Youth Unemployment highest in more than 30 years

Statistics New Zealand put youth unemployment at 30.9 per cent for the December quarter - that’s the highest rate on record for more than 30 years. 

In the late 1990s, when the youth minimum wage was 60 per cent of the adult rate, the youth unemployment rate was about six percentage points higher than that for 20-24 year-olds.  In December 2012, the difference between the adult and youth unemployment rate was three times higher at 18.5 percentage points. 

Labour progressively lifted the youth minimum wage up to the adult minimum wage between 2000 and 2008.  A massive increase in the proportion of 15-19 year olds seeking work fruitlessly is the result. 

What other explanations might there be for the stark fact that in December 2012, 41,500 New Zealanders aged 15-19 wanted a job, but couldn’t find one?

We can’t blame weakness in overseas markets.  Prices for primary products are holding up and our terms of trade remain high.

We can’t blame high interest rates. They are at 50-year lows.

We can’t blame lack of stimulus from government spending.  Government spending has been running at 33-35 per cent of GDP, up from 29-30 per cent of GDP a decade ago.

We can’t blame recession. Treasury is forecasting that this year will be the 3rd successive year of positive economic growth.

We can blame a lack of a basic standard of literacy and numeracy, an enormous handicap for nearly 20 per cent of school-leavers.  A high minimum wage relative to the productivity of this group is almost guaranteed to ensure their unemployment.

Partnership Schools will help by giving more choice to those not achieving at school. But it will take time to turn the education system around. 

Lack of skill can explain low productivity and thereby low wage rates, but it can’t explain joblessness in the absence of a minimum wage. Unskilled workers abound, worldwide.

Government laws and regulations that unduly raise non-wage labour costs and aggravate employment risks for employers could also help explain the unacceptably high rate of youth unemployment, and unemployment in general.

When I was a young jobseeker, I was able to say to a potential boss “just give me a chance to prove myself.  I will work without pay for a month and after that you decide if you want to keep me on.”

Today there is such a maze of red tape with the rules around personal grievance and unjustified dismissal that many a potential employer might hesitate to give a young person that chance.

I believe that we owe much of our unemployment in this country to the idea that employers generally are out to exploit vulnerable workers.  A failing few may be, but the vast majority are not.

It is very costly for society to tie all employers up in red tape because of an unscrupulous few.

Why is there not more public outrage at the youth unemployment rate today?

One argument is that a higher minimum wage boosts household income.  Witness last week’s call for a ‘living wage’ far above the adult minimum wage, and thereby even further out of kilter with the productivity of those with the least skills and work experience.

However, the earnings of one member of a household are not a good measure of household income. In particular, most 15-19 year olds would not be the major income earners in their households and how does having 41,500 young people unemployed boost household income?

Those concerned to raise household income on a sustainable basis need to focus on reducing barriers to employment and skill attainment.

At base, the minimum wage denies New Zealanders a fundamental freedom - the right to offer their own labour at a price they see fit, subject to general laws. 

I had that right as a young man, today’s youth do not.

If we are serious about youth unemployment we could eliminate the minimum wage, at least for 15-19 year olds. Alternatively, we could reduce its level and/or further expand the range of exceptions.  ACT’s successful three month trial employment period could be extended.

By such means we could move quickly to ease the path to achieving the dignity of work for 41,500 young New Zealanders.

- Published in the NBR, March 8 2013

Letter to the Editor

The nation-wide political advertisement by the PPTA condemning Charter Schools is inaccurate, misleading and alarmist. It is a disgrace.

Neither the National Party nor ACT have any agenda for dismantling or Americanising the public education sector. Both parties, however, want to see more choice and competition in the education sector including a greater role for the private sector, something the PPTA mistakenly opposes.

Charter Schools have not failed in the USA and Britain as the PPTA claims.

