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Dr Muriel Newman

Winds of Change

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2 December 2007

Winds of Change

The only good news from the Australian election is that it has foreshadowed a change in government here. Electorates grow disillusioned with parties that have been in power for too long and vote for change.

This is especially relevant as we watch the manoeuvrings of a third term Labour government that has become increasingly tired and arrogant. The clearest sign of this is its determination to bulldoze through the self-serving Electoral Finance Bill. Even its own Human Rights Commission is saying that the Bill is going too far by attempting to shut down criticism for the whole of election year.

If we look back over the last eight years, Labour’s legacy includes a raft of policy failures. In spite of year on year record surpluses, many hospitals are now forced to rely on charitable donations to meet their funding shortfall. Some are even resorting to bribery to try to encourage patients to go home sooner than they should.

School Boards are admitting that they now spend more time worrying about their school’s finances than they do about student achievement.

Just last week the Paediatric Society highlighted that there are a growing number of New Zealand children who are suffering from third world diseases. While they have linked this “underclass” of children with poorer health to poverty, welfare is the main risk factor.

The Organisation for Economic Co-operation and Development has pointed this out in a new report “Matching Work and Family Commitments”. The OECD states, “Whether or not parents are in paid work is a key determinant of the poverty risk of families and children”. It estimates that children in households without an adult in work are three times more likely to grow up in poverty than if a parent worked. The report identifies sole parenthood as a key risk factor for children explaining that it is not in the best interest of sole parents and their children to remain dependent on benefits in the long term as that leads them into the poverty trap. The OECD recommends that Governments with excessive numbers of sole parents on benefits should introduce work testing with sanctions. (To read the report, click here )

Labour has steadfastly ignored this OECD advice – as well as the results of successful welfare reform efforts overseas – by going in the opposite direction: they have abolished work testing for sole parents, softened sanctions, and generally made it far easier for sole parents to stay on welfare in the long term. Comfortable that these policies appeal to their voter base, they have then conveniently turned a blind eye to the resulting collateral damage.

The problem is that children are largely the victims of this collateral damage, and it isn’t only through contracting third world diseases. Far too many of these children are being raised in broken and chaotic single parent homes where they are subjected to the sort of on-going violence and neglect that turns them into disaffected and anti-social youths – if they survive. It is just such young offenders that the Sunday Star Times reports are largely responsible for Police being called out to a violent incident every 80 seconds last weekend. (See Special Report: 24 hours in violent, angry NZ )

While welfare plays a vital role in providing support to people in genuine need, in the hands of a government determined to hold onto power through a strategy of increasing dependency on the state, it can be very dangerous weapon. Already, through its Working for Families package, Labour has estimated that it will have some 360,000 families on welfare by early next year. By bribing taxpayers with their own money, they are hoping to win a fourth term in office.

Many New Zealanders have already lost faith in Labour. Some 40,000 fled to Australia in the last year alone. At present almost 700 a week are crossing the Tasman to look for higher wages and a better quality of life. But many are also seeking freedom from over-regulation.

Labour now appears to be prepared to step in to regulate almost every aspect of our lives: whether its academic freedom or fireworks, raising a family or breeding dogs, employing children or eating junk food, there is bound to be a brand new law to comply with – or one that is in the pipeline.

That’s why the recent collapse of 13 finance companies, affecting around 150,000 investors who have lost an estimated $1.4 billion to date, has brought calls for the government to step in to do something. Predictably Labour is planning to introduce new industry regulations, but this week’s NZCPR Guest Commentator Professor Larry Rose, the Pro-Vice Chancellor of the College of Business at Massey University, urges caution.

In his article ‘Financial Literacy: What’s the Buzz’, Professor Rose states, “Of all the characteristics of capitalism, the freedom to fail is the most important although the consequences are the most undesirable. If those failing, or about to fail, can exert political or economic power to avoid failing, or in the event of failure shift the cost to others, they will certainly do it. In a sense, that is what is happening during what I would call the current turmoil in global financial markets as there is a call for governments or central bankers to bail out failing financial institutions. But if this occurs, it most likely will result in a misuse of scare resources, reducing global growth in the long run and making the next turmoil event much worse. In the shorter term such actions will result in a transfer of money from taxpayers and debt holders to equity holders which also may result in the inappropriate use of available investment funds”.

He goes on to explain, “I do not wish to give the impression the current turmoil is not real… But what I am calling for is to take a step back, a cup of tea if you will, to see what is going on before implementing policies which may settle markets in the short term but make things worse in the longer term by subsidising private risk-taking with public assistance”. To read the article click here

Going back to the question of what if anything the government should be doing, there is a policy option that would bring significant improvement to many of the woes that New Zealand currently faces. Over the years Treasury has consistently advised the government that lower taxes lead to economic growth. If Labour had taken that advice when it first came to office and delivered comprehensive tax cuts – sticking to economic imperatives rather than social ones – New Zealand would have been in a far better position than it is today. In fact we would have been well on the way to achieving Labour’s long-abandoned goal of restoring New Zealand back to the top 10 of OECD countries by 2010.

A new report from the United Nations highlights how dismal our progress – or rather, lack of progress – has been. It shows that New Zealand has spent the last decade stagnating at 19th place on a range of measures which include wage rates, life expectancy, adult literacy, government spending and gross domestic product. Meanwhile Spain which used to be at 21st place has leapfrogged us to 13th place and Ireland which was on par with us has moved to 5th. Australia meanwhile is steady on third with Australians being richer, healthier, better educated and living longer than Kiwis. (See “NZ Stuck as Other Nations Prosper” )

A key part of our problem is that while household incomes are only just keeping pace with the rate of inflation, “bracket creep” is pushing many taxpayers into the higher tax brackets. This is because Labour has steadfastly refused to inflation-adjust the tax thresholds. The result is that more and more families are working harder but slipping backwards as they pay higher taxes and try to cope with rising costs. Meanwhile Labour, reaping the benefit of that hardship with a $1.7 billion windfall tax gain, claims they don’t understand why the trickle of families going to Australia has turned into a flood.

The poll this week asks: Have you or your immediate family seriously considered moving to Australia? Go to Poll

Reader’s comments will be posted on the NZCPR Forum page click to view .