It was suggested that I do an additional short article 10 days out from the election with an appraisal of the economic policies being proposed by Labour and National. I’ve found this extraordinarily hard to do!
That’s partly because of the difficulty of defining “economic policies”. Does the term include policy on reforming the Resource Management Act, or policy on oil and gas exploration – both highly relevant to our future economic prosperity. What about policy on immigration, or foreign investment – or measures to reduce greenhouse gases? It is hard to think of any significant policy which does not have far-reaching economic implications.
The other problem is that since New Zealand adopted MMP in 1996 we’ve never had a single party Government. As the polls stand at time of writing, it seems likely that after the election we will be looking at either a Labour/Green coalition of some type, or on the other hand a National/ACT coalition, with neither New Zealand First nor any of the rather large number of smaller parties making it into Parliament on this occasion.
So what I really have to compare is the policies which might be adopted by a Labour/Green coalition on the one hand and the policies of a National/ACT coalition on the other. And of course, the shape of either of those coalitions will depend heavily on the relative strength of the parties making up the coalition.
In one respect I’m more fortunate than the average journalist doing such a comparison: I don’t need to try to hide the conclusion I reach!
Looking first at what a Labour/Green Government might look like, we know that Labour has said there would be no increase in any tax rates over the next three years beyond an increase in the rate of income tax to 39% on income over $180,000. Labour has specifically ruled out a capital gains tax. On the other hand, the Greens have said they favour increased income tax rates (to 42% on income above $150,000), a broad inflation-indexed capital gains tax (excluding the family home), and a tax of 1% on net wealth above $1 million and of 2% on net wealth above $2 million. Moreover, the Greens have described a wealth tax as a “bottom line” in any negotiations with Labour.
National proposes to reduce income tax rates across the board for a 16 month period from 1 December this year to stimulate the economy in the short term, and to index tax rates to inflation every three years from 2023/24; to double depreciation rates on plant and equipment; to reduce from five years to two the so-called “bright line test”; to abolish the Auckland regional fuel tax and freeze fuel excise taxes for three years. ACT would provide less generous reductions in income tax but would reduce the rate of GST from 15% to 10% until June next year as a way of stimulating consumption spending in the short term. It too would scrap the Auckland regional fuel tax, and would also scrap the excise tax on fuel and replace it with a road pricing system.
Both sides of politics have announced their intention to spend many billions of dollars on infrastructure. A Labour/Green coalition might be expected to spend many billions on rail given the Green Party’s commitment to “regional rapid rail”. But as Richard Prebble (a former Minister of Railways) noted in a recent article, “we have a single track, narrow gauge, freight railway network, with a top speed of 80 km/h. Every 10 km/h increase in speed is a doubling of the cost of the track. Slow freight trains cannot share a single track with fast passenger trains. High speed trains would require a totally new rail network, tunnels and bridges”. And we Aucklanders know from bitter experience how the cost of building rail networks doubles and triples compared with initial cost estimates.
National’s infrastructure programme appears to be more heavily oriented toward improving our road network, and to shaking up at least Auckland Transport – long overdue in the view of this citizen of central Auckland: I seem to spend too much of my time navigating orange cones while AT narrows roads, builds cycleways, and widens footpaths.
Both sides of politics have also pledged to radically change, or scrap altogether, the Resource Management Act. What that would mean in practice is hard to know at this stage. From my personal knowledge of the work which Judith Collins did when she held the portfolio of RMA Reform when Simon Bridges was National Party Leader, and from what I know of ACT’s views on the RMA, I feel confident that a National/ACT Government would achieve the kind of fundamental reform of that legislation which is needed. Unfortunately, I have no confidence that a Labour/Green Government would achieve anything similar, and that view is based on the failure of the Labour/New Zealand First Government to make any meaningful progress in that area over the last three years.
In a number of other policy areas I believe that a National/ACT Government would be better for our economic prospects. The Labour/New Zealand First Government inexplicably increased the minimum wage on 1 April last at the very time when employers were struggling to deal with the draconian lockdown imposed at that time – and simultaneously increased benefit levels, thus making hiring people more difficult for employers and being on a benefit more attractive to potential employees.
And then we saw the Government announce yet another public holiday, this time for Matariki. That sounded to many people like a gift which a benevolent Government was conferring on hard-working New Zealanders – in reality, the extra holiday is paid for in part by private sector employers and in part by their staff. Labour either doesn’t understand that or hopes that most voters don’t.
In a raft of other areas, voters could expect a National/ACT Government to be better for our economic prospects. Both parties have promised to reverse the current Government’s ban on oil and gas exploration recognising that that ban does absolutely nothing to reduce greenhouse gas emissions because it does nothing to reduce the demand for fossil fuels – and if they aren’t produced locally they will be imported with greater adverse effects on greenhouse gas emissions. Both parties have suggested that they would try harder to open our borders safely. ACT (and perhaps National, though I have not noticed it) has suggested that rules on foreign investment from OECD countries should be liberalised. Both parties have suggested some modification in the rules currently proposed to ensure water is used to best economic and environmental advantage.
Personally, I have no doubt that a National/ACT Government would be much better for our economic prospects than any alternative.
Dr Don Brash is an economist and former Member of Parliament. He served as the Governor of the Reserve Bank of New Zealand from 1988 to 2002.