Monday, 17 February 2020

Free Press: A checklist for economic reform

Seize the day

The National Party is releasing its economic policy today. Always looking to be constructive, Free Press has put together a checklist for economic reform. We don’t know how the Nats’ agenda will measure up, but we do know that a tick for ACT is a tick for all of the below.

Check 1: Recognise the size of the problem

New Zealand has not had positive economic reform since the mid-1990s. A whole generation of kids have been born, graduated university, and bought houses (maybe not) since the last reformist government. Since then, Helen Clark took us backwards, John Key babysat her legacy, and Jacinda Ardern is accelerating the Clark agenda. What we have come to accept as normal is actually hard left.

Check 2: It’s the productivity, stupid

To paraphrase Bill Clinton, but our problem is not the economy. It’s productivity. New Zealand’s economy is very busy, it’s just not very productive. In fact, we are in the lower-left corner. Poor productivity twenty years ago, and low growth since. When we talk about poverty, it is really just low productivity. The government needs an all-out productivity drive reducing government waste, taxes, and excessive regulations.

Check 3: Don’t index the tax system, it’s progressive enough already

Five per cent of New Zealanders already pay a third of income tax. Indexing the tax brackets to inflation just means pushing the tax burden up the income scale, making it even more progressive! Progressive taxation is the worst policy around. Morally, its message is to penalise success with higher rates on higher incomes. Administratively, it increases the incentive to move income around between entities and years in a bid to avoid the higher tax rates. Economically, it makes New Zealand less attractive as a place to work, save, and invest. We need to be cutting the top tax rate, which half of income earners pay, not making taxes even more progressive. ACT’s flat tax is the ultimate statement that we want to win in the world.

Check 4: Don’t give taxpayer money to business. Ever.

Corporate welfare sums up everything wrong with government. Businesses don’t pay tax unless they make a profit. They generally can’t receive government grants if they are profitable. Corporate welfare is therefore when politicians take money off successful businesses and give it to unsuccessful ones in return for photo ops. It must be stopped. Our company taxes are the fourth highest in the OECD, we need to stop corporate welfare and cut all tax rates. You’ll never raise productivity by allocating investment capital for political reasons.

Check 5: If you won’t touch superannuation, you’re not really serious

The bill for keeping superannuation at 65 until 2037 is $58 billion. That’s $58 billion dollars paid to 66 and 67 year-olds. They are overwhelmingly capable of working. Far more capable than, say, the 65 year olds of the 1990s, whose life expectancy was years shorter. No country that is serious about its future pays out $58 billion due to a lack of guts. If we want a productive economy we need to start being serious about the quality of spending. Even the Social Democrats in Germany are raising their retirement age.

Check 5: The RMA must be replaced, not ‘reformed’

New Zealand has had major resource management reforms in 1926, 1953, 1977, and 1991. There’s a pattern and we are overdue for a do-over. A new government must not reform. The new legislation should be on the floor of the House within one year of the government being formed. Most importantly, it should start with the rights of the property owner. It should seek to guarantee the rights of property owners, including rights against environmental harm to their property.

Check 6: Regulatory discipline is a journey, not a destination

There is no point having a ‘bonfire’ of red tape and regulation if you’re just going to turn around and make more fuel. The whole approach of the government to lawmaking must change. Proper problem definition. Cost-benefit analysis of alternatives. ACT applauds grand gestures to burn up regulations, but the real check is introducing ACT’s Regulatory Responsibility Bill to make good lawmaking a habit.

Check 7: Get the government out of business

Get out of inappropriate businesses. We think there was a good case for the government to own a post office in 1900, and maybe even 1980. However, the world has changed somewhat. Government ownership of TVNZ, which does not pay a dividend, may yet put TV3 out of business. Only the government could invest in an industry for the public and actually damage it! State-owned enterprises have become an economic albatross for New Zealand.

Check 8: Human capital matters

The government spends $15 billion of taxpayer money every year on education. That is an average of $250,000 per baby born. What are we getting for that investment? Declining scores in international reading, maths, and science tests. Growing inequality of skill as we get into the century where the return to skills will matter more than any other century. 40 per cent of Year 11 students not meeting international literacy and numeracy standards. We have to do better. Bringing back charter schools is a baseline, ACT’s Student Education Accounts would be better.

Check 9: Capital matters

New Zealand has been rated the fourth most difficult country to invest in. We are among the likes of Saudi Arabia and Indonesia. The entire history of our country has involved paying more for capital than our competitors. Why do we make it so difficult for ourselves? The Overseas Investment Act needs to stop judging the ‘benefit to New Zealand’ because it’s really a political jack up. Instead, foreign investment decisions should be based on security concerns only.

Check 10: Immigration matters

Constituency (as opposed to list) MPs report that immigration is now the leading problem. Immigration agents report that it can take a year just for a case to be assigned to an officer. A diversified economy cannot grow using only the skills of the five million people who happen to be here. We must make it easier for seriously skilled people to come here without the kind of bureaucratic delays that currently make us look like a backwater.

Price in a backdown

We have high hopes for the Nats' economic policy. We know ACT wants to work constructively with them. We also know, through long experience, that whatever they announce today will be bolder than what they deliver. Every National government has been the same. One reason New Zealand needs an ACT Party is to keep the economic reform agenda on track.