Introduction

Thank you again for having me. Whenever I speak to Rotary, I take the time to thank you for your effort fighting polio. My mother was one of the last people in the Western world to contract the virus.

There is too much division in the world, too much anti-science dogma, and not enough proactive kindness. I can’t think of a more noble project than people from around the world voluntarily uniting and using a science-based approach to fighting a great evil. I was grateful that you included me in the polio train ride last year, and I thank you for all of your efforts.

I’m also respectful of Rotary’s apolitical stance. So, if you came for an election year barnstormer, this speech won’t be it. The title of this speech is Challenges and Choices in the 20s, so it’s about bigger choices that I think we will face as a country. I’m going to argue that we are about to enter another reform period and we will have to deal with social services, productivity, and land use, especially urban land use, in a new way.

Our 50-Year Cycle

The starting point is that we are approaching the reform period of New Zealand’s cycle. We follow a fifty-year cycle of long slow decadence followed by descension then reform. It’s regular as clockwork.

In the 1830s and 1840s the basic building blocks of New Zealand as we know it were established. An agreement between Queen Victoria and most iwi that literally said she would be sovereign, all property rights would be secure, and everyone would be equal. We could talk all day about how it wasn’t perfect, has been honoured, mostly in the breach, and still hasn’t really settled. But it was a pretty good start.

Fast forward to the end of the nineteenth century and we experienced our first reform period. King Dick Seddon united the rag tag collection of independent politicians into the first political party, the Liberals. They introduced the first income tax. The old aged pension began. The basic apparatus of a civil service emerged. The State as we know it today came into being.

Things went along well enough despite the war, but the Great Depression finished it off. The system stagnated and fell apart. The Labour Party slowly rose through the 20s, the Liberals declined, eventually merging with their old foe the Reform Party to form what we now know as the National Party.

Labour came to power with one objective. To establish a comprehensive regime of social insurance. Bad parents? The State would deliver education. Bad health? The State would deliver healthcare. Out of work? The State would deliver income insurance. It began a pattern where the Labour Party would undertake fundamental reform, National would shout from the opposition benches, then accept it all on the government ones. Labour policies must look better from the back of a ministerial limo.

Of course, there was another devastating war, but it was followed by the Half Gallon, Quarter Acre, Pavlova Paradise. The New Zealand economy doubled in size during the 50s and 60s. Those were the good times in the cycle, then the discord. The seventies started to collapse the old order.

Once again, the political system began to falter. Muldoon tried to hold back the inevitable with a piggy little finger in the dyke as he held power with a minority of the overall vote. Things had to change.

I’m sure people here will be familiar with what happened next. A dismantling of the command and control economy and an embrace of a new country. A small trading nation ready to pay its way in the world.

We’ve spent the last three decades with political and policy stability. The Clark/Key era gave us nearly two decades of predictable and relatively good times. The thing is, we have a habit of enjoying the good times for too long. We ignore the problems mounting up until dramatic reform becomes inevitable.

Where We Are Today

Today we’re in one of those periods like the late 20s or the early 70s. If the cycle’s on time, we’re approaching a decade of reform. More importantly, the signs are there. Our productivity growth is dangerously low. Our social support systems aren’t delivering a fair go for too many New Zealanders. We haven’t figured out how to scale our cities. A little bit of population growth and property prices rise out of all proportion to demand because supply is so inelastic.

Some people would add climate change to this list. Fair enough, but this is about challenges and choices. Climate change may be a challenge for New Zealand, but it is not a choice. Because of our small size we are a passenger on that particular journey. I know people will be thinking ‘yeah, well if everyone thought like that...’ I hear you, but that’s exactly how everyone is thinking.

Perhaps most importantly, we’re at one of those stages where there is more conflict than unity about the purpose and future of our country. Conflicts are everywhere. It’s young versus old, Ok Boomer? It’s rich versus poor, everyone’s worried about inequality. It’s Māori versus Pakeha, currently one side is occupying Ihumātao and the other Mt Albert. It’s rural versus urban. Our Auckland-based Prime Minister was nearly barred entry from the Southern Field Days this month. It’s firearm owners versus Police. It’s the woke versus the free speech brigade.

