Editorial: Important to heed advice from Treasury

NZ Treasury chief executive and secretary Gabriel Makhlouf. Photo / Supplied

Opinion

Ideas from the Treasury have long been out of fashion with the political class. Since the days of Rogernomics, Ruth Richardson and Bill Birch, Labour and National-led governments have been keen to demonstrate that the Treasury's views on many policies are regarded like the unchanging arguments of an old uncle: fine in theory but ungrounded in reality and out of their time.

In part, though, it has been because the Treasury is unafraid to go where politicians fear to tread. Unencumbered by the messy art of winning votes, the analysts have been able to lay out policy prescriptions that might, just, make a difference for New Zealand. The very simplicity of their solutions and the international economic orthodoxy on display have encouraged politicians from Michael Cullen to John Key to dismiss them with a kind of "they would say that, wouldn't they" shrug.

The latest, post-election, briefing paper from the Treasury to the Minister of Finance is another triumph of hope over experience. Rightly ignoring considerations of political risk, the authors set out a menu of policies to cut debt, shrink the state sector, improve teaching, prepare for our ageing population, tighten welfare, broaden the tax base and exploit natural resources. The new Secretary to the Treasury, Gabriel Makhlouf, describes the policy changes as "ambitious and challenging" and aimed at improving living standards.

Notably, the paper highlights the option of increasing the retirement age from 65 to 67, a measure under way in comparable developed countries but ruled out emphatically by a personal pledge to the electorate from the Prime Minister. "Leaving current retirement settings unchanged would necessitate increases in tax revenue, which would harm growth, or large reductions in other government expenditures, such as health or education."

It is a view shared by the OECD and Retirement Commissioner and, no doubt, in his heart, Finance Minister Bill English. The Government may quibble about how soon the phased increases must begin, but the Treasury's urging is right and should not be dismissed.

Not content with having shaken the expectations of the middle aged, the briefing paper also targets the young. It advocates early childhood education funding for low-income households only, bigger class sizes in schools and reintroducing interest on student loans. Each of these is a fullblown political firestorm-in-waiting. Yet there is logic to the suggestions, despite the emotive risks. Bigger class sizes could be one way of finding funds to "improve teacher quality", likely code for some kind of performance payment to the most talented teachers. Targeting early childhood and welfare payments to the poor, a reversal of Labour's vast expansions to universality in the past decade, is overdue and an imperative in a time of worrying growth in debt and high deficits.

In a world of economic uncertainty and volatility, this manifesto is perhaps a foretaste of what might be forced upon the country if the more timid prescription currently being embraced by National is insufficient. The Treasury has the courage to label that what it is: "partial or incremental reforms are unlikely to be sufficient". There is a good argument for moving ahead of the threat in some policy areas, "de-risking" in the jargon, to reduce the chances of such electorally unpalatable changes cascading upon the public all at once.

The briefing paper claims its programme would not simply be defensive, by warding off further economic stresses, but "would lead to a substantial lift in economic performance within the next decade, with corresponding improvements in New Zealanders' living standards". In the current economic circumstances it starts to ring true. Politicians are no longer in a position to dismiss outright the advice of their leading economic advisers. For real progress to be made, the public, too, will have to accept some hard truths.