National delegates
gathering in Manukau can feel electorally confident.
Inflation, unemployment and the deficit are lower than expected, and wages and nominal GDP are a bit higher. Median voters are enjoying tax cuts. Mortgage rates will fall materially by Christmas, so house prices will recover.
Meanwhile, Labour’s leader is this generation’s Bill Rowling, Geoffrey Palmer or Phil Goff, not a David Lange, Helen Clark or Jacinda Ardern.
If NZ First remains above 5%, National should be re-elected.
Yet the economic data is mostly just an inevitable reversion to the mean. The medium-term trajectory remains as catastrophic as Treasury has warned for 20 years.
Treasury’s first long-term fiscal statement in 2006 projected permanent and constantly rising fiscal deficits from 2030. Even if Nicola Willis achieves a surplus this decade, the post-2030 projection remains unchanged 18 years later.
In fact, it’s worse.
In 2006, Treasury projected annual surpluses to 2030. Including the Super Fund, it picked net government savings of 12% of GDP by 2017, approaching 16% by 2024.
Treasury didn’t know Bill English would run cash deficits for eight years or that Grant Robertson would double the damage in just four.
In 2006, Treasury thought we’d reach the 2030 inflection point with money in the bank worth over 10% of GDP. Instead, we’ll have net debt of over 20% of GDP, despite the Super Fund. Notwithstanding Willis’ efforts, by 2030 the Government’s financial position will be 30% of GDP worse than expected.
Since resuming borrowing in 2008, governments have knowingly accelerated towards a fiscal cliff with neither fence on top nor ambulance below.
There’s no fiscal room to pay for an ageing population and improving healthcare technology, or another natural or economic shock. No amount of much-needed bureaucracy-butchering makes a material difference. Even if Christopher Luxon and Chris Hipkins don’t understand all this, Willis and Labour’s finance spokesperson Barbara Edmonds certainly do.
The crisis can’t be avoided by spending cuts alone. Only radical productivity gains and new sources of revenue will change the fiscal track. Meanwhile, we face multiple infrastructure, environmental and social crises.
So, how would I answer the National loyalist’s challenge?
First is accepting the Key-English Government wasn’t the unmitigated success party activists think. Being just half as bad as Ardern and Robertson is nothing to boast about.
Productivity gains were derisory. The brain drain continued. Nominal growth was pumped up by mass immigration. Debt ballooned. Social disintegration continued. Education standards fell.
Second, is accepting that neither the status quo nor the status quo ante under Key and English is an option.
Our current disease may be less acute but is more chronic than in the mid-1930s or 1980s, demanding radical treatment. That doesn’t mean repeating Walter Nash’s welfare state or Roger Douglas’s reforms, but something for today.
If National won’t deliver radical change, Labour will need to step up a third time, despite having no Michael Joseph Savage or David Lange. It’s too late to wait for the National Government after that.
Still, said my National Party critic, stop sniping and suggest something specific.
Fair enough.
Let’s accept nothing matters more than productivity, and that boosting productivity requires businesses to no longer see themselves primarily as employers but as capitalists.
Richard Prebble reminds us government can’t force such change by picking winners or delivering indulgences to party donors. Politicians and bureaucrats never foresee winners. Those lobbying for specific measures also tend to be poor performers.
A wind farm project turned down four times in eight years on environmental grounds will whinge to politicians, not the ones consented in two. Horticulturalists who invested in automatic-picking technology don’t demand more imported cheap labour. Those who didn’t do.
Governments picking winners and rewarding donors generally involves handing taxpayers’ money and granting indulgences to self-identified losers.
A reforming government would recognise it should deny businesses access to cheap labour, whatever the short-run pain.
It would understand Australia’s successful mining industry wasn’t based on cheap labour but on advanced technology. It had no choice, with Australia’s minimum wage the world’s highest. We might match that, and then welcome only those immigrants with pre-arranged jobs paying $250,000-a-year or more.
Unemployment and receiverships would rise, but businesses wanting to survive and grow would be forced to invest in plant and machinery and better manage their capital and other resources, rather than default to hiring more low-paid workers.
Over the medium term, it’s businesses that don’t rely on cheap labour that tend to grow and employ more people.
To further incentivise investment, I’d abolish company tax, which is only a withholding tax anyway. Profitable businesses that reinvest would pay no tax. Tax would be charged only against dividends and drawings.
I’d fully re-open the economy to foreign investment, perhaps excluding residential property under $3 million.
With zero company tax, the IRD would need to find ways to tax dividends and drawings paid to non-residents the same as to residents.
Abolishing company tax would automatically boost income-tax revenue, but there’d still be a gap. GST could be raised to compensate. A very low financial transactions tax could be considered, perhaps 0.5%. Ordinary consumers already pay five times that to use PayWave.
Politically, tax reform might require a symbolic new 45% tax on individual income over, say, $250,000. Those earning more would find ways to avoid it anyway.
There’s little doubt the next Labour Government will introduce a capital gains tax (CGT) or David Parker’s more radical wealth tax.
Choose your poison. You’ll be paying one within a decade. A CGT would be better. Better still would be National designing it based on sound economics, rather than Labour motivated by class war.
Longer-term, productivity growth demands higher academic standards in universities, even if more students fail. Lowering standards in business, law, medical and engineering schools so more pass is to accept third-world status before we’ve quite arrived. Our best students should receive scholarships to attend the world’s best graduate schools, bonded to pay back double if they don’t return.
The NCEA should be gone by Christmas and replaced with the international systems used by our best schools, including assessment for New Zealand-specific content.
Academic standards for teacher training and registration would be made three times tougher. Those graduating from 2026 would receive double the base rate. Some form of performance pay would then be non-negotiable.
Those are some ideas, National delegates, from someone who votes for either you or Act. None could be worse than the current plan of continuing to complacently drive towards the 2030 abyss, with just the tiniest bit of pressure on the brakes. Get to it.
