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How New Zealand Can Recover Its Place In The World

Tenth By 2010: How New Zealand Can Recover Its Place In The World

Monday 26th Feb 2001 Richard Prebble Speech -- Governance & Constitution

I have chosen as my topic "10th by 2010" by which I mean how New Zealand could be 10th in the OECD ratings of per capita income by 2010.

First, let me answer the question - why does it matter where New Zealand is in the OECD wealth standing? As an intelligent liberal editor of a leading lifestyle magazine recently put it to me, "how many cars do you need?"

Let me answer this way. There is a not a single social problem, from teaching children to read, to the affordability of superannuation, from hospital waiting lists, to safer streets, that extra national wealth would not assist.

Extra income is the only way we can solve what I think is possibly the most serious threat facing the country, the loss of our best and brightest young people.

Some 200 mostly well-educated, mostly young people are leaving, they say permanently, every day. It's a threat to our viability as a nation. New Zealanders are migrating for a number of reasons, but an important reason is better income. My 26 year old daughter in London is earning almost as much money as I do and she is just working as a secretary.

The real gaps that need closing are between New Zealand and the developed world.

One of my criticisms of this Labour/Alliance government has been that they are the first government not to make increasing the size of the national cake an objective.

A careful reading of Prime Minister Helen Clark's speeches reveals many calls to redistribute wealth, but none to create wealth. To cut up the national cake, not to bake a larger cake.

It has been left to the ACT Party to make the case for faster economic growth. For some months I have been calling for the country to set a bold goal.

A fresh idea - why not aim to be 10 by 2010. It has had some impact. In the Prime Minister's speech that opened the new session of Parliament, Helen Clark took up my theme. She said her government had set the goal of being in the top half of the OECD in ten years. I welcome that statement.

I note Jenny Shipley's scepticism. The Leader of the Opposition calls Helen the 'spinster' of Parliament.

Jenny noted that Helen Clark produces these slogans, like 'closing the gaps', 'transforming the economy' and 'being in the top half of the OECD', that the slogans last for about five months to be replaced by another.

We have a government that constantly recreates itself.

One day it is attacking business saying , to quote our Finance Minister when passing the Employment Relations Act, "We won, you lost, eat that!", the next Labour is holding ‘love-fests’ with selected businesses.

Last year we were told closing the gaps was the government’s cornerstone policy, this year even the words are erased.

So I share Jenny Shipley’s concern that this new found commitment to economic growth is just spin. What concerns me about the Prime Minister’s speech, and then the speech by Jim Anderton and senior Ministers is that there was no programme set out detailing how government would achieve the stated goal of being in the top half of the OECD. Indeed no other Minister has even repeated the goal.

I think Helen Clark’s speech writer just thought it sounded good. I do not believe there has been any analysis of what is required to reach the top half of the OECD in any review of policies. ACT has done the intellectual research and we have some fresh new ideas on what policies are needed.

The Analysis

Today New Zealand is 21st out of 29 OECD nations. To get to the top half, New Zealand must be number 14.

Right now New Zealand is just ahead of Spain, Korea and Portugal. The Spanish are growing at 6 per cent, the Koreans at 8 per cent and Portugal at 6 per cent. Last year New Zealand grew at just 1.4 percent. The coalition’s present policy objective is to grow at 2.8 percent a year. If we project forward then in three years New Zealand will fall at least one, probably two, and possibly three places. For New Zealand to reach the top half of the OECD one of three things needs to happen.

- Every other OECD nation needs to have nil growth so we can slowly over-take them;

- the OECD needs to invite every nation in Africa to join;

- or New Zealand needs to grow at 6 percent a year for a decade.

This is a level of growth that neither National nor Labour have even considered achieving. A sustained period of six percent growth is achievable, but not without some new thinking. Ireland, a nation whose principle export was people, who as recently as 1980 had a GDP per capita just 80 percent of the United Kingdom, now has a per capita income higher than the UK and is growing at 10 percent a year.

