Opinion & Commentary
Lessons from across the Tasman where policy strength has brought economic growth
A new political leader is promising some radical ideas. Massive tax cuts, reduced government spending (compared to his rival at least), work for the dole and a 90 day trial period for new workers are all on the agenda.
So who is this free-market extremist? Believe it or not, it’s Kevin Rudd, Australian Prime Minister and leader of the Labor Party. That’s right, the Labor party. It’s illustrative of how far the policy debate has shifted in New Zealand that these ideas would probably scare even the National Party.
It also sums up in a nutshell why Australia is so much richer and more successful than us. As a New Zealander living in Australia for the last two years I’ve found the emphasis on policies for growth to be striking. Australians have had 16 years in a row of economic good times and have no plans to stop for a tea break.
The difference in mindset was especially obvious on the campaign trial. ‘Reform’ is not a dirty word for politicians, like in New Zealand; it is a badge of honour. John Howard and Kevin Rudd openly praised the reforms of the 1980s and 1990s as laying the platform for Australia’s prosperity, and in fact they squabbled to take credit for them. Kevin Rudd even boasted on television advertisements that he is an “economic conservative.”
This kind of discourse is unthinkable in New Zealand where Helen Clark still dismisses “the failed policies of the past” and insists that free market policies have never worked. As late as last year Michael Cullen was dismissing the impact tax has on the economy, a sentiment Kevin Rudd clearly disagrees with. He has pledged $31 billion in tax cuts and promises to keep taxes “as low as possible to attract investment and reward enterprise.”
Both major Australian parties are under no illusions as to where prosperity comes from. It’s not from good luck in the form of natural resources, but in policies which encourage hard work and entrepreneurialism. This is why they have lowered taxes for the last five years and consistently opened up the economy since the early 1980s.
By contrast New Zealand’s reforms have been stop-start and hesitant. Most major reform finished in 1993, and since 2000 tax and regulation has greatly increased. This period strongly correlates with declining productivity, which is the main driver of wealth.
There seems to be little comparative appetite amongst the New Zealand government to make growth a serious priority. Early in 2000 the bold goal of returning to the top half of the OECD for income was set, but after seven years we have slipped a place and the goal has been quietly dropped.
A recent speech Helen Clark delivered to Southampton University was illuminating, more for what it didn’t say than what it did. In over 1000 words on her vision for New Zealand, the only mention of economic policy was to ‘increase sustainability’, with the simple goal of an economy ‘strong enough to fund social services’.
This is hardly an inspiring or ambitious target when compared to Kevin Rudd, who promised “the single biggest difference Labor can make to this country is to keep the economy growing.” In his words, “a stronger economy means higher living standards, more job security, higher wages and ultimately a better quality of life for all Australians.”
Yet there has been no shortage of committees set up to investigate growth and productivity in New Zealand. The Growth and Innovation Advisory Board, the Knowledge Wave conferences and the Workplace Productivity working group were all launched with great fanfare, but little has been heard from them since.
Organising meetings will do little for economic growth when recent policy has made the business environment a lot tougher. New laws around ACC, employment relations, the Holidays Act and the Kiwisaver scheme have increased costs to employers without any corresponding productivity gains. The tax burden has greatly increased, along with ad hoc regulation into the telecommunications and energy sectors which has increased investor uncertainty.
Most international surveys of economic freedom show New Zealand and Australia roughly equal, but moving in different directions. New Zealand is backsliding while Australia is improving, which helps explain why business, investor and consumer confidence is consistently higher across the Tasman.
Politicians can’t create growth by themselves, but through good policies they can make the entrepreneurial environment as fertile as possible.
Of course, none of this is to say Australia is perfect – not by a long shot. But the comparative experience clearly shows that good policies, rather than good luck, matters for prosperity.
Phil Rennie is a Policy Analyst with the Centre for Independent Studies. His paper ‘Why is Australia so much richer than New Zealand?’ is available at www.cis.org.nz. All Kevin Rudd quotes are taken from his website www.kevin07.com.au.
