Speech to Act Conference 2008

Delivered on 15^th March 2008 in Auckland

Thirty years ago, I told the Labour Party conference that New Zealand stood at the economic crossroads.  That there were no soft options left.  That unless we changed our ways, New Zealand was headed for disaster.  That proved to be dead right.

From broke to beating Australia in five years

When Labour became the government in July 1984, New Zealand was more or less broke.  Yet within five years, by 1989, in many fundamental respects, we were ahead of Australia.  We’d left them behind in a number of areas.  We were making stronger progress towards a reliable growth economy than they were.

For example:

• Our current account deficit was 1.9% of gap.  Theirs was 5%.
• Our inflation rate was 4.4%.  Theirs was 6.6%.
• Our net debt/GDP ratio was 30%.  Theirs was 33%.
• Our debt servicing ratio was 14%.  Theirs was 17.7%

By 1995 and up until 2001, our growth rate was equivalent to, or higher than, that of Australia, thanks to the reforms of 1984-92.  By 2008 however, after 9 years of a Clark/Cullen government, we’ve fallen way behind Australia.

Let’s take a moment or two and have a look at the following charts.

1. In a union with Australia, New Zealand would have a very special place.  Last.  Per capita income 30% lower than Australia.  Soon our incomes will rise 1%, but theirs will rise 2%.  And in 10 years’ time we’ll be 40% behind.
2. Aussie’s poor cuzzie – 40,000 Kiwis leave for Australia each year.  Question: when will it reach 100,000?  What will New Zealand look like then?  Is it any wonder New Zealanders are leaving?
    

3. Tassie’s poor cuzzie - NZ wages $100 per week lower.

 Why then have we fallen so far behind?

There are a large number of reasons, but one stands out.  And that is New Zealand’s pathetic productivity growth since this government came to power. Down from 2.3% from 1992-2000 to an average of 0.9% from 2000-2006.  Nine-tenths of one percent – and still declining over 2007 and 2008.

Why has our productivity growth rate fallen so far behind Australia?  Answer: this government has time and again deliberately sacrificed New Zealand’s economic growth at the altar of short-term political self-interest.

We can sum them up in one word… They’re the Growthbusters.  Let’s have a look at some of the Growthbusters’ policies:

A Roman orgy of taxing and spending

·         Government spending is up by over $20 billion since 1999.  $10 billion in real terms.  Even if the spending had been good value for money (which it certainly hasn’t been), the high costs of taxation have been a huge millstone around the neck of the economy.

·         There’s been so much poor value government spending.  Corporate welfare.  Interest-free student loans.  KiwiSaver.  Working for families.  More and more bureaucrats.  There’s never been a better time to be a commercial building owner in Wellington.

·         High effective marginal tax rates: top tax rate increased to 39 percent, WFF.

·         Reintroduction of tax concessions and ad hoc tax measures

·         More expansive role for local government with 2002 local government act

Monetary policy

·         Weakening of monetary policy with changes to the policy targets agreement, foreign exchange market intervention

Regulation

·         Reduced labour market flexibility with employment relations act, holidays act, parental leave, minimum wage restrictions

·         Re-regulation of network industries – telecommunications and electricity

·         More restrictive commerce act

·         Company takeover regulation and increasingly restrictive securities legislation

Nationalisation

·         Kiwibank, Air New Zealand, Tranz Rail, ACC,

·         Failure to continue privatisation

·         Stopped the phasing out of tariffs

Social policy

·         More lenient administration of welfare (DPB, sickness, invalids’ benefits)

·         Productivity decline in health

·         No performance improvements in education with greater central control

Policy inaction

·         Failure to reform Resource Management Act

Future threats

·         More redistribution in 2008 budget

·         Climate change policies

Now you may be thinking, “Well actually Roger, I’m happy to stand the cost of some of these measures.”  And fair enough.  But before you sign up to them, don’t you need to know what that cost is? On average, we’re each $300 a week worse off than our Australian counterparts.

Just the increase in poor value spending since this government came to power is probably costing each and every one of us $20+ a week.  Running state-owned enterprises will be costing you another $20 a week. 

Collectively, these Growthbuster policies are driving an extra 500 people a week from our shores.  (My family) that’s why I’m back.  (Sit on sidelines)

Given the disastrous position New Zealand finds itself in, what then has been the reaction of New Zealand’s main political parties – Labour, National, the Greens and NZ First?

• They’ve all retreated to a dangerous do-nothing approach.
• Given this collective reaction, it can be fairly said that there’s virtually no difference between these parties, except to some degree in the social policy area.
• None of them have a clear vision of where New Zealand stands and where they want to take it.
• None of them have a 10 - 20 year goal for New Zealand.
• None of them have a well thought-out plan to achieve that goal.
• None of them have the guts to do what’s right for New Zealand.