Some Charter schools have of course failed to achieve what was expected of them, just as many of our public schools do. Moreover, a recent analysis by the respected British Economist found that Charter schools in Britain are largely a success, especially in low socio-economic areas. They have raised the effectiveness of education in such areas and brought hope to many despairing parents and their children.

These misleading claims by the PPTA reflects one of the tragedies of our education system; that some 20 per cent of schools leavers are functionally illiterate and as such are doomed to a life of low income and low esteem.

The teacher union’s blind resistance to change and innovation that allows this to continue does teachers no credit.

- Vince Ashworth, Member of ACT New Zealand

This letter was printed in the Waikato Times 16/01/2013

Hardline Tea Party tactics a lesson for our politicians

There are some powerful lessons for New Zealand from the debt debacle in the United States. The Tea Party Republicans, by threatening to cause the US to default on its debt, have turned a regular vote on the debt limit into a weapon of mass destruction.

Raising the debt limit is just a routine vote to allow the Administration to pay for programmes that Congress has approved.

The level was raised 18 times under President Ronald Reagan. What is different this time is that the Republican Party, which controls only one branch of the legislature, decided to use the threat of default to force the Senate and the President to adopt Tea Party policies.

The threat worked because the Democrats believed that the Republicans were willing to "burn the house down", but the spectacle of the government of the largest economy on Earth standing on the brink of a default - and having no credible way of solving its fiscal problems in the longer term - convinced Standard & Poor's that the US was no longer a AAA-rated borrower.

So this couldn't happen here? I'm not so sure. MMP means we too have a system where voters can create a deeply divided legislature.

No political party has received half the vote since MMP began in 1996. The last time the National Party got more than half the popular vote was in 1951; the last time the Labour Party got more than half was in 1946.

And, of course, both of those elections were held under first past the post (FPP). Under MMP, the larger parties almost inevitably require support from third parties to form a government.

Third parties have been tempted to exercise power beyond their mandate. Winston Peters has twice played this tail-twisting-the-dog game. There was no way he had a mandate to demand to be Treasurer in 1996, nor Foreign Minister in 2005, especially when he claimed before that election that he had no interest in the baubles of office.

The electorate has punished third parties for this over-reaching. Whether the lessons have been learnt is doubtful. Green Party co-leader Russel Norman says he wants to be Finance Minister in a future Labour/Green government. The electorate's fear of a capital gains tax is increased because the Greens have stated they will push for the rate to increase to 39 per cent.

Hone Harawira split his party because he believed the Maori Party should demand more policy concessions. It is worrying that his electorate has endorsed his hard-line approach. Should his Mana Party be successful at the general election, they could hold a future Labour/Green government to ransom.

The left keeps claiming Act will hold National to ransom. My reply is: "Where is the evidence?" Act has stuck strictly to its coalition agreement with National. One of my first actions on being elected leader of Act was to meet the Prime Minister to assure him there would be no change in that agreement.

The Tea Party is right that US debt is out of control but that does not entitle Congress to threaten to force a default that would have had a devastating effect on the world economy.

We in Act have always said that the stability of the country is of paramount importance. In a move the commentators appear not to have understood, Act and National have decided to take this a stage further this election. Act has decided to announce before the election that it will give confidence and supply agreement to a National government under John Key.

Third parties usually indicate before the election whom they are likely to support in coalition talks. But to the best of my knowledge, only Act has pledged to give confidence and supply to another party ahead of the election.

Of course Act will still push hard for lower taxes, less red tape, reduced government spending, school choice, welfare reform, one law for all, safer communities, and an end to the emissions trading scheme.

Every election year the economy slows. It is not just businesses that are reluctant to invest until they know the outcome but consumers, too, are often reluctant to buy items such as washing machines until they know who will be in government. With all the turbulence in the world economy, we just cannot afford that uncertainty this year.

The polling has said John Banks is going to win Epsom. Perhaps Act would be stronger if we won Epsom with no accommodation with National. But an accommodation in Epsom and a pledge by Act to seek only the list vote in other electorates strengthens the centre right and creates certainty.

