Treasury’s recent Long Term Fiscal Projections for the period 2021-2061, highlight how far our country has descended into the economic and social mire, and why the very future of our democratic systems – at least in their current form – might even be under threat.
Treasury predicts in its historical trends scenario (as a % of GDP) a GDP of 1,485 billion dollars in 2061. Other projections by 2061 include net debt at 197% of GDP or 2902 billion dollars, an operating deficit for the year of 13.3% of GDP or 196 billion dollars, debt financing costs up by 7.8% of GDP or 115 billion dollars for the year, healthcare, super and education up by 8.1% of GDP or 134 billion dollars for the year. Making the difference between expenditure and revenue 15.4% of GDP or 227 billion dollars for 2061. A set of predictions that if allowed to happen would send New Zealand bankrupt in the same way several other countries have over recent years.
Unfortunately, this years and last year’s budget were not only devoid of courage but also of imagination. Why is a lack of imagination so important?
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 Prime Minister and Minister of Finance have manifestly demonstrated that they lack 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, they elected to walk a soft and easy path – one walked by too many governments before them – and which they believe will help them successfully navigate the next election. They have decided to tax and borrow, spend and hope.
Sadly, much of the revenue generated by this year’s budget will be wasted on the bureaucratic health, education and welfare empires that Labour has helped build up over the past six years.
This government, like the Key, Ardern, and Clark governments before it, is trying to tax the nation to prosperity. The only effect will be to cut productivity growth in the same way it has in the past.
Unfortunately, when our current government looks to the future, it envisages a larger state, higher taxes, government ownership and delivery of social services and even greater opportunity for it and its army of bureaucrats to meddle with our lives. In the process it has given up on fiscal prudence and sentenced New Zealand to low productivity growth.
Simply put, the Ardern and Hipkins governments have chosen to shovel money into the bureaucracy and then sit back, blindly hoping that such a wasteful policy will 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.
The only way to solve the huge problems we have throughout the welfare area and as a result the economic area as well is to give the money the government spends 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 risks like job loss accidents and sickness, and to save for their own retirement.
By doing this, we can shift power away from a system of government which is becoming more and more wasteful and self-serving and deliver it instead to individuals and families. 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.
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. 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 Māori and Pasifika, continues to get worse, despite the continuous, increasingly empty promises, that ‘the times, they are a changing’?
The only way yet discovered for improving outcomes while keeping costs down is to restore control to the individual and allow providers to respond to their needs.
Unfortunately for all of us, none of our current political parties have the capacity or imagination to offer such an opportunity. For them, it is better that we suffer the tyranny of the status quo, the politics of borrow and hope, than its more courageous and life-changing alternative – that we might put our trust in the people and empower them by giving them control of their own lives.
New Zealand Can Have a Better Future
Here is the kind of future I believe many of us imagine for our country: a New Zealand where:
Inequality is ended.
Everyone is treated fairly.
Privilege no longer exists.
Everyone enjoys a reasonable standard of living.
Quality, timely healthcare is available to all.
Every child has access to a first-rate education.
A job exists for everyone who wants to work.
Our social welfare system protects and assists those who require support.
Every New Zealander has the opportunity to enjoy a comfortable retirement.
All Kiwis have the ability to own a home, if they want one.
Everyone enjoys wide-ranging opportunities for self-fulfilment, they are part of a caring society that neither judges nor denies on the basis of gender, race, religion, or sexual orientation.
Such a future is possible (indeed, the policies required to bring it about already exist), but it will require a rare kind of political courage and imagination. It will require governments 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.
We no longer live in a world where old divisions between left and right, socialist and conservative suffice. We live in a new world, where new ways of thinking are required. We need to throw off the failed policies of the past 20 years, the empty convenience of our biases, our propensity to label and dismiss instead of engaging 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.
Treasury’s traditional policy suggestions for dealing with the mess we are in
- Increase the age of eligibility for superannuation
This policy would effectively reduce retirement income by 9-10%. It would not repair the flaws in the Ponzi scheme status quo
– it would simply kick the can down the road for a while.
