for the politics, which is shameful.
The PM was in full-on Churchill mode in supporting Iraqi nation building. Unfortunately he has gone all Neville Chamberlain on ensuring a viable long-term structure for NZ Super. The NZ First Leader, with the advantage of his first name, probably wins on Churchillian style but his substance was cut-and-run Chamberlin too. What would the WWII generation think of that?
Dom Post Love In
A sure sign of ACT’s revival is the love-hate attention paid to us by the increasingly erratic Dominion Post. Two editorials, several letters to the editor, a cartoon, and half a dozen news stories on ACT last week alone. Even when they agree with us the tone is teenage snark, but the times, they are-a-changing.
The Winterless North
ACT’s good keen man in Northland is already campaigning. At the Northland Field Days this weekend he was well received by those worried that National is forgetting Northland. He’s giving a month of his time and needs your support for billboards, letters, and advertising. You can donate to Robin’s campaign here: www.act.org.nz/donate
Labour MP Stuart Nash recently called for a parliamentary enquiry into petrol prices. National MPs in the finance and expenditure select committee voted against such an enquiry. They were right to do so.
Inquiries can be expensive and often politically motivated. Inquiries should only be initiated on solid evidence, not on a politician’s hunch. Too often they are motivated by opportunistic grandstanding.
For a start you need some evidence that there is a problem. The evidence offered was weak, citing MBIE weekly oil price monitoring data – namely the time series data on the “importer margin”.
What is the “importer margin”? Most people will assume it somehow represents profit margins.
But it does not. It represents the amount available to retailers to cover domestic transportation, distribution and retailing costs, and profit margins. If all those elements other than profit margins had been stable, which of course they have not, then there may be an issue to consider a little further.
So, the data simply does not connect with the issue that is claimed to be a problem. No wonder the FEC rejected the idea of an inquiry.
More broadly, the last inquiry into the industry in 2008 found the New Zealand domestic petrol market is fundamentally competitive and that retail petrol prices are not fast to rise and slow to fall. Subsequent NZIER studies in 2011 and 2013 also found no asymmetry in adjustment of prices in New Zealand petrol prices.
Here are some points to consider on this, and other, inquiries.
- Inquiries should be initiated on solid theoretical and empirical evidence, and not on a politician’s hunch after looking at a graph of aggregate data that does not even mean what the label suggests.
- New Zealand politicians have a track record of calling for populist inquiries (e.g. milk and supermarkets) that find nothing.
- In 2008, the AA called for an inquiry into fuel prices. The MED inquiry found that the domestic petrol market is fundamentally competitive and that retail petrol prices are not fast to rise and slow to fall.
- Inquiries/investigations are not costless. Indeed, they can be very expensive. For example, the 2009 Commerce Commission electricity investigation cost millions ($3.5m).
- The Commerce Commission can initiate a part 2 investigation or part 4 inquiry, if it thinks one is required.
- The illegal exercise of market power is very difficult to detect using empirical data and the results are very easy to dispute. For example, the ‘Wolak’ electricity price investigation was widely criticized and theoretically it was never going to be able to say whether firms were illegally exercising market power.
- An asymmetry in adjustment of prices is often used as evidence of anticompetitive behaviour. But NZIER studies in 2011 and 2013 found no asymmetry in adjustment of prices in New Zealand petrol prices.
- Even if an asymmetry in adjustment of prices was found it is not in itself evidence of market power – this price pattern (called ‘Rockets and feathers’ - prices often rise like rockets but fall like feathers) has been found across many industries – even extremely competitive ones. There are a number of economic theories to explain this.
- The “importer margin” data from MBIE obviously does not give a useful perspective on petrol company margins, in so much as these margins might reflect a public policy concern. Apart from not representing just the profit margin, the MBIE’s retail price data also doesn’t include supermarket fuel and loyalty card discounts, regional discounts (which can be 20 to 30c under the average national price) and other costs such as credit card interchange fees, distribution costs, advertising and rental costs. Exchange rate hedging adds yet another level of complexity to assessing the margins in this extremely complex industry.
In short, the evidentiary hurdle for an inquiry was not only not met, it didn’t even get off the ground.