It is better to provide voters with a sure way to elect a stable government by coming to an open agreement with National in Epsom, even if it slightly weakens Act's ability to drive a hard bargain in post-election talks.

We have a duty to the country to ensure stability. The Tea Party is giving us a demonstration of what not to do. Our Government cannot keep on borrowing $300 million a week. We need lower taxes to encourage investment, growth and jobs. But our task is to win our case at the ballot box - not through post-election blackmail.

As Governor of the Reserve Bank, I was always aware of the importance of stability. In the last few weeks, businesses all over the US have put away their chequebooks as events in Washington make people scared to invest, hire and buy. The damage to the American economy from the debt debacle may cost the government more in lost revenue than the spending savings the Republicans achieved.

It is a lesson to all political parties. Right now, providing confidence may be the most important thing Act can do. 

This article was originally published in the New Zealand Herald on 10 August 2011.

RMA is biggest obstacle

Act views top-class infrastructure as being a cornerstone of future economic growth. If New Zealand is to prosper we need great transport and power networks and great allocation of our water resources.

Of particular importance is rebuilding Christchurch's infrastructure and relieving the transport bottlenecks in Auckland and Wellington. Act strongly supports investment in infrastructure whenever and wherever a comprehensive cost-benefit-analysis stacks up.

We realise that such developments will be expensive. Serious consideration must be given to economic pricing for road usage. Act supports phasing out petrol tax and road user charges, where possible, in favour of congestion charges and tolls. Such changes will not always be popular but when the alternative is decades of gridlock, politicians should have the courage to do what is right.

Act fully supports the National Infrastructure Three Year Action Plan goal to encourage demand management and pricing in infrastructure sectors.

Private sector investment in road construction, both through direct ownership and through public private partnerships with central and local government should be encouraged.

All new infrastructure projects should be subject to rigorous cost-benefit-analysis. The Labour Government's disastrous buy-back of KiwiRail is a prime example of what happens when such an analysis is not carried out. 

The Government has committed to partial sale of some state assets if given the mandate after the November election. Act welcomes this and believes the scope should be extended to Government-owned infrastructure projects such as KiwiRail.

We are also aware that there will be a need to further expand our electricity lines network over the coming years. We support such upgrades.

The biggest obstacle to infrastructure development is the Resource Management Act.

We support the provisions in the Resource Management Act that provide for expedited consent processes for projects of national significance. However, we are concerned that the amendments introduced by the Government in this regard do not go far enough insofar as they still allow objectors who are not directly and tangibly affected by projects to raise objections. The RMA should be reformed so that only those whose property rights are directly and tangibly affected by a project can raise an objection.

Act is concerned that New Zealand's water resources are not being used optimally and that our water infrastructure leaves much to be desired. Tradable water markets have created exceptional efficiency gains in Australia and should be given serious consideration in New Zealand.

This article was first published in the New Zealand Herald on 9 August 2011.

Why a capital gains tax is a very, very bad idea

All taxes are economically damaging but the capital gains tax is easily the worst of the lot.

Taxes on capital gains doubly tax savings and investment, they are brutally unfair, they are complicated and costly to administer, they are easy to avoid, they raise very little money, they choke the economy and harshly penalise entrepreneurship and innovation.

Capital gains taxes double-tax income

The value of say a business is simply the net present value of its expected income stream. The income stream is taxed and so the capital value of the business is after tax. This is a key point.

Cut the tax rate and the business will be worth more. That shows that the capital value of productive assets is always after-tax. Let’s show a simple case.

A business generates $100 a year. The going discount rate is 10 percent. The value of the business is $1,000. That’s if there’s no tax.

Introduce a tax of, say, 30 percent, and the business now yields only $70 a year. The business is worth only $700. The tax liability is capitalised into the value of the business.

