First World Economy for a First World Education
A Vision of a First World Economy for a First World Education and Health System
Thursday 25 Jul 2002
Speech by Hon Richard Prebble, Leader ACT New Zealand
At the Stanford Plaza Hotel, 22 Albert Street, Auckland
On Thursday 25^th July 2002 at 7am
In 12 months time we are going to see that the real issue in this year's election is the economy. It is clear that the economy is going to hit some very real turbulence in the next year.
The sharemarket crash on Wall Street will send shockwaves around the world. The fall in key commodity prices will affect export prices. The rise in the Kiwi dollar will wipe billions from farm incomes.
Let me illustrate. At 50 cents to the US dollar, meat and wool incomes fall by $400 million, and dairy incomes by $1.68 billion. If the dollar reaches 55 cents US, combined meat, wool and dairy incomes will fall by $3.18 billion.
All incomes will be affected. It's accepted that agricultural export incomes have a 4.5 multiplier effect on the economy. So if the Kiwi dollar reaches 55 cents, the total New Zealand economy will take a $10 billion hit. That's big.
The parties have not been addressing what is going to be the issue - how to keep the economy growing.
One of the most disturbing developments has been Dr Cullen's statement on the economy. Dr Cullen appears to be seeking a mandate to attack the Reserve Bank. His solution is to inflate the economy. Inflation is the enemy of growth and economic stability.
The Cullen super scheme is a risky gamble on overseas stockmarkets. If the scheme was in existence today, last week the taxpayer would have lost hundreds of millions on the Wall Street crash.
ACT has put a great deal of intellectual rigour into our economic policies. As a trading nation in a global economy, ACT says that New Zealand needs to have a competitive advantage.
There are two things we can do to give New Zealand a competitive advantage - lower tax and reduce compliance costs.
It is within New Zealand's governance to reduce red tape. As Geoffrey Palmer used to observe, the New Zealand Parliament is the fastest law maker in the west.
An ACT government could very rapidly, and at virtually no cost, reduce red tape dramatically. ACT has already written a new ACC law, a new freedom to contract law, and we have amendments to the Resource Management and the OSH Acts.
ACT could have these changes in law by Christmas. The ACC, RMA, ERA and OSH. All these initials spell C-O-S-T. They have been identified as the laws that cost business the most in compliance costs.
The Ministerial Advisory Group has identified 57 different laws that small business must comply with. The Advisory Group also points out compliance costs push up the cost of social services. A day care centre must comply with 39 different laws. If they want a rabbit, the document setting out the red tape is 38 pages long.
ACT's policy is to create a business-friendly environment. ACT proposes a Regulatory Responsibility Act making it law that all new regulations be cost/benefit positive. ACT proposes to go through the hundreds of laws and thousands of regulations to apply a cost benefit test. We will hold a bonfire of regulations.
Again I emphasise, this policy costs virtually nothing. ACT believes we will add over $1 billion a year in growth and wealth, over 100,000 extra jobs, just by cutting red tape.
I think that's conservative. No one knows the real cost of the RMA.
In my campaigning I have come across small businessmen who have told me of their experiences with the RMA, of being told by their lawyer that no one in the local council could have thought of their idea, so it is not a complying activity.
The lawyer estimates the cost of getting permission, if no one objects, at $60,000. If a competitor objects, the cost is about $250,000 plus two years delay.
Today in New Zealand at least one good business idea will die even before the application is made for permission. The two old parties have promised to cut red tape - even as they increase it.
Labour has 94 bills on the order paper. Two bills to further increase compliance costs for the RMA; an OSH amendment to impose $500,000 fines on business for causing stress; the Kyoto Treaty Bill to put up costs on all business.
Helen Clark gave as a reason for an early election that Labour wants to pass new laws even faster. There is a second area where we can help business, and that is tax. New Zealand today has higher company tax than our competitors.
What is not so well known is that income tax on incomes from $20,000 to $80,000 is higher in New Zealand than in the UK, USA, Canada and Australia. At $80,000, Australia's income tax is just half a per cent higher.
The higher income tax in New Zealand is one of the reasons our new graduates leave for overseas.
ACT is campaigning for the McLeod Tax Report recommendation - reduce company tax to 28 percent immediately. ACT agrees with McLeod that it is important that the top personal rate be the same as the company rate.
Dr Cullen has claimed that tax rates do not affect business. If that is so, why is he lowering the tax rate Maori business must pay to 19.5 percent. I know of no business that agrees with Dr Cullen.
In surveys ACT has done, business has said if company tax rates were lower, then they would invest more and employ more people. Investment is needed for growth and wealth.
ACT is the only party proposing to cut tax on incomes below $60,000 a year. I believe ACT's tax cut for every worker is important for three reasons.
First, it's fair.
Second, a tax cut will give New Zealand working families a pay rise.
Third, to grow the economy we must get the 400,000 working-age able-bodied beneficiaries back into the work force.
Imagine how the economy would grow if we had 400,000 more working people?
Today these 400,000 beneficiaries cost the taxpayer $7 billion dollars a year.
If they all worked, the saving is $7 billion. But assume they earn $25,000 average each - that's $1.9 billion tax revenue. It is also a 1.5 percent increase in GDP.
ACT regards the 400,000 beneficiaries as a great resource for New Zealand. Getting them back to work is a win-win-win. A win for the beneficiaries - work is better than a benefit; a win for the taxpayer and a win for New Zealand.
Of course to grow the economy we need to improve our knowledge capital - lift education standards. ACT has the policies for this - pay good teachers more and bring back external exams to lift standards.
We need to tackle crime - Truth-in-Sentencing and Zero Tolerance - and we need real welfare reform.
I note that during this campaign independent commentators like Business NZ have said ACT has the best policies. It's important that ACT is re-elected because as the economic shock hits, ACT is going to be needed - now more than ever.