ACT’s conference was attended by 230 people. Usually drawing a crowd is hardest after an election. This crowd was larger than last year’s. ACT Leader David Seymour’s speech has been widely reported as a new beginning for a new party. The tone of the conference and reporting of it heralds a new zeitgeist for ACT. Read David’s speech here: http://www.act.org.nz/posts/speech-our-classical-liberal-tribe
Become a Member
Many conference attendees joined ACT to get the attendance discount, but there is a much better reason to join ACT. Membership lists are secret but your number adds moral weight to our party. If you like what we’re doing, please add your weight today. www.act.org.nz/join
Let’s End the Mexican Stand Off
Treasury predicts that government debt will reach 200 per cent of GDP by 2060 on historical patterns (Greece is currently at 176 per cent). Much of this will be due to pension costs, and yet the political class is ducking the issue. Prime Minister John Key has not only refused to move, he has made a virtue of his inertia. For Labour, the superannuation entitlement age has become a victim of Andrew Little’s scorched-earth policy on policies. The others are silent. ACT’s policy is to raise the age to 67 over the next decade. We also advocate indexing the payment to inflation rather than wage growth, but we know that one party will not get its way on such a large issue.
Let’s Have a Referendum
New Zealand is having a referendum on changing its flag. If the flag is important, then long term fiscal sustainability must be very important. What’s interesting is that the flag process is perfect for superannuation reform. It involves appointing a non-political group of New Zealanders to consult the public and generate options, which are then put to a vote. The preferred option from the first vote then runs off against the status quo in a second public vote, perhaps run in conjunction with the next election.
Challenging the Leaders
David Seymour is writing to all parliamentary leaders asking them to support this initiative. Watch this space.
The Party of Selflessness
David Farrar’s speech was a conference highlight. He made a particularly interesting observation about ACT’s selflessness. Every other party tries to deliver goodies to their voters. ACT’s Partnership School policy, he says, primarily benefits people in South Auckland where ACT’s support is weaker than elsewhere. It may be that Mr Farrar’s polling has failed to pick up ACT’s South Auckland support, and that he underestimates our supporters’ sophistication – everybody benefits from living in an educated society. However, we take his point. Superannuation reform is about taking steps today that will pay off starting in a decade. ACT is a party that does what is right, and people support us for precisely that reason.
Last Monday we attended a citizenship ceremony at the Auckland Town Hall. 431 people from 57 different countries gave the most sincere vote of confidence in New Zealand. A highlight was when all 57 countries were read out to polite claps and cheers. When Australia was read out there was an awkward silence before the hall erupted from giggling into laughter and finally applause. Who says immigrants are not embracing the Kiwi way of life?
The winner of our conference's speech competition, chosen by audience vote, was a young man who explained the economic benefits of immigration. His point is backed up by this tweet:
While we generally regard Twitter as a dubious place to gather information, this really gained our attention. If even half of these are true it speaks volumes for the connection between immigration and innovation. Let’s hope many of those 431 new citizens become standout innovators too.
Confidence over Competence
Our view of Twitter is formed by people such as New Zealand First Deputy Leader Tracey Martin. In her own way she is an inspiration, never letting her competence hold back her confidence. Her criticism of Partnership Schools makes the Greens’ look thoughtful. We couldn’t help but notice that, nevertheless, she is now calling for school choice!
We are told by lines companies that electricity volumes have levelled off or fallen for the past four years. A first since World War II. It is due to smarter appliances, insulation, light bulbs and, we suspect, lower gas prices from the shale gas revolution. Lines companies are fixed cost businesses. As volumes fall, lines companies need to charge more per kWh to maintain their revenues. But then home generation becomes more attractive, accelerating the lines companies’ demise. They are up against it. Is it right for a government to pick winners in such unpredictable markets? Is it green? More generally, nobody likes chicken little when the world keeps getting better.
We have been open to the narrative that, in Andrew Little, Labour finally have a leader who can take it to John Key. Last week’s events put that in serious doubt. Little was shamed into paying a $950 bill to an NBR journalist who worked on his leadership campaign after the NBR reported it and Steven Joyce raised it in parliament. It raises so many questions: Why didn’t Mr Workers' Rights pay his employee? Why did Little have to hire an NBR journalist, like ACT hiring John Minto? Why didn’t he pay it before it got into the NBR? Why didn’t he pay after it became public instead of waiting four days until parliament resumed? Why was the leader of the opposition walking around parliament all alone where TV3 could ambush him for a humiliating interview on the topic? What is going on in Labour?
