Opinion & Commentary
Want a centre-right government in New Zealand? Move to Australia
It is ironic that National’s Budget mirrored the Australian Labor Party’s budget a few weeks earlier. To rephrase one of the great political one-liners of the last decade in New Zealand: John Key and Bill English believe there is a place for tax cuts – it’s called Australia.
There are many similarities between the two government’s policies. National promised a new network of roads and a National Infrastructure Unit, Australian Labor launched its ‘Nation Building and Jobs Plan.’ Both have capped future spending increases to 2%. Both talked up the need to pay down the deficit long term, and the importance of making sacrifices and savings, although neither really did so. Both have increased education funding and both have instituted schemes to insulate the homes of people who thus far had decided it wasn’t worth spending their own money on.
An important difference however is that the Australian Labor government is actually facing up to retirement policy in an age where we are living longer and baby boomers are about to start retiring. They are signalling a move to increase the retirement age to 67 in 2023. Where the New Zealand government has deferred tax cuts, the Aussies are pushing ahead.
The National Party in New Zealand seems further ‘left’ than the Labor Party in Australia. The Australians at least have the wherewithal to make some cuts, albeit meagre, and have signalled raising the retirement age. The closest National came to this was cancelling payments into the Cullen fund for 11 years. The Cullen fund is poor policy, and borrowing to invest elsewhere is like borrowing to manage a hedge fund – not a desirable thing for any government to be doing. Add to this the dubious scheme of aiming to invest 40% of the fund in New Zealand and the whole thing is a mess, and it is ultimately irrelevant to future pension payments. The government is quick to point this out – so why not just dissolve it and use the cash for something else – like paying down debt, putting it into private super accounts or a tax cut? Better to grow the economy faster today to provide more resources for the future. This has always been the opportunity cost of the Cullen Fund.
When National campaigned on the importance of tax cuts, what they were really promising was a reduction in government expenditure. Mr Key declared in his reply to Michael Cullen’s last budget that his was the party of tax cuts: “we are the party of tax cuts, we believe in tax cuts.” But this is misleading. Unless Mr Key was of the erroneous belief that surpluses would continue forever, and allow continued increase in spending AND decreases in tax, what he was really saying was ‘we believe in smaller government that spends less.’ The tax burden is simply indicative of how many functions a government feels it has a duty to provide. Put differently – no one ‘believes’ in tax cuts, they believe in smaller, more efficient government, which does less - the result of which is an easing of the tax burden, so people can spend their own cash doing things they want and that the government doesn’t provide.
Judging by the budget, this logic has been overlooked by the Prime Minister and Minister of Finance, along with their commitment to have the same living standards as Australia by 2025. The Minister of Finance was pleased to speak of the $301 million of ‘savings’ made in the budget to be spent elsewhere. So these are not really savings at all, but a simple reprioritising of funds. Contrast this with the cost of the deferred tax cuts, worth about a billion dollars, 1.5% of spending and the increase in core government expenditure of $2.7billion and it is clear that this government is not in fact interested in fiscal restraint.
Mr English correctly analysed the causes of the recession in his budget, and how government spending and finances have contributed to this, but the prescription was more of same, in fact a spending increase. For all the talk of tradeoffs and prioritisation, the message was that this would be necessary tomorrow. In reality, there is no time like the present.
Apart from the usual rhetoric about the importance of productivity and regulatory bottlenecks, little was announced. In Australia, Craig Emerson holds a post as Minister Assisting the Finance Minister on Deregulation and is constantly working towards reforming ‘the spaghetti bowl’ of regulation and simplifying things for business. The goal is for as much regulation as possible to ultimately be available in a few pages so it can actually be understood by small businesses and laymen.
Back home the government hasn’t instituted anything like this, instead keen to point out that we are in for a ‘decade of deficits’ not of their making. This will not help us catch up with Australian living standards. It appears more like we are in for a decade of deferrals, and departures – of talented New Zealanders overseas. Bolder action was required.
Luke Malpass is a Policy Analyst at The Centre for Independent Studies
