Speech in Response to the Prime Minister’s Statement – February 12, 2019
David Seymour – Leader, ACT New Zealand
There was one thing missing from the Prime Minister’s Statement today.
That’s an answer to the question: “Where does prosperity come from?”
Increasing wages isn’t complicated, but it seems we must state and restate basic truths just to keep them alive.
Prosperity comes from combining more investment, better ideas, and more skilful workers. That’s how you produce more valuable products and services. That prosperity means better housing, safer cars or new cancer drugs, to name just a few benefits of growth.
On the other hand, the more tax, regulation, and compliance costs governments throw in the gears, the slower the wheels of prosperity turn.
So, what did we hear from the Prime Minister? Did we hear how New Zealanders will work on better ideas with greater skill and more capital? No. Instead, we heard that there’ll be more tax on investment and more rules on employment. The net effect is that New Zealanders will spend more time working to pay tax and more time on compliance.
I predict more Kiwis will decide that a better idea is living in Australia, just like under the last Labour Government.
That is a great shame.
ACT will keep standing for opportunity through freedom. Those are the values that enable prosperity.
Here are just a few of the damaging policies the Prime Minister mentioned.
Minimum wage
New Zealand already has the highest minimum wage relative to the average wage in the developed world.
Raising the minimum wage to $20 an hour by 2021 will put thousands of people out of work.
Officials have told the Government that its two minimum wage hikes thus far will lead to 11,000 fewer jobs.
We don’t get higher living standards by decree, but by creating an environment in which firms come up with world-class ideas and invest in capital and workers.
Fair Pay Agreements
The Government’s proposal for industry-wide bargaining will see everyone in an industry, regardless of employer, get the same collective agreement.
These agreements can be initiated by just ten per cent of workers in an industry, or 1,000 workers, whichever is smaller.
Nobody can sustainably raise wages by wishing or legislating. The Fair Pay Agreement Working Group meekly argues that collective bargaining might actually raise productivity, then admits there’s no real evidence for this claim.
Industry-wide collective agreements will be more sand in the gears of business, meaning people will spend more time complying and less time producing – the exact opposite of what is needed for prosperity.
Self-esteem is called that because you can only build it for yourself. National awards would take us back to the days where effort and initiative are neither here nor there.
It is a misguided policy that would drain good incentives from the workplace, tie people up in arranging to do work more than doing work and make us all poorer in pocket and in spirit.
Capital Gains Tax
The Government will soon engage in the politics of envy with its proposal for a capital gain tax. This would be a tax on success.
No country ever taxed itself into prosperity. A capital gains tax will lead to less investment in capital in a country with an already shallow capital base.
A capital gains tax is also a double tax. There’s no point in holding an asset – a business or rental property – unless you can get income out of it or sell it to someone else who will. The value of a capital asset depends on the annual income it provides, and that income is already taxed.
Someone who buys a million-dollar business knows they’re going to be taxed on every dollar of income they eventually receive. Without company tax it would be worth $1.39 million, but the buyer knows they’re going to pay 28 per cent on income, so it’s only worth a million. If you built the business, your capital gain has already been reduced by $390,000 from the buyer factoring in the tax they’ll have to pay.
A capital gains tax means you’re taxed again when the asset is sold. At the top personal tax rate of 33 per cent that’s another $330,000. The total loss to the hapless bugger who built the business is $390,000 plus $330,000, making a total of $720,000 – more than half the value.
Welfare
There is no doubt that the Government’s welfare reforms will make it easier to get, and stay on, a benefit.
Intergenerational welfare dependence is a scourge. 1 in 10 New Zealanders are already on a main benefit. This number is even higher once you take into account Working for Families, Winter Energy Payments, Best Start, and a range of other benefits.
New Zealand needs more makers and fewer takers.
Market studies
It is extraordinary that the Commerce Commission will now be able to unleash itself on an industry without a specific allegation to respond to. This is like treating a healthy person with chemotherapy just in case they have cancer.
New Zealand already has great difficulty with too much red tape – it prevents us from raising productivity.
Complying with a market study, a high stakes exercise where companies are put under subpoena for detailed data, will be enormously expensive and add to the culture of bureaucracy and compliance over innovation and production.
The way that the legislation was rushed through to undertake a particular market study, of the retail fuel market, when the PM had already predetermined the outcome by saying consumers are being ‘fleeced’, confirmed that it will be misused for political purposes.
Provincial Growth Fund
Hardworking taxpayers are being forced to invest in projects that banks won’t touch in order to ensure NZ First’s political survival.
Shane Jones needs to spend $3 million a day. Does anyone really believe that proper due diligence can be performed under such circumstances?
The Fund is a continuation of National’s corporate welfare policies.
Only ACT is willing to say that handouts for business should be scrapped and the money returned to taxpayers.
Wellbeing Budget
Jacinda Ardern and Grant Robertson have bought into the conceit that it’s possible to plan our happiness.
Centrally planning the production of goods and services failed wherever it was tried, so now they want to plan something even less tangible – how you feel.
We pay 33 per cent, or one dollar in three, of our income to general government spending. The results we get are frankly mediocre. We have a Government that is hopeless at running courts, prisons, schools, transport networks, land markets, and regulation.
Undeterred by these failings, our conceited class of politicians will now skip over them and aim to plan our happiness despite knowing nothing about it.
Government is not the solution to the problem; its various failings are the problem. Until government can fix its own performance issues it will never fix our happiness.
Tomorrow’s Schools Review
The Government’s education reforms will take control of schools away from parents and communities.
They will attempt to make schools more equal by dragging successful schools down to the lowest common denominator.
The Ministry of Education has overseen a state school system in which 1 in 6 children leave school without basic literacy and numeracy skills.
How will putting more power in the hands of those same bureaucrats improve educational achievement?
Housing
The Prime Minister said nothing today about how her Government plans to increase the supply of land available for building houses.
We have heard nothing from the Government about reforming the RMA – the biggest obstacle to more affordable housing.
KiwiBuild has been a complete distraction from the real task of freeing up land and properly funding infrastructure.
ACT has consistently pushed for cutting red tape to free up more land and giving a portion of GST to councils so they can build infrastructure.
Child Poverty Act
The Prime Minister’s Child Poverty Act is misguided legislation aimed at inequality, not poverty. It is focused on closing the gap between groups, not tackling neglect.
If taxing and transferring worked to reduce poverty, we would have eradicated it hundreds of billions of taxpayer dollars ago.
The legislation will tell politicians how many kids live in households that have less than 40, 50 or 60 per cent of the median household income, but not whether kids are actually being looked after by their parents.
This creates an incentive for governments to tax higher income households more and give to lower income households though more generous benefits, and say they have reduced poverty.
ACT proposed a radical change to the bill that would have required the government to define and measure material hardship.
It would have required that a group of children born each year be interviewed and asked objective questions like: Are they safe, attending school, being fed, clothed and housed?
It would have given a real picture of how real children are living, rather than income statistics which are already available.
It would have forced governments to focus on the real issue of child neglect rather than further stoking the welfare system that has clearly failed since its inception in 1935.
That is the Prime Minister’s list of initiatives. Every single one is either taxing or regulating productive activity.
All that remains is for the economic conditions to worsen. The current global conditions are not sustainable. When those conditions do change, the indulgent policies of this Government will not be sustainable either.
That is when the people will demand an emperor with some better clothes.