Freedom Isn’t Free
If everybody reading this letter contributed $1 per week to ACT, we would be the best funded party in New Zealand. We have had feedback suggesting Free Press alone is worth far more than that. If you would like to help ACT achieve its goal of returning to Parliament with five MPs in 2017, please consider starting or increasing your regular contribution with whatever you can afford.
Not Too Late
ACT’s conference is heavily subscribed. Thankfully the venue is a 1000 hectare sculpture park. It could fit 10 million people at one person per square metre. Tickets are still available.
This will be a new type of ACT conference. Tight blues band Monty and the Hawkes are the entertainment. The number of entries to the New Zealand the Way You Want It competition has overwhelmed judges trying to choose finalists. Competition to win $2000 in the audience-judged final will be hot. An all-star panel includes the founder of GrabOne. David Farrar will explain why his 2012 ACT obituary was wrong, and how to make it more wrong. Insiders say David Seymour’s speech will be the highlight.
Worried about the Wrong Subsidy
The Skycity situation is a mess. Critics have focused on the $130 million that Steven Joyce promises taxpayers won’t have to pay. They should be worried about the $402 million worth of gambling concessions that are being taken for granted. The real problem is this: If Skycity can make an extra $402 million without harming problem gamblers, why hasn’t National lifted gambling regulations nationwide? So many charities and sports clubs could use the money. On the other hand, if making an extra $402 million from gamblers will increase gambling harm, then we are asking some of the most vulnerable people in New Zealand to fund a convention centre. Which one is it?
Where’s the Cost Benefit Analysis?
ACT’s Regulatory Responsibility Bill would have gotten this question answered. It requires answers to questions such as who wins and who loses in a regulatory change be published before the legislation was voted on. Transparency around effects of relaxing gambling restrictions would be a perfect example of ACT’s bill in action. Now we’ll never know. ACT remains heavily committed to regulatory reform.
Taxpayer Funding Would be More Honest
If the government really could profit by investing in a convention centre, it would be better funded out of general revenues. Of course, it is not the role of government to make such commercial investments. The Russians first tried this approach 98 years ago and they are still recovering.
The Perils of Coalition Government
Despite vocal opposition, ACT was never going to vote down a government budget. That would be reneging on the agreement to vote for National Party budgets, potentially forcing an election. We don’t like the situation any more than you do, but we’re not going to force the David Seymour Memorial Snap Election of 2015 over a casino.
A Good Keen Man for Northland
Our Northand by-election candidate is Robin Grieve. He embodies ACT values, running his own business as a health and safety consultant for dangerous industries and growing avocados on his orchard. He is also an award winning speaker. We are very lucky to have such a sound New Zealander representing us for Northland. Anybody who has seen him speak knows that, if elected, he would immediately be one of the top 10 parliamentarians.
A Region Neglected
It may surprise readers in the economic boiler rooms of Auckland and Christchurch, but provincial New Zealand is hurting. Overregulation prevents mineral developments that could rejuvenate the regions. Northland roads are notorious while the National Government taxes Northlanders to fund rail loops and convention centres. Lower living costs should be a Northland advantage, but the government makes employers pay a minimum wage that is really set for Auckland. The area south of Whangarei is comparable to the Los Angeles basin for its development potential. It has expansive flat space, a sunny climate and beaches, yet it is only connected to New Zealand by a goat track. A century of infrastructure neglect has held this back.
King’s Dodgy Crystal Ball
Labour veteran Annette King has been using parliamentary time to speculate that Judith Collins will join ACT. There is no such negotiation. Does Annette King know something about ACT that ACT doesn't know? Surely her thoughts would be better spent on addressing Labour’s own machinations.
David Seymour’s opening speech to the 2015 parliament has been widely praised. He tackles Andrew Little’s call for racial separatism and makes the case for RMA reform and Partnership Schools. You can watch here.
Freedom Ain’t Free
The New Zealand government has an annual budget of $80 billion, assets of a quarter trillion, about 250,000 staff, an army, an air force, and a navy (sort of). This is what we are trying to take over. Please help level the playing field by bolstering ACT’s resources. You can donate here.
12 Days Until ACT Conference: New Zealand the Way You Want It
Registrations are well ahead of schedule from last year. ACT is resurgent. However ACT supporters are notorious last-minute registrants. You can see the program on our website. If you have not yet registered, please do.
Partnership School Success
ACT’s policy is providing more opportunity within New Zealand’s education system. During the election campaign, opponents of Partnership Schools blanketed Epsom with anti-David Seymour leaflets and posters. It didn’t work, but they continue their attacks on the schools. Are they really concerned that five (soon to be nine) smallish schools will fail, or that they will grow and succeed?
