I’ve spent the last couple of days in Hamilton covering Waikato University’s annual NZ Economics Forum, where (arguably) three of the most influential people in our political economy right now laid out their thinking in major speeches about the size and role of Government, their views on for spending, tax reform and public debt.
Long stories short, Finance Minister Nicola Willis and the just-appointed Public Service Commissioner Brian Roche and just-appointed Treasury Secretary Iain Rennie said variously in speeches and comments on stage that they wanted:
more productivity, faster economic growth, restrained state spending and borrowing, more competition in groceries, electricity and banking, and fewer public servants, but who took more risks;
public servants that are more curious, more efficient, meet less often, be more decisive, be less holistic, focus on the basics, use more technology better and say yes more often;
to encourage more foreign direct investment and business investment, rather than Government investment, possibly through tax reform; and,
to improve domestic savings rates by reforming KiwiSaver in yet-to-be specified ways.
However, they didn’t:
suggest any need for taxing capital gains or wealth to incentivise real investment;
talk about housing shortages or mounting problems with poor health, food poverty and unmet need in the health system; or,
talk about climate change, emissions reduction or resilience investment, other than as an extra cost to the economy or a potential shock requiring lower debt now ‘in case there’s a rainy day.’
In my view, the advice Rennie and Roche are giving Willis is stuck in the thinking, the debates and the facts of the crises of the mid-to-late 1980s and early 1990s, back when:
New Zealand had higher and more dangerous public debt that had to be financed with foreign currency earnings and carried explosively high and floating interest rates;
households had much lower debt, housing and electricity costs, which allowed them to step up to replace a retreating Government by spending with bank-funded borrowing;
the first-past-the-post electoral system allowed one dominant party to rapidly change the rules of the political economy without electoral consent; and,
population growth was much lower and the nation’s infrastructure was younger, better maintained and had spare capacity for more people.
I think this means they are:
unnecessarily worried about the dangers of public debt when there is massive local and foreign investor demand for Government bonds of all flavours;
choosing to prioritise fear of future climate, financial and quake crises over the shocks that are already damaging the nation’s current and future wellbeing;
choosing to ignore the opportunities to lower living costs and improve climate resilience right now with a massive and fast electrification of the economy with new solar, wind & geothermal electricity production and storage;
tragically ignoring the current, future and often uncosted (but very real) pain and damage caused by a broken housing market, growing mental and physical health issues; and are,
therefore missing massive opportunities to improve productivity, improve wellbeing now and build climate and financial resilience now by investing much more heavily in public infrastructure, housing, renewable electricity, health and education.
But most importantly, they’re all failing to address the elephant in our political economy: the massively unbalanced tax and investment incentives encouraging households, businesses and banks to put ever more spare cash into leveraged residential land for low-risk and tax-free capital gains.
Amazingly, none of them mentioned the original sin of the reforms to Aotearoa’s economy from 1984 to 1993, which was to leave out the final piece of the broad-based and low-rate tax system built during that time: a capital gains tax to go with a GST and a simple, rebate-free PAYE income tax. They also didn’t acknowledge the amplifications of that failure by not providing real incentives to invest in fully-locked-up pension funds investing in real businesses and infrastructure.
Sadly, the views of Rennie and Roche were forged during those ‘glory days’ from 1984 when they were personally involved as junior advisers and architects of those reforms, and which they are still deeply committed to protecting and extending.
Disappointingly, they weren’t challenged by a roomful of the country’s most influential economists and policy wonks about the lack of a tax on capital gains in their prescriptions, or their ignorance of the clear-and-very-present dangers (and opportunities) of climate change. Subsequent panel discussions did include talk about the need for a capital gains tax, but again the assumption was it was so far off the political table it wasn’t even worth asking them about.
What Nicola Willis said
Willis said in her speech the Government wanted to help a third major supermarket chain to set up in New Zealand to challenge the Foodstuffs/Woolworths duopoly, but the Crown would not invest or lend to make it happen. She said the Government would instead remove “unnecessary regulatory hurdles in the Overseas Investment Act, Resource Management Act….and access suitable land and properties for development, helping them to attract capital, cracking down on predatory pricing and ensuring they have fair access to products”.
She said in answer to my questions in the following news conference (full video above) the coalition had no plans to structurally separate the supermarkets duopoly into wholesale and retail changes, or to forcibly break up either of the duopoly’s operations.
In the speech she announced a review of Government procurement to make it easier for small to medium businesses to bid, and for decisions to be made around value as well as pure cost. She repeated the Government was reviewing the tax settings to encourage more foreign investment.
She said it was time to “think much more boldly about the actions the Government may need to take to incentivise new (electricity) generation, security of supply and affordable electricity. Later in the news conference, she said the Government was still looking at its options.
Here’s her full speech in video form, along with some Q&A from the conference afterwards. The news conference is in full above.
What Rennie said
Rennie gave this speech early on the second day, titled: Bending two curves: New Zealand’s intertwined economic and fiscal challenges.
The speech was focused on lowering fiscal deficits and lowering the projected public debt curve with the aim of running sustained operating surpluses over the medium term. However, there was one area where he challenged Willis’ view on reducing the size of Government without changing the promises on NZ Superannuation and health (Bolding mine).
“Based on what we know about the longer-term trends and experience from other countries, simply limiting spending growth in the short term and delivering existing services more efficiently will not be enough.
“Achieving medium-term fiscal sustainability will require choices by successive governments, which looks at the underlying policy settings that are the sources of growing cost pressures and transfer spending, or considers more sustainable ways to fund them.” Treasury Secretary Iain Rennie in a speech to the NZ Economic Forum.
Later in the Q&A section (see full speech and Q&A video below), he added to the criticism about a lack of reform of NZ Superannuation, questioning how a young worker today on an annual salary of $80,000 today would feel about paying the pension of someone aged over 65 who was both earning $80,000 in wages and collecting $30,000 worth of pension.
“It’s not just a fiscal issue. It’s an equity issue.” Rennie on a lack of NZ Super reform.
What Roche said
Brian Roche talked in his speech about the need for reform in the public service to have fewer public servants taking more risks, having fewer meetings and being more focused on the basics, rather than consulting widely across silos in the public service.
In the Q&A after the speech (second video below 4:34:29 onwards), he said the public service regularly needed to have a cleanout and was due to have one.
“I use an analogy. For those people who have to use vacuum cleaners like myself, you know every now and again vacuum cleaners need to have their dust bag cleared because they become more effective.
“That's what I think at times about the public sector. Let's just empty the dust bag, get rid of the stuff and sort of reset and that's that's what we need to do.” Brian Roche in Q&A (4:36:19)
Ka kite ano
Bernard
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