Catching Australia By 2025

Hon Heather Roy, ACT Deputy Leader
Sunday, December 6 2009

When ACT was negotiating our Confidence & Supply Agreement with the National Party after the 2008 Election, our basis of the Agreement was closing the income gap with Australia by 2025.

Both ACT and National noted that we shared "aspirations for greater prosperity for New Zealanders, and see Australia as a benchmark".

With both Parties agreeing on the goal of closing the income gap with Australia by 2025, the Confidence & Supply Agreement also included a provision to establish an advisory group to: investigate the reasons for New Zealand's decline in productivity, identify "superior institutions and policies in Australia and other more successful countries" and make credible recommendations to achieve the goal of 'catching Australia' by 2025.

The 2025 Taskforce report, released last week and entitled 'Answering the $64,000 Question', provides recommendations on how New Zealand can close the income gap with Australia by 2025. While the proposed recommendations are challenging, they are worthy of serious consideration.

The income gap is significant. The average Australian income is around 35 percent higher than New Zealand and this equates to an estimated $64,000 difference annually for an average family of four.

Chaired by former National Party Leader and Reserve Bank Governor Dr Don Brash, the Taskforce released its first report as scheduled last Monday. While it did not provide a silver bullet to solve the income gap problem, the report went some way to proposing ideas to address the complex issues surrounding New Zealand's economic decline.

The report shows that it is possible to catch Australia but, to do so, we will have to be bold and tackle the tough issues head on. The Taskforce report has proposed a programme of policy changes that will help us get there. It points out that most of our problems are due to poor government - for example: too many of the services we buy are Government subsidised and paid for though higher taxes, rather than us just paying for them directly as we use them. The report recommends removing those subsidies and cutting taxes instead, in the process dealing with the substantial waste this produces.

Government still owns far too many businesses and experience shows that it doesn't run them well. They invariably end up being tinkered with by politicians. The report recommends selling them. Rather than running businesses, the Government should be focus on what it should do well. We rely on state monopolies too much, particularly in education and health. Competition should be encouraged in these areas to get better services at lower cost. That is what works in all other sectors of the economy and what works well in other countries.

Here is an example of what should be done: the report advocated opening the education market to private providers. Around 30 percent of New Zealand children currently leave school unable to read or write at an appropriate level. Introducing private competition to the education sector would improve the quality of education delivered to our children – they would be better equipped to contribute in a meaningful way to society and the economy.

Other recommendations in the report included:

* Significantly cutting Government spending and tax rates
* Finding better, more effective ways to ensure delivery of Government-funded services
* Evaluating Government spending proposals much more rigorously
* Substantially improving the quality of economic regulation across the board
* Stopping the Government from owning business assets.

At the same time, however, the report had some weaknesses – while pointing out that effective marginal tax rates are too high, the Taskforce recommended more targeted Government expenditure on Health and Welfare. Such a policy, however, would result in an increase in effective marginal tax rates.

The Taskforce's suggestion to lift the age of superannuation entitlement has some drawbacks as it would result in a level of unfairness for some individuals. For instance: Maori and Pasifika peoples would pay into the superannuation scheme their whole lives but, ultimately, receive lower payouts due to their shorter life expectancy.

Overall the report is positive in moving toward catching Australia by 2025. It provides stimulus for debate and for the change in thinking needed to improve our productivity and economic situation.

What was disappointing was the speed with which Prime Minister John Key dismissed the report – referring to it as being too radical, and distancing himself from the Taskforce's recommendations. Mr Key's view is that gradual reform is the way to lift our prospects and improve productivity, rather than the swifter change the report recommended.

But gradual reform was the style of the previous Labour-led Government and that lead us to the situation we're in today. It shouldn't be forgotten that the last time New Zealand's productivity growth exceeded Australia's was during the rapid reform period of 1984-1996.

This dismissal of the report, and Finance Minister Bill English's admission that the goal of matching Australian incomes by 2025 was "aspirational" rather than realistic, simply demonstrates that National is not the Party to deliver it.

'Answering the $64,000 Question' can be found at http://2025taskforce.govt.nz/pdfs/2025tf-pres-30nov09.pdf

Lest We Forget – New Zealand Declares War On Japan
On December 8 1941 New Zealand declared war on Japan in response to the surprise attack on Pearl Harbour – an attempt to prevent the US Pacific Fleet from influencing Japan's planned war in Southeast Asia against Britain, the Netherlands and the US.

The attack, however, had the opposite effect and prompted the US to enter the war directly.

Within weeks of New Zealand's declaration of war, New Zealand pilots with 67 Squadron of the RAF first encountered the enemy in the Pacific during a Japanese air raid on Rangoon, Burma (now Myanmar). Over the next four years thousands of New Zealanders would fight in the Pacific War – the hallmarks of which were rain, heat, humidity and savage fighting during which the rules of war were often ignored.

Japan formally surrendered aboard the USS Missouri in September 1945 and, as a result of the joint efforts during the Pacific War, the following years saw New Zealand's connection with the US grow stronger. As part of this strengthened relationship New Zealand, Australia and the US entered into the formal ANZUS alliance in 1951.

ENDS

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