Growth and Momentum
Contrary to claims that the schools are losing students, Radio New Zealand reports enrolments have grown from 360 to 440 at the first five schools. This month former Alliance MP Willie Jackson and All Black legend Sir Michael Jones have opened Partnership Schools. The policy is working and has momentum.
Equal Funding, Quality Teaching
In yesterday’s Sunday-Star Times, David Seymour addressed the myths behind Partnership School funding and the qualification requirements for the schools’ teachers. The schools are able to negotiate for some teaching positions to be filled by staff not registered with the Teachers’ Council. However they must show what skills, experience, and qualifications these staff bring to help students succeed. In practice the overwhelming majority of Partnership School teachers are registered with the Council.
In December the nationwide teachers’ payroll was matched to the register of teachers. 5,405 were found to be teaching without a certificate. There were no howls of outrage from those who complain about the handful of Partnership School teachers who are not registered with the Council.
Failed Overseas? Not even close
In the jurisdictions that have had charter-type policies for some time, Alberta (Canada), Sweden, and the United States, how is the policy fairing? In Alberta it is no contest – a recent report from C.D. Howe, one of Canada’s most respected think tanks, found that the schools significantly outperform public schools after allowing for student characteristics. In the U.S. the most authoritive report is from Stanford’s Center for Research on Educational Outcomes. Their 2009 report found mixed results, but their 2013 report found that Charter Schools have overtaken their Public School opponents for academic performance. In Sweden, Free Schools are widely accepted to outperform council schools after numerous studies.
Doing Labour’s Job
Labour’s problem is that they no longer know who they represent. Once upon a time Education Minister and later Prime Minister Peter Fraser said: ‘The Government’s objective, broadly expressed, is that every person, whatever his level of academic ability, whether he be rich or poor, whether he live in town or country, has a right as a citizen, to a free education of the kind for which he is best fitted, and to the fullest extent of his powers.’ That’s what ACT’s Partnership Schools policy is delivering.
Tall Poppy Syndrome Writ Large
Imagine a world where the education establishment and political opposition are focused on what is best for our kids and actually welcome this policy as an opportunity for New Zealand’s children. They have every right to question the details of the policy in a constructive way. But imagine them celebrating the schools’ successes, admiring the men and woman going out on a limb to operate the schools, and respecting the choices of the families and children who enrol at them. Sad that we have to imagine it.
ACT Rescues City Rail Link
The mischevious light rail proposal in Auckland is makes more sense than the City Rail Link. ACT has a ratepayer-friendly solution. Chicago’s rail is elevated above street level on an elegant steel framework. Auckland could connect the Britomart and Grafton stations with an elevated track up Hobson Street and over Grafton Gully. Doing so would save a fortune. It would allow all the benefits of making Britomart a through station (increased frequency of trains across the city) without reliance on central government funding. Let’s explore this option.
ACT was at Auckland’s ‘Big Gay Out’ on Sunday. Our stall got plenty of action as we asked members of the crowd, ‘are you a closet ACT supporter?’ The audience was receptive, the feeling was good, and voters got to see ACT’s liberal side as we celebrated New Zealand’s diverse society. This weekend we will be at Greenlane’s Chinese New Year Festival. Come and say hello.
The Northland By-election
Northland is an opportunity for ACT to build its campaign machine. ACT’s board has opened nominations for the candidate to contest the by election. It is a long neglected region of enormous potential. The east coast is the best coastline in the world and the climate is the best in New Zealand. ACT will be campaigning for Northland to finally get its fair share.
Freedom Ain’t Free
ACT is already campaigning for 2017. Politics is about money, members and meetings. If you are not a member of ACT, you can join here. Membership lists are secret, but your number adds moral weight to the party. If you would like to help us campaign, you can donate here: www.act.org.nz/donate So far as the meetings, don’t forget our conference in less than two weeks’ time.
A New Beginning
This month is an inflection point. It begins a political year and a parliamentary term. From a front row seat in parliament, we rate the parties’ chances.
Still Scared of the Big Bad Ruth
Prime Minister John Key has won three elections. 58 seats, 59 seats, 60 seats. What a politician. Where are the policies? Last year we told the Prime Minister and Deputy Prime Minister that Ruth Richardson has accepted a role giving advice in the ACT office. It is hard to put those two off their stride, but that did it.
