Below is the response from Bill English, our Finance Spokesman, on behalf of John Key and all the National MPs you have written to requesting their comments on economic growth. If you need anything else, please let me know.
Office of the Leader of the Opposition
*** *** ***
Thank you for your email and the chance to share our views.
You are right to draw attention to the relative decline in our standard of living compared to the rest of the developed world. Our inability to climb up the world rankings is extremely frustrating because it means our economy is unable to provide New Zealanders with the First World services and opportunities that they deserve.
In order to turn this around, we must lift productivity. In the long run, it is productivity growth that largely determines sustained improvements in living standards. Productivity growth raises living standards because it leads to higher incomes, which improve people’s ability to purchase goods and services (including leisure), and allows greater spending on social programmes (such as health, education, the environment, etc).
It is no coincidence that the period of stagnant productivity growth we are currently experiencing has occurred under a Labour government. That party first came to power in the Great Depression and still clings to 1930s thinking. It doesn’t trust people to save, invest, and spend their own money. It is unwilling to accept that people respond to the incentives they face, and it is surprised when inefficient or perverse incentives lead to inefficient or perverse outcomes. It doesn't believe that Kiwis can foot it in an international environment and it is inherently suspicious of those who can.
Many of Labour’s policies have held back New Zealand’s productivity growth and prevented us from catching up with other developed countries. These include:
- Over-taxation and high effective marginal tax rates. This has reduced incentives for people to work and save and get ahead.
- A lack of discipline in government spending. This has resulted in increased expenditure on low quality programmes, a culture where “more money” has replaced a focus on value for money, and a huge rise in the number of bureaucrats. For example, Labour is spending an additional $5 billion a year on our health system but there has been a negligible improvement in output.
- Undisciplined government spending is crowding out the private sector, increasing the costs faced by businesses and exporters, and contributing to the inflationary pressures that households and businesses are now grappling with. Households are having to tighten their belts because the Government hasn’t.
- Poor-quality regulation and excessive red tape. Poor regulation can act to stifle, slow, and stagnate growth. It is swamping businesses, local government, and even public organisations (such as schools) in needless paperwork.
- An inability to improve our overstretched infrastructure, such as poor broadband speeds and penetration, an electricity system that struggles to get through the winter without shortages, and a roading network that is failing to deal with growing traffic congestion in our biggest cities.
- Increased investment uncertainty thanks to poorly thought-out interventions, including blocking the partial sale of Auckland Airport to a Canadian pension fund, and re-nationalising trains and ferries without any economic justification.
National’s thinking on the economy differs from that of the present Government in many ways. Our five-point plan for the economy is focused on lifting productivity and growth, raising after-tax wages and living conditions, and making New Zealand a more attractive place for people to live, work, and invest. Our plan includes:
1. An ongoing programme of personal tax cuts. We will put the right incentives in place to encourage people to work and save and get ahead under their own steam. Boosting after-tax wages will help stem the flow of Kiwis overseas. It will help New Zealand keep the skilled workers we need to grow our economy and improve our public services. It will allow individual New Zealanders to invest in their own future and what’s best for their families.
National believes that tax reform should not just be a one-off tax cut or threshold adjustment. It should be a phased programme of reductions in order to substantially increase incentives. In other words, tax reform should form an integral part of a forward-looking government’s plan to grow the economy, to maintain — or preferably — to enhance our international competitiveness, and to reward enterprise, innovation, and investment.
From our perspective, tax reform makes sense, and will be critical to New Zealand’s future success. People, capital, and firms are increasingly mobile. Businesses and people have growing choices about where they locate and for how long. Investors have a myriad of opportunities to invest. In an ever more global and competitive world, the competition for workers, for businesses, and for investment will only grow over time.
2. Bringing discipline to government spending. The government should be just as careful with your tax dollars as your household is with the weekly budget. National will direct spending away from low-quality programmes that push up inflation towards frontline services like doctors, nurses, teachers, social workers, and police. By focusing on the frontline services that people need, we can substantially lift the productivity of the public sector.
3. Tackling bureaucracy and red tape. National will cap the number of bureaucrats in the core public service, and we will reform the Resource Management Act and the Building Act. We want to cut the high compliance costs that bog down everything from growing a business to building a shed. By reducing compliance costs and bureaucracy, we will enable the productive sector to focus on what it does best – producing goods and services – rather than battling bureaucracy.
4. An unwavering focus on lifting education standards. We will introduce National Education Standards in primary and intermediate schools to improve literacy and numeracy. We will boost trades in schools and encourage teenagers to get the skills they need to make the most of themselves. By lifting the education and skills of this generation of workers – and the next – we can build a more clever and innovative workforce that can meet the challenges and opportunities of the coming decades.
5. Boosting infrastructure to help this country grow. We will contribute an investment of up to $1.5 billion of Crown capital, alongside additional private sector investment, to accelerate the roll-out of ultra-fast broadband to businesses, schools, hospitals, and homes. And we will work with the private sector to substantially boost investment in roads, electricity, and water. By removing some of the bottlenecks in our economy and expanding the ability of our businesses to connect with international markets, we can turn our small population and land mass to our advantage, and substantially boost productivity and growth.
Lifting New Zealand’s productivity is the solution to stagnant growth and persistent inflationary pressure. It is the key to recovering some of the ground we have lost. It is how we can begin to raise our standard of living towards that enjoyed by the nations of the First World.
As Paul Krugman says, productivity isn’t everything, but in the long run it is almost everything. When it comes to economic policy, we agree. Policies that remove impediments to productivity growth will be a major priority of a National-led government.
Bill English MP
National Party Finance Spokesman
Jun 12, 2008, 12:46