Digital Edition – October 2020 (#235)

The Big Six Issues This Election Should Deal with!



by Don Brash


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As I write, there’s one month to go. Everybody will have their own views about what problems the next Government should try to solve, but for me six issues should be priorities.


First, and most obviously, is the need to guide New Zealand back to a path of low unemployment and low government debt after the disastrous consequences of the Covid-19 pandemic – the inevitable effects and the self-imposed ones by having one of the most severe lock-down policies in the world. The latest Treasury projections show unemployment remaining above 7% until 2023, a government deficit of over $30 billion for the year which began on 1 July, and continued deficits until 2034 – the continued deficits driven in part by the failure of successive governments to deal with the long-term fiscal implications (in terms of NZ Super, healthcare and aged care) of the ageing of our population. The obvious consequence: a very large increase in net core Crown debt, from below $60 billion in 2019 to over $200 billion in 2024. Relative to the size of our economy, that level of Crown debt is not outrageous – it would rise from around 20% of GDP to about 55% of GDP. That is not particularly high by the standards of many other developed countries, but in my view it is too high for a small economy which is inevitably vulnerable to serious risks – earthquakes, volcanic eruptions, tsunamis, and plant and animal diseases.

Second, there is an ongoing need to deal with our lamentably disappointing record of improving productivity – the output per person per hour worked. Our performance relative to other developed countries has been poor for decades. In 1970, New Zealand was roughly on a par with Australia in terms of output per person per hour worked, and well ahead of other small countries like Finland and Singapore. Now, we are well behind all three of those countries. In 2008, the Key-led National Government promised to close the income gap with Australia by 2025 by improving our productivity record, but during the first of National’s three terms in Government productivity improved only marginally, and over the second and third terms productivity actually fell by 1.8 percentage points. When we complain that Pharmac doesn’t give us access to the same expensive drugs that Australians have access to, or complain that nurses, teachers, and police officers are better paid in Australia than they are in New Zealand, we are simply reflecting that for several decades our productivity has been growing more slowly than in other developed countries.

Third, despite political promises by both sides of politics, house prices remain outrageous in our major cities. The latest data available suggest that in cities like Auckland and Tauranga, the median house price is currently around nine times the median income in each city. That is simply wildly out of reach for those on the average wage unless the “bank of Mum and Dad” can provide substantial assistance and, despite the current economic slowdown, most observers are now predicting a further increase in house prices. Media reports celebrate these rising prices as a sign of confidence, and indeed rising house prices almost certainly do, by making property owners feel wealthier, encourage spending and economic activity. But at terrible social cost – still higher household sector debt, and extreme pressure on families unlucky enough not to be on the “property ladder” (indeed, even for many who are already on the “property ladder”, as they struggle to service ginormous mortgages). There is a great amount of media concern about the pressure on far too many families, and calls for the Government to provide more and more assistance – taxpayer-funded school lunches only the latest. But most of those problems would diminish hugely if house prices were three times incomes, not nine times.

Fourth, we are still on a dangerous path of creating two classes of New Zealanders – those who chance to have a Maori ancestor (always with ancestors of other ethnicities too of course) and those who don’t. These distinctions are being built into our society almost everywhere – city councils voting to create separate Maori wards for example, and appointing Maori New Zealanders to council committees to ensure that the “Maori voice” is heard, the implication being that the Maori voice has a greater right to be heard than that of any other New Zealanders, European, Asian or Pacifica. And of course the implication is also that Maori New Zealanders have inherently different interests to those of other New Zealanders, and that Maori New Zealanders all have the same interests, even though demonstrably they don’t. There is also the patronising implication that Maori New Zealanders are not quite up to footing it with other New Zealanders, that they can’t quite make it without a bit of additional assistance. All of which is utter nonsense – as Maori representation in Parliament amply shows – currently 25% of all Members of Parliament are Maori, and are spread across literally every party in Parliament.

Much of the nonsense stems from a recent reinterpretation of the Treaty of Waitangi: despite the Treaty making it explicitly clear that all New Zealanders would have “the rights and privileges of British subjects” – in other words, equal rights – it is now claimed that, on the contrary, there was to be a so-called “partnership” between the Crown and those with a Maori ancestor. This notion has been described as absurd by political leaders as different as Jim McLay, David Lange and Winston Peters.

Fifth, our education system is failing far too many of our children. I well recall being told by the owner of a small company in Hawke’s Bay years ago that far too many of those who apply for a job as a forklift driver can’t read well enough for the job – they can’t read the pallet labels and they can’t read the safety instructions. Or the 18-year-old who used an adding machine to calculate the cost of 10 tickets, each of which cost $3.50. New Zealand is gradually drifting backwards in comparison to other countries in educational achievement, and far too many kids come out of more than a decade of schooling barely able to read – indeed, functionally illiterate. It is sobering that frequently the best-performing kids at secondary school are Asians, for whom English is often a second language. What this reflects is that their parents take education extremely seriously – too many New Zealand parents do not, and our school system doesn’t provide an environment to compensate. There are many ways in which our rate of productivity growth may be improved – improving our education system is surely one of them.

And finally, there remains the issue of entrenched welfare dependency. Nobody pretends that dealing with this issue is easy but there seems little commitment to tackling the matter. Raising the minimum wage, or insisting that government contractors pay the even higher “living wage”, sounds like a caring thing to do but, in combination with an education system which allows people to emerge from school with minimal skills, it is a recipe for ongoing unemployment and benefit dependency. Yes, low income people are under huge financial pressure – to a significant extent because of the outrageous price of housing – but making it harder for them to get into employment can surely not be the answer. There is also the problem of what economists call the very high effective marginal tax rate facing those who want to get off a benefit – when they lose a benefit, start paying tax, and potentially lose an Accommodation Supplement, there is a very high disincentive to getting off the benefit. The result in too many cases is vividly described in Alan Duff’s books – unstable “families”, domestic violence, and hopelessness.

In all six areas, we desperately need to do better.

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.


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elocal Digital Edition – October 2020 (#235)

elocal Digital Edition
October 2020 (#235)