- Index superannuation to prices rather than wages
This policy change would reduce the value of the pension by 1% each year, or 30% by 2061
- Reform the health system in order to save money
- Increase existing taxes
— Increase all income taxes rates by 1-2%
— Increase the existing Good and Service Tax rate by 1-2%
— Increase the existing company tax rate
— Allow inflation to erode the value of the existing tax thresholds
— Create new taxes (look at capital, land, wealth, and inheritance taxes)
There is an alternative – savings based welfare
If we were bold enough to introduce a savings-based welfare system, we could look forward to having:
A sustainable pension and retirement health and care saving scheme for everyone (with the average New Zealander retiring with at least a 5 million dollars in their capital fund to do so.)
A catastrophic healthcare insurance policy all of your life and your own yearly healthcare fund account, to pay for small healthcare expenditures.
An income protection saving fund that covers unemployment, sickness, and accidents
The opportunity of home ownership for everyone who works
The money needed to pay for your child’s education at a school you choose
The lowest personal and corporate tax rates in the world with a top rate of 10% by 2048
Lower indirect taxes (GST), and lower company taxes with both at 10% by 2048
A real solution to poverty, disadvantage, and inequality
How do we go about achieving these outcomes-
- Determine what needs to be saved over a person’s working life (18—65). I suggest $6000 for year one, plus wage inflation each year thereafter. Saving this amount would deliver a sustainable pension, health, and care in retirement once scheme is mature. (The average New Zealander would retire with at least 5 million dollars in their capital fund to do so at their retirement date.)
- The essence of reform is often the removal of privilege, and the removal of privilege is how I would create the financial headroom to fund the savings-based welfare approach. Examples include:
- The removal of privileges, which currently go to affluent New Zealanders saving $3-5 billion a year. (e.g., Interest free student loans)
- The removal of privileges that go to business saving $3-5 billion a year (e.g., government grants, tax breaks, provincial growth fund, racing, film, forestry, and other special grants)
- Reform of government bureaucracy saving $3-6 billion a year. (e.g. staff numbers)
- Government grants to the super fund and Kiwi Saver subsidies saving $3 billion, along with asset sales if required
- Better use of the New Zealand super fund money (Than is currently planned)
- High income earners contributions for 5-10 years (ultimately they gain the most)_
Principles of my savings-based welfare system:
Choice and Competition—This principle is the means by which we ensure the new system is based on flexibility, innovation and most important of all individual autonomy
Each Generation Pays for Itself—enough money will be saved by New Zealanders each year as a result of tax reductions, to meet their needs when they retire.
Fairness—Every New Zealander to be provided with the same opportunities and means to save for their basic retirement needs of income and healthcare.
Privileges—Remove any government privileges (hand-outs) that have gone to business and high income earners, (corporate welfare) Note, removing privileges is often the very essence of any reform program
Power—Return power to individual New Zealanders wherever possible so they can make their own choices, in the welfare area.
Fiscally Sound—Policy to be fiscally sound, achieved by controlling expenditure.
Goals—Governments required to outline there objectives goals for each area of activity they are involved in.
Protection—Protection of the most vulnerable to be a top priority of policy at all times.
SUMMARY
The savings-based approach to welfare outlined in this paper is designed to solve inequality, poverty, and the economic and social challenges we face in New Zealand. If a New Zealand government had the guts to introduce the policies outlined in this paper, we would once again become a world leader, as companies come here with their investment capital and expertise, to take advantage of the low tax environment, and competitive nature of our health, education, welfare and housing sectors.
The benefits delivered by this approach to welfare policy go far beyond a vibrant economy – they deliver social equity, inclusive ownership in the future of New Zealand, and as a result of this, help produce thriving, connected, healthy communities.
Where do New Zealand’s four main political parties (Labour, National, ACT and the Greens) stand on a saving based approach to providing welfare for the people of New Zealand?
In a word, they are all opposed to it.
Why is that?
