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.