Govt not closing NZ-Aus income gap – 2025 Taskforce
Current government policies show no sign of delivering the growth rates New Zealand needs to close the large income gap with Australia, according to the second report of the 2025 Taskforce.
"The government has taken several steps over the past year that are likely to increase our growth rate, but has also taken a number of backward steps. There is certainly no evidence yet that current policies will deliver the kind of accelerated growth we need," Taskforce chairman Don Brash said when releasing the report this afternoon.
The report emphasises the ongoing decline in New Zealand living standards if more is not done to catch up with Australia. Falling healthcare, education and other lifestyle issues will be the fallout if the gap between the two countries is not addressed with more urgency, the report says.
There has been some progress since the Task Force’s first report, Dr Brash said. He cited the tax cuts in this year’s budget, the first stage of the government’s Resource Management Act changes, extension of the 90-day probation period for employment law, and the lifting of the last government’s effective moratorium on new aquaculture farms.
Negative though include an even larger government deficit and a number of large government infrastructure projects undertaken without any sufficient cost-benefit analysis.
He also noted the budget’s changes to company tax law meant that even with the drop in the overall company rate the depreciation changes and new thin capitalisation regime means that overall the business sector is actually paying more tax than it was previously.
Dr Brash’s comments at the press briefing anticipated a repeat of last year’s criticism that the group’s recommendations are not politically doable.
“The government’s reaction to the report last year was not one of unalloyed enthusiasm, I think you could say,” he said today.
But the group – comprised of former Labour Party minister of finance David Caygill, economist Bryce Wilkinson, and Australian business professor Judith Sloan – was not asked to consider the politics of the policies they recommend.
“How [the government] do this is a political judgement. This is our best professional assessment of what they should do.”
The broad recommendations - in what is a very in depth and detailed document – are:
• Cutting both government spending and tax rates
• Government withdrawal from most commercial activity to allow the private sector to drive value for money and innovation in those areas – including health and education services
• Proper cost-benefit analyses of government infrastructure projects
• More focused research and development in the public and private sector, including better governance of research and development in tertiary institutions and full contestability for government research and development funding
• Better quality regulation - more “fundamental review” of the Resource Management Act, restoration of the youth minimum wage, and a less restrictive hazardous substances and new organisms regime.
• More openness to foreign investment
• Better processes for scrutiny of regulations along the lines of the Regulatory Responsibility Bill.
"We need to change course, and do it quickly. The starting point has to be an unwavering focus on growth-promoting policies, aiming to match or exceed best practice world-wide. Unless this happens, those of us who remain in New Zealand will spend increasingly more of our time and money visiting children and grandchildren overseas," Dr Brash said.
He said the Taskforce believed changes could be made without the major transitional impacts experienced during the economic reforms of the late 1980s and early 1990s.
"We were criticised last year for saying that smaller government was essential to closing the gap, but we stand by that statement. International evidence provides no reason to believe we can close the gap without significantly reducing the share of government spending in the economy, allowing tax rates to be lowered further. The state should withdraw from commercial activity to allow the private sector wider scope to generate the high levels of growth that are needed," Dr Brash said.
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Comments and questions17
With an effective GST rate of 19.94% (noting the Emission Scam's impact on the Consumer Price Index - as stipulated in the budget), New Zealand will never catch up. All of New Zealand's fiscal policies are misrepresented and the same is reflected in New Zealand's performance. Or lack there of.
Problem though: Next year ETS doubles creating an effective GST rate of 25.67%. The only way then to close the gap would be to surrender sovereignty to Australia. Or is that speaking to soon John?
New Zealand will never catch up with Australia for three reasons:
Superannuation
a. Compulsory Superannuation of 9% and to increase from 1st July 2011. NZ compulsory of 2% Kiwisaver.
Australia: 15% tax on contributions, with a salary sacrifice of up AUS$25,000 per year. NZ 2% tax free, remaining contribution after tax
b. Superannuation providers who have economies of scale and undertake active management of funds vs. the economists/passive investment managing funds in NZ.
c. Self Managed Super Funds which provide competition to large funds but mean that higher returns can be achieved. Also up to 10% of a SMSF can be invested in associated businesses. NZ businesses don't have access to this type of capital.
A typical Australian salary worker at age 50 will have hundreds of thousands in their super fund vs tens of thousand for a Kiwi at the same age.
Higher Net Pay
A lower GST rate, income tax is the same.
Increasing Property Values
Immigration of high value labour from the UK, not to mention NZ, is driving up property prices while more weatlh has people looking for bigger properties.
John Key promised us though!!!!
Another non delivery John
Can anybody explain to me how a population of 4.2m is supposed to have wage parity with a dusty desert of 21.4m? Why do we obsess over this 'wage gap', it's counter productive considering what a rich country we relatively are. Those who say we are going third world have clearly never seen it, has anyone been to Thailand recently? I have, and we live in paradise compared to them, ditto Australia. If you want to get hot and bothered while worrying how much water will cost in the next years, then go away. Why can't we just get on with it? The 'it' being continuing to enjoy this amazing country, if you're fixed on lots and lots dollars, then NZ just isn't the place to be.
can we ever really expect to 'close' the gap? I would hope that the best we could hope to achieve is maintain the gap - we can never match the Aussie mineral and productive wealth. But what a wonderful sized land, population and cultural mix we have!
