By Alex Tarrant
Finance Minister Bill English has stopped short of rubbishing the latest report from the 2025 Taskforce on closing the income gap with Australia, but says the government does not agree with the speed of reforms recommended by the group led by former National Party leader and Reserve Bank governor Don Brash.
The Labour Party labelled the report as "ideological claptrap".
English said the Taskforce’s report – part of ACT's confidence and supply agreement with National - raised 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," he said.
"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," English said.
In its second report released today, the taskforce recommended the government should withdraw from commercial activities to allow the private sector to maximise the potential of various state-owned entities.
However, chairman Don Brash did not go as far to say government should sell every share it has in commercial entities, and would not be drawn on whether government should sell Kiwibank, despite saying "the logic to having a government owned bank is not high".
Since its first report last year, the taskforce said it did not see any realistic possibility that the gap in real per capita income between Australia and New Zealand had narrowed.
It quoted an OECD projection that the gap could widen to 42% by 2025 based on current policy settings.
Despite this, the group was adamant that New Zealand could still catch up within the timeframe promoted by the National-led government under its confidence and supply agreement with the ACT Party after the 2008 election.
This would require growth 2% higher than Australian growth over the next 15 years, Brash said.
There was a strong case for the full or partial sale of government commercial operations, he said.
“Not so much to reduce government debt or eliminate gross inefficiency – the rationale for state asset sales in the eighties and early nineties – but to allow the private sector to maximize the potential of those businesses,” Brash said.
Mind your PPPs, Raise retirement age
The taskforce also promoted greater of use of public-private-partnerships (PPPs)
“More private provision of and education services is needed, to improve outcomes and to reduce costs to the taxpayer,” Brash said.
The taskforce recommended a stronger return-to-work focus in welfare and said the age of eligibility for New Zealand Superannuation should be raised.
It said a better business environment would promote the private sector to spend more of its own money on research and development, saying there was weak evidence publicly-funded R&D generated growth.
“Better value could be achieved by restoring full contestability to government R&D funding.”
It also said New Zealand needed to be more open to foreign direct investment.
“In just a few years, New Zealand’s foreign investment regime has gone from being among the most open to one of the most restrictive in the OECD.”
'Ideological claptrap'
Meanwhile, Labour Party finance spokesman David Cunliffe labelled the report as continuing to offer "ideological claptrap", saying its attack on National's lack of an economic plan showed a falling out on the right.
“Perhaps it’s sweet revenge on Don Brash’s part after John Key gave the cold shoulder to his first report,” Cunliffe said.
“John Key and Bill English won’t be amused, however, by his attack on the Government’s ‘backward steps’ or his claim there is no evidence National’s policies will deliver the kind of accelerated growth needed," he said.
“Labour has been saying for months that the gap between New Zealand and Australia is growing. John Key tries to deny it, but the proof, in terms of wage disparities, and in job growth across the Tasman, is irrefutable."
Cunliffe's comments follow a major rethink by Labour on its economic and monetary policy during the last month. See more here.
“Don Brash’s ideological nonsense --- with an unwavering focus on the free market and privatisation, and to hell with anything else like social policies --- don’t provide a path New Zealanders want to go down either,” he said.
The full report is available here.
Here is Finance Minister Bill English's response:
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.
Here is the Labour Party's response to the report:
The second Don Brash 2025 Taskforce Report continues to offer ideological claptrap, but its attack on the National Government’s lack of an economic plan shows a “falling out” on the right of politics, says Labour Finance spokesperson David Cunliffe.
“Perhaps it’s sweet revenge on Don Brash’s part after John Key gave the cold shoulder to his first report,” David Cunliffe said. “John Key and Bill English won’t be amused, however, by his attack on the Government’s ‘backward steps’ or his claim there is no evidence National’s policies will deliver the kind of accelerated growth needed.
“Labour has been saying for months that the gap between New Zealand and Australia is growing. John Key tries to deny it, but the proof, in terms of wage disparities, and in job growth across the Tasman, is irrefutable.
“Don Brash’s ideological nonsense --- with an unwavering focus on the free market and privatisation, and to hell with anything else like social policies --- don’t provide a path New Zealanders want to go down either,” David Cunliffe said.
“If we are going to persuade Kiwis not to follow their dreams on the other side of the Tasman, we need to be promoting a value-added and high-tech economy, monetary policy that assists our exporters, policies that address the savings gap, and tax and social policies that are fair for all Kiwis.
“National is doing none of this. Instead it’s wasting money on this taskforce. It should scrap it now.”
Labour’s SOEs spokesperson Clayton Cosgrove said Don Brash’s relentless pre-occupation with selling off our SOEs to private enterprise ran absolutely counter to what Kiwis want.
“Even National knows it can’t get away at the moment with selling off the family silver,” Clayton Cosgrove said. “The difference between Labour and National is that National would sell the family silver if it gets the opportunity after the next election. Labour will keep Kiwi assets in Kiwi hands.”
(Updates with Labour response, changed head, English's response)
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