Roger Douglas on budget issues

A guest post by Sir Roger Douglas:

During (1987) while still Minister of Finance I wrote a book ”Toward Prosperity”.  The last chapter (20) looked forward at what still needed to be done.  On page 237 I said “I believe there are three main economic and social challenges facing New Zealand in the next decade. New Zealand’s fate in the 1990’s depends on whether, as a nation, we recognise the problems, and support governments who are determined to address them.  The three areas most urgently in need of change are the debt situation, taxation, and social services and although many people do not realise it, they are all interconnected and reliant on each other”.  31 years later these three issues remain at the top of New Zealand’s agenda in terms of what needs to be done.

Debt – Retirement debt e.g. stands at 850 billion dollars, that is the amount owed by government to New Zealanders of working age and the retired (3½ times GDP). This debt is currently growing by 12-13 billion dollars a year and will reach 1400 billion dollars by 2068. A time when the ratio of people aged 65 and over as a proportion of people aged 15-64 is projected to more than double, from 23% in 2016 to 50 % in 2068.                                                                                               

Taxation – No consideration is currently been given by government to how future tax policy can be used to solve, not only New Zealand’s debt problems, but intergeneration equity and social service delivery as well.  The current bias is clearly towards new taxes, such as capital gains (see Treasury paper “the future of tax”).

Social Services – In the area of social services the issues and problems remain the same today as I outlined in 1987, only they have become more pressing. What I said in 1987 about these issues (Page 241 Toward Prosperity) “fifty years ago (1937) we recognised that there were people amongst us who needed extra help and made a decision, as a nation, that those needs should be met. At the end of the 1930’s we established a welfare system to act both as a safety net and a base from which people could re-enter productive society. Part of that system was a number of institutions whose role was to act as conduits for aid given by the community, through the government, to those who were to receive it.  But something has gone terribly wrong with the system, and the institutions, as society has changed around them”.    

I went on to outline why the welfare state was failing to deliver on many of its goals.

                                                                                                                Institutional Capture-Huge increases in funding have done little to deliver better services or better access to services.    

Distribution of Resources – among and within the social service institutions is ridiculous, in terms of any reasonable priorities for health need or educational benefit To fix this situation requires a radical review of the system for us to make any serious and lasting impression on the problem.                                                        

Middle Class Capture – In the education system the middle class capture most of the money spent on tertiary education often at the expense of those that left school without any real qualifications.                                                                                  

Change of Attitudes – there is one other reason for change in the social welfare system which is much more subtle. The system itself, over the years, has had an effect on society; it has changed people’s attitudes, partly because it tended to create poverty traps. The institutions were set up to free people, and move them away from dependence. Now they actually make many of those who use them more dependent. The means took away some of their chances of achieving the end – the social objectives. The benefit system should support without taking away the incentive to work from those who are capable of it.                                 

What we have to concentrate on as we move into the 2020’s are the fundamental social objectives.  What we have to decide, as a nation, is how to achieve them.  What we did before in this respect is not important.  What we do now, for the future, is.

With courage, an open mind, and a set of principles to guide us we can protect and promote both the freedoms and welfare of all New Zealanders.    

Those principles would look something like this—Each generation would pay for itself

– each family would as far as possible pay/provide for themselves.  Government policy (lower personal taxes) would help them do so. Other policies would include the opportunity to save in order to provide security; government privileges (middle class capture and corporate welfare) would be removed in order to pay for the changes. In the process, power over their own lives would be returned to individual New Zealanders.

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