ANSWER: A loss of power
Labour and the Greens are opposed because a saving based welfare system, would undermine their very existence. New Zealanders with hundreds of thousands of dollars in their bank accounts, at a relatively young age may no longer vote for Labour or the Greens.
While the big word used by Labour and the Greens is caring their big agenda is dependency. They promote policies that make people dependent upon the government in areas such as health, education, housing, and income in retirement because they know if they can make people dependent on the government they can generally count on their vote.
One example of Labour’s and the Greens’ policy in action, was in 2017 when they reversed National’s proposed tax cuts (billions of dollars) and then spent the money on welfare hand-outs. It is welfare hand outs of this nature, that have led to New Zealand’s biggest and most viscous tax of all, a loss of various welfare benefits and other support payments (e.g., in the housing area) whenever a person’s income goes up.
National over the past 50-60 years have always opposed the idea of a saving based approach to welfare and have always supported a pay as you go welfare system.
For example, National did away with Labour’s 1975 superannuation scheme, a system that had it remained in place would today be delivering most retirees a million dollars plus for their retirement.
National see their job, as running existing policy better than labour do, rather than introducing new and exciting policy. National, despite what has happened over the last 9 years still see themselves as the natural party of government. The result of this has been that they stand for very little, a fact the public are more aware off than National believe to be the case.
ACT is viewed by most New Zealander’s as a right-wing party, that represents only the wealthy, a view that ACT has reinforced by way of recent ACT Haps articles and policy.
This was never the intention of those who founded ACT. I know that with absolute certainty because I was one of those people.
ACT’s original policies when first formed in 1993 were very close to the policies outlined in this open letter. ACT in my opinion lost the plot circa 2001, when they dropped their savings-based approach to welfare and joined other parties in a pay as you go approach to welfare.
While I have voted ACT, in the last 9 elections, since 2002 I have not done so with much enthusiasm. As a result, 2023 finds me as a swing voter for the first time.
Some people will be surprised see me criticise ACT and their approach to welfare as much as I do. It needs to be remembered I have always said what I believe to be the truth not what others would have me say. I have never been tribal, my party right or wrong.
ACT AND WHAT THEY HAVE HAD TO SAY RECENTLY ABOUT WELFARE AND WHY I DISAGREE WITH THEM.
ACT has stated their position in a very clear way, which is more than you can say for National, Labour or the Greens.
I do not deal with ACT’s welfare positions in any particular order. Where I can I try to highlight the position of New Zealand’s other political parties.)
ACT RETIREMENT POLICY
- Index superannuation to CPI rather than wages. (ACT 2023 alternative budget page 10) at an average cost to the retired of 1% a year or a 30% reduction in the value of what the pension would be by 2061 under existing policy. (i.e., $145 a week by year 20)
- Increase the NZ super age to 67, at a rate of 2 months per year. (ACT budget Page 9) This policy would reduce the average person’s retirement income by around 10%.
These ACT superannuation policies ( The same as Treasuries) are not necessary, if the policies on page 4-5 above were adopted.
ACT – TAX FREE THRESHOLDS
These according to ACT are “a very bad idea once you dig into it”. Why? To quote ACT the reason is “Because a tax-free threshold has to be made up with higher tax rates on higher income”. No evidence is provided by ACT, to support the statement they have made..
The claim made by ACT is wrong, why, e.g. if I reduce government expenditure by say 5 billion dollars, I could use the money saved to create a tax-free income threshold, costing that amount, without having to increase tax rates.
ACT – INFLATION INDEXING TAX THRESHOLDS (“It’s a policy ACT once supported but no longer”) (ACT FREE PRESS – THE HAPS.)
According to ACT “Indexing the tax brackets just keeps government spending cheap for most voters. The tax thresholds move up and those reporting low incomes stay on low rates instead of drifting into higher ones. Indexing tax brackets means that government spending remains something other people pay for.” “Why not get the benefits of more government spending and make those rich pricks pay”? (ACT FREE PRESS -THE HAPS) Let us look at the validity of ACT’S claims, to see if they are fair and correct; is the policy based on the facts available to us, or is it just political rhetoric?
