The Letter
Monday 4 October 2004

THE WEEK

The Supreme Court begins its first case tomorrow, Prebble vs Huata at 10 am in the cellar of the Court of Appeal, Wellington. We will post the legal arguments at http://www.act.org.nz/supremecourt

The big political news overseas is the US and Australian elections. The media claim that Kerry won the debate with Bush. Candidates usually win these debates, Latham won against Howard. The candidate wins against the incumbent because the candidate is, for the first time, on the same level. While the polls may close up, The Letter is sticking to our prediction made in October (you heard it here first) that the Republicans will win the presidency, senate and house. Bush, because he is more trusted on security and because like Howard he is buying votes, the Senate, because the South is going Republican, and the House, because the boundaries now favour the Republicans. There are more marginal seats in NZ than the whole of the US Congress! The Australian election has turned into an auction and shows what scope Cullen has with this country’s surplus to go vote buying. While Howard is a remarkable politician, it’s very hard to win four times.

COSTING PROMISES

Earlier this year Rodney Hide and Dr Cullen clashed at the Finance and Expenditure Select Committee over the affordability of a tax cut. Cullen lamented that constitutional convention prevents him from costing opposition promises but he did say that the committee could make such a request. While Rodney Hide was absent on the leadership primary, chairman Clayton Cosgrove, to embarrass ACT, moved such a motion. Richard Prebble has replaced Rodney on the committee and to the committee’s surprise said “I welcomed the motion. ACT’s the only party with a comprehensive, costed tax policy. I would love to receive Treasury’s view on the country’s growth prospects under a low flat rate of tax”. Prebble has submitted ACT’s tax policy, together with a request for Treasury’s view on how much more prosperous the country will be. See http://www.act.org.nz/taxpolicy - We will keep you briefed.

WHY DID THEY DO IT?

We have had some feedback asking why Labour is pushing ahead with the Employment Relations Law Reform Bill and the Holidays Amendment Bill when these measures are so damaging to growth and jobs. The answer is partly ideological. The ex-trade union officials who dominate Labour’s caucus really do believe that in a free market employees are at a disadvantage. Karl Marx’s “iron law”, that competition forces down wages is an idea that, if true, would have meant by now wages would be zero. In fact labour is a market like any other, and right now is an employees market.

THE IRON TRIANGLE

Economists have puzzled over why governments put through legislation that gives privileges to interest groups and is known to be detrimental to most voters. They have realised it’s a matter of incentives. Pressure groups like trade unions want to artificially restrict employment – not to help workers, but their members. The unions offer politicians what they need to win elections; money and “volunteers” to turn out to vote. The third part of the triangle – the bureaucrats, go along because big government means more power, prestige and money. The Employment Contracts Act did result in more people in employment, increased real wages and faster than OECD growth, but for the Labour Department it was a disaster. The Department shrank in size and influence. The Labour government has been wonderful for the civil service and the Labour Department in particular. No wonder the bureaucrats are working so hard to draft a law to force non-union members to pay a bargaining fee to unions for a service they did not ask for, and there is no evidence unions provide. Not one official has pointed out that such a “bargaining fee” can and will be used by unions for activities the non-union members probably oppose – like financing the Labour party.

WHAT ABOUT THE VOTER?

Democracy is only the best system, as Churchill observed, because the others are worse. Because one vote is not going to change anything, it’s not rational for people to take any notice of politics, so most people don’t. So the politician’s incentive is to reward the bureaucrats and the interest groups and ignore the voter. Thought: has MMP made pressure group politics stronger?

THE ANSWER

The above explains why a party like ACT that is opposed to privilege is always going to struggle. The old parties who have been rewarding privilege and then bribing the voter with his own money hate ACT pointing out the bankruptcy of their policies. ACT has two advantages, the power of ideas and the advantage of being right.

A TAXING IDEA

The Treasury says the surplus is $3.7b more than government said it needed last May. Should it not give it back? $3.7b equals a cut in personal tax from 39% and 33% to 25%, and the company rate also to 25%. The media reported every thing about ACT’s regional conference except Rodney Hide’s speech (not sexy enough?) Rodney points out the tax on the average household has increased $54 a week under Labour to a massive $21,872 a year - see http://www.act.org.nz/rodneyspeech for the full speech.

THIS WEEK’S POLL

Our readers overwhelmingly picked John Howard, with 87% of respondents backing him to win the Australian election in last week's Letter poll. This week’s question: “Should Treasury fully cost political parties election policies, including the likely effect on economic prosperity?” Vote at http://www.act.org.nz/poll - we will give the results to the Finance and Expenditure committee.

ENDS

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