Balancing the Books Is Only Half the Job

Balancing the books is only half the job. Dr Oliver Hartwich argues that while National and Labour are focused on deficits, spending and taxation, New Zealand’s deeper challenge is declining productivity and competitiveness. He says restoring credible institutions, simplifying government and making ministers clearly accountable should be just as important as returning the budget to surplus.

Over the past couple of weeks, the two major parties have told us about their fiscal policies. Both promise to return the budget to surplus before the end of the decade.

National aims to bring down government spending to 30% of GDP, while Labour wants to stabilise it around 33% of GDP. National has pledged not to introduce any new taxes, while Labour is campaigning on a new capital gains tax.

Over the coming weeks, each side will pick through the other’s plans for hidden taxes, fiscal holes and fudged figures. Scrutiny is warranted. New Zealand runs a structural deficit, and whoever governs after November must close it.

Still, talking about tax pledges and distant budget surpluses should only be part of the discussion. Fiscal consolidation is necessary, as both parties agree. But necessary is not the same as sufficient.

The other half of economic policy should lay the foundations for economic growth, improving productivity and increasing competitiveness. And on that, we have so far heard precious little in this election campaign.

That is a problem because, in international competitiveness rankings, New Zealand has dropped over the past three decades. The IMD yearbook has us 31st. This year, it concluded that competitiveness now hinges on credible institutions. That should be a focus for any future government.

And indeed, there is much work to be done on New Zealand’s institutional quality.

This week, Parliament’s Privileges Committee found that MBIE officials deliberately misled a select committee about a failed IT project. ‘There is a rot’, the Immigration Minister herself conceded.

This is not just one agency’s lapse. MBIE answers to about 20 ministers. It is one complex node in a tangled web of more than three dozen departments and more than 80 portfolios, so no minister is ever clearly in charge.

Structural reform is required. The number of portfolios should be cut to around 20, with Ministers leading their departments and able to pick their chief executives. When an agency has failed by design, it should be replaced rather than repaired.

Institutions that work deliver infrastructure on time, produce regulation that makes sense and provide effective public services.

Getting to grips with these institutional matters should be as much a priority for the next Parliament as dealing with the budget deficit. Both aspects of government are vital for our future productivity and competitiveness.