Yes, we unite well when required, such as after our nation’s tragedy in Christchurch last year. But, what sort of country wouldn’t unite against such an attack? And, it only took a couple of weeks before the Government opened up a new wound by collectively punishing the nation’s firearm owners. Perhaps not everyone sees it that way, but I can assure you they do.

We are coming out of a milk and honey phase and entering descension to be followed by reform.

Productivity

Nearly every week a different group of patients and their families come to Parliament to petition for a new drug to be funded. They are exasperated that they are dependent on Givealittle pages and drug companies’ compassionate access programs to get drugs publicly funded in Australia. It’s one of the hardest issues for parliamentarians to face because there are no easy answers.

We are already the highest taxed jurisdiction in the Asia-Pacific region. We spend more of our GDP on healthcare than Australia. It’s not as simple as just spending more because a small open economy can’t attract skills and investment if our government takes more than competing jurisdictions. The Treasury forecasts public debt to reach 200 per cent of GDP by 2050 under a business as usual scenario, and people are already unhappy with business as usual.

The underlying problem is that our productivity is in the lower left corner among developed nations. The horizontal axis is the starting point. We are among countries that had low productivity 20 years ago. The vertical axis is growth over that period. We are among countries that started low.

And yet, growth has become the poor cousin of equality. What pass for pro-growth policies generally consist of politicians giving handouts to politically popular sectors in return for photo ops. And yet, none of today’s leading companies would have featured. Who knew our future was a logistics company from Mangere, an electric fence company from Hamilton selling prison security to the Americans, or online accounting software from Wellington?

Meanwhile, the productive economy takes a beating from the regulatory state. The farmers are beside themselves. Energy and minerals have all but given up. Nearly every sector from education to finance to construction complains that it spends more time getting permission to do work than actually doing it. Researchers at our universities have to go offshore to trial genetically modified organisms.

Amongst the developed world, we are the fourth hardest country for foreign direct investment. We have the fourth highest effective company tax rate.

If we’re going to afford the latest drugs, let alone all the other things that attract and retain talent, then we are going to have to shift the focus of the political conversation to an all-out effort to raise productivity.

Social Services

It’s difficult to learn if you are not at school. Yet the Ministry of Education has just released figures showing only 58 per cent of students regularly attend school, meaning more than 90 per cent of the time. In Northland, the figure is less than half.

If you wonder why New Zealand students have been falling in the global comparisons PISA, TIMSS, and PIRLS for all of this century, falling attendance rates are one place to start. I have heard from teachers who say that their school used to have a breakfast club for unfed kids. The problem was that few kids showed up in time to get the free food, so they moved it to morning interval and turned it into a morning tea club.

It is not all the schools’ fault. But clearly the system of running schools to educate children is not working. Educational failure is part of the reason we have over 300,000 working-aged adults on benefits. At the same time, employers are desperate for more liberal immigration policies and faster visa processing times so they can get the skills to grow their businesses.

Then there are the DHBs. The system of 20 local healthcare providers is an administrative disaster. Nearly all of them are running deficits and most are in the news for the wrong reasons. The standard of healthcare we do manage is a tribute to the professionals running it. What is clear is that we can’t go on like this, but for now no party is prepared to take on the politically daunting task of healthcare reform.

I could go on, but the common theme is this. We pay a third of our income in taxes. The deal is that we get a country where everyone has the opportunity to make it, but clearly it is not working. We can either change the people or change the system. We can’t change the people, so it is time to change the system.

As an aside, I know Simon Bridges got berated for saying we pay a third last week. He may have been wrong about income tax, but he was ultimately correct. If you add together all of the Government’s taxes and divide it by national income, you get a third.

Housing

There are those who will tell you there is no problem with housing. You can find the Mike Hoskings and the Ashley Churches of the world who will happily tell you that it’s just business as usual, house prices have always gone up. Here are a few numbers that tell you we have a problem.

First of all, take the bottom twenty per cent of households by income. In 1991, they spent 27 per cent of their income on housing costs. Now it is 54 per cent. That’s what two decades of the RMA has done.

Second, take a look at what has happened with different components of housing costs. Over the same period CPI inflation has been 60 per cent. Per square metre building costs have been about 240 per cent. That’s a problem. But the average Auckland section cost has risen 900 per cent. That should tell you where the problem is.