Facts to keep in mind when deciding the answer to this question
- Personal income tax collected by the N. Z. government pays for government healthcare, and pensions (super) for the retired and that is all (around 40% of government spending). About 30 years ago it paid for education as well.
- Other government expenditure is paid for, by indirect taxes (GST, petrol taxes, liquor & tobacco taxes, fines, custom duties, the sale of government services & products, government businesses, interest & dividends etc. (60% of Government spending)
- Lower income earners pay the same rate of GST as everybody else, the same tax when they buy their tobacco, liquor or petrol for example, as high-income earners do, ACT is not talking about these areas when they say some taxpayers are subsidising others.
- ACT must be talking about the taxes that pay for super and health-care, personal taxation. Let us look then at the area of personal income taxes to see whether ACT’s comments in HAPS were justified or not, given that they clearly were not made in respect to at least 60% of the New Zealand’s government expenditure.
According to ACT, and I quote “At the moment the bottom 48% of taxpayers pay only 8% of income tax. Government spending is basically free from their point of view. At the other end of the scale just 8% of taxpayers pay 42% of all income tax. To them it’s not so cheap”.
ACT gets their numbers from the Treasury paper” Who pays income tax… and how much?” (Only individuals of working age are included that is 16 years and over)
Who are these New Zealanders who find themselves in the bottom 48% of NZ taxpayers, (66% if we add groups 5 and 6) for whom ACT says, “ Government spending is basically free from their point of view”, and it should not be.
Group 1 – zero tax, zero income (population 218,000 or 6%) – the majority of this group are still at school, what is ACT’S problem?
Group 2 – almost zero tax, Income $1-$10,000 (population 374,000 or 10%). The majority of people in this bracket are likely to be university students or the non-working partner of someone who is working. What is ACT’S problem? What do ACT want to change?
Group 3 – this group pays 3% of total income tax, Income $10,001-$20,000 (population 644.000 or 17%). The majority of these New Zealanders are likely to be on a benefit, and therefore not in the workforce (e.g., sickness, unemployment,) or on a superannuation benefit with little or no other income. What is ACT going to do about them, apart from reducing there super or out of work benefit by 30% over the next 25 years as announced? Put them out to work? Improve their skill levels, so they can get a job, & if so, how?
Group 4 – This group pays 5% of total income tax, income $20,001-$30,000 (the tax they pay is more often than not given to them by the government so that they in turn can pay the tax) (population 588,000 or 15%). The vast majority of this group will be over the age of 65, often with a small amount of income of their own what does ACT intend to do to them?
Group 5-6 – This group pays 11% of total personal income taxes ($30,001- $50,000) (population 680,000 or 18%). The majority of this group will be lower income earners, part time workers or the retired. NOTE- Under ACT the vast majority of the 2 ½ million people in brackets 1-6, would face a tax increase of $19 a week/ $980 a year. (Personal Income Tax up from 10 ½% to 17 ½ %- i.e. 7 cent on first $14,000 of their income. FAIR ?
ACT is saying, the above 2,500,000 New Zealanders are paying less personal income tax than they should be – are they justified in saying this? Yes or No! ESPECIALLY WHEN lower income earners (earning $40,000 – $ 50,000 in 2110) have over the last 12 years seen their average income tax rate go up by around 4.5%, from around 15.5% to around 20%, (or 30%). For someone on $60,000 today, that is an increase of around $2,700 a year, in real terms yet ACT is saying that this group is part of “the dark underbelly of our culture and have the culture of voting for other people’s money”.
REALLY…
Not satisfied with this and the way National and Labour have robbed lower income earners of $60 per week over the last 13 years, via bracket creep, ACT want to go further, they want to keep bracket creep in place, and then use the extra billion dollars + of taxes per year they will collect, to reduce the highest income earners in New Zealand personal income taxes.
Really? Policy wise, this is not the ACT Party I formed in 1993.
