Kiwiblog

Roger Kerr blogs:

Deborah Hill Cone is one of my favourite journalists.

Her cosmopolitan reading habits are unique in the New Zealand media, and she’s generally no slouch in business and economic commentary either.

But she must have got out on the wrong side of the bed the day she wrote ‘Dream of success keeps slipping away’ (New Zealand Herald, October 22, 2010).

She wrote that New Zealand is losing its place in the international league tables and that nothing we have done has made a jot of difference.

A reading of yesterday’s 2025 Taskforce report will cheer her up.  It confirms – see the graph on p4 – that New Zealand kept pace with the average per capita growth rate of the OECD as a whole following the earlier economic reforms, only falling away in the last years of the 1999-2008 Labour government.  In other words, the long-term decline relative to the OECD was arrested (although Australia did a bit better).  OECD projections suggest that New Zealand will outperform the OECD average to 2025.

Polices do make a difference. I have not had time to go through the 2025 taskforce policies in depth but may get time next week to do so.

Garth George’s column in the NZ Herald last Thursday was critical of the 2025 taskforce chaired by Don Brash.

The Herald (as is their right) declined [UPDATE: they now have published] to publish a response from Don, so he has offered it to various bloggers. His response is below and it is a first class fisking:

GARTH GEORGE HAS IT SERIOUSLY WRONG

Garth George was way off beam in his attack on the first report of the 2025 Taskforce.

Leaving aside the personal invective, he claims that the “biggest absurdity” in the report is the proposition that New Zealand can and should catch up with Australia. He says that “there is just no comparison between the two countries”, with Australia having five times our population, 32 times our land area, and huge resources of minerals. Well, those are factual statements about Australia, but they ignore some important facts which he would be aware of had he read the report.

First, there is no correlation between living standards and population – if there were, India would be super-rich and Singapore would be poor.

Second, there is no correlation between living standards and land area – if there were, Russia would be super-rich and Finland would be poor.

Third, there is no correlation between living standards and mineral wealth – if there were, the Congo would be super-rich and Japan would be poor.

In any event, a recent World Bank study showed that, in per capita terms, New Zealand has more natural resources than almost any other country in the world.

For most of New Zealand’s history, our standard of living has been very similar to that in Australia – sometimes a bit ahead, sometimes a bit behind. And the Taskforce didn’t off its own bat decide that catching Australia again by 2025 would be some good idea: the goal was set by the Government itself, and the Taskforce was set up both to advise on how best to achieve the (very challenging) goal and to monitor annually progress towards achieving it.

Too often in the past, governments have announced grandiose commitments to lift living standards – such as the last Government’s commitment to lift us into the top half of developed countries within 10 years – but then totally ignored those commitments, hoping that nobody would notice it. It is to the Government’s credit that they made a commitment and then established a mechanism to hold them to account.

Garth George accuses the Taskforce of recommending a whole range of things which we do not recommend. For example, he accuses us of recommending a flat personal income tax, and notes that if such a tax were established a whole range of low income people would have to pay more tax. But whatever the merits of a flat tax, the Taskforce did not recommend such a tax. What we did say was that, if core government spending were cut to the same fraction of GDP that it was in both 2004 and 2005 (29%), the top personal rate, the company tax rate, and the trust tax rate could comfortably be aligned at 20%. Under such a tax structure, all those earning above $14,000 a year would pay less income tax, while nobody would pay more income tax.

Nobody seriously argues that government was vastly too small in New Zealand in 2004 and 2005 (the end of the Labour Government’s second term in office), so why the ridiculous reaction when the Taskforce suggests reducing government spending to that level?

Mr George also suggests that we recommended abolishing subsidised doctor visits, and implies that we are advocating an American approach to healthcare. This is again utter nonsense. We suggested targeting subsidies for doctor’s visits at those who need them, either because they have low incomes or have chronic health problems.