Now let’s say I buy the business and fix it up. I double its income to $200. In the absence of any tax the business is now worth $2,000 and I can sell the business and pocket a $1,000 capital gain. However, if there’s an income tax of 30 percent the increase in the business’s value is from $700 to $1,400. My capital gain is now only $700.

My gain is not tax free even though I appear to pay no tax on my gain.

That’s because the capital value reflects the extra tax the extra income the business generates.

A capital gains tax of 30 percent reduces my gain from $700 to $490. I am doubly taxed.

Capital gains aren’t tax free and a capital gains tax doubly tax savings and investment.

Capital gains tax is brutally unfair

There are plenty of ways a capital gains tax is unfair. Imagine a young widow with children whose husband poured his heart and soul into his business. Following his death the young widow has no choice but to sell the business. She has no income and no other assets.

The business was a start up. It generates $200 a year. After tax, that’s $140. The business sells for $1,400 upon which capital gains tax has to be paid at say 30 percent.

She nets $980. In the absence of any tax she would net $2,000.

The widow is taxed at 51 percent. That’s brutal.

Capital gains tax complicated and costly

Capital gains taxes for practical and political reasons are invariably riddled with exemptions and exceptions making them devilishly complicated to administer and to comply with.

We see that with Phil Goff’s proposal with exemption and exceptions already and having to be sent off to an 'expert panel' to be worked out.

The big complication is determining the true capital gain net of inflation after netting out the purchase price and the cost of maintenance and investment in the asset over the years.  It’s hard to do financially let alone in terms of writing and then administering tax law. 

It will be a great tax for tax lawyers, tax accountants, tax consultants and tax bureaucrats. But bad for everyone else.

Interestingly, but not surprisingly, Phil Goff’s proposal is not to net out inflation. That makes the tax somewhat simpler, but means New Zealanders will be taxed on their nominal gains.

The government-induced inflation rate over which you have no control will determine your tax liability. It’s not a trivial amount.

BERL who provide Phil Goff with his analysis estimate the return on New Zealand shares at 2.6% with inflation at 2%. The bulk of the tax to be raised is on nominal gains, not real gains.

Capital gains tax easy to avoid

The decision to pay a capital gains tax is entirely up to the taxpayer.

It’s the easiest tax to avoid because you just don’t sell your asset.

Besides high-priced consultants will always outwit the complex and complicated law that will always have to be amended and reviewed in the vain attempt to keep up with perfectly legal tax minimisation.

Capital gains tax raises little money

Capital gains taxes don’t raise much money. BERL assume no change in behaviour as a result of a 15 percent tax on the nominal gains in many trades.That’s a heroic assumption.

But even accepting that, they estimate that by 2028 Phil Goff’s capital gains tax will raise $3.7 billion. That’s a lot of money.

In its first year, it only raises $17.5 million – leaving Phil Goff a big hole in his budget.

But Treasury’s Long-Term Fiscal Model estimates the total tax in 2028 as $120 billion.

Phil Goff’s capital gains tax fully matured raises a measly extra 3 percent in tax assuming no change in the number of trades and with the tax taxing nominal gains not real gains.

Capital gains tax chokes the economy

The heart of a vibrant, prospering society is wealth-creating trades that shift productive resources to ever higher valued uses.

A capital gains tax chokes those trades and bungs up the economy. That’s the big problem with a capital gains tax.

Imagine you can an increase the value of a productive asset by ten percent. That’s a big gain that the economy can ill-afford to miss out on.

In the absence of a capital gains tax you would easily make an offer to the present owner in which both of you are better off through the trade and the economy gets a ten percent gain.

That gain won’t happen with a capital gains tax.

The tax at 15 per cent proposed by Labour more than wipes out the gains from trade and the wealth-creating trade does not proceed.

Multiply that result a million times over and the incredible wealth-sapping effect of a capital-gains tax is obvious.

Phil Goff’s capital gains tax will lock up New Zealand resources in low-valued uses. It’s an incredibly damaging tax.

