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ACT's The Letter 25 October 2005

ACT's The Letter 25 October 2005

The Haps

New Ministers have their heads down studying their departmental briefs. The PM has gone to Papua New Guinea for the forum. The Reserve Bank is expected to raise interest rates. Don Brash plans for opposition.

What Departments will not tell ministers

Departmental briefing documents are largely self-serving requests for more funding. Accordingly The Letter this week steps into the gap and provides advice that civil servants will never provide.

The growth targets are fraudulent

Labour claimed getting back to the top half of the OECD was its top economic goal and aimed for 4% growth. The latest Treasury document talks of 3% growth. On current policies even 3% is not achievable. Labour's long-term productivity growth is 1.5%. Economist Bryce Wilkinson says, "NZ's rate of GDP growth per capita averaged 1.4% between 1900 and 2000." A growth rate of 2.5% for a decade has been achieved only twice since the war, 1957-67 and 1993-2003, in both cases incorporating cyclical effects.

Size does matter

US economist James Gwartney says, "NZ is still a big government welfare state. Government spending continues at nearly 40% of GDP, a figure much too large for maximum growth. I do not know of any country that has sustained per capita income growth of 4% or more with that level of government spending."

The Australian Winton Bates has estimated that reducing government spending from 40% to 30% of GDP over a decade would increase growth by a sustainable 0.5%. Labour's "do what it takes" spending promises are based on hopelessly optimistic estimates of future economic growth.

Still Growing

The MMP government has opted to increase expenditure. Winston Peters demanded a $5 billion increase, which makes his present agreement look moderate. Surpluses and economic growth have reduced mandatory spending on welfare and debt servicing. Full employment has reduced welfare spending as a proportion of the economy and when debt servicing costs are removed it shows Cullen's claim to be fiscally responsible is false, as other government spending has increased.

Welfare Abuse

Despite economic good times the proportion of the population on sickness, disability or orphans benefits is growing rapidly from 5 per 1000 in 1970 to 15 in 1990 and 28 per 1000 in 2000. Around 16.5% of working age people are on a benefit. Since 1960, real spending per capita on the sickness benefit has risen five-fold. This is on top of the dramatic rise in accident compensation numbers.

The misery statistics, teenage suicides, teen births, rising obesity, child poverty and infant mortality rates remain high. Who, apart from bureaucracy benefits from this social spending?

Tax Reform

Between 1900 and 2003, real revenue from taxation has risen 20 times from about $500 per capita to around $10,000 today. The per capita income in 2003 dollars has risen just over four times from $7,500 to $32,000.

"If governments had held core Crown operating spending other than on interest and unemployment at its real per capita level in 1993-94, per capita taxes could have been lower in 2002-03 by $1,430 in 2002-03 dollars or 14%." Most of these examples are taken from Bryce Wilkinson's book "Restraining the Leviathan: A review of the Fiscal Responsibility Act 1994". Published by NZ Business Roundtable in 2004. A study by the Treasury indicates that a low flat rate of tax of about 20% would increase growth by around 1%. (Treasury review of ACT tax policies).


Will the Ministry of Health briefing mention that under Labour health spending has increased $3.5 billion a year with no increase in elective surgery or services? (Source; Treasury Review). There are 180,692 NZ'ers on the waiting list.


US policy makers read our PM and then Foreign Minister Phil Goff's anti American campaign statements. We are not going to get a US FTA. More of a worry, Australia has overtaken us with China and opened discussions with Japan. Note; why not appoint Mike Moore NZ's Trade Ambassador?

Foreign Policy

Peters says he is going to concentrate on Pacific issues. We recommend that he passes on the politically correct Foreign Affairs briefings and instead reads the disturbing material coming from Australia's think tanks. Failing economies, exploding populations, serious health issues like AIDS, corruption and growing lawlessness are creating failed states. There is talk of another coup in Fiji. NZ aid has been largely ineffective. Peters' experience as Minister of Maori Affairs might help as the Pacific Islands land tenure systems make Maori land seem simple.


The Resource Management Act effectively nationalises changes in land use and makes it impossible to cure Auckland's gridlock. The marginalisation of the Greens is an opportunity to overhaul the law.


The world has never been better and it is because of the triumph of capitalism. A reader sent us the link to this years Centre for Independent Studies John Bonython Lecture address by Johan Norberg "Wealth of Generations: Capitalism and the belief in the future." We recommend it as a very optimistic read.

Our Poll

Last week we asked is it New Zealand the way you want?" 97% said no! This week Brash is reshuffling his front bench. Should John Key be promoted to number 3 i.e. leader in waiting? See We will send the results to Don to help him. Note; National MPs can only vote once.


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