Act MP Sir Roger Douglas is enjoying his reputation as a parliamentary pariah ahead of his speech to Orewa Rotary Club, chuckling at his portrayal by opponents as an outdated laissez-faire radical and looking to make some changes to New Zealand’s tax policy – if anyone will listen.
Most famous for New Zealand’s free-market reforms ( under Labour) in the 1980s, Sir Roger's re-entry to Parliament as a member of the party he founded, Act, was greeted with a virtual input blacklisting by both National and Labour.
He tells NBR that he still hasn’t had any kind of meaningful discussion with members of Act’s coalition partner, National, adding that with Winston Peters out the door, both Labour and National need a new fear figure to unite supporters.
But as finance minister during New Zealand’s last true economic realignment, and as the world watches the rise of economic nationalism and the return of protectionism looming (most recently the EU’s reinstatement of dairy export buybacks), Sir Roger is happy to spell out his advice – whether or not anyone’s listening.
2009 is pushing the limits of the worst case scenarios presented in any economic models, he says, putting to the sword to any of the “daft” projections that picked the recession to be “relatively shallow.”
Late last year he picked unemployment to hit 7% l but now concedes this may be too low, and is picking mid to late 2010 before any signs of economic recovery appear.
He blames the short sighted, interest group-focused policies of the departed Labour government that simply don’t stand up to any kind of cost benefit analysis – leaving the current account deficit at 8.5% of GDP and the country in recession well before the Bear Stearns collapse.
With international financing tight, and a fall in the New Zealand dollar matched by commodity price falls, the chances of reducing this deficit are all but impossible without tax reform and an improvement in productivity. Productivity is now at just 0.7%, a quarter of what it was pre-99.
Further behaviour, such as Dr Michael Cullen’s hazy definition of “strategic assets” to deter foreign investment in Auckland Airport takeover, creates a perception of an uncertain market, he says.
“It’s quite simple – in volatile times you try to create as much certainty as possible.”
Not that National has been terribly much better, fiddling with small details and refusing to cull the inefficient public sector.
His new proposal, which he admits is a long-term plan, is to introduce a tax-free threshold up to $30,000 for the individual, and up to $50,000 for couples with a dependent. Below that, there will be a guaranteed minimum income for families with a tax credit to boost income to safe levels.
Above that, there will be a flat tax rate, which over the course of a 15-year transition will be reduced to 15%.
The payoff is that individuals will be required to take responsibility for their own retirement, healthcare and insurance.
Healthcare and insurance coverage focused on a restoration of competition to the sector and removal of monopolies such as ACC.
The under $30,000 earner currently loses $6150 in taxes, more than enough for an individual to cover all these facets, after cost reductions in a market competitive environment.
A private superannuation account for each individual, topped up by private and employer contributions, will see retirees bank $1.8 million after a lifetime in the workforce, adjusted to $850,000 after inflation.
All of these options will operate under an "opt-in" system, and anyone who doesn’t want to be involved can continue under the current arrangements.
The idea, he says, is to give the individual choice in arranging their own affairs, personalising levels of coverage and cost, and breeding competition in these previously monopolised sectors.
The culture of handouts and prop-ups has had its time, he says, and wants the working culture to move back toward incentivisation.
Rethinking of the way the country earns and does business is the only way to catch Australia and climb OECD rankings.
“We’ve had too many years of politicians looking at short term goals, of appealing to constituencies,” he says.
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