Capital gains tax harshly penalise entrepreneurship and innovation. Entrepreneurship and innovation are key to a dynamic and prosperous economy.

The incentive to entrepreneurship and innovation are capital gains. The capital gains tax is a double tax on entrepreneurship and innovation.

Politicians like Phil Goff talk up the need for entrepreneurship and innovation but their policies invariably hobble and hinder them, and there’s no greater disincentive than a capital gains tax.

But what about economists backing a capital gains tax?

Back in the day economic text books used to back a capital gains tax because it was argued capital gains are income and that the absence of a capital gains tax is itself distortionary. The latter point is the important point. It derives from a note Nobel Prize winning economist Paul Samuelson wrote in the 1960s.

It showed that a true capital gains tax was neutral alongside a comprehensive income tax. The trick is in the assumptions.

The model assumes perfect information, no entrepreneurship or innovation, a closed economy so that critically the income tax drops the cost of capital rather than grosses it up, and that the capital gains tax is an accruals tax payable every year on gains with all losses netted out.

I wrote to Prof Paul Samuelson about his conclusion and he readily accepted it didn’t apply to an open economy like New Zealand in which the income tax rate here grosses up the cost of capital.

I suspect the New Zealand Treasury now accept that point.

There is a section of the New Zealand population that are always up for taxing the rich and the successful. That’s who Phil Goff is targeting.

It’s certainly not about improving the economy.

The promise of a capital gains tax also allows Phil Goff to bluff and bluster through how he is going to pay for his spending promises which is where he hopes to win his votes.

The great thing about political promises is that the numbers don’t have to add up.

That’s because as H. L. Mencken observed an election is an advance auction in stolen goods.

This was first published 15 July 2011 on interest.co.nz.

Larger problems exacerbate drinking culture

If the opportunities to make a difference in their own lives are trivialised ... youth will choose their next best opportunity.

ANY good economics pupil in year 11 will tell you that the cost of everything is what you give up to get it.

By that logic the "cost" of a weekend's binge drinking can be 48 hours of life; drinking, recovering, drinking and recovering again with nothing but sclerotic memories and an empty bank account to show for it.

That's without considering the risk of catastrophic costs, which should be widely understood after too many alcohol related tragedies.

The question at the heart of the youth alcohol abuse debate should be why so many youth have decided that such a destructive activity is worth giving up their other opportunities.

Most of the popular explanations are variations on the theme that alcohol has become more seductive. The lowered purchase age and more outlets have made it more available; the synthesis of alcopop drinks has made it more digestible, advertising has made it more desirable. The logical conclusion is that if only these could be reversed, youth would switch back to safer, more productive activities.

Or perhaps the root of our troubles is that other opportunities have become less meaningful for youth.

Over the past decade, their efforts and choices in education, the housing market, and the economy have been trivialised, meaning they have less to lose by getting sloshed.

Take education.

The introduction of the NCEA in 2002 removed a hard-nosed examination system where results were measured to the percentage point.

The differences in academic performance are now compressed into three grades; credit, merit, and excellence.

This shift has diminished the penalties and rewards associated with good and bad performance at high school.

When the NCEA was introduced, universities struggled for a way to select students suitable for their different courses.

They generally made entry easier.

Meanwhile, the removal of interest from student loans while studying (2001) and then forever (2006) all but vanished the financial costs of tertiary education.

Students see only static repayments in the distant future that they can discount against hoped-for high incomes.

Statistics New Zealand reports that 32% of 18 to 24-year-olds were studying in 2006, up from 24% in 1996.

This has been celebrated as a society up-skilling itself, but it has also reduced the meaning of tertiary education.

Legions of advertisements for too-good-to be-true careers in beauty therapy and tourism are the extreme but real edge of this phenomenon.

For many, this free-for-all has made tertiary education like standing up at the rugby.

You have to do it because other people do, but it doesn't improve your situation.

The result is thousands of youth in education devoid of real meaning.