So what can ACT, the party of new ideas, the party of change, do to take our country forward?  In the words of that great Kiwi goal-setter and achiever Sir Peter Blake, what would we need to do to make the boat go faster?  What would we need to do to bring the kids home sooner?

The Answer

Convince the voters of New Zealand to give us at least 6%+ of the party vote at this year’s election.  6%+ would enable us to get 2/3 seats around the cabinet table and thereby put our ideas and solutions to New Zealand’s problems on the cabinet table.  The question then becomes:

How do we go about getting 6%+ of the vote?

Step 1 – retain Epsom

This of course will be largely Rodney’s job – while he is well ahead at the moment, we can’t leave anything to chance.  We all need to help when asked.  Epsom provides the certainty voters need that their party vote will count when they vote act.

Step 2 – everyone say “yes!”

Reaching our goal will take a committed membership.  In the end it’s over to us.  You and me.

• If we want act to win 6%+
• If we want this country to move forward, not backwards
• If we want to solve New Zealand’s glaring social and economic problems
• If we want to bring our children home

...then we’ll all need to put in the hard yards over the next 8 months.  So please: if you’re tapped on the shoulder to:

• Stand as a candidate
• Be an organiser
• Help at Head Office
• Deliver literature
• Raise funds, or
• Find members

...say “yes.”  Not “maybe” – “yes.”  We owe it to our families and the country.

Step 3 – clarify the vision

Clarify further ACT’s 10 - 20 year vision of what New Zealand could be like with the right policies in place and what improvements would flow from these policies year-by-year.

Step 4 – distil the vision into punchy promises

Translate that vision and those policies into punchy promises and marketing messages that will inspire voters to vote ACT.

Step 5 –  always have the guts to do what’s right

In thinking about steps 3, 4 and 5 we need to start with goals.

Goals ignite action.  Until we form a clear and coherent view of our destination, it’s pointless to plague ourselves with questions about how to get there.  We need an exciting goal to spark our people into action.  And it shouldn’t be a vague goal.  It must be a smart goal – that is, one that’s specific, measurable, achievable, right for New Zealand and time-bound.  My suggested smart goal is that New Zealand should aim to:

Beat Australia by 2020!

In other words, by 2020, New Zealand would lead Australia in most of the important economic and social indicators, and be catching up fast  in per capita income.

A by-product of achieving this goal is that it would send a very welcoming message to around 400,000 new Zealanders who now live in Australia.  Our children.  Our grandchildren.  10% of our population.  It would say to them, “kids, it’s time to come home.” 

And soon, every year we’d be faced with the very pleasant problem of having to cope with the tens of thousands of them who accept our offer to return.  It happened in Ireland and it can happen here.  This policy will bring them home.

In order to achieve this overall goal of New Zealand beating Australia by 2020, we would need a subset of goals that relate to people’s lives, because in the end that’s what it’s about.

My suggested list of goals is quite simple:

• Opportunity – (e.g. Access to a high-quality education)
• Security – (e.g. A decent income in retirement)
• Self-worth – (an opportunity to contribute)
• Independence – (the ability to provide for self and family)
• Initiative – (ability to invest and be rewarded in successful)
• Social responsibility
• A system fair to self and others

In one sense, all the items on the list can be regarded as clichés.  But that doesn’t alter the fact that they’re among the qualities most fundamental to a sense of human wellbeing.  So, how do we make these goals the foundation of a serious programme to transform New Zealand?

The answer is quite simple.  We should start by asking ourselves what this country would look like if, 20 years from now, we could lead the world in those 7 personal and social goals, making major progress year-by-year on the way.

It opens up a vision totally unlike anything currently being offered in New Zealand by large and small parties alike.  It also has the additional virtue that the economic and social policies needed to achieve these goals can be reliably defined.

To achieve these personal goals and thereby our overall goal for New Zealand of encouraging thousands of New Zealanders to return and contribute their skills to beat Australia by 2020, we would need to lead the world in:

• High growth rates
• Low tax rates (top rate reached at 1.4 times OECD; average 5.6 times)
• High quality education
• High quality healthcare
• A welfare support system that helps people to help themselves.
• High quality government expenditure (no waste)
• A highly competitive marketplace (including welfare, health and education)
• Security in retirement
• Low government debt
• Low levels of crime

The current high level of disillusionment with politicians and political parties springs precisely from a realisation that no major party is offering to deliver such a range of policies. 

