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Sir Roger Douglas

New Zealand – the need for change

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“At the end of the 1930s we established a welfare system to act both as a safety net and a base from which people could re-enter productive society.  Part of that system was a number of institutions whose role was to act as conduits for aid given to the community, through the government, to those who were to receive it.  But something has gone terribly wrong with the system and the institutions as society has changed around them.” (Roger Douglas Unfinished Business 1987) 

 32 years on, New Zealand’s welfare system is much worse. Why? Because we refuse to change, the system we have had for the past 80 years.

 In broad terms you could summarise New Zealand’s welfare situation as follows:

  • Hundreds of thousands of New Zealanders are locked into dependency on the government.
  • The present system hurts the poor more than anyone else.
  • It fails to deliver the goods and services which people need to change their circumstances.
  • One in two adult New Zealanders rely on government support to get by.
  • Inadequate housing is becoming a bigger and bigger problem.
  • Far too many immigrants end up on welfare than is good for them or New Zealand.
  • The New Zealand approach to social welfare, has for many, resulted in boredom, low self-esteem, alienation, drug abuse and a high level of youth suicide.
  • New Zealand’s current system of having government as a virtual monopoly supplier of many welfare products has not worked.
  • The huge increase in middle-class welfare capture that has taken place under both the Labour Government of (1999-2008) and National of (2008-2017) has made New Zealand’s situation much worse than it was and harder to solve.

Other areas include:


Current situation limited choice (generally as a result of school zoning) means that most families are forced to take what is provided.  This in turn has led to:

  • Falling standards, compared to other developed countries.
  • Poor discipline, and a bureaucratic system to boot.
  • Poor outcomes – 30-40% of students leave school with insufficient skills to get a well-paid job.
  • Those New Zealanders living in poorest areas of the country often experience worst outcomes.


  • Doctors and other providers’ income depends less on the service they provide to patients than to

meeting third party reimbursement requirements.

  • Limited choice – individuals mainly have to take what the system provides.
  • Other issues include – Major staffing problems, lack of accountability, lack of incentives, rapid increase in costs, a caring not curing approach, a system that has become far too political.

Superannuation : Today’s Situation

  • 80% of adult New Zealanders have little or no investment savings.
  • There is a huge capital ownership divide within New Zealand society.
  • The number of workers to retirees is falling rapidly, raising the question of affordability.
  • Superannuation and healthcare take the equivalent of 90%, of all personal taxation. (66% in 1995)
  • The aim of many New Zealanders is to get as much out of the system as they can.
  • The unfunded liability of superannuation and healthcare for retirement is currently equivalent to three times New Zealand’s GDP or one trillion dollars.
  • If the increase in retirement debt (40 billion this year) were included in the government’s accounts as it should be, New Zealand would be running a huge deficit. People would realise bankruptcy is just around the corner.

While Other issues include:


New Zealand has had a low rate of productivity growth for at least the last 60 years, compared to other developed countries.  In the health sector in particular, this has been spectacularly so (e.g. between 2004 and 2015 productivity was close to zero with the productivity of doctors and nurses actually falling for a number of years).  The result of this is clear for all of us to see, a drop in our relative standard of living, and as a result, low relative incomes and wages.


The bottom 80% of New Zealand households in terms of investment capital, have virtually none at all.  As a result, they have to rely on government almost entirely for their income and healthcare in retirement.  The same is true if they are sick or unemployed during their working life.     


The power to make important decisions about their lives has been taken away from individual New Zealanders in a number of areas and transferred to politicians and the bureaucracy.  This has occurred in a number of important areas to most people, such as health, welfare and education.  


Politicians have deliberately introduced new policies or used existing policies to create a situation where  most New Zealanders are dependent on them as a government.  They have done this to win votes and/or to hold on to the votes of those they already have.  That is often from those, they have previously made dependent upon them in the welfare area.  A prime example of this approach is where a government imposes taxes and then gives the money collected back to those who they believe could support them as a result (for example, Working for Families, university student interest-free loans)


Bracket creep has cost low and middle-income families with children a lot in terms of their standard of living and has made it almost impossible for them to get ahead financially.  Take for example a family on $50,000 with two dependent children, a family that manages to increase their income by $10,000, or 20%.  What does that family have left after paying the government $3,000 in personal tax, receiving $2,000 less in working for families support payments, and paying the government an extra $1,000 in indirect taxes (e.g. on fuel and goods and services taxes)?   Answer, only $4,000 is left from the $10,000 increase in gross income they received.  Out of this $4,000 it is possible they could lose quite a bit more in government housing support payments.  No wonder most families do not feel any better off after receiving a good wage increase. The reason is that they are not, in fact, any better off, especially after taking inflation into account. In most cases this makes most of them worse off.

Resource Distribution

Resource distribution within the government social services is often of a ridiculous nature. Why? Because the money is often being spent by politicians on their perceived political need, rather than on real end user requirement. (e.g. education).


Institutional capture occurs where the money spent goes to the benefit of the institution and/or the providers who work in those institution, rather than the consumers those the institution are there to serve (e.g. health expenditure under Helen Clark’s government).


NZ has had a major shortfall in the supply of houses for a number of years now, in large part brought about by a lack of section development and therefore available sections at reasonable prices.


Immigration and the part it might play in a number of areas of the New Zealand economy needs attention, the costs involved need to be carefully measured against the benefits of doing so.

Local Government

Local body rate increases are a cause of major concern to many New Zealanders, waste, and low value expenditure are seen as two of the main reasons for this.  Another reason is that local government is seen more and more as getting involved in areas that do not concern them, areas considered as inappropriate. 


Investment in infrastructure in New Zealand over the past 50 years has fallen well behind what has been required, while funds are readily available to undertake the work required, a shortage of labour is a major problem at the present time.

Ageing Population

Over the next 35 years New Zealand’s retired population will climb from around 16% of New Zealand’s population to around 30%.  New Zealand’s liabilities to this group for future super and healthcare will rise from 1000 billion dollars to around 3000 billion dollars without change to current welfare policies, at that point the country would be effectively bankrupt.

If we are going to fix our welfare issues and problems we will need to have regard to what I said 30 years ago, in a speech to the Mt Pelerin Society in Christchurch in 1989:

“A sick economy cannot be regulated back into health.  Economic dynamism is the liberated energy of people at every level personally choosing and using opportunities that benefit them.

“Government’s role is to create a framework that widens their opportunities for choice, improves the incentives to productive activity and sees that their gain benefits society as a whole.  In other words, remember whose side you are on.  Interest groups, whether of farmers, manufacturers, teachers or health workers – exist to serve the interests and improve the lives of consumers.

“The purpose of economic activity is to satisfy the needs of consumers.  Government is not there to protect vested interests at the expense of the consuming public.  Its role is to ensure that vested interests cannot thrive except by serving the general public effectively.

“The only effective safeguard for ordinary people is the ability to make a free personal choice among competing suppliers whose livelihood depends on satisfying the final consumer.  Dedication to that principle from 1984 onwards is what places that Labour government squarely in the established Labour tradition of putting the needs of the common people first.  The abolition of privilege is the essence of structural reform.  Wherever possible, use your programme to give power back to the people.  That is central to both democracy and market socialism.”

In the next article, I will demonstrate how this can be done and what it would achieve for New Zealand and New Zealanders.