Considered consistent reform better than opposition

The second 2025 Taskforce report recommends a much smaller role for government if we are to close the gap between New Zealand and Australia.

It’s broad recommendations 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.

Taskforce chair Don Brash commends the government for making some progress but also criticises some policies:

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.

Finance Minister Bill English made a diplomatic response to the report, accepting the challenges it identifies but differing on the speed at which reforms can be made:

The second 2025 Taskforce report shows the Government has taken steps to lift New Zealand’s sustainable economic growth, but catching up with Australia will be a long-term challenge, Finance Minister Bill English says.

“Budget 2010 took several steps in that direction – including across the board personal tax cuts on 1 October that narrow the gap in after-tax incomes with Australia,” Mr English says.

“However the report shows just how challenging it will be to catch up to Australia by 2025, especially as we continue to recover from a recession – started under Labour – that Australia never had.

“Our first step has been to get the economy out of recession and growing again. We’ve now had five consecutive quarters of growth and we’ve put in place a broad programme of action, which will provide a platform for future growth.

“The Taskforce’s report – part of ACT’s confidence and supply agreement with National – raises some interesting ideas, which will hopefully generate constructive debate. The Government will consider some of those ideas, alongside the range of other advice we receive, and make practical decisions.

“However we disagree with the Taskforce report’s authors about the ideal speed of reform.

“History shows that reforms done at breakneck speed tend to be fairly counterproductive. If you don’t take the time to convince people of the benefits of change there’s a good chance the next government will simply reverse them.

“We are already moving in some of the directions suggested in the report. As well as cutting personal and corporate taxes, we have put a cap on new Government spending, have put better incentives into the welfare system and are reviewing major regulation.

“But any changes must meet the tests of fairness and equity, be consistent with our election promises and occur at a sustainable pace.

“The only way we can permanently lift New Zealand’s economic growth is through considered and consistent reform and change, year after year,” Mr English says.

I agree with the broad thrust of the 2025 report but also accept the political reality. 

Unpopular governments don’t get re-elected and it’s better to make slow progress in government than no progress in opposition.

However, I think governments sometimes underestimate the public’s acceptance of the need for stronger medicine if we’re to cure the economic malaise which has been widening the gap with Australia for 40 years.