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Sir Roger Douglas

Why a Lack of Imagination and Courage Threatens Our Future

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As Steven Joyce pointed out in the Herald recently, the 2023 general election was an absolute disaster for the Labour Party. What Steven Joyce did not tell readers is that past National Governments have been guilty (even if, to a somewhat lesser extent) of all the failings and faults of the recent Labour government over the last six years.

Despite this, or maybe because of it, renewal will not be easy for the Labour Party to achieve. It will take time, an open mind, honesty, and the courage needed to be seen to have changed their mind on a number of policy Issues.

If they do this and National continues to be the party of the status quo, Labour could make a much quicker recovery than currently appears possible. That is also provided they do not listen to the likes of Grant Robertson and Willie Jackson. Both were the architects of many of the 2017-2023 policy disasters.

What do Labour need to do to make a swift comeback?

They will need to demonstrate they have a new vision based on individual decision- making and the imagination to go with it.

Why imagination?

Because imagination serves as the starting point for change and because, in falling back on the old trope that bigger government equals better government, the Labour Government of the past six years, manifestly demonstrated that they lacked the courage to do what is right and so obviously necessary for New Zealand if we are to prosper and grow over the next 10 to 50 years. Instead of doing what was necessary, they elected to walk a soft and easy path – one trodden by too many governments (like John Key’s) before them. They decided to tax and borrow, spend and hope.

The Ardern government, like the Key and Clark governments before them, tried to tax the nation to prosperity. The principal outcome being to cut productivity growth in the same way it has in the past.

Unfortunately, when the Labour government looked to the future during its six years in office, it envisaged a larger state, higher taxes, government ownership and delivery of social services and an even greater opportunity for it and its expanded army of bureaucrats to meddle with our lives. In the process it gave up on fiscal prudence and sentenced New Zealand to low productivity growth.

Simply put, the Ardern government chose to shovel money into the bureaucracy and then sit back, blindly hoping that such a wasteful policy would eventually pay dividends by delivering access to the kind of decent education, quality healthcare, and targeted welfare that helps rather than harms the poor, and which has been increasingly denied them.

Hope really was the operative word.

Can Labour turn its reputation and image around? Yes it can, but it will take time, courage and the retirement of the ring leaders of their policies over the past six years.

How could Labour do it?

They could solve the huge problems New Zealand has created for itself throughout the welfare area and, as a result, the economic area as well, by giving the money the government currently spends in the welfare area back to those who earned it or most need it, and empower them to purchase their own education, their own health coverage, their own insurance against welfare risks like job loss accidents and sickness, and to save for their own retirement.

By doing this, Labour, would shift power away from a system of government which has become more and more wasteful and self-serving, and deliver it instead to individuals and families.

And this surely, is the purpose of our democracy. It is meant to deliver government of the people by the people for the people, not government of the people by the government for the government.

Given its history, Labour should know this better than any other New Zealand political party.

In advocating a policy approach along these lines, Labour could point out that currently, for all but a privileged few, our government decides where our children get educated, whether or not our medical treatments will go ahead, and what level of income assistance we require.

Even worse, the recipients of these hand-outs are treated as children to be managed by a bureaucrat who knows very little about them, and cares even less.

Is it surprising then, that within such an environment, more money does not deliver better outcomes?

Is it any wonder that the lot of the most disadvantaged in our society, including Maori and Pasifika, continues to get worse, despite the continuous, increasingly empty promises, that ‘the times, they are a changing’?

Labour in advocating an approach of this nature, could point out that the only way yet discovered for improving outcomes while keeping costs down is to restore control to the individual, and allow competitive providers to respond to their needs.

Unfortunately for all of us, none of our current political parties at the moment has the capacity or imagination to offer such an opportunity.

Labour for example, could return to the hospital policy approach being considered in the 1980’s by Michael Bassett for healthcare, and those outlined by me in chapter 20 of my book Toward Prosperity (1987) for education, welfare and healthcare – that is before Lange (egged on by Margaret Pope, Helen Clark and Michael Cullen) pulled the plug on the policies being advanced. An approach that would have delivered productivity gains at least equal to those achieved by the changes to the way that we ran the governments state owned enterprises. (25% to 100%)

Unfortunately, at the present time, all of our current New Zealand political parties, believe it is better that New Zealanders suffer the tyranny of the status quo, and the politics of borrow and hope than its more courageous and life-changing alternative – where we put our trust in the people and empower them by giving them control of their own lives.

If it is going to make a quick come back to power, Labour needs to seize the opportunity by spelling out the benefits of a new approach to the young, the retired, the disadvantaged, and to the average New Zealander.

Here is the kind of future and how to get there I believe many of us imagine for our country – a New Zealand where:

* Privilege no longer exists.

Government has removed privileges and given the money saved back to individual New Zealanders via targeted tax reductions. (Savings $20 billion – that is $5,000 a year or $100 a week for every adult.)