Well stated Clem.
The 2025 Taskforce objectives were always unrealistic. However, at least we are "shooting for the stars" so our lot should improve with the journey (assuming National stay in power).
Don Brash once again introduces the thoughts of intelligent enterprising people who have the future of NZ at heart. His recipe for future direction is the type of thing I thought John Key would automatically introduce once in Government.
However every decision is made via the popularity stakes and the ballot box. Half our adult population is on welfare, a quarter of which receive more than people working.
400,000 are in the public service. They will not want less government. 400,000 are in ethnic groups who show little or nil enterprise and we have 200,000 in the 18 to 20 year bracket who are yet to experience the difficulties of life. There life is here and now, not the issues of future generations.
These groups are not interested in, provide little or nothing to NZ productivity but they can still vote. In fact they can out vote all avenues of enterprise.
This is what John Keys watches. The retention of power by not upsetting the voting base, and while we consider democracy the best of the worst systems our buying of votes via welfare has put us into a permanence of stagnation.
We need a government that actually governs and a leader who actually leads. That is just not happening. We need action at the same speed as resolving the hobbitt case
There are those that create the wealth and there are those that live off the wealth created by others.
While the proportion of creators diminshes the proportion of welfare recipients increases.
Until this balance is reversed there will be no progress.
Why do we want to catch up with a bunch of Bazza convicts in any case?
The lack of firm action by the govt is disappointing
There have been too many cases where politics & popularity have outweighed necessary action
Firm action is required,even if it means the loss of a few votes
The committee is overwhelmingly filled with present and past Government apparatchiks and economists (who estimate the national and global outcomes of what businesspeople do, 2 years later), rather than real, successful businesspeople. What can we expect?
It is most amusing to note the comments on Maori this (or 'ethnic' this) and Maori that from people that clearly have no idea, little experience of dealing with Maori and do nothing but generalise. Particularly interesting given the number of non-Maori mediocre businesses around the place as well. It disgusts me.
What we should expect is the Govt to live up to their rhetoric.
Maybe we can't reach parity with Australia but we should at least be heading in the right direction and be a lot closer.
Key was full of junk talk, and now he's going to give us a whole lot of grief, by surrendering the seabed-and-foreshore to Maori. The sooner he 'effs off', the better
Are we being realistic thinking we can match Aussie?
While its good to aim high, lets not be coloured by right wing extremists.
Whats kept Aussies middle class is the power of the unions, & the ability of government taxes to support it.
The reality is we are now competing in a global market, where large scale commodities rule. China has the labour, Aussie have the minerals & the elite few control the money.
NZ has to compete by going into niche markets; specialist goods. We do not have the scale to supply to the world, in the long term. South American countries will be overtaking us in a couple of decades.
Tourism has definite longer term possibilities, so lets not destroy whats left of our waterways by damming them for energy demand, pumping them dry to make unproductive land productive (find an alternative high value crop) or fill them with diary affluent. Its time we started looking long term, instead of focusing on short term profits. A good business is one that is sustainable over the long term.
The maori culture is unique to this country, and more funding should being going into promoting this to foreign visitors. Why not have more tourist related ventures based around Marae's. This would bring pride and unity back to them, as well as employment opportunities for the youth and tourist dollars to the country. Perhaps some of the treaty settlement monies should be channelled into this area, by way of a proven joint venture partner, rather than be wasted by local iwi management with limited commercial accumen. Lets turn a liability into an asset!!
Lets surrender while the going is good.
I know the words of Waltzing Matillda
I am not sure that wage gap is the right target - perhaps some function of difference between income and outgoings might be worthwhile. Two reasons - (1) population - I work in IT and the work I do takes much the same effort to do something for a Bank with 1 mill customers, as it does for a bank with 12 mill customers - but my cost can be spread across 12 mill payers rather than 1 mill hence I have more leverage to get better money (2) inflation - as you get more money the service people charge more - go to Perth where money flows out across the city from the Mineral boom - a pint of beer is about $10 ausie - go to Canberra where is all tax money paying and a pint of beer costs $5.50 ausie and so for many other costs. So I am not sure we are targeting the right problems - We can perhaps focus more on costs – efficiencies. With cloud computing as one example it is perfectly possible to sit in NZ and earn overseas. I am sitting on Waiheke connecting to the UK via broadband to service a UK customer – I am getting paid in pounds. Equally I have been doing work in Aus getting paid in AUD – all Zero rated for GST, but I pay my tax in NZ and I and live in NZ (at the moment) Now Cloud computing is brilliant as I don’t have to be anywhere in particular. OK this is just IT – but NZers do very well in IT.
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