There are at least another 4 points, ACT makes in their Haps paper, which I find myself strongly disagreeing with. But enough is enough… well maybe one more to wind up.
Having explained how bracket creep works, ACT in their Haps paper article say “That’s true, but taxes are not the whole problem. Government spending is the real issue” ACT then quotes Bill Niskanen “Government spending is better described as buying government services at a discount equal to the deficit, the costs of which will be borne by someone sometime in the future” David explains “In other words, limiting taxes without limiting spending means voters get the spending but not the taxes. Government spending seems cheaper from a voters’ point of view, so they don’t care about spending”
David is right; it is however a pity ACT does not intend to practise what they preach.
This year an additional $60 billion + (double most years because of our higher inflation rate this year) will be added to New Zealand’s mountain of unfunded liabilities ($1,200 billion), ACT supports this policy, but does not explain why.
ACT’S pay as you go policy along with Labour, Green, and National’s means today’s young people are being forced to pay for their grandparents’ retirement, their parent’s retirement, and, if they have any money left over their own.
On the other hand, had ACT’S 1993 super and health policy for the retired been in place for the last 30 years, unfunded liabilities would be less than half of what they are today and zero by 2040.
What did ACT say in 1993-94 on this subject, “The question of money is particularly important now.” “ In the future we are being threatened with the largest debt in our history – a debt that hasn’t reached the public’s consciousness in a serious way”.
“It is the debt the state owes to us its citizens for our retirement pensions and healthcare.” (See Appendix2 to continue with what we said in 1993/4) We said we had a circuit breaker to get us out of the mess we were in. Individual savings financed by lower government spending (i.e., an end to government spending privileges was in our view the answer).
Unfortunately, the small libertarian element in ACT, who did not want public super or public healthcare at all, effectively won the day by achieving a half-way house. ACT moved away from its savings-based welfare policies to the traditional pay as you go system, supported by the other parties. Obviously, they are back in charge of ACT policy, given ACT’S recent articles and papers.
Despite all of the above, ACT are still a better option than the current Labour or Green parties.
It is impossible to form a final view on National until they announce their full policy program. In the area of bracket creep, policy wise National is right and ACT is wrong. In areas like housing, ACT is still ahead in their overall thinking.
Given the mess New Zealand finds itself in, there is still an opportunity for a small party, to step up to the plate, and adopt a set of policies based on individual decision-making and win at least 5% of the vote at the next election.
WHAT IS REQUIRED TO SECURE A BETTER FUTURE?
To begin with it requires a willingness to look beyond the next election and a reliance on the tired old trope that big government equals better government.
Over the last few years, the Labour government has accelerated a process cultivated by too many governments before it, resolutely gathering power unto itself and creating a bureaucratic empire that is overpaid, self-serving, and staggeringly inefficient.
Our levels of productivity, along with our level of literacy and numeracy, sit at the bottom of the OECD, housing has become inaccessible to all bar the wealthy; child poverty has worsened, our healthcare system is in a state of disrepair; inequality and disadvantage – particularly for Māori and Pasifika – remain entrenched; and we are ill-prepared for the looming retirement of tens of thousands of baby boomers.
Just as bad, Labour’s policies have, inadvertently, entrenched privilege and allowed the rich to get richer (there is nothing wrong with aspiration so long as the disadvantaged are provided similar opportunities to advance, something that has been denied them).
The truth is big government, has never worked, whilst the age-old policies of tax and borrow, spend and hope, are extraordinarily ill-suited to the realities of today’s world.
Instead, we must have the courage and imagination to come up with 21st century solutions for 21st century problems.
Such solutions are possible, but it will require the government to stop acting like an old-fashioned parent, determined to control every aspect of their child’s life. Instead, the government must find the grace and leadership to offer us the opportunity, where it’s possible, to think and act for ourselves, taking control of our own lives.
Simply by ending privilege and excessive government waste, and by instituting policies that genuinely empower all New Zealanders, we can secure a future where all of us can purchase our own home, choose our child’s education, get the health cover we need, and secure our retirement.
