When the Coalition became Government in 2023, their priority was to reverse the devastating social and economic impact of the former Ardern-Hipkins Government. Their failings were universal, but particularly evident in the economy.
As a result of Labour’s six years in office, Core Crown expenditure escalated from 27 percent of GDP in 2017, to almost 35 percent, and net core Crown debt more than doubled from below 20 percent, to over 42 percent.
Labour’s profligate spending and excessive borrowing had plunged the country into hyperinflation followed by a double-dip recession.
The dire state of the country wasn’t too dissimilar to what John Key inherited back in 2008, when the expansionary tax and spend policies of Helen Clark’s Labour Government had driven the economy into a recession months ahead of the Global Financial Crisis.
With Finance Minister Bill English at the helm, National’s goal was to get government spending under control and, over time, reduce it down to 25 percent of the economy.
This objective was outlined in a pre-budget speech in May 2014, “In 2008 government spending was 35 percent of our GDP. Now that has dropped to 30 percent, and we want that to be dropping to 26 percent and 25 percent in the next six and seven years.”
At the time of the GFC, while some economists argued that bigger governments and stimulus spending was the way to improve growth, the Cato Institute’s Richard Rahn, chairman of the Institute for Global Economic Growth, explained that wasn’t the case:
“A new study just completed shows the optimum size of government is less than 25 percent of GDP. Rather than increasing the size of government, the empirical evidence shows that sharply reducing taxes, regulations, and government spending down to at least 25 percent of GDP would do the most to spur economic growth and create more jobs over the long run.”
At the time, then Treasury Secretary John Whitehead also suggested the quality of government spending was a key part of New Zealand’s problem:
“We have focussed too much on new spending and not enough on the huge base of existing spending. This year’s total Budget is $62 billion and it includes spending on policies introduced five, or 15 years ago, that may no longer be effective or fit Government objectives. Across government, there is about $40 billion of public money, that could be used differently and better.”
In other words, he believed that almost 60 percent of all government spending could be better used.
The Secretary then warned, “The state sector is a very large part of the economy – central and local government combined represent about 40 percent of GDP – so it is hugely important that it works as efficiently as possible to support the private sector. We cannot afford to crowd out private enterprise or impose unnecessary costs on people and businesses.”
With the State sector growing to over 43 percent of the economy, it is more important than ever to recognise that it is private enterprise, not the government, that creates the jobs and wealth that lift economic growth and living standards.
By increasing taxation and burdening the country with more bureaucrats, greater debt, and escalating debt servicing costs, obese governments destroy innovation and entrepreneurship – the very things that create growth.
Instead of the country having a ‘can do’ attitude, the heavy hand of government forces those with get up and go, to get up and go elsewhere.
Our situation is not dissimilar to what confronted Margaret Thatcher in 1979 when she became Prime Minister of post-war Britain. Racked by stagflation, she promised to restore a culture of entrepreneurship: “I came to office with one deliberate intent: to change Britain to a self-reliant society… A get-up-and-go, instead of a sit-back-and-wait-for-it Britain.”
Her reforms embracing freedom, lower taxes, and less regulation, reinvigorated the British economy.
West Germany, however, had introduced fundamental reform straight after the war. Virtually overnight, Economics Minister Ludwig Erhardt cut bureaucracy, flattened taxes, and transformed the country into a free market economy.
To encourage work, tax on overtime – over 40 hours a week – was abolished, and to incentivise exports, taxes on all profits earned through exports were eliminated. Productivity soared, and exports skyrocketed. The country prospered, and Germany, was on the path to become one of the world’s strongest economies.
Getting the fundamentals right was also the key to the transformation of Hong Kong and Singapore from third world countries into powerhouse economies. Both maintain limited governments with low-tax environments to attract business and investment. Corporate tax rates which start under 10 percent then rise to a maximum of 17 percent based on profits, along with personal tax rates that peak at 17 percent in Hong Kong and 22 percent in Singapore, are in sharp contrast to the situation in New Zealand, where corporate taxes are 28 percent and the top income tax rate is 39 percent.
History is unequivocal – the best way to grow an economy is for the Government to get out of the way and let businesses do what they do best: create jobs and wealth. Once released from the shackles of excessive taxation and an overbearing bureaucracy, innovation will flourish. It’s commonsense – but not to socialist politicians who try to convince voters that they are the solution.
To build a better future, the Coalition needs to harness the energy and expertise of entrepreneurial investors. And while that’s what they say they are doing, in reality, they are failing to get the basics right.
Instead of curtailing expenditure, figures from the 2025 Budget Policy Statement show increased spending and rising debt. The wonderful opportunity the Coalition had to take control of the books and set New Zealand on the right path is being squandered.
For instance, why haven’t most of the 19,000 additional staff hired by the Ardern Government – that took public service employees to almost 65,000 – been given their marching orders? Not only are they costing taxpayers an additional $1.5 billion a year, but a large proportion are “Diversity, Equity, Inclusion” activists hired by Labour to drive their radical identity politics programmes – including He Puapua and the United Nations Declaration on the Rights of Indigenous Peoples.
The fact that this toxic agenda is still being rolled out indicates the Coalition is failing to uphold one of their key election commitments – to replace race-based policy with needs-based initiatives grounded on equal rights.
Ridding the country of Jacinda Ardern’s He Puapua legacy would have saved hundreds of millions of dollars not only in wages, but in a myriad of destructive race-based programmes that should already have been axed.
As the Treasury Secretary said all those years ago, the State sector is awash with costly programmes that no longer fit Government objectives and are well past their use-by date.