The middle aged and elderly have experienced an unprecedented windfall in the form of rising house values over the past decade, but this too has helped trivialise the choices youths make.

The Kiwi dream of home ownership was once a juicy carrot for work and thrift.

Since the early '90s, house prices have roughly doubled relative to income, and now it's more of a juicy pie in the sky.

In a recent report, Motu Economic Research predicted that this trend will continue: "There will be a sizeable reduction in home ownership among young people as the population ages ..."

Youth are told they are inheriting a natural environment on the brink of collapse, and that further economic activity may catastrophically damage it. For example, they are regularly told that if all humans were to share our developed world lifestyle, the resources of two and a-half planet Earths would be required.

Reasonable people may disagree about the validity of such statements, but the impact on youth is clear: They come to believe that our way of life is unsustainable, even immoral, and any success they have in it will be nullified by environmental costs.

If the opportunities to make a difference in their own lives are trivialised by lax education standards, made unobtainable in the form of unaffordable housing, and guilt-ridden by way of environmental doom saying, youth will choose their next best opportunity.

For many, that seems to be what one poet called "a faint desire for oblivion".

Even ignoring the impracticality of taking alcohol away from the young, doing so would leave a much more serious problem untouched in our society.

The only real long-term solution to youth alcohol abuse is to attack its root cause; the diminishing ability of youth to make a difference in their own lives.

This article first appeared in the Otago Daily Times.

Finding Work is Hard Enough

Click on the image for a downloadable copy.

Getting it Right

If Phil Goff believes that raising the minimum wage to $15 an hour won’t increase unemployment, why doesn’t Labour promise to raise it to $50 an hour and make everybody rich?

Pete Hodgson admits that if the rate goes to $30 an hour “a whole lot of business[es] would not be able to meet their wage bills.  They would go bust.  Or as least they would cut their staff numbers.” 

He says that won’t happen at $15.00. 

So somewhere between $1.00/hour and $30.00/hour bad stuff will happen.  We can at least agree on that.  We’re just arguing about where the tipping point is.

Wages are a commodity just like milk or meat.  If the price of a commodity is raised artificially, the supply of it tends to increase and demand for it tends to reduce. The result is a surplus, which in the labour market is called ‘unemployment.’

Increasing the minimum wage means that when it reaches the tipping point at which supply exceeds demand, the people on the bottom of the heap who suffer most.

Those who have the qualities that will let an employer generate enough revenue to cover the costs of employment (of which the hourly rate is only one component) and to generate a profit will be safe - mostly.

Those who have no experience and/or no qualifications won’t make it onto the job escalator.  Employers will select from the pool of experienced workers or choose to stick with existing staff numbers, especially in times like these when the present is unclear and the future is scary.

This leaves the poorest people trapped in the welfare web.  They can’t go forward and they can’t afford to stay where they are.  They miss out on the opportunity to get work experience and training that will put them in the safety zone reserved for workers who can demand a premium reward for their labour.

The tragedy is that 44% of New Zealand’s unemployed are under the age of 24.  It is the very measures that are intended to help them – increases in the minimum wage unsupported by productivity or the abolition of the youth rates that once gave them a leg-up – that keep them from enjoying the social and financial benefits of working for a living.

There are many international studies that support these conclusions, but you don’t need a post-graduate degree in economics to understand the process.  As Sir Roger Douglas points out,  “employers do not have an endless amount of money from which they can pay employees’ wages just the same as employees do not have an endless supply of money from which to pay their bills. Both must work within a budget and if costs increase, decisions must be made on what is affordable and what is not.”

ACT believes that the solution is to let employers and workers negotiate employment conditions. In that way, the laws of supply and demand will deliver better employment outcomes for everyone, including those who are currently priced out of the workforce.

This article was first published in D Scene on 15 June 2011.

ACT Path To Maori Wealth

Dear Te Kooanga,

Congratulations on your speaking success (Guest columnist, May 22). Before I respond to your concerns about my Orewa speech, I'd like you to know a few things about me which I hope will allay your fears about my commitment to peace and racial harmony.

