Tax, Spend And Bust!
Labour/New Zealand First/Greens Agenda - Tax, Spend And Bust!
Thursday 18 Jul 2002
Speech by Hon Richard
Prebble, leader ACT New Zealand
At the Pacific Economic Symposium
Waipuna Lodge, Auckland
On Thursday 18th July 2002 at 1.30pm
Thank you for the invitation to speak at this conference on Pacific economic development. The best contribution that New Zealand can make to the Pacific is to be a strong, open economy ourselves.
In this election campaign, in speeches and press releases, the Finance Minister, Michael Cullen, has been seeking a mandate to change the direction of economic policy in a very radical way.
New Zealand's economic policy for the past decade has been resting on the foundations of sound money. The devastation caused by double-digit inflation in the 1970s and 80s led the New Zealand Parliament to be the first in the world to grant the Reserve Bank political independence, and to give the Bank one task - to stop inflation. The Bank has been very successful.
Now Dr Cullen and Helen Clark are saying that the target of less than 3 percent inflation is too tough.
One of the most irresponsible policies is for a government to deliberately promote debasing the currency. It has always resulted in economic chaos.
When New Zealand had high inflation, the country had disastrous growth. Growth in the 1970s and 80s averaged less than 2 percent. Growth in the 90s averaged 4 percent.
A Labour government should also realise who loses from inflation - those on wages and those whose pensions are fixed to wages. This is because wage increases are always to compensate for inflation, not to anticipate it.
Inflation also leads to investment being diverted from production and into land speculation. In the 1980s New Zealand was a nation of land speculators.
What concerns me about this election is it appears that the Greens and New Zealand First are all agreeing to direct the Reserve Bank to increase inflation.
Our exporters were savaged by inflation. This is because the exporter is in the world market. A farmer cannot pass on his New Zealand costs to the British housewife.
Why is Dr Cullen advocating extra inflation? It is because despite record commodity prices, growth remains below the level needed for a first world economy.
Dr Cullen won't acknowledge the real reason why economic growth is so low. The New Zealand government is taking too big a share of GDP. In New Zealand the government now takes 40 percent of GDP. No country ever has grown at 4 percent, sustainably, where the government takes 40 percent of GDP.
The single measure New Zealand can take, that is within our governance, is to have smaller government. Government spending crowds out and competes with the private sector. It is the private sector, not the government that invests, and creates growth and jobs.
What is frightening about Labour is that both its potential coalition parties, New Zealand First and the Greens, advocate tax, spend and bust!
Mr Peters' disastrous $5 billion spend-up in 1997/98 cut growth in half. He wants to do it again.
The Greens are advocating even more reckless social spending. In this election only ACT is advocating cutting poor-quality social spending.
Over a billion dollars a year is spent on "social welfare" for business. Business would prefer a 28 percent company tax rate to Mr Anderton's picking winners. Over a billion dollars was spent on bailing out Air New Zealand.
After the election, Qantas is going to be allowed to buy management control of Air New Zealand and the trading public will again get an NAC, Soviet-style airline - poor quality and strikes at Christmas.
The silly spending is going to extend to buying back the railways. Why do politicians want to play running trains again? The People's Bank is a complete waste of taxpayers' money.
Unfortunately New Zealand First and the Greens support this type of populist, reckless spending. If we have a Labour/New Zealand First/Green government the country will have high inflation, followed by a recession.
In a year's time, we are going to ask - why did the media not discuss Labour, the Greens and New Zealand First's tax, spend and bust policies?
Why was there no analysis of ACT's proposals to cut company and personal taxes, to scrap Dr Cullen's risky gamble on overseas sharemarkets and ACT's opposition to government buying back the railways? The time spent by TV debating two-year-old corn cobs is going to seem ridiculous.
ACT is the only party with a serious, thought-out programme of policy to reach 4 percent growth.
Here is ACT's six-point plan:
· Cut the company tax rate immediately to 28 cents - below Australia. · Cut income tax rates to 28 and 18 cents - that is a tax cut for every worker. A tax cut is the same as a pay increase for work, so encouraging a significant number of the 400,000 working-age beneficiaries back into the workforce, creating growth and giving the government more tax revenue. · A bonfire of regulations to create a more business-friendly environment. · Lifting education standards by the re-introduction of external exams, to increase the country's knowledge capital. · Vigorously pursuing greater free trade. · Cutting unnecessary government spending.
This is a workable package to achieve sustainable growth. As commentators have conceded, ACT is the only party with such a policy.