Administering Helen’s Legacy
Name a Labour policy National has reversed. Hints: Labour established the Cullen fund, removed competition from ACC, wiped interest on student loans while studying, then wiped interest on student loans forever, replaced the Employment Contracts Act with the union-friendly Employment Relations Act, started paying people to have children (paid parental leave), started paying people to bring up children (working for families), took the option of bulk funding away from schools, capped funding for independent schools, gave councils the power of general competence, removed the purchaser-provider (RHA-CHE) split from healthcare, raised the top tax rate above the trust and company rates…. So it goes on.
We feel obliged to say something about New Zealand’s second largest political party, but what?
The Greens’ do have policies but they are headed for civil war over them. They are frustrated and divided. Their polling momentum has stopped. If Labour does recover it may go backwards, ending political careers. After 18 years of MMP they are still not in government. The generation gap between younger Greens who are comfortable with markets and Russel Norman, an actual Marxist, is irreconcilable.
From Parliament, we see faces up close. We watched Russel Norman closely during James Shaw’s maiden speech. Shaw quoted Thatcher and praised free markets. Norman’s face raged. He was the last Green MP to congratulate Shaw, before storming out the back entrance of the chamber. When Shaw tries to talk down his leadership ambitions he cites Normans’ achievements up until today. This tension is unsustainable.
Climate change used to be the ‘moral challenge of a generation.’ It has not featured in the last two Green campaigns. The day the IPCC released its fifth report, parliament was sitting. Amazingly the Greens used both their parliamentary questions to harass the Prime Minister about his text messages. David Seymour asked one of the more respected environmentalist Greens about this. He got a feeling like the (first and last) time he repeated a feminist joke to his mum in 1992.
Where to Next?
If they can avoid Greenpocalypse they will have a good brand and a sophisticated campaign organisation. The problem is that nobody, including themselves can be sure what they stand for any more. It’s not the environment. It can’t be 1970’s economic policy. They can’t promote modern economics because the leadership are opposed to it.
Winston Peters is grumpy. He faces three years surrounded by people he picked because they are too boring to pose a threat. The real shame is that the otherwise liberal news media continue to report his dog whistling racism. For example. In his latest episode he (wrongly) claimed that international students get fast tracked to permanent residence. Actually they require a job. Education is New Zealand’s third largest export. When is Mr exports against exporting? When it involves Chinese and Indians buying the services on location.
What Lovely People
Last issue we pointed out that David Seymour doesn’t sell blood to raise money for ACT only because it’s illegal. Here’s what we get from the anti-partnership school campaigners. We hope the person involved is not a teacher.
We are unfazed.
Welcome to the first ever edition of Free Press, ACT’s new regular bulletin. If you’re wondering why you’ve received this, we’ve used the same mailing list as Richard Prebble’s classic The Letter, and hope we can stimulate you in the same way. Otherwise, feel free to exercise your freedom of association and click the unsubscribe button at the bottom of your email.
Victory for Sound Economics
Demographia has said New Zealand’s housing is unaffordable since 2006. Former Prime Minister Clark used to say they just needed to add Europe to the report and we’d look better. Now even the Greens accept the issue is real. The war of ideas can be won.
Victory for ACT
The Productivity Commission (formed as a condition of ACT’s 2008 confidence and supply agreement) made the difference. Its comprehensive reports showed that it is a shortage of land that makes housing unaffordable. They showed Auckland’s Rural Urban Boundary makes land 8.65 times more expensive by banning development on the fringe. In 1974 we built 28,000 homes, last year 14,000.
Some parties say the government should build housing, but where? Even builders working for the government cannot build houses without land. Others want to give first homebuyers money – completely counterproductive. If the government showed up at an auction and gave every bidder $10,000, what would happen to the final price?
The capital gains tax is worse still. All the other unaffordable housing markets (Sydney, Vancouver, LA) have CGTs. Only the left would try to stimulate home building by taxing the sale of homes. But what about the speculators? Well, who would speculate in a market where new homes keep getting built?
Some say the problem is ungrateful kids drinking too many lattes. Hardly. Home prices have gone from 3x income to 8x since 1990. We dream of buying a house for $27,000 and having the mortgage eaten by 17 per cent inflation. What was that like?
Ending Child Poverty
The Listener reports that 130,000 New Zealand children live in poverty, not counting housing costs. Then it rises to 285,000. Solving housing affordability could halve child poverty.