The policies required to achieve this along with the steps to implement them, already exist What is missing is the imagination and desire to put them in place, to think beyond the short-term and devolve power to individuals to better manage their own lives.
The bedrock of any successful democracy is that it delivers government of the people, by the people, for the people. In the case of our current government, and too many other western democracies, this once abiding principle has been subverted. We now have government of the people, by the government, for the government.
Such short-sightedness needs to end. We no longer live in a world where the old divisions between left and right, socialist and conservative, suffice. We live in a new world, where new ways of thinking are required. To thrive, we must throw off the failed policies of the last 30 years (many of them based on and espoused way back in the 19th century), turn aside from long-held biases and engage in mature debate, rethinking what it means to govern.
If we do that, empowering all New Zealanders to manage their own lives and contribute meaningfully to society, then there is hope yet.
Courage, imagination, vision—that’s what it will take.
THE WELFARE STATE – THE UNSUSTAINABLE PROMISES MADE BY NZ POLITICIANS.
As Treasury point out New Zealand’s government pension systems and governmental financing or management of health care is fast approaching the point of collapse. The unfunded liabilities we have will place an enormous and unsustainable burden on today’s young people. As the system approaches maturity, the number beneficiaries, is growing much faster than the number of workers paying into it, leaving an increasing gap between income and expenditure.
That New Zealand would reach the point it has, was entirely predictable, (refer to appendix two for what Derek Quigley and I said in 1993-94 on the subject). All it took was some simple arithmetic to work it out, yet today’s politicians, from all parties, still bury their head in the sand, they simply do not want to act on the issue.
The present situation suits the Labour and Green parties in particular, because it gives them the opportunity to claim to care more than anyone else, as more and more people become dependent on the state to get by.
The National party, are likely to continue to do what they do best, sit on the side lines in case they say something that will lose them votes. I hope they surprise me.
The ACT party, has already declared its hand, they say increase the amount of personal income tax paid by the lowest earning 66% of New Zealanders and other taxes paid, via the retention of bracket creep, and reduce superannuation other benefits, by around 20% over the next 15-20 years. (See the Haps and Act’s 2023 budget).
ACT policy in this respect is the same as Treasury, enough said. The problem we have is that all four parties are following policies that rob the young in particular of what should be their rights, their dignity, and in the process, they have piled billions of dollars of liabilities on to their backs. The crisis of unfunded liabilities is fast approaching and as Treasury have pointed out it won’t be pretty.
MY RECOMMENDED POLICY
- Move away from today’s pay as you go welfare system to a saving based system.
- New Zealanders between the age of 18 and 65 to save $6,000 a year.
- Savings to be adjusted each year, by the average wage increase for year before.
- Total savings for year one 18 billion dollars. (3 million people x $6,000)
How do New Zealanders between the age of 18 & 65 get the $6,000 to save?
Tax reductions &/or a government tax credit where tax reductions are insufficient.
Tax rate on income 0 to $65,000, set at 10 cents in the dollar, saving in personal income tax $6,000
Where does the $18 billion dollars come from in year one?
- 4 billion dollars from the super fund (which currently has $62 billion plus in it)
- 5 billion dollars from super fund, (current year’s income).
- 10 billion dollars from the following areas of government activities.
- The removal of privileges in the following areas:
- Those that go to affluent New Zealanders who do not need them, (E.G., interest free loans to students)
- Those that go to business (E.G., tax incentives, film, forestry etc).
- The reform of the government bureaucracy (a reduction in staff numbers)
- Contributions made each year by retirees, will take over after 30 -35 years.
OUTCOMES FROM THE ABOVE POLICIES
AFTER 10 years – Individual savings are around $95,000 per person.
– Savings controlled by government for future pensions $283 billion
A reduction in cost of government super for year 10 of $6 billion, compared to current system.
After 20 years – Individual savings of around $ 304,000 per person.
Savings held for future pensions commitments $913 billion
A reduction in cost of government super for year 20 of $21 billion or 40% of what the current systems will cost if it continues.
