A while back I mentioned a report by Business NZ called “Setting New Zealand Apart” a blueprint for creating productivity growth and making the New Zealand economy more competitive internationally. Read alongside the “nuggets” of the 2025 Taskforce Report and Tax Working Group, the reports ought to provide a good basis for John Key’s Government over the next two years into the 2011 election. This is the first post in a five-part series on these “nuggets”.

We already know in the 70s this country fell behind Australia, and it was only in the 1990s and 2000s that we started to first tread water and then catch up, albeit slowly. Labour’s spending binge from early 2005 – 2008, relentless expansion of regulation and strangulation of business in general helped kill the growth off again. New Zealand’s productivity statistics 1978 – 2008 show some serious problems for our capital productivity, good growth for labour productivity (thanks to a lot of us working longer hours for less) and sluggish growth of ‘multi-factor’ productivity (that’s the two others – labour and capital – combined).

Productivity Growth

While productivity isn’t the silver bullet that will save our economy, it does matter a lot. Anyway, here’s the 50 recommendations Business NZ made, what the Government is doing to implement them, and what the 2025 Taskforce recommended:

1. Create a “New Zealand Productivity Commission” to keep on top of new regulation and review existing regulation.

While I’m generally opposed to new bureaucracies, the Productivity Commission (along the lines of the Australian Productivity Commission) would be a good thing. The 2025 Taskforce states such a body would have expertise in micro-economic policy.

2. Make regulatory bodies more accountable.

We should ensure that regulators get it right first time. An investigation into the possibility of a wider merits review process would provide a strong start. This could provide a framework to safeguard against inappropriate regulation and provide more accountability for decisions.

3. By mid 2010 deal to the top five areas of red tape for business.

The top five areas are:

1. Tax;
2. health and safety in the workplace;
3. Employment Relations Act;
4. ACC;
5. the Holidays Act.

The Government is set to introduce legislation on the Holidays Act and has already amended the Employment Relations Act for greater flexibility. The two sticking points seem to be ACC and Tax. Key won’t want to scare the horses with further ACC changes, and tax is a no-go area thanks to Mr English’s determination that there won’t be further tax cuts. I suspect the Government won’t move on tax until 2011, hoping a tax cut might bolster its support in an election year.

4. Develop a national Infrastructural Plan.

This is already underway, as a part of the Treasury, and should be out in the next couple of months.

5. Develop a national Transport Plan.

There doesn’t appear to have been anything done on this yet. C’mon Steven!

6. Electricity

Gerry’s made good progress at cutting red tape and axing the useless Electricity Commission. But more needs to be done to create a more competitive environment.

7. Telecommunications

Business NZ recommends going back to a “light-handed” regulatory environment.

8. Phase two of RMA

The report recommends creating a technical experts group to deal with water issues, something which matters greatly in rural areas. Good stuff. Meanwhile they also proposed codifying the right to compensation for the removal of property rights and / or restrictions on land use. Again, this is a good thing, and something that is missing from the Bill of Rights.

9. Include property rights in a Bill of Rights Act.

This is a fairly simple change in law – however, its implications for Government and New Zealand’s constitution generally are wide-ranging. That doesn’t mean it’s not worthwhile. Perhaps National can get a proposal for property rights in the Bill of Rights Act in its Constitutional Inquiry this year?

10. Ensure that decisions that may result in access to resources being closed off have the value of their future use explicitly recorded as part of
their cost-benefit analysis.

Seems practical. Perhaps some sort of legislative “ratchet clause” on the value of the land’s resources?

Part II coming soon…

John Key has predictably stated that the Government will “keep its promises”, and therefore won’t be implementing the report of the Taskforce 2025. The Standard gives the cookie-cutter response of the left – Dr Brash is evil, ridiculous and silly all at once. One quote really says it all for me:

The neoliberal agenda has never been about growing the pie. It’s about taking a larger slice for the rich; stealing from the poor. Look at the ‘nuggets’ and you see that’s exactly what they want do. It’s all about weakening workers’ rights, lowering their wages, and cutting the social wage to enable a transfer of wealth to the wealthy.

Herein lies what I think is the key contradiction of social democracy: if you want better wages, better conditions for workers and better social services, you need a wealth-generating economy to pay for it. While The Standard might whine that the “neoliberal agenda” is about taking a larger slice for “the rich”, the fact of the matter is that wealth disparity has been getting worse in New Zealand since our economy began to under perform – at least a decade before 1984 (albeit, things did get worse post 1984 – when we had to pay for the previous ten years’ pissing around). Labour might’ve talked about getting New Zealand into the top half of the OECD, an admirable goal, but they did precious little to go about reaching it. Their lack of fiscal restraint has pumped up inflationary pressures in the economy.

Anyway, here’s the reports recommendations, from the NBR:

• Replacing the top tax rate of 38 cents in the dollar and business rate of 30 cents in the dollar with a top tax rate of between 20 and 25 percent;
• Limitations on some universal benefits. Those included interest-free student loans and subsidies for early childhood care education;
• The Government to reduce operational spending to 29 percent of gross domestic product by 2012-13;
• Use the NZ Superannuation Fund to pay back borrowing and change the age of entitlement;
• Impose congestion charges in cities to pay for roads;
• No capital gains tax.

These recommendations are made on the report’s following principles:

• Sharpening private incentives to invest, to save, and to work;
• Minimising the regulatory obstacles the government puts in the way;
• Managing the public sector’s own huge assets much more effectively;

All good starting points. The report also recommends that some policies not be implemented:

• Greater research and development support (i.e. tax credits for R&D);
• A new government financial institution;
• “Sectoral-based” growth strategies (i.e. tax credits for certain sectors of the economy)
• Initiatives to lift workplace productivity;
• Compulsory private superannuation savings scheme;
• Exchange rate regime; (we’re looking at you Labour)

All interesting proposals. I’ll comment further once I’ve had a chance to read the report in full.

As you’d imagine I’m rather excited about the Taskforce 2025 report’s announcement tomorrow at 1:30pm. It appears some of the recommendations have already been leaked to the media – apparently there’s plenty of spooky tax cuts, spending cuts and privatisation.

This looks like Politricks 101 to me – leak the “extreme” recommendations of the report (i.e. what Espiner has reported) and disassociate yourself from them, only to accept the more moderate recommendations (perhaps some tax cuts and base re-allocation, sinking lid spending cuts, etc). Key’s argument that National campaigned on not privatising or cutting spending is credible from this perspective, but not if he wants to close the gap with Australia. The moderate path will be enough to win National another term in office – but then what?

Key ought to use the Taskforce report, and the Tax Working Group, to form the basis of his campaign in 2011. That would give a National-led government a mandate to make change, inject vitality into business and the economy at large.