* Change our social welfare system to one that protects and assists those who require support.

For example, return $13-14 billion of the above $20 billion that has gone to New Zealanders of working age so they are able in time to retire with the capital necessary to provide for themselves in the areas of education and healthcare.

* Quality, timely healthcare is available to all.

Tax reductions of $2,000 – $3,000 a year would ensure all New Zealanders are able to get healthcare insurance cover. For New Zealanders who fall into the chronically ill category, extra dedicated healthcare help would be available for them.

*All Kiwis have the ability to own a home of their own, if they decide to do so.

$3 billion to $4 billion of the $20 billion above would be used each year to help New Zealanders get into their own home on a shared equity basis. (An estimated 15,000 plus New Zealanders a year.)

*Every child has access to a first-rate education.

Families with preschool, primary or secondary school children would all receive a tax reduction or education tax credit, so they can buy their child’s education at the registered school of their choice.

* A job exists for everyone who is prepared to work.

As a result of these changes:

• Every New Zealander would have the opportunity to enjoy a comfortable retirement, with $4-6 million in their retirement fund.

• Inequality would be largely eliminated.

• Everybody would be treated fairly and equally.

• Everybody would enjoy a reasonable standard of living.

Everyone under a system of this nature, would not only enjoy wide-ranging opportunities for self-fulfilment; they would be part of a caring society that neither judges nor denies them progress on the basis of gender, race, religion, or sexual orientation.

Such a future is possible (indeed, the foundations to bring it about already exist) and are available to any political party or group that asks for them.

Implementation, however will require a rare kind of political courage and imagination of a kind that we have not seen in New Zealand for many years.

Labour had a history of making major changes in the past. It could do it again if they chose to do it, but only if they decide to put the future of individual New Zealanders, before the interest groups who currently support them. (For example, the teacher unions and the current civil servants.)

The policy approach set out above requires government to hand some of their power back to the people and trust them to manage their own lives. And it will require the kind of thinking that places an emphasis on the future of our country and our children, rather than on the short-term dictates of being re-elected.

It also requires us to remember that we no longer live in a world where old divisions between left and right, socialist and conservative are good enough. We live in a new world where new ways of thinking are required. We need to throw off the failed policies of the past, the empty convenience of our biases, our propensity to label and dismiss instead of engage in mature debate, and rethink what it means to govern.

If we do that, then there is hope yet not only for our country, but the myriad individuals who call it home.

A Background Note to this Paper

It is the increases in welfare (pensions and healthcare) that drove Treasury’s recent Long Term Fiscal Projections for the period (2021-2061).

In its historical trends scenario (as a % of GDP), Treasury estimates nominal GDP of $1,485 billion in 2061. Other projections include net debt at 197% of GDP or $2,902 billion, an operating deficit of 13.3% of GDP or $196 billion, debt financing costs up by 7.8% of GDP or $115 billion, healthcare, education, and super up by 8.1% of GDP or $134 billion. Making the difference between total expenses and total revenue of 15.4% of GDP or $227 billion in 2061. A situation the Labour government unfortunately simply ignored.

Treasury’s suggested policy options to help fix these issues are in many ways traditional Treasury answers, cut benefits and increase taxes. Given the problems we face, as a country, to me at least, Treasury’s answers are unbelievable and raise the issue of whether the current treasury is in fact capable of doing the job it has been charged to carry out. Given New Zealand’s problems, Treasury’s lack of imagination about what to do about those problems we have is remarkable.

In their paper Treasury suggest the following “solutions”: raise the age of eligibility for super, adjust the amount paid by government for super using inflation rather than wages, raise tax revenue by an increase in all existing personal income tax rates, ten more years of fiscal drag where income tax thresholds are kept where they are today, increase the existing goods and service tax rate and the company tax rate as well, look at taxing capital, land, wealth and inheritance, spend less on health.

Frankly, if this is the best advice Treasury can provide, then as a country we should be looking elsewhere for the economic and social policy advice we need. Or at least have a competitive organisation offering their advice on the big issues we face. Competition might just get some imagination going.

The time has long past when civil servants pay no price for getting the big issues wrong.

Case Study

Current System:
Couple with two young children – family income $140,000; tax paid on combined incomes $28,400, which is spent on pensions and healthcare under the current system.

New System:
Contribution to new welfare system – $27,600 along with an increase in family income of $800.

In return for families’ $27,600 welfare contribution a family gets:

• Retirement savings (Income & Healthcare) of $12,000, Parents $6,000 each

• Healthcare yearly savings of $6,000 – Parents $2,000 each; Children $1,000 each

• An Education expenditure contribution of $9,600 (ex the families welfare contribution to new welfare system of $27,600) and a government education tax credit of $12,400. (Assumption made that the cost of two children’s education is $22,000 a year.

New family welfare expenditure $40,000 a year – spent with the approved provider of their choice. Any money not spent, is always carried forward to the next year.

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