We have always been a frontier society where home ownership is the Kiwi dream. More and more young New Zealanders are dependent on help courtesy of their parents’ housing gains to get on the ladder. Helen Clark’s dream of us turning into Europe probably didn’t include hereditary property ownership, but we’re half way there.
Cost of Living
Visitors to New Zealand noticed how much everything costs even before the dollar’s surge in recent years. Epsom electorate shopkeepers tell us rents are through the roof. The RMA is not only a plague on developing houses, we speculate that it has driven up the price of everything.
The only thing the Green Party is trying to save in the housing debate is the Red Herring. New Zealand is 0.7 per cent urbanised. We drove from Auckland to Hawkes Bay recently and the only thing we didn’t see was a shortage of land. “Sprawl” is a green godsend. Most Kiwis with a back yard like to plant native plants to attract native birds. This has got to be better for the environment than dairy farming.
Epsom electors are wary of intensification. We say not in our back yard for a very good reason. There’s already a house there. The Epsom electorate has been infilling since the 1960s. It had the highest population density in the country even before the Electoral Commission took the Domain off us and put it into Auckland Central. If all of Auckland was as dense as Epsom, it could accommodate 13 million people.
The RMA is Surreal
If you are sitting down, try reading the RMA. “Persons acting under this act must have particular regard to the intrinsic values of ecosystems.” By definition that is impossible. Who decides an intrinsic value? You can’t blame the meddling classes for exploiting such vagueness. Try it here for free: http://www.legislation.govt.nz/act/public/1991/0069/latest/DLM231910.html
ACT will be pushing National to do RMA reform properly. If Hon Peter Dunne wants to wallow in intransigence, let him. Hon Dr Nick Smith should cut a swath through the vagueness and put property rights and housing supply front and centre in the RMA. We will be working hard over the coming months.
Freedom isn’t Free
If it were legal, ACT Leader David Seymour would sell blood to fundraise for ACT. All you need is a credit card. www.act.org.nz/donate
Come to the Farm
We are hosting our conference on February 21. The theme is New Zealand the Way You Want It. Rob Muldoon won 55 seats on this slogan, and we have better policies. The line-up is first class; the $50 ticket price is economy. Read more here: http://www.act.org.nz/civicrm/event/info?reset=1&id=171
Tell a Friend
Our goal is 100,000 votes in 2017. You can help by forwarding this newsletter. They can sign up to receive it here: http://www.act.org.nz/subscribe
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.
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.
Leader, ACT New Zealand
Partnership Schools: The Path to Quality Education
November 11, 2014
You may find this recent newspaper article on Partnership Schools of interest.
I did, and for this simple reason.
The article fairly presents the difficulties some schools are having in this early establishment phase. As common-sense would suggest, and as recent research shows, the average quality of schools improves over time (e.g. see the US National Bureau of Economic Research: The Evolution of Charter School Quality). Rome was not built in a day.
The article also fairly presents some of the undoubted successes so far in New Zealand.
For many students these schools are proving truly transformative, turning around lives, rescuing them. It is profoundly moving to read of this, even more so to be privileged – as I have – to witness it.
In my Maiden speech in Parliament I mentioned a visit to one of these schools where, as I chatted to the students about their experiences in other schools compared with their experiences at their new Partnership School, one young girl said “I didn’t know I was smart until I came here”.
Who could fail to be affected by that?
Now, consider these accounts of lives being transformed, and weigh that enormous positive against some of the negative comments in this article and elsewhere by opponents of these new schools. For opponents to describe Partnership Schools as part of an “ideological drive to disestablish public education” is not just wrong, it’s childish and daft. Most of our public schools provide excellent educational opportunities - just not to all children.
I am sure these opponents are good people, committed educators, but some of their attitudes are appalling.
Fancy giving parents options; giving them choices which might dramatically improve their children’s chances in life. We should be doing everything possible to facilitate this, not block it.
The opposition to Partnership Schools reflects politics and ideology. Opposition political parties would close down these schools no matter how good they might be. And just tough luck for the kids caught in the crossfire of politics.
That can reasonably be described as an extreme ideological view, one that is hard to defend on any moral or fair-minded basis.
Would those politicians be prepared to visit these schools, and tell the children and their parents, face-to-face, that they intend to close the school? And tell them why.
Leader, ACT New Zealand