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Sir Roger Douglas

New Zealand Needs Reform Not Tinkering

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Conventional politicians ignore structural reform because they think they are in power to please people, and pleasing people does not involve making them face the hard questions. They use the latest polls to fine-tune their image and their policies, in order to achieve better results in the next poll. In other words, their aim is really to be in perpetual power. Their adherence to policies which focus on their immediate problems rather than the country’s future opportunities brings accumulating difficulties. It becomes increasingly clear to people that the problems have not been solved and that opportunities have been thrown away. And so, such governments are voted out.
Unfinished Business, Roger Douglas, 1993.


John Key’s recent interview with Audrey Young in the Herald, “Key reveals how he lost his fight for home loans”, was very revealing. Faced with a trade-off decision to raise GST – offset by a reduction in the rate of petrol tax – his initial reaction was not whether this was good public policy, but whether it could be politically sold: “I’d be the first to admit I was a bit nervous about raising GST thinking can you actually politically sell all of that,” Mr Key said.

This comment sums up John Key’s period as Prime Minister.

Not one bold decision in five years. Not one decision that will be remembered as changing New Zealand for the better. Rather a conservative, steady as you go approach, always putting politics and votes ahead of the best interests of the nation.

John Key knows that interest free loans for students in tertiary education – a policy introduced as an election bribe by the former Prime Minister Helen Clark in 2005 – is economic and social madness. He knows that essentially free student loans transfer income from the poor to the rich, but he does nothing about them.

His refusal to change the age of superannuation is yet another example.

He told us that Working for Families was akin to communism and yet he leaves it in place.

Corporate welfare for Sky City and the film industry are yet more examples.

Why is it, you might ask, that John Key is so reluctant to do what’s right?

Why is it that he always asks the wrong questions – that is, how will voters react – and as a result, will rule out most quality policy options, rather than asking, what is the right thing to do? And then, and only then, asking how do I sell it?

While there is no doubt that New Zealand is doing relatively well compared to many other countries, it is only because most of those countries are so far in debt that their future will be clouded for many years to come.

In other words, doing better than other countries is hardly any achievement at all.

In a special report “The secret of their success”, recently published by the Economist, Sweden, Denmark, Finland, and Norway were identified as leading nations. Their success can largely be attributed to the fact that over the years they have been forced to reduce government spending and balance their budgets. To do this they lowered taxes, ensured greater flexibility in the workplace, encouraged entrepreneurs, restricted welfare entitlements, and made far greater use of the private sector to deliver social services.

Why is it that John Key won’t even consider policies that the socialist Nordic countries take for granted? Why shouldn’t New Zealand consider leasing publicly owned hospitals to private sector operators to generate higher productivity and better quality outcomes at a lower average cost? Or in education, why shouldn’t parents be allowed to spend the money – on the school of their choice – that the state currently spends on their children’s schooling?

When it comes to the overall economy, why not reduce public expenditure and taxes relative to GDP so they are more affordable. And with regard to superannuation, since these Nordic countries have raised the age of eligibility for superannuation to 67 or 68 years, why not follow their lead and lift our retirement age too.

If New Zealand did these four things – enabled the private sector to engage in the health system, gave parents choice in education, reduced the size of government to more affordable levels, and lifted the age of superannuation – along with real tax and welfare reform – then New Zealand really could lead the world. But not under John Key’s watch, I’m afraid.