After 30 years – Individual savings of around $740,000 per person.
Savings held for future pensions commitments $2,200 billion
A reduction in cost of super for year 30 of $ 55 billion or around 70% of what present system will cost
After 40 years – individual savings $1,606,000
Savings held for future pensions commitments $4,800 billion
Reduction in super- every New Zealander retiring after 36 years, will have the capital to look after themselves in the area of super, and has some left over for healthcare as well
After 50 years –Individuals will have retirement savings of around $3 million dollars. As a result, there is virtually no budget cost to the government for super or healthcare for the retired. Personal income tax is a flat rate of 10% on all personal income, company tax is also 10%, while GST is 10% as well.
This compares more than favourably with present system where individual personal income taxes would need to be at least 300 billion dollars higher. ($80,000 per taxpayer)
CONCLUSION:
The problem with the welfare state we have in New Zealand is that everyone has an incentive to milk as much out of it as they can. No New Zealander has an incentive to limit their fishing. Every New Zealander has an incentive to take as much as they can get. Every day we are taking from one another, in what is proving to be an unsustainable way, the outcome we are going broke. ( See Treasury Paper Fiscal Projections 2021-2061)
Governments have promised so many benefits to so many constituencies (E.G. The retired, farmers, teachers, trade unionists, nurses etc), all at the expense of each other, that the system has become impossible to finance, but none of those receiving a benefit want to give it up.
We might give them up for lower taxes, but we don’t get that choice.
We can if we wont to, get out from under the welfare state and the crushing debt burden it has created (unfunded liabilities), the bureaucracies (e.g. education, health, welfare) and the reciprocal theft that lies at the heart of the system.
It will not be easy, it will mean standing up to the special interest groups we have created. Interest groups who have so much power (e.g. the teachers union), and the power seeking politicians that exist in all parties.
But it can be done it must be done, if we wish to move forward. We need if necessary to demonstrate in the streets on behalf of fiscal reason, of freeing and empowering people to decide their own futures.
We need to cut back on the powers the government currently exercises, so that it is limited in the main to protecting our rights, not attempting to take care of us in the way they do now.
We need to understand what governments can do and cannot do if we are going to get out of the mess we are in.
The welfare state is, and will remain, given the current state of New Zealand’s political parties, a political strategy to control New Zealanders, not improve their well-being. The problem New Zealand’s four main political parties face is “arithmetic” that they can no longer manipulate the way they have in the past.
We have a choice, stay where we are and suffer a quick economic death under Labour & the Greens or a slower death under National/Act, or we can look for an alternative that wont bankrupt future generations. We could for example, decide that what is needed is, a new government in 2026 to drive a reform program forward, and start to plan how we can do that immediately. If I was 30 years younger I would join you, good luck.
APPENDIX ONE
MY ATTEMPT NUMBER ONE TO BRING ABOUT CHANGE IN THE WELFARE AREA (1986-1988)
When in doubt politicians should ask themselves the following question, “Why am I in politics?”. They rarely do.
In Chapter 20 “ends and means” of my 1987 book Toward Prosperity, (part of my unsuccessful attempt to bring about change in 1987 to the welfare area while still Minister of Finance), included the following:
- “A welfare system that almost always (in 1987) puts institutions, ahead of people”.
- “A welfare system where the distribution of resources among and within the social service institutions is often ridiculous”
- “An education system where the middle-class captures most of the money spent on tertiary education”.
- “An education system that is not good at shifting its resources, in response to changes in demand from its students”.
- “A health system, where the argument is often about public versus private, which is not the real issue at all. The real issue should be how to ensure resources go to where they are most needed”.
- “How to achieve greater flexibility in our social services”.
- “How to achieve a benefit system that supports without taking away the incentive to work”.
I also noted at the time that when state businesses were reformed in the nineteen eighties, the evidence showed that perverse incentives and inadequate accountability in a totally protected system had wasted 30-50% of total funds provided.