Like you perhaps, I was raised in a Christian family. My father was a minister, so it's no surprise I spent my youth as a Christian pacifist.

In the same year of college that you are in now, I was so opposed to war that I withdrew from my school's army cadet programme. So when you say we need peacemakers and not haters, I couldn't agree with you more.

Sadly, there are haters in this country who distort my comments and tell people I'm racist. Given my background, I find that particularly painful.

At university in Canberra in the 1960s, I was a committed socialist. So when a close friend suggested we both join the Australian Labor Party, you might think it would have been a no-brainer. Yet I refused. Why? Because Labor at that time supported the White Australia Policy.

I could have no part of any organisation that viewed people of one race as superior to those of another. I still can't. I hope you'll give me some credit for having made a stand against racial favouritism even when the favoured race was my own.

I also hope you'll take into account my many public statements in favour of the Treaty of Waitangi and my championing of compensation for genuine wrongs.

But it must be a fair process. How can the Waitangi Tribunal be seen as independent when non-Maori cannot lodge a claim?

It seems the tribunal sometimes recommends further compensation even when "full and final" settlements were made decades earlier. How is that fair?

Just as I believe compensation for property taken is a right guaranteed under Article II of the Treaty, I take just as seriously Article III, which says that all New Zealanders should have the same rights and responsibilities as British subjects.

The Treaty does not enshrine a special status for Maori, separate Maori electorates, a separate right to be consulted by local councils, a Maori Advisory Board for the Auckland Council, or a Maori advisory committee for the Environmental Protection Authority.

It just says, simply, that all New Zealanders have equal rights. And that's the kind of New Zealand I want, and that Act wants. A colour-blind country.

Does that make me anti-Maori?

I grew up inspired by Maori leaders Sir Apirana Ngata, Sir Peter Buck, Sir Maui Pomare and Sir James Carroll. So when, as Reserve Bank governor, I had to decide whose face to put on the fifty dollar note, the New Zealander I chose was Apirana Ngata.

Ngata was the first Maori to earn a double degree. He spent his life trying to convince his people to follow in his footsteps and not to give in to the temptations of welfare.

Sadly, few listened, and after the creation of Labour's welfare state, many Maori chose dependency over independence.

That's the reason why Maori top all the wrong statistics: poor choices, and modern leaders who encourage Maori youngsters to see themselves as victims, not equals.

Do you believe you need special treatment because you're Maori? And what might other people of your generation think about this?

Were Apirana Ngata alive today, I strongly suspect he would be standing with me, or very probably ahead of me, as the leader of Act.

Now I must correct some misunderstandings in your speech.

"The Orewa speech was an emotional call to arms against Maori."

While this is an unfair exaggeration, I can't blame you, given the example set for you by Hone Harawira. If you agree with him that my Orewa speech belittled me, how do you view his comments about white people and about me being like Hitler?

"Brash blamed Maori for [New Zealand's] poverty."

I actually said this about poverty: "Maori income distribution is not very different from Pakeha income distribution" and "Maoriness explains very little about how well one does in life. Ethnicity does not determine one's destiny".

"If so many Maori enjoy racial privilege, then why are so many of them now living in Australia, and enjoying economic prosperity far ahead of Maori who remain in New Zealand?"

Because they got tired of being patronised as second-class citizens who needed special favours. By moving to a country where they're treated as equals, they've proved they don't.

"There are more than 12,500 non-Maori who enjoy private ownership of the foreshore and seabed."

Not so. A LINZ report prepared for Labour minister John Tamihere confirmed Maori own more than half of our privately owned coastline. More to the point, these private parcels tend to be unusable slivers, often eroded away.

Te Kooanga, I hope you can accept that I very much do care about Maori – I just believe, like Apirana Ngata, that the focus must be on achieving, not grieving.