They’ll do what they’ve always done.  And we’ll get where we’ve always got.  ACT will release its policies in these areas over the next few months.  We have to this point established our goals and what we’d need to do to achieve them.

All we need now is a reliable plan to achieve these goals.

Once we’ve got a clear vision of the objectives we wish to achieve, we’re free to think in fresh and exciting ways.

For example: education.

It’s taken for granted by all the major parties – Labour, National, Greens and NZ First – that state schools are the only means of making sure every child gets a decent education.  So ‘free’ state provision has come to be seen as the main objective of the exercise.  But of course it’s not. 

The real goal is great education for all.  That’s something all those who care about their children should agree on.  And great education doesn’t necessarily mean state education.  Sometimes, of course, state schools are great schools.  But we’ve got to get things the right way round. 

Once we make great schools the central focus, we see that state schools are simply one of several means of getting there. In one scenario, the state, instead of building schools and paying teachers would simply ensure that parents have the money to buy a good education for their children.

This then is Act’s point of difference.  I’d summarise the policy of the various political parties in these areas as follows:

Let’s now look at why ACT favours markets and why the large monopolies (favoured by Labour, National, Greens and NZ First) don’t work, and why Labour’s and National’s insistence that they remain in place is leading to New Zealand’s decline.

The simple answer is that monopolies breed arrogance while markets bring choice, variety and wealth to us all.

Let’s look at these statements in more detail – Since 1984 there’s been a moral shift in this country.  It’s expressed in the moral foundation of the market.  Markets are a hugely positive thing.  Everyone who goes from shop to shop comparing the prices of dresses or books or power tools is using the market to get the best deal.  Markets work.  Markets, as I have said, bring opportunity, variety and wealth to all of us.

Monopolies on the other hand do the opposite

That’s the difference in a nutshell.  State-run monopolies were the largest feature of the New Zealand economy when Labour came to power in 1984, and they were the single largest reason why we were headed for third world status.

You don’t have to be an economist or a financier to realise why monopolies are almost invariably bad, it’s a moral thing.  The reason is this.  The people who run monopolies don’t have to please the people who are forced to use them.

• If you run the railroad as a monopoly you don’t have to care whether your customers’ goods arrive intact, on time, or at all.
• If you run the airline as a monopoly, then it just doesn’t matter whether the planes take off on time, whether they supply refreshments or whether you can afford to fly.

That’s what monopolies do to you

They browbeat you.  They tell you to take it or leave it.  Under monopolies, you’re often not treaded as a customer, you’re a troublemaker. 

On the other hand, markets make the individual important.  Companies have to care about individuals, otherwise they go broke.  If they don’t care, they don’t exist.

In an open economy, companies exert themselves to give you what you want, when you want it, and at a price you can afford.  In the ten years following the 1984 election, monopolies were swept away.

As a result we are today literally spoilt for choice across a whole range of goods and services from motorcars to household furnishings, you name it, we have it (unless the government has a monopoly in that area) and often at prices cheaper than say Hong Kong.

The question I ask you to consider is this.

If the effects of doing away with monopolies have been so good in these areas, why shouldn’t the same be true for the last remaining big four monopolies that are still dragging this country backwards?

Why shouldn’t we expect the same enormous gains in service, technical innovations and value for money in health, education, social welfare (unemployment, sickness and accident) and in superannuation?

ACT’s view is clear and that is that it’s only by treating people as individuals, by making them important, will these services come right.  Now, every political party say they’re going to make this happen – but when it comes to what they’ll actually do, it comes down to giving a whole lot more money, power and resources to the current system – a system that is clearly not working.

The fact is that competition makes things work better for people –

Why then have we, as a country, given so much of our personal power and our personal substance over to politicians?  Perhaps part of the reason is the fear people have of making a mistake.

Our fear of making a little mistake which could easily be corrected with little consequence has led us to make one big one.  We’ve handed over our money and sovereignty to the politicians and in return we’ve got a health, education, social welfare and superannuation system that can’t deliver.  Why?  Because they’re monopolies and monopolies make mistakes, like we all do – but the crucial point is they don’t have the mechanisms or the incentives to correct them quickly (if at all)

You can see this difference most clearly in agriculture.  New Zealand agriculture is probably the most successful in the world and it certainly isn’t dictated to from Wellington.  Innovators are free to discover new ways to fence paddocks, better ways to hang a gate or more productive land uses. New ideas when they work spread through New Zealand agriculture within a season or two.  And mistakes (goats, for instance) are quickly downsized.

That’s the essence of how free markets, competition and choice operate.  When the state monopolies run things they don’t expose their ideas to competition and that has a very real effect on our lives.