One of the few remaining perks of being an MP is unlimited domestic air travel. I can tell you that the country is practically uninhabited, but we have a severe shortage of land that is connected to opportunity. By connected I mean infrastructure, and by opportunity I mean jobs and education.

This is a Western world problem. I was lucky enough to meet Peter Thiel last month, he gave a thoughtful speech about the concept of scale. We in the West simply don’t know how to make our cities scale so they can respond to demand for housing.

Failure to scale our cities presents legion problems. Take retirement. We already have a problem with the sustainability of Superannuation. The best that can be said of our outlook is that there are other countries in worse situations. However, one of the fastest growing areas of government expenditure is the Accommodation Supplement. A generation of retirees who are not homeowners is a fiscal and social nightmare.

It is also a competitiveness problem. I know business owners who struggle to attract talent because the after-housing-cost wages they can offer are not competitive. The cost of every New Zealand export contains an implicit tax paid to incumbents in the property market.

Then there’s the wider social problem of a generation, or at least half a generation who do not own a stake in the country. When you consider the most stable democracies are property owning ones, you start to see the problem.

At present no political party except perhaps one is dumb enough to point to this elephant in the room, but it is another one of the challenges were sooner or later we are going to have to make choices.

Some Good News

In spite of all of the above, I think we have reasons to be cheerful. For one thing, it’s a cycle. We’ve been here before. Our problems today are nothing like what we faced in the early 1930s or early 1980s. Our country has an ability to navigate tough times, reinvent itself, and come out stronger. I am confident we’ll do it again.

We’ll do it again because our young nation still has a lot of life in it. All of us, or our ancestors, travelled further than anyone for a better tomorrow. We are children of pioneers who came here because we want a better future for our own children. The President of the Law Society, Tiana Epati, put it better when she said:

“E tū ki te kei o te waka
Kia pakia koe e ngā ngaru o te wā”
(Stand at the stern of the canoe
And feel the spray of the future biting at your face)

In each previous cycle, the demand for reform was met with the generation of new ideas. They are starting to emerge.

If we’re to raise productivity, we must stop regulating ourselves into stagnation. We must go from using regulation as a political tool to chastise groups we don’t like (farmers, the oil and gas industry, people with plastic shopping bags, geneticists, employers, vapers, and landlords) and aim to lead the world as the most intelligent regulators.

You may have seen some news late last week that the Government’s new Residential Tenancy reforms would raise rents. That story came from a Regulatory Impact Statement. I’m proud to say that the current templates for Regulatory Impact Analysis were designed by a little-known Parliamentary Under-Secretary to the Minister of Regulatory Reform in the previous Government.

The Government will probably introduce pointless and damaging regulations that will reduce the supply of landlords and force those remaining to raise rents. But, it’s a start. The Minister responsible looked pretty bad on TV trying to explain himself last week.

We need to go further. The Fiscal Responsibility Act has ensured Finance Ministers will do anything to avoid running deficits. We need to make poorly conceived regulations look similarly unpopular. By doing so we can free ourselves from the deadweight losses imposed by rules that cost more than they save and become more productive.

Take education. This Government has set charter schools back by at least one electoral cycle. The Government might have delayed an idea, but no government can kill an idea. Because they were contracted for outcomes, charter schools achieved attendance rates in the high 90s. Funnily enough, skids also learned more. Vanguard Military School gets three times the University Entrance pass rates of the Decile 1-3 State average.

It is not difficult to imagine similarly innovative and open approaches to healthcare and welfare that are less focused on the provider, more focused on the customer, and ultimately get better value for the taxpayer.

In housing, I am hopeful that the next government will replace the Resource Management Act with new legislation focused on fast-tracking infrastructure and opening up new land for development.

Conclusion

The milk and honey is sure enough running out. It is more the end of the beginning than the beginning of the end at this stage, but this is the time in our cycle where we need to generate the highest-quality ideas for when the public demand for reform inevitably rises.

Reform periods can be divisive and disruptive, but they seem to be part of the New Zealand narrative. Out of it we can emerge again with a uniting narrative. We are the children of pioneers, we moved all the way here or a better life. We like a safety net, but we don’t want to stagnate in one. We will again remake our institutions to deliver intelligent regulation, personalised social services, and cities that scale easily to meet demand. It will be another great chapter in the New Zealand story, and it will likely start some time this decade.

Thank you.

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