He suggests that we favoured removing subsidies for early childhood education. Again, not true. What we said was that those subsidies – which have trebled in cost from $400 million a year to $1.2 billion a year over the last five years – should be focused on those who need them.

The recommendations of the 2025 Taskforce are actually totally in line with orthodox thinking in most developed countries, and are almost entirely consistent with the recommendations of the recent OECD report on New Zealand.

Don Brash
Chairman of the 2025 Taskforce

UPDATE: The Herald has also now run the response.

Matthew Hooton writes in NBR:

In the government’s defence, its two major strategic decisions have been absolutely right.

First was Bill English’s decision to resist calls to stimulate the domestic economy, beyond the effect of the automatic stabilisers and Michael Cullen’s election bribes, in response to the financial crisis.

Second was Mr Key’s absolute determination to maintain trust with the people. …

The problem is that the desire to maintain sound political strategy has overwhelmed its raison d’être. Some in the Beehive now see it as an end not a means.

Worse, one or two appear to believe that the government’s high poll ratings mean they are some kind of political miracle-workers.

Wiser Beehive heads understand that there is nothing surprising about a new government – especially one which has defeated a tired, hectoring and corrupt regime – achieving 50%+ in the polls, simply by keeping its promises, managing the daily news cycle and ruling anything out that doesn’t enjoy clear public support.

The difficult bit is turning this into a worthwhile legacy. Unfortunately, there appears to be no plan or even informal modus operandi to integrate political management with policy goals. …

Ludicrous policies will continue, like interest-free student loans, and free GP visits and daycare for the children of millionaires. Labour’s Working for Families, which traps people with massive effective marginal tax rates and which Mr Key described accurately as “communism by stealth”, is now defended.

It’s easy to accept the political logic of all these moves but their cumulative effect is that it’s difficult to see what levers Mr Key has left if he truly wants to achieve anything important with his prime ministership.

I agree that the numbers of levers remaining is relatively few. I think the 2010 budget is an important one. National needs to do more than merely announce how it has allocated the $1.1 billion spending contigency.

The Herald reports:

The 2025 Taskforce set up to find ways to catch up with Australia’s economic growth should be scrapped, Labour Leader Phil Goff says.

Mr Goff said today it had a budget of $447,000 over three years and had so far cost $150,000.

“The taskforce’s first report was a complete and utter waste of money,” he said.

“Why give your mates $447,000 to cook up something you say you’re not going to do … dump this soapbox for ACT and Dr Brash and save the taxpayer the unspent $330,000.”

This is a classic case of thinking tactically, not strategically. The last thing Labour should want is the taskforce wound up. Why?

It will exist for three years, issuing further reports and monitoring the Government’s progress.

If the Government does not act on any of the taskforce’s recommendations, then you are going to have this taskforce, headed up by National’s former leader, issuing damning reports about how the Government is failing to close the gap with Australia.

Goff shouldn’t be demanding the taskforce be closed down. If he was smart, he’d be offering to pay its bills himself.  He really needs to start thinking strategically.

Heh. Cactus Kate calls Brash a wimp, and outlines her own policy agenda for increasing national incomes. Her proposals:

• Restrict welfare to those unable to work due to disability
• Sell all state houses in prime real estate areas, and buy new houses far away from the CBD on the basis most state house tenants don’t need to be close to the CBD as they don’t work
• Abolish DPB and levy fathers directly for child support (unless unsafe). If mother under 25, means test on her parents income.
• A flat tax rate of 10%
• Have no tax at all for new companies employing at least ten people for their first two years
• Raise GST to 15%
• Abolish minimum wage and allow mass immigration of Filipinos to do low income domestic jobs, freeing New Zealand women up to engage in higher income jobs and/or leisure
• Abolish public superannuation
• Prioritise healthcare so those who smoke, drink excessively or are obese  got treated last
• Abolish ACC for a fault based system
• Surcharges for GP visits
• Full fees for university courses with scholarships for top performers
• No CGT, but a land tax and stamp duty

That should generate some debate!