So we had a reading programme pushed by advocates through all New Zealand and it was based on the debatable idea that children should recognise whole words rather than work them out from the letters.  We’re still debating its effectiveness.  What we do know however, is that 40% of our young people leave school without adequate reading skills.  In these circumstances, how we will ever catch Australia is beyond me.

Remember : Monopolies breed arrogance while markets bring opportunity, diversity and wealth.

Let’s now turn to one example of the policy act might put in place if it had the opportunity – a policy which would move education, health, risk insurance (sickness, accident, unemployment), superannuation to a market model.  I stress it is but one idea, it is not at this time ACT policy.

Policy idea

Between the ages of 18-65, every New Zealander would be able to earn an income of $30,000 tax free.  This would reduce the amount of tax they pay by $6,000 thereby increasing their net income in the hand by the same amount.

For families, this tax free income level of $30,000 would be increased by an amount that ensured the following extra income on top of the $6,000:

• For a non-working spouse $5,000
• For every dependent child $500
• In addition, an educational scholarship equal to the cost of public education today would be made available to every child in the family.  This educational scholarship could be spent at any approved school parents choose.

Rodney will discuss this idea in more detail this afternoon.

How would the extra income be spent?

• First on risk insurance:
  • Accident insurance
  • Sickness
  • Unemployment
  • Healthcare
  • Out-of-pocket healthcare costs
• Any balance would go towards retirement savings (until savings reached a level sufficient to provide for the needs of individuals in retirement – health insurance, income), thereafter it could continue to be saved or spent.

How paid for

• Existing fiscal surplus
• Transfer of existing super fund into individual accounts
• Reduction in welfare payments
• Changes in the area of tertiary education
• Savings existing government expenditure
• Savings government interest payments
• Increase in government revenue (growth)
• Health and education (efficiency)
• Increased tax revenue from move back into the workforce (students, beneficiaries)

Outcomes flowing from policy

• New Zealanders would return in their thousands, others would elect not to leave.
• Leading doctors and teachers from all around the world would be lining up to come to New Zealand.
• Consumers are spending their own money, not relying on government handouts.  This has led to lower levels of demand than was the case under the old welfare system with self-insurance evident for non-catastrophic events.
• As far as possible, politicians would have been removed from day-to-day political decision making.  This is fundamentally important, until we do this, the well-organised groups will continue to do great harm to the rest of us.
• Power would be transferred from large institutions (e.g. Accident Compensation) and impersonal bureaucracies (health, education and welfare departments) to individuals.  Such institutions will never care for us or know as much about us as we do.
• Buyer and seller relationship restored to consumers and providers.  So that each of us as consumers becomes the principle buyer of welfare services, be the welfare superannuation, health or education, as we do with other goods and services rather than third parties.
• Prices readily available for products in social policy area.  Producers advertise price discounts and quality differences.
• Competition would reduce real prices as it did in areas such as post office, air travel and rail.  Under the current system, when costs go up, providers often increase their own incomes only.
• Consumers would have the choice of any number of providers.
• The income of providers would depend on the quality of the service they provide and price thereof.
• Equality of service would become clearly apparent throughout the social policy area – Otara/health/ education.
• Innovation would be seen everywhere.  Under the current system, the government welfare, education and healthcare industry were often hostile to change and discouraged its development.  Under new policy, innovation is one of the only ways providers, government or private, can stay ahead.
• Doctors and teachers would become central to the decision making process in their respective areas, not Wellington bureaucrats.

In conclusion, let me make the following 4 points:

• ACT is the only party with the guts to do what’s right.
• ACT is the only party with a detailed policy to bring our children home.  In fact, all our policy should ask the question – will it bring the kids home sooner?
• ACT is the only party offering all parents irrespective of income or circumstances, an educational scholarship for their children.
• ACT is the only party which will reduce your taxes in real terms.

Finally

• If you’re happy that 25% of Kiwi tertiary graduates live and work overseas compared to less than 5% of Australia graduates.
• If you’re happy that our income is $100 a week lower than it is in Tasmania or $300 lower than the Australian average
• If you’re happy that we’ve recently dropped two places down the OECD per capita league table
• If you’re happy that our incomes are going up by only 1% a year compared to 2% in Australia

Then you may well vote Labour again, or National if you merely want a change of government.  But if you want to change the direction of New Zealand for the better, then you’ll vote ACT and you’ll get your friends to do the same.

Let all of us support Rodney in the job that lies ahead – let all of us have the guts to advocate the policies we know are right for New Zealand at this time, the courage to do what’s right.  I’m up to it – I know you are too.