In life, things are often the opposite of the way they seem. Same in politics, where only ACT – not the Maori, Mana or Labour parties – offers the forward-looking incentives to help Maori enjoy a better life. I hope you’ll read about them.

Wishing you every success,
Don Brash 

This article was first published in the Sunday Star Times on 29 May 2011, in response to this.

Pre-paid student loans the answer

As election year enters its second quarter there is a growing chorus in political discussion that can be boiled down to debts, deficits, and diaspora. Those can be boiled down further to New Zealand's low productivity in comparison with other countries, especially Australia, where most of the diaspora resides.

It's a situation which appears to present impossible choices.

Higher productivity requires better educated workers working with more capital, but with the Government budget already stretched there is little room for either more spending or the stimulus of tax cuts.

Lateral thinking is required to get more out of less across the entire economy, and here is one suggestion for the tertiary education sector based on a review of how students have been funded for the past two generations.

The ideal tertiary funding system would put the right people in the right courses at the right time, maintain equality of opportunity, and ensure that students take their education seriously. Courses would select entrants based on the personal attributes of the would-be student, and their economic prospects in the New Zealand economy as graduates.

A generation ago, the relatively few students who passed rigorous high school examinations were virtually paid to study. This system of academic rationing was unresponsive to market demand, favoured students from well-to-do schools, and provided an incentive not to graduate but extend the good life on campus as long as possible on the taxpayers' dollar.

Then, in the 1980s, market-based principles that emphasise the individual as the best decision maker came into vogue. Today, academic entry standards are considerably lower and are no longer the only rationing device. Instead, students are required to co-pay a portion (usually just under a third) of their course costs by cash or student loan with the taxpayer subsidising the remaining two-thirds. In theory this gives them a financial incentive to use their unique personal knowledge to select a course and then work harder once they're admitted.

This approach of economic rationing relies crucially on the decision making skills of 17 and 18-year-olds. They are asked to make a decision that will set the initial course of their career, put them tens of thousands of dollars into debt, and cost the taxpayer twice as much again.

All this despite having had little life experience outside the artificial world of high school, and probably little concept of what it really means to borrow, say, $20,000.

Who is surprised that the past two decades have produced so many low-quality outcomes and outright scandalous misuses of taxpayer money?

If a problem defined is a problem half-solved, then the most urgent need is that entrants to tertiary education become better decision makers.

Specifically, they would benefit from more experience in the labour market and a better grasp of the monies involved (both their own and the taxpayers') before choosing a course. Making government subsidies for course costs conditional on pre-paying a nominal portion of their student loan would help both causes. The pre-payment needn't be much, perhaps $1000.

But it would have to be paid out of taxable income earned by the prospective student (not transferred from their parents).

The current loan repayment formula takes 10% of income over $19,084, plus voluntary repayments. Applying the repayment formula to prepayments would simulate actually having a student loan before getting one. In practical terms, it would mean a normal tertiary entrant would have worked for about a year full-time at the minimum wage.

Such students would approach educational choices with a much better grasp of themselves, the wider economy, and the loan they are taking on.

The intensity of study would likely increase also. Breezing into lectures hung over would be a lot less popular when your first semester's course costs just wiped out a year of loan prepayments. The Singaporeans and Israelis achieve similar results through their military service programmes for high school leavers, but New Zealand is not a militaristic country.

Instead, some more commercial experience would better suit New Zealanders.

Predictably, some will object that we need lower barriers to tertiary education, not higher.

But participation is at an all time high. What we actually need is more productive tertiary education, and this suggestion is designed to help deliver it.

Others will complain that some Remuera brats will have their parents' accountant filter money into their loan accounts via pseudo jobs. No doubt some would have the means and the desire to thrust their children into classes filled with older and worldlier classmates, but governments cannot solve all problems.

One thing is certain. If we are going to reverse our declining economic fortunes, New Zealand needs policy innovation. Please accept this one for your consideration.

This article first appeared in the Otago Daily Times.

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