NZ National Party
Don Brash Writes
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No. 39, 8 September 2004
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The Government taken to task, politely but firmly, by the Auditor General
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In the 16 June edition of this newsletter, I noted that the Government was planning to spend an astonishing $21.15 million advertising its so-called "Working for Families" package, announced in the Budget, and that this quite unprecedented advertising programme had been referred to the Auditor-General for comment by my colleague, the Hon Murray McCully.

Last week, the Auditor General replied to Mr McCully. Even though the amount to be spent by the Labour Government is more than eight times the expenditure of $2.52 million undertaken by the National Government in 1993 to explain the health reforms of that year - an expenditure which Helen Clark criticised at the time as a "matter of major public concern" - the Auditor-General refrained from commenting on the amount which the Government proposes to spend.

But, though he couched his comments in the cautious language of his office, he was highly critical of the process by which this $21.15 million had been arrived at. For example, towards the end of his letter to Mr McCully, he says:

"....in our view, the planning of the communications strategy in the period leading up to the Budget announcement evidences a disappointing lack of consistency. This is particularly clear from the manner in which the departments (IRD and the Ministry of Social Development) went about planning for separately produced television advertisements... (T)his letter has set out our concerns about the robustness of the process for costing the Budget bid, and the lack of consistency in approach. Those concerns mean that it is not possible, in our view, to say that the budgeted costs are a realistic reflection of the likely actual cost of the communications campaign to promote the Working for Families package."

The Auditor-General also noted that the Ministry of Social Development planned to use extensive "generic advertising (through television and other media)" in order "to provide high level 'brand awareness' of the Working for Families changes". To me, that "generic advertising... to provide high level 'brand awareness'" sounds awfully like political propaganda, paid for by taxpayers, designed to help Labour win the election next year!

During the 1990s, the National government had a strict practice of ensuring all ministerial and departmental advertising was approved by the Auditor-General. The Labour Government has quite deliberately chosen not to follow that practice.

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And after all that, the Budget seems unlikely to achieve its stated objective
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When announcing the Budget, the Minister of Finance claimed that one of his major objectives was to encourage people on a benefit to get into employment. Well, Cabinet papers released some weeks ago reveal that Treasury estimates that only 2 per cent of sole parents will move off benefits into work as a result of the Budget, and the Department of Labour concluded that "overall it would appear that the package is likely to have relatively modest employment impacts" - which is bureaucratese for virtually no impact!

The Budget itself projects that the total number of working age adults on one or other of the four main benefits will increase over the next four years.

Last week in Parliament, I asked the Minister for Social Development and Employment, Steve Maharey, whether the decision in the Budget to put sole parents working 10 to 20 hours a week in a situation where their effective tax rate on an extra hour's work is 92.2% was a simple mistake on the Government's part, or was it in fact deliberate. He refused to give a straight answer to my question.

But this is the kind of situation which will be endemic as a result of the Government's Budget, up to quite high levels of income.

For example, take the case of a one income, two parent family with three young children living in a central Auckland suburb, earning $38,000 in pre-tax income. After income tax, ACC levy, family assistance, and accommodation supplement, that family's net income will actually significantly exceed its pre-tax earnings - indeed, it will be $48,944.

If the income earner in the same family felt tempted to get a new skill, or work longer hours, or take more responsibility, in order to increase his/her pre-tax earnings to, say, $70,000, the family would receive only a net $51,800 - or just $2,856 more than when the family's pre-tax earnings were just $38,000. In other words, though pre-tax earnings would be increased by $32,000, net income would increase by just $2,856 - an effective marginal tax rate of 91%!

This Government's Budget will do nothing constructive to encourage beneficiaries into employment, and will strongly discourage employed people from providing for themselves. What an incredible opportunity missed.

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New Zealand living standards will never catch those in Australia under this Government
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As most readers will know, I have been talking about the implications of the gap between our living standards and those in Australia for most of the last two years. When visiting Australia last month, I said what I have said to countless audiences in New Zealand, namely that if we don't take steps to narrow that gap in living standards - worse still if it continues to increase - the exodus of talented New Zealanders across the Tasman will continue to grow and will eventually pose a serious risk to the viability of our society.

The Government made some wisecracks about how, over the last few years, New Zealand has been growing at much the same pace as Australia - as if this was news to me. That is a statement of the obvious. My concern is for the future. The kind of policies which this Government is putting in place will not only not reduce that gap in living standards it will see that gap increase further.

In Parliament, Michael Cullen simply refused to give a straight answer when I asked him to confirm that, if Australian and New Zealand living standards grew at the rates projected by the Treasuries on each side of the Tasman, New Zealand's standard of living would never again be equal to that in Australia.

But sadly, that is the case. The New Zealand Treasury projects productivity growth (the best proxy for the rate at which living standards will grow) to be 1.5% per annum. The Australian Treasury by contrast projects productivity growth in that country to be 1.75% per annum. That means that the gap between the average wage in New Zealand and Australia - already equivalent to about $250 per week - would continue to get wider. Even with this small projected annual difference, that income gap would be out to $400 per week within 20 years. So the risk that more and more of our young people would leave is very real - Brooke Fraser being just the latest high profile example - and we will find ourselves continuing to lament that we can't afford the cancer-fighting and other drugs that Australians take for granted, can't afford to pay our teachers as well as Australians do, can't afford the roads that Australians have - and can't win as many gold medals as Australians do.

With the right policies we can do much better than that.

We need to get rid of this Labour Government.

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Don Brash
http://www.donbrash.com
http://www.national.org.nz

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