But getting rid of such programmes requires courage. And there are now growing concerns over whether the Coalition has what it takes to give our country the best chance of a decent future.
They are, without a doubt, better than the opposition, which has degenerated into a toxic mix of parties that have abandoned the very people they purport to represent. A Labour Party that prioritises identity groups based on race, gender, and sexuality over the working class. A Green Party that has turned its back on environmentalism to embrace communism. And a Maori Party that is using the Maori seats to attack democracy itself.
But the point is this: New Zealanders deserve a government that is prepared to make the tough decisions that put the good of the country first.
Apart from failing to cut spending and reduce debt, there are questions over whether the Coalition will be prepared to properly address the funding crisis caused by our rapidly aging population.
This is an issue that has worried this week’s NZCPR Guest Commentator, former Finance Minister and ACT founder Sir Roger Douglas, ever since Robert Muldoon axed Norman Kirk’s Superannuation Savings Scheme:
“Labour in 1974, introduced a compulsory superannuation system for all workers. Had that policy remained in force today, most would be retiring with more than one million dollars. Norman Kirk’s Labour Party was aspirational for their supporters; they wanted them to have the same opportunities as other New Zealanders in areas like super.
“Ever since Muldoon’s National Party introduced their extremely expensive pay-as-you-go pension system in 1976, New Zealand has progressively accumulated more and more unfunded liabilities each year. Today New Zealand’s unfunded liabilities exceed one and a quarter trillion dollars, to which you can add 40 billion dollars each year for inflation. Today’s young people have, over the past 50 years, been slowly robbed of their rights, their freedom, and their futures.
“The culprits? Muldoon and National who introduced the new superannuation policies in 1976, and the politicians who have followed them… The crisis of New Zealand’s unfunded obligations, entered into so willingly by New Zealand’s politicians of all stripes over the past 50 years, is about to hit us very hard indeed. It will not be pretty.”
As Sir Roger points out, Treasury has projected that our healthcare and superannuation costs will increase by 6.4 percent of GDP or $100 billion by 2061. When other expenditure is added, including an operating deficit of 13.3 percent of GDP, government debt of 197 percent of GDP, and net interest costs of $120-plus billion a year, New Zealand would be effectively insolvent, well before 2061.
Had Labour’s 1974 Superannuation Scheme, which provided security in retirement through personalised superannuation accounts, not been axed, New Zealand would be a rich country, and Kiwis would be enjoying one of the highest living standards in the world.
But sadly, as Roger has explained, politics got in the way – and it is still in the way.
Unless there’s a surprise in the Budget, while the Coalition now appears prepared to discuss the approaching superannuation crisis, if they are unable to balance the budget, it seems unlikely they would even consider the sort of reforms Sir Roger is proposing.
Instead of living from hand to mouth as the population ages, with mounting debt liabilities and more taxation, Sir Roger’s plan would deal with the problem in a way that would enable New Zealanders to retire with millions of dollars in savings.
By redirecting a portion of the income tax that people pay to the government into their own personalised super savings accounts, thanks to the ‘magic’ of compound interest, over a working lifetime modest savings are turned into substantial funds that can be converted into generous annuities on retirement.
The only losers are the politicians who will be forced to surrender some of their power as tax money that would have gone into government coffers for them to redistribute, is redirected into the personal retirement savings accounts of Kiwis, to cover off the major cost of superannuation.
Sir Roger’s ideas are not new. He’s been refining his plan for over thirty years. But with the announcement that the first ever withdrawal from the New Zealand Super Fund – a government investment set up in 2001 to help cover the future cost of pensions – will take place in 2028, the time has now arrived where New Zealand can no longer ignore this looming crisis.
Quality reform is now called for. But here’s the problem – where is the party with the vision to adopt Roger’s plan as the best way forward for New Zealand?
Where is the party with the courage to set New Zealand on the path to a better future – one where the good of New Zealanders is put first, and where there’s no kowtowing to vested interest groups demanding special privileges.
And if there isn’t such a party prepared to address these matters and make the necessary changes, Sir Roger asks whether it’s time to follow the lead of Reform in the UK and set one up?
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THIS WEEK’S POLL ASKS:
*Do you believe our retirement savings system needs to be reformed; if so, how?
*Poll comments are posted below.
*All NZCPR poll results can be seen in the Archive.
THIS WEEK’S POLL COMMENTS
| Roger Douglas’s reforms should have been introduced years ago. If no party will adopt the plan, then yes, a new political party should be formed. This is too important to be allowed to drift, | David |
| The Coalition has shown itself to be all talk and little action. It is incredibly disappointing that they haven’t removed all of those activists hired by Ardern. Don’t they realise how dangerous these people – and the policies they are pushing – are??? | Maureen |
| Unless Roger gets the full support of a party to introduce the reforms properly, there is a real danger they will be cherry-picked and won’t work as he has described. I think he should set up a Reform Party, but target the left. There must be lots of Labour and Green supporters who are completely dismayed at the direction their parties are now going in and would support the reforms Sir Roger is proposing that would give them real security in old age. | Philip |
| Muldoon should never have cancelled Norman Kirk’s Super Scheme. That rates as one of the worst political decisions in New Zealand history! And congratulations to Sir Roger for not giving up on his vision. | Geoff |
| The current scheme needs to be replaced with the policy proposed by Roger Douglas. It won’t be too different from Kiwisaver except it will cover everyone and be funded through our taxes. Bring it on! | Andrew |