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Phil Rennie

Five Ideas to Super-Size NZ’s Economy

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Every time the All Blacks lose to the Wallabies, New Zealand endures a familiar grieving process. First comes grief, then blame, soul-searching, and finally brainstorming over the right tactics to beat them.

Yet for the last 30 years the Aussies have been flogging us at something far more important than sport – economic performance. The average wage in Australia is now a third higher than in New Zealand, which means more exciting and rewarding jobs, more opportunities for young people and better social outcomes.

It’s a big reason why nearly a quarter of our university graduates are overseas, when the equivalent figure in Australia is just 2%. There is nothing wrong with exploring the world and building a career overseas, but the crucial question for New Zealand is: how many of these talented young people will come back? No-one really knows yet.

Surely it’s time we started to apply the same sense of urgency to our economy as we do to sporting losses. For such a talented, creative and smart country, blessed with natural resources, we should be doing better.

The easy part is pointing out the problem, but the much harder part is trying to find solutions. At a public forum in Auckland this Tuesday a line-up of speakers, including Don Brash, David Skilling and Andrew Little and myself will take on the challenge by outlining ideas on to ‘super-size’ New Zealand’s economy.

There are no easy answers, but I can nominate five areas in which we can do much better.

Firstly, size matters – size of government that is. For the last eight years the government has increased spending to the extent that the entire public sector now makes up 45% of the economy, higher than it was under Muldoon in 1984. This compares to just 35% in Australia.

With nearly half of all wealth created in New Zealand in the hands of politicians and bureaucrats we need to be sure we are getting good results. The evidence is not good though; over the last 10 years there has been little change in life expectancy, hospital outputs, literacy, violent crime, suicide, poverty and inequality, representing a poor return from such a large investment.

We need more transparency and accountability for what governments spend, and to focus on actual outcomes achieved rather than how much we spend.

Secondly, New Zealand is a high-taxing country on a world scale; in fact we are the highest taxed English-speaking nation in the OECD and well above Australia. Major tax cuts would allow people to spend their money as they see fit, and make it more rewarding to invest, save, hire workers, and to move to New Zealand in the first place

Switching to a simple two-tier income tax system with rates of just 15% and 25% would be surprisingly affordable, costing around $5.5 billion. If we use the budget operating balance and unallocated new spending, we could bring in these rates without cutting a single dollar of current spending. It’s all a question of priorities and discipline.

We could learn a lot from Australian Prime Minister Kevin Rudd, who is cutting $10 billion of inefficient public spending over the next four years and delivering big tax cuts in a determined bid to boost growth.

Thirdly, the burden of red tape is a regular complaint from business and worth listening to. Kevin Rudd has appointed a “Minister of Deregulation”, and ACT leader Rodney Hide is pushing for more checks and balances on the passing of regulations. Both are good ideas worth supporting.

Fourthly, I worry we place too much emphasis on university education over early education, where spending can make much more of a difference to the lives of disadvantaged children.

We have an enormous number of tertiary students – 448,000 tertiary students enrolled in 900 different institutes, all in a country the size of Sydney. But despite billions of dollars in extra government funding, there is still a serious mismatch between graduate numbers and the shortages in the trades.

There is also a poor completion rate amongst tertiary students, suggesting that many young people are wasting valuable years of their lives doing courses they don’t enjoy and aren’t suited to anyway.

Meanwhile we have a long tail of underachievement, particularly amongst Maori and Pacific Island students. The solution to both these problems is to ‘frontload’ more education spending, so that we spend more at an early level and less at a higher level, to make people take university more seriously.

Fifth and finally, we need to look beyond government to ourselves. There are some unique New Zealand quirks that need to change, or improve, if we are ever going to become an economic powerhouse. In particular we have a poor level of financial literacy compared with other countries, and the tall poppy syndrome still rears it ugly head too often. We need to encourage and reward people who succeed in all fields of life, not just sport or the arts.

If we’re serious about growth and creating better lives for people we need to start doing things differently. Wishful thinking isn’t enough.