Evidence was not available to be definitive about the levels of waste and inefficiency in the social welfare sector, in areas such as health and education, as a result of perverse incentives and inadequate accountability. Nothing however suggested at that time that it was likely to be any lower than the levels we found in state trading enterprises.
In New Zealand, the Government has traditionally been, and continues to remain so, by far the dominant supplier of health and education services. Contestability is relatively minimal.
The government view in 1987 as expounded by then Prime Minister David Lange, was that access to health and education could only be guaranteed if the state continued to be the provider of the services by way of government owned institutions.
In his view, ensuring low-income consumers had the money to buy such services from competing suppliers was not an option because a right-wing government could alter that situation with a stroke of the pen The evidence I had at the time did not in fact support David’s view, the evidence showed that a system that delivers a satisfactory outcome, gains the support of a sustainable consensus.
APPENDIX TWO
ATTEMPT NUMBER TWO—1993-2000
THE FORMATION OF ACT – 1993
Superannuation had become a political football after Muldoon’s changes to it in 1976, and still was in 1993.
When Derek Quigley a former National Party cabinet minister and I formed ACT in 1993 we refereed extensively to this issue. The below are quotes from our political statement addressing the problems we faced in New Zealand in 1993 when we formed ACT -they still exist today in 2023 only they are much worse 30 years later than they were then and more difficult to deal with.
A SUMMARY OF ACT’S OPENING POLITICAL STATEMENT
The question of money is particularly important now. In the immediate future we are being threatened with the largest debt in our history – a debt that hasn’t reached the public’s consciousness in any serious way.
It is the debt that the state owes to us. Its citizens for all our retirement pensions and our health and care in retirement.
Essentially, the deal is this. We’re paying taxes into the system to full fill our half of a social contract. We pay tax and when we are sick, the contract says, the state will look after us. When we’re old, the state will look after us.
We who pay tax have kept to our part of the deal. But then when we’re sick, does the state do its part? There are 77,000 people who would say “not really, no”.
When it comes to our retirement are we going to get the care, the services, and the support, that our parents knew in the post-war days.
Many people are looking at the likelihood of that and say, “like fun we are” or in other words “No”.
And the reason they say no is this. The amount owing to workers in New Zealand is so huge-and there is so little backing for the debt- that no government, no matter how well the economy does on its present rate of growth, can possibly pay it. The figure including net public debt as of today is nearly $300 billion.
In other words, it is the largest financial figure in the country’s economy. Three times our gross national product. This is a number so large that no current political thinking can accommodate it. In ACT we believe we can. Indeed, we have found a way to reorganize our superannuation arrangements painlessly so that a more generous pension can be paid to all New Zealanders now and into the future.
But we need a circuit breaker (see the ACT booklet “Common sense for a change” 1994 for full policy details) to get us out of the dangerous spiral we’re in, in doing this a number of wholly beneficial results will happen for New Zealand,
- A more responsive education system for one and the elimination of hospital waiting lists for another.
- A solution to the problem of poverty that has so far eluded all western states and a way of getting on top of our monumental debt.
- And, perhaps the most surprising result of all- the lowest rates of personal income tax in the world. Lower even than the low-tax economies of successful Singapore and Hong Kong because we will get by almost entirely on indirect taxes like New Zealand’s Goods and Service Tax (G.S.T), and others.
- It’s a new way of thinking, a new way of looking at the relationship between the state and individuals, the state and families.
- It is a way that will make all New Zealanders of whatever income bracket, racial origin or educational background—all of us better off.
- These ideas are essentially common sense. While we can’t do it by ourselves, we can do it together.
We have a chance to return New Zealand to the sense of wealth and well-being.
Unfortunately, at least from my perspective, both of my attempts outlined above to bring change to the welfare area ended in failure. The first because I could not get David Lange to listen, the second because ACT after the year 2000 decided to walk away from ACT’s detailed policy of 1996. This is an attempt, against the political odds, to get these issues back on the table, with the support I hope of a sane and sensible political party if possible.
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