By Neville Bennett*
Historians may well later decide that the Key administration was significant as the time when New Zealand moved from the state being progressive to one which adopted a night-watchman’s stance.
We are moving to a night-watchman state and I am not sure everyone knows this or is aware of its implications.
I fear it is no good going to Wikipedia for help because entries under 'night watchman state' are written in the context of American political thought.
The idea of a night-watchman state is that it is concerned only with the defence of property.
True that state has defence and police obligations but it is not concerned with much else. It is not concerned with promoting innovation or equal opportunity. It holds the cow so the rich can milk it.
I ran into the term when I was at the LSE Graduate School and was one of the few Pakeha-types around to be harangued by Indian students who resented the way the British had held India captive and had milked it. They pointed out that the Brits had de-industrialised India, forced British products in, and had done nothing to change Indian society, and had spend virtually nothing on education. They had 'drained' India in a variety of ways.
I think they had a point but let’s move on to apply the concept to New Zealand’s circumstances.
If I were asked about the main characteristics of this government, my immediate response would be that it postpones difficult issues. I suppose I have in mind principally the age of eligibility for superannuation.
Phil Goff took a brave but principled stance on this issue in the 2011 election. National could not have believed their luck and rubbished his proposal. Goff lost and is gone, but did we miss an opportunity to discuss our demographic problem and the chance to get an all-party accord? I think not: Phil’s timing was awry, he should have raised the problem well before the election.
It is night-watchman-like behaviour to continue to say that our superannuation scheme is sustainable.
We know that it will be a huge strain on the state, and that some discussion on optimum retirement ages is necessary. As time goes by we are going to have the lowest retirement age in the world which may be absurd as we are massively in debt.
It is night-watchman-like to press for income tax cuts.
The point of this type of government is to hold the cow so that high income earners can milk it. This government has lowered income tax rates in favour of the rich and has imposed a n increase in the regressive GST tax to pay for it. The change is neutral breathes the Prime Minister, but everyone will acknowledge that this involved a massive income transfer from the poor to the rich.
There was no objective justification for the tax cuts on income at the time when the nation was borrowing something like $250 million a week. But hey! National wants the rich to milk the cow even when everyone else is struggling. Much of the “milk” came from increased government debt as gross government debt doubled from 20% to 40% of GDP in the 2008-2011 period.
I think that the GFC was the time to rethink revenue gathering.
As receipts from income, dividends, corporate tax and the like fell in the recession, it was time to think of new sources. This could have been done with some concern for equity as we knew that inequality was increasing.
I made seminal contributions to new notions on these pages, being the first person, I think, to discuss a land tax (which I think is more important than ever as many Canterbury farmers are going to become fabulously rich as the state is hell bent on irrigating their land at no real cost).
I also raised the merits of a 'robin hood'/financial transaction tax. This was ridiculed but is now warmly espoused by the IMF.
I was an advocate of the Capital Gains Tax in the 1990’s and went head-to-head with Don Brash on its merits. I believe that had it been introduced much of the frenzied foreign borrowing and house price rise would have been muted.
Readers may have views on how this government has held the cow for foreign interest to get their share of the milk. I have the view that we have never tried to stop the issue of Euro bonds/samurai bonds etc which gave our banks cheap liquidity and caused the NZ dollar to soar. I think a lower dollar would be in the interest of working New Zealanders/manufacturers etc but a high dollar is in the interests of wealthy New Zealanders who can transfer money overseas, buy expensive cars and holidays etc. We encourage investment here by imputations etc but all dividends in Australia pay quite a bit of tax.
Foreign ownership of land is an important issue which I will merely touch on as I may write in detail at another time. But I feel our government is much more hospitable to foreign ownership than some other countries. I feel one principle is reciprocity: you can buy land here if we can buy your land. The Government has not maintained this against the Chinese and Japanese.
The sale of government energy assets is an excellent example of the behaviour of this kind of state: it wrests resources out of the public domain and transfers them to the private domain. True, the private sector will pay but the price may be low. The private sector will pay precisely because they are getting a bargain. If the private sector is getting a bargain, it follows that the public sector has sold too cheaply. The people lose, the rich get richer.
That is not the end of it. How will the state spend the money realised from its sale of public assets. Will it spend the money to enhance public welfare? Some, perhaps.
But it will also spend some apparently on irrigation in Canterbury. It will transfer a public resource (water) to private hands and make farmers fabulously rich. Canterbury people will have no rivers reaching the sea. Their opportunity to swim in rivers is almost negligible because many have dried up and all are polluted.
So what is wrong about a night-watchman state other than it favours the rich and foreigners? I think it could do much more to encourage sustainable development, encourage manufacturing and reduce inequality in society. It might give young people dignity and a stake in society.
If our young had a stake and opportunity they might even stay here.
* Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971. His focus is economic history and markets. He is also a columnist for the NBR.