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Prospects for the New Zealand Economy

Wednesday 11th Oct 2000
Rodney Hide Speech -- Economy

The speed of the economic downturn caused by the Socialist policies of the present government surprised everyone. We all knew it would happen. What we didn’t know was just how quickly the economy would be sunk.

No one in their wildest nightmares was picking that commentators would be saying that we would be in a recession within a year of the election, that the dollar would sink below 40 cents US and that the Governor of the Reserve Bank would be warning of Stagflation.

We live in a country now where capital, labour, businesses, talent and brains are freely mobile. Investors don’t have to invest in New Zealand. We are discovering too that our young people with “get up and go” can do just that. There is an increasingly “Helengrad” pall settling over the entire nation but so far New Zealanders remain free to move their money and themselves to more welcoming economies.

For years, successive governments have taken a slack approach to economic management. The gains made by Roger Douglas and Ruth Richardson were lost by a do-nothing National Administration and then the disastrous Coalition Government held hostage by Winston Peters and his rag-tag “team”. We were slipping throughout those years. With Michael Cullen and Helen Clark we have not just jammed on the brakes but we have shoved economic policy hard into reverse. Seventeen OECD countries have posted their June Quarter results. New Zealand is the only country that has manage to shrink its economy. Our economic woes are entirely self-inflicted. The Asian crisis was bad enough – but this we have done to ourselves.

There is much that Michael Cullen doesn’t understand about the economy. But one key thing is what it is to have a competitive economy. Being competitive isn’t about being the same. This is what Michael Cullen always suggests when he compares New Zealand’s tax rates or New Zealand’s labour laws with Australia’s or other countries. Being competitive is about being better.

Henry Ford was competitive because he made better cars and a lower price, not cars that were the same and at the same price. For New Zealand to be competitive, it is not enough that we have the same economic polices as other countries, we must have better policies, much better policies, to compensate for our small size and our distance from markets.

The immediate outlook is for the economy to deteriorate further. The dollar will go down further, the sharemarket will lose more value, the negative economic statistics will continue through next year. The turnaround should start half-way through next year when it becomes apparent that the present government is going to be dumped in the 2002 election.

New Zealand are now cheap buying and next year they will be a good investment offering a positive return with the prospect of a change of government. The lift that we hopefully will achieve next year won’t be because of this present government but precisely because investors by then will be able to see the end of them.

This year’s turnaround is dramatic, but New Zealand’s economic decline has been underway for forty years with only brief glimmers of light. Sure, we are richer than we have ever been. We are half-as-rich again as our parents’ generation and three times richer than our grandparents. But relatively, we are poorer than we have ever been. In 1960 New Zealanders were ten percent richer than Australians. Our GDP per head then was 85 percent that enjoyed by the citizens of the United States of America. We were five times richer than the Singaporians. Back then we felt rich because we were rich.

We are now fifty percent materially better off than we were in 1960. But we have slipped relative to other countries. We feel poor now because relatively we are poor. Australians are now richer than we are. Their GDP per head is 25 percent above ours. Our GDP per head is half that of the United States. Singaporeans on average are 60 percent richer than we are. In 1960 New Zealand’s GDP per head ranked us as sixth in the OECD. We are now twenty-first. Being richer doesn’t necessarily make you happier. But it does mean you can do more.

If we had just grown at Australia’s growth rate for the last 40 years instead of our own we would be 40 percent better-off than we are now. We wouldn’t then be so poor. We could educate our children better, provide better health care for everyone and look after our elderly more properly. If we had enjoyed Singapore’s growth rate for the past 40 years we would be nine times richer than we are now. That’s truly hard to imagine.

We need not just to reverse this year’s tragic reversal but the long-term decline relative to other countries that New Zealand has suffered. If we don’t, we will end up with a truly poor country where the young and productive have bolted leaving behind bickering tribal groups, a growing and increasingly despondent number of welfare dependants and a million elderly New Zealanders all with a shrinking base of taxpayers upon which to depend.

We need to face up to the fact that we need to gain and retain a competitive economic edge. To do that, we need an economic and social policy framework that leads the world with the incentives it provides New Zealanders to work, to save, to innovate, and to prosper. “She’ll be right,” is no longer good enough.

The savage turn-around inflicted by the present government policies has not been all negative for achieving a competitive policy framework. First, it has put the economy back centre stage. Once again, New Zealanders are focussing on what we must do to grow the economic pie rather than just endlessly carve it up. The economy will be a major election issue in 2002 if not the major one. That has to be good news for the necessary debate to build the consensus needed to deliver the policies that will make New Zealand a nation of winners.

Second, the present government is giving Socialism a bad name. The savage impact of increasing tax, re-regulation, re-unionisation and re-monopolisation on people’s lives and livelihoods make it clear that good intentions are not enough. The present government no doubt wants to help those on a low income and those looking for work. Sadly, their policies have hit those on a low income the hardest.

Labour’s defeat in 2002 should bury their Socialist, collectivist ideology for another generation to come. That’s got to be good for New Zealand. We need a strong viable Labour party in Opposition but we need it to be a party that recognises the need to work with business and market forces, not against both. We need Labour not only to lose the next election but to realise that their only way forward is to follow the Social Democratic parties of other developed nations that are market smart and business friendly.

Finally, the present government has provided a dramatic case study in just how quickly bad policy can cost a country people, jobs, businesses and capital. We have proved to our great cost that putting taxes up is bad for the economy. Michael Cullen didn’t believe it in Opposition. He must do now. The converse is also true. If putting taxes is up is bad, then cutting them must be good.

That’s the one key thing that we can and should do to get the economy going. We are losing because we are piling costs onto business. The biggest cost is tax with the government taking a third of all expected returns.

The one thing that we must do to turnaround our economic fortune is to cut the top rate of tax both business and personal to twenty cents in the dollar. We can do it and we can do it easily over three to five years.

The boost to New Zealand’s competitive advantage and to our economy would be dramatic with that one change.

Imagine this. If lifting tax just a bit on just a few individuals has had such a serious impact on New Zealand’s economic fortunes, imagine the positive impact that cutting taxes for everyone including business would have on the economy and the country.

We need too to bring back an enterprise culture to government. Creating wealth is not about rules and regulations and high taxes and high spending.

Creating wealth is all about upholding private property rights, recognising the sanctity of private contracts and realising that it is private individuals pursuing their own ends within the rule of law who produce the wealth that we all so desperately need and want to provide for ourselves, our families and our country. The battle to regain New Zealand’s competitive advantage began for the ACT party the day after the last election. It’s a battle that we will continue right up to the next election and beyond. It’s a battle upon which our future fortunes all depend.


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