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Dr Bryce Wilkinson

The Train Wreck That Is Government Policy-Making

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This is going to be a busy and difficult year for government. It is planning major changes to the health system, tertiary education, local government (the ‘Three Waters’), environmental rules and wage setting arrangements – while also struggling with COVID and the disaster which is housing policy.

None of these initiatives looks well thought through. All are being justified on the basis of good intentions. The established formula is: “this is a problem, something must be done, our policy proposal is something, therefore it must be done”. The government’s contentious and divisive proposals for Three Waters epitomise this approach.

Unfortunately, good intentions are not good enough. Particularly when it comes to public policy. There are always unintended and undesired consequences. Responses to a misdiagnosed problem will often make things worse, not better.

Take housing policy. Extraordinarily high median house prices relative to incomes signal a serious housing shortage. Most of the government’s responses have misdiagnosed the problem. Foreigners were an obvious scapegoat. Making it harder for them to buy houses was ‘something’. So, it was done. But it did not work because it did not address the real problem – ridiculously high land values due to unduly restricted land supply. KiwiBuild was always going to fail for the same reason. Even if the government did build 100,000 homes in 10 years, it would have made little or no difference. The issue is land supply; who builds the next 100,000 houses is irrelevant.

Now, government is assisting first home buyers to bid house prices higher. It is also penalising landlords. That restricts the supply of rental housing, raising rents. The government’s answer to that problem is subsidised ‘social’ housing. But that makes mugs of those who are renting privately. So, the government ends up with embarrassing waiting lists for subsidised social housing. That increases pressure to introduce rent controls. Meanwhile, the Reserve Bank has fuelled the problem by lowering its control interest rate and flooding the banking system with cash, both to unprecedented degrees.

The situation smacks of the final years of the Muldoon era where every policy was pulling against at least one other policy. The policy contradictions mount until they overwhelm an administration. It took the succeeding Lange government years to extricate the country from the policy mess.

Of course, no government is going to get every decision wrong. The government’s measures to make it harder for local authorities to stop people from building houses and three-story apartment buildings should help. Removing commercial assets like water infrastructure from council balance sheets could ease the infrastructure funding problem. But this could be done without imposing the convoluted governance arrangements the government proposes for the three waters. Unhappily, the government’s proposed Natural and Built Environment Bill promises to pull in the opposite direction by making ‘the environment’ more important than housing.

The ban in 2018 on offshore gas and oil exploration is another example of incoherent policy. Under New Zealand’s Emission Trading Scheme, the ban can make no difference to New Zealand’s net greenhouse gas emissions to 2050 and beyond. It is effectively a subsidy for imported coal to produce electricity. Environmentalists groan, while an eliminated industry moans and other investors wonder who will be next. The unprincipled removal of interest deductibility for landlords answered that question.

So, what is going on? Why is rigorous official analysis of policy proposals so uncommon? The only answer can be that decent analysis is dangerous for constituency politics. If enough people knew what outcomes could really be expected, they might thwart the policy.

Politicians are then forced to pretend that the inclusive overall public interest is at the centre of what they propose, even when the proposal might really be partisan.

Thus, Sir Robert Muldoon campaigned in 1975 on the slogan of “New Zealand, the way YOU want it”. At least his “you” was not tribal. It was inclusive. But what ‘we’ got was lots of public debt and a morass of direct controls.

The Ardern Government’s 2019 Budget was widely touted as a world-first Wellbeing Budget. Now, as then, it looks like politics as usual – more money and power for causes most likely to please important constituencies. All in the name of good intentions.

But ultimately it is results that count. As mental health professionals have been pointing out since the 2019 Budget, pledging to spend a lot more money because it looks caring is one thing. Making a real difference is another.

Nor is Treasury above professing good intentions. For years now it has beaten its chest about its supposedly world-leading Living Standards Framework. It asserts that our wellbeing is at the centre of everything it does. Yet no framework for policy analysis has emerged from this effort. The tangible output is a dashboard of indicators. They have nothing to say about whether government policies are making New Zealanders better off or worse off. Absent a policy framework, the risk is that the discrepancies they inevitably reveal as between aggregate categories of people will trigger yet more of the ‘something must be done’ impulse to ill-considered policy action.

Policy analysis is set to get worse. A new form of collectivism is in the ascendancy. Its narrative is that groups whose economic and health outcomes are worse than the population average must be ‘disadvantaged’ by others. The ‘oppressors’ may glibly be the likes of foreign investors, capitalism, white colonisation, and the better off who are, by presumption, guilty of unconscious bias. Glib presumption displaces problem diagnosis. Individuals have no individuality.

The polarising focus on the collective or group, as if it is a homogenous whole with sharp boundaries, undermines horizontal equity. This is the notion that those in equal (needy) circumstances deserve equal treatment, even if they do not belong to a ‘disadvantaged’ group. More broadly, the focus on group membership undermines the importance of individual dignity, values, choice, liberty, initiative, work ethic and enterprise. Social cohesion becomes at risk.

The government faces a tough year in good part because it is locked into promoting major changes whose public interest justification is thin and whose nature is polarising. Worthy aspirations and fine intentions do not answer hard questions about likely effects.

For opposition parties, this is an opportunity. For those who care about public policy, it is a train wreck.

This article was first published HERE.