There’s some merit in the Brash plan

14/05/2008 - 22:00

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LAST year, State Scene had the pleasure of meeting New Zealand’s former National Party leader, Don Brash, in Blenheim, at the heart of Cloudy Bay wine country.

There’s some merit in the Brash plan

LAST year, State Scene had the pleasure of meeting New Zealand's former National Party leader, Don Brash, in Blenheim, at the heart of Cloudy Bay wine country.

Dr Brash was at the Summer Sounds Symposium on public policy, an annual event organised by famous Kiwi children's author, Amy Brooke.

Since then, Dr Brash and I have maintained an intermittent email correspondence on several issues, including history and economics.

But first, some background before turning to a lecture he's just delivered for the Centre for Independent Studies in Auckland, titled: 'Big Ideas to Super-Size New Zealand's Economy'.

Dr Brash, an economist, gained his doctorate at the Australian National University.

Interestingly, one of the examiners of his thesis was outstanding Western Australian economist John Stone, who once headed Australia's Treasury.

Dr Brash later worked for the World Bank in Washington; was general manager of Broadbank Corporation and Trust Bank; managing director of New Zealand Kiwifruit Authority; and, for 14-years, governor of New Zealand's Reserve Bank, after which he entered politics and narrowly lost to Labor's Helen Clark in 2005.

He's quietly spoken, thoroughly objective, and calls a spade a spade, a key feature of his hard-hitting 2005 election campaign.

Since then he's wound down, but retains a keen interest in economics.

He began his lecture by stating that: - a gap had emerged between living standards in NZ and those in countries to which New Zealanders can readily move; - this gap had become markedly larger during the past seven or eight years, particularly against countries like Australia, in large part because NZ's trend growth in labour productivity has roughly halved as compared with the trend growth of the 1990s; - as a result, more New Zealanders are leaving the country, permanently; - New Zealanders are increasingly unable to afford the good things in life that richer countries take for granted, such as a proper course of Herceptin for treating breast cancer; - NZ is increasingly dependent on migrants to fill the gaps left by departing New Zealanders, so that, for example, they now have the highest percentage of foreigntrained doctors in the developed world, with a NZ doctor leaving the country every week; and - even the government, when it is being completely honest, acknowledges that there is not the slightest chance of reaching the top half of the OECD by 2010, as was its original objective, or even of achieving the 4 per cent trend growth which [finance minister] Michael Cullen said was his immediate aim in his 2002 budget.

State Scene outlines Dr Brash's recommendations partly because WA politicians could take a leaf or two from him.

Dr Brash began: "Having spent four and a half years in parliament, I suspect that the leadership of both our major political parties understands all this rather well.

"The problem is not their lack of understanding but the problem of explaining what needs to be done to an electorate with a rather short time horizon and a very poor understanding of what needs to be done.

"Unfortunately, achieving higher living standards involves doing a whole lot of things which are now widely understood by policy makers, even if not by the general public." Dr Brash's recovery plan, which, he insisted, wasn't entirely new, has 10 points with educational reform at the top.

"By this, I don't mean throwing vast amounts of additional money at university students," he said.

"Far too many New Zealanders are barely literate and barely numerate, and they will never be highly productive in an economy increasingly dependent on employees being both literate and numerate.

"Does this mean more government spending on education? "Probably not: government spending on education already makes up a higher percentage of our GDP than is the case in most other developed countries.

"What is required is better trained teachers, and a remuneration system in the education system which differentiates between good teachers and those who should be looking for another career.

"That almost certainly implies giving parents more choice about where their children are schooled." He said NZ's welfare system was not only costly but discouraged too many from entering the workforce, with social as well as economic costs.

He next urged that government spending be held, in per capita and real terms, at current levels.

"This hardly sounds like an ambitious target," Dr Brash added.

"It implies a steady increase in government spending in nominal terms, both because of inflation and because of population growth.

"If, instead, real government spending could be held at current levels, on a per capita basis, the scope to provide tax reductions which would give the private sector more space to grow would be very considerable indeed."

Linked to this was his call to limit government regulating.

He said Australia's Productivity Commission estimated that complying with regulations here costs 4 per cent of GDP, or about $A40 billion in money terms.

"And that's the cost of complying with regulations," he added.

"Unquantified, and probably unquantifiable, is the almost certainly much greater cost imposed by regulations which simply stops investment occurring altogether.

"There would be considerable merit in some form of legislation to create a hurdle which all new legislation and regulation would have to clear before coming into effect, with the objective of minimising the cost of regulation." NZ's Reserve Bank should acquire additional powers to help moderate inflationary pressures, he said, while calling for a flattening of income tax scales and limiting maximum tax payable to $1 million.

"Having a tradesman face an effective marginal tax rate of over 50 per cent, by the time income tax and Working for Families abatement are taken into account, is no way to encourage him to work harder, or expand his business," Dr Brash said.

"It would significantly change those incentives if the effective marginal tax rate were much lower.

"I can already hear the taunts of Labour Party politicians if [ppposition leader] John Key proposed flattening the tax scale, even though that might well be one of the best contributions he could make to help low-paid New Zealanders.

He said NZ's Resource Management and Hazardous Substances and New Organisms (HSNO) Acts also needed fixing.

"I think it was Transit New Zealand that pointed out some years ago that getting approval to build a major road in New Zealand can take seven years, compared with seven days in Singapore," he added.

"Nobody thinks that we can cut our approval times from seven years to seven days any time soon, but seven years is ridiculous.

"And it was the Forest Industries Council which pointed out two or three years ago that, at that time, there were 21 major wood-processing plants under construction in Australia but none at all in New Zealand." The HSNO Act is a major impediment to investment, especially in the vital agricultural and horticultural industries where it slowed introduction of new plant varieties.

The last two elements of his plan were to allow easier dismissal of unsatisfactory employees, especially in the first three months, and freeing up more land for housing.

"None of it is politically impossible, but implementing it would take courage because the pay-off would not be instantaneous," Dr Brash concluded.

"But there would be a pay-off.

"Young New Zealanders would still want to go overseas to see the world, as they have always done.

"The difference this plan would make is that a high proportion of them would want to come home." State Scene suspects most of his reforms apply to WA and our major parties' leaders understand this but lack the gumption to proceed, something Dr Brash would not have lacked if he'd won in 2005.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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