As regular readers of FundWatch will know, after the last general election the National Party formed a coalition with the ACT Party, and as part of that deal the Government committed to raising New Zealand’s living standards to Australia’s level by 2025. The Prime Minister has confirmed that commitment on several occasions since that time.
Regular readers will also know that a few months ago a five person Taskforce was set up both to advise the Government about how best to achieve that goal and to monitor progress annually towards it. I chair that Taskforce, and the others on it are the Hon David Caygill, Jeremy Moon (the founder and CEO of Icebreaker), Judith Sloan (a member of the Australian Productivity Commission) and Bryce Wilkinson (a Wellington economist).
And anybody who was following the news at the beginning of the month will know that the Taskforce released its first report at the end of November.
Unfortunately, too much of the media coverage of the event was superficial, and some of it was simply incorrect. For example, the Taskforce did not recommend a “flat tax” of 20% on all personal income, and did not propose the abolition of all subsidies for doctor’s visits, though reading some reactions to the report one could be forgiven for thinking that we had recommended both.
What we did say was that catching Australia by 2025 will require incomes to grow more than twice as quickly over the next 16 years as in the last 16 years, and that achieving that will require a change of policy across a wide range of areas. We are not going to double our growth rate by a little minor tinkering here and there, or by special tax breaks for oil exploration, or by special tax breaks for research and development.
We noted that there has been a huge explosion in government spending over the last four years, from 29% of the economy in 2005 to 36% of the economy currently, and that much of that spending is of very poor quality. A good example was making student loans interest free at a cost of about half a billion dollars a year – a hugely popular measure but one which is impossible to justify on any objective criterion at a time when the private benefits from tertiary education have never been higher and where the government is having to borrow $250 million every week to make ends meet.
We suggested that if government spending could be reduced back to its level of 29% of the economy – and that didn’t seem appallingly low in 2005 – there would be very considerable scope to reduce tax rates across the board, with great benefit to economic growth.
Was that all we suggested? No, the report covers almost every aspect of government activity. The reality is that government has a crucial role to play, but it doesn’t directly create wealth. Wealth is created in private markets. The best thing that governments can do is remove obstacles to wealth creation and create the right environment for people and businesses to create as much wealth as resources allow.
And is this all about benefiting the rich? On the contrary. High income people, and people with serious wealth, don’t need New Zealand to grow faster: they have plenty of options now. They can buy a big well-appointed house, and perhaps another in the Coromandel for good measure. They can send their kids to the best private schools, or buy into the expensive zones of the best state schools. They can go to private hospitals, or go overseas to get the best medical care. The people who most need New Zealand to perform better are those on low income. If we care about them, and about the future of our country, it’s important that the gap with Australia starts to narrow, and starts to narrow quickly.
May I take this opportunity to wish you all a very happy Christmas, and a restful break before starting a more prosperous New Year.
Copyright © 2025 Don Brash.