Singapore and Hong Kong have consistently grown at more than 6 percent a year, so it can be done. ACT says we need to look at our situation. New Zealand is the world’s last bus stop. For New Zealand to succeed in the global economy we must be much more competitive.

To grow at 6 percent a year New Zealand needs a much higher level of investment. There are two variables within our control that affect investment.

The first is tax. It is absurd that New Zealand is a more highly taxed country than Australia, that New Zealand’s company tax rate is higher. Hong Kong, Singapore and Ireland have attracted investment by having a lower company tax rate. 15 percent in Hong Kong, 15 per cent for new investment in Singapore and just 10 percent in Ireland.

The investment has just poured in. I believe New Zealand should aim for a company tax rate half of Australia’s. At a 15 per cent company tax rate, the New Zealand companies that have been quickly exiting for Australia would be on the next plane home, bringing their skilled staff with them.

The next advantage is regulation. It's no accident that Hong Kong and Singapore have been camped at first and second place on the Heritage Foundation Freedom Index since 1995. It’s also no accident that in 1995 Ireland was ranked 10th, dropped to 14th and is now third, ahead of New Zealand.

In the 1990s when New Zealand did achieve some good growth, we reached number three. We dropped a place this year, and I predict when the next Heritage index is published laws like ACC re-nationalisation and the Employment Relations Act will see New Zealand having free-fallen through the Heritage index.

Laws like the Resource Management Act add hugely to business compliance costs while providing no more environmental protection.

Governments talk of lowering business compliance costs while increasing them.

ACT wants a fundamental rewrite of the Resource Management Act of politically correct laws and Commissions that just provide well-paid jobs and contribute little.

We need fewer, better written laws and we should rely on the courts, not these Commissions to enforce the law.

ACC should be returned to the private sector and government should promote free enterprise solutions to problems.

Lowering taxes and cutting red tape will enable New Zealand businesses, which actually create wealth, to grow.

There is a further issue that must be tackled and only ACT is prepared to confront this problem. It is not sustainable to have a welfare system that traps one adult in three on State assistance. New Zealand has one of the highest proportions of adults on welfare in the world. Our welfare system is open-ended, so you can retire at 18. There are people who have been on the unemployment benefit for 20 years and on the DPB for 20 years.

The USA has enjoyed the longest economic boom in recorded human history. The boom has created great wealth. If you translate the official US poverty level into New Zealand dollars, it's the average medium income in this country.

The US boom was built around tax cuts and as President Clinton put it, social welfare reform. The US showed us the answer. Work for those who can, and welfare for those who can't.

Our present government is dismantling work-for-the-dole schemes and then wondering why registered unemployment numbers refuse to fall. There are now over 300,000 people on a welfare benefit, and this does not include superannuation.

Our economy, if it is to grow at 6percent, needs a significant number of these able-bodied adults back in the work force. If New Zealand's benefit role is compared to the State of Wisconsin, then instead of having 300,000 on welfare, we would be less than 50,000.

A well-designed welfare reform package, that was generous to those who genuinely need our help, should be able to return over 150,000 to the work force. The economic production, the taxes they would pay, would give New Zealand a huge boost.

It's the adding of people to the work force from welfare in the US that enabled the economic boom to continue for so long without inflation caused by a labour shortage.

Instead of looking at our welfare beneficiaries as a liability, ACT says welfare recipients are an untapped national asset. Welfare reform in other OECD nations has bought other benefits - less crime, less child abuse, fewer family break-ups and a healthier society.

Why won't Labour and the Alliance tackle welfare reform? 300,000 on welfare is one voter in three. So we now have auctions, a sort of modern bread and circuses. But if New Zealand is to reach the top half of the OECD, which Helen Clark now agrees is the goal, we must reform welfare.

Of course there are other issues. Our education system needs to lift its standards. Yes, we need to encourage the knowledge economy. Real success will come when government sets the framework, establishes a favourable environment and then lets the creative force of free enterprise work.

Governments do not create wealth - the private sector creates wealth.

The goal of 10 by 2010 is achievable, we just need to let the private sector achieve the goal.


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