Gareth Morgan

Gareth Morgan on the economy

Gareth Morgan: Battle lines drawn over NZ economy

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For National, there are substantial economic benefits to begleaned from expanding mining. For Labour, National Parks and Schedule 4land are out of bounds for mining activity. Photo / NZ Herald
For National, there are substantial economic benefits to begleaned from expanding mining. For Labour, National Parks and Schedule 4land are out of bounds for mining activity. Photo / NZ Herald

Last Monday's televised leaders' debate demonstrated that the greatest difference between the main protagonists for government are over economic policy.

There are clear options on which voters can express their preferences, although in several cases there is no right or wrong approach, they are just different. These are my takeaways from what was said.

Raising the retirement age to 67, is it necessary?

Labour has pitched for this, National is steadfast on age 65.

The Cullen Fund (aka NZ Super Fund) was launched to partially fund the retirement incomes of the burgeoning numbers of superannuitants that emerge as the babyboomers retire. That fund, Labour contended back then, would reduce the need for a rise in the retirement age.

Again under Labour, KiwiSaver has been launched at considerable expense to today's taxpayers, in an endeavour to shore up the self-provision of retirement savings.

Despite these two initiatives Labour's figuring now says the age of entitlement for NZ Super will have to be raised.

Part of the reason is Cullen Fund contributions have been halted because the Government's own books are under a greater strain, part is because the downgrade will make it harder for the economy to generate the income to pay the pension.

Labour's is a precautionary initiative and will affect everyone under 57, with those under 47 today having 67 as their retirement target.

It is difficult to believe that with a cessation of Cullen Fund contributions and a slump in economic growth prospects there are no adverse consequences for pension policy.

On balance then Labour should be credited for this policy reaction, and providing forward warning.

Should KiwiSaver be made compulsory?

Labour says yes, National is opting for the soft compulsion (employees can still opt out) only.

It isn't rational to make every person save this way in a taxpayer subsidised scheme, certainly many do not need additional savings at all.

The ideal would be for KiwiSaver to be required only of those whose current wealth indicates insufficient resources to fund an adequate replacement in retirement for their current lifestyle. Designing policy to deliver such an ideal is not easy although satisfying a wealth test to be exempt from KiwiSaver membership would suffice. National's soft compulsion is a step closer to voluntary than Labour's alternative so it has to be preferable.

Asset sales, are they necessary?

Labour's case against the sale of 49 per cent of certain state enterprises is that National is doing it for funding reasons. This is incorrect, it is about putting a financial discipline alongside the social and strategic one that governments generally bring to their investments.

And there is a chronic shortage of blue-chip scrip on the local stock exchange to boot which does not auger well for the future of our capital markets. So government can achieve a win-win from such a policy, much as Fonterra has at long last by escaping the shackles of its 100 per cent collectivist ownership model. Capital markets have major advantages if you structure your offerings to them appropriately. National wins this policy tussle hands down.

The Government's responsibility will be to ensure these assets are sold at a value that reflects their full potential value and that these public/private enterprises do not engage in monopolistic pricing practices, at least any more than they do already.

Capital gains tax

Labour needs to be congratulated for at least recognising that the taxation of wealth is inequitable, although I do get annoyed when Goff quotes Sam Morgan as saying he should have been taxed on his Trade Me proceeds.

He's wrong, the price paid for that asset was one for tax-paid future profits, if it wasn't the price would have been higher and taxable.

The point about the rich and tax is about loopholes in the capital income tax regime, not simply about taxing the disposition of assets.

National is deadly quiet on the tax loopholes and that is not a good look for those of us concerned about the inequities in our tax regime. The biggest loophole is enjoyed by the owners of capital that generates an un-competitively low taxable return yet delivers a handsome post-tax return overall. That is unjust, it distorts the deployment of capital around the economy and produces lower GDP than is necessary.

Because National cannot bring itself to acknowledge that reality they should be admonished for that lethargy.

Increasing the minimum wage

Labour wants to do this, National doesn't. We already know that both accept that the minimum wage is not sufficient to live on - hence the raft of top-up transfers (accommodation allowance, hardship allowance etc) that low-income workers can procure.

But we also suspect that the employment of youths has been hampered by the removal of youth rates. So the answer to youth unemployment certainly does not lie in raising the cost of their employment.

For adult workers on this rate, if the Government is saying the rate is insufficient (and both are acknowledging as much by virtue of the top-ups available) then the answer is to redistribute more income to these folk but not raise the cost of employing them.

The way to do that is via the unconditional basic income (UBI) as proposed in our book, The Big Kahuna. At either today's minimum wage of $25,000 or that proposed by Labour ($29,000) the recipient would be better-off under the UBI-based regime we propose - by $6850 and $6365 respectively.

This is how you reconcile the reality that some of the wages in your economy are not sufficient to live in dignity. You certainly don't raise the cost of employing those folk. National has the superior quality policy in this area of wages, but only because it's not as deficient.

Child poverty

We are in dire straits in this regard and most but not all of it is centred on Maori and Pacific Island families.

As our book Health Cheque pointed out, this has a lot to do with both a decline in absolute real incomes of the poor (the other side of the coin of the growth in the disparity of wealth over the past 30 years) and the associated bad housing and diet that many of these children endure, as well as the failure of the public health system to fairly allocate the health dollar on the basis of greatest return to well-being of our population.

With our politicised health system the squeaky wheels get an unfair share of the health spend and the group most enjoying that favouritism are old white folk.

The economic reality is that the real wages for lower skilled people have fallen since financial deregulation and globalisation.

The theory of "trickle down" has been an abject failure for them. On this metric then both parties need to be ashamed of their inadequate response and the favouritism they sponsor.

All New Zealanders apparently are not equal in terms of their call on the state purse. Goff rightly points to preventive measures as offering the best return - this is true in education, in law and order and in health. Key agrees but his solution of free doctors' visits for the under-6s is an ambulance at the bottom of the cliff response, not a preventive one.

Environment and New Zealand's tarnished clean and green image

Both leaders agree there have been issues although Key rightly points out there are substantial economic benefits to be gleaned from expanding mining, citing Australia as being much more progressive in this regard than us.

For Goff, national parks and Schedule 4 land (some other parts of the conservation estate) are out of bounds. Sustainability and economic development do not have to be opposites; it's a matter of the extent to which you price environmental risk to those who threaten it. Both parties have a long way to go in getting these policies in harmony with the public's preferences.

The polarisation of income and wealth

Key espouses equality of opportunity, the right for all to participate. Goff decries corporate greed. Thankfully they both recognise that the egalitarian values on which New Zealand was founded are worth protecting. The difference is on how to achieve that, both in terms of vision and policy actions.

Therein lies the voters' dilemma.

- NZ Herald

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