New Year’s Resolutions

Hon Sir Roger Douglas response to Prime Minister's Statement; Parliament; Wednesday, February 9, 2011

The New Year is an opportunity for a fresh start. Traditionally people make resolutions that seek to cut back on the excesses they indulged in the year before. It seems that the National Government has yet to decide on its New Year’s resolutions. I have decided to save them the hassle and put together a list of resolutions that National can adopt, which would actually help New Zealand.

The first resolution should be to slim down.

The National Government after two years of binging has made Government bigger than ever. Total government expenditure reached just over $81 billion in 2010 – that is almost 43 cents in every dollar earned. Such expenditure is financed by borrowing around $300 million every week simply because the amount of tax the government collects is less than they spend.

With the Government so big, is it any surprise that our economy is not getting off the ground? Growth in the New Zealand economy remains around 1 percent. When the economy is leashed to a weight that spends over 40 cents of every dollar, it is easy to see why we are going nowhere. In the meantime, we see other countries like Singapore float away, with average annual growth rates of 4 percent – there, the Government spends a mere 17 cents for every dollar. This might be alright if we were getting better services than Singapore. The reality is that not only does our spending make us poorer than Singapore but across the board we also have worse poverty, education, healthcare, crime – the list goes on. Forecasts show Australia will be 42 percent wealthier than us by 2025, because of this 412,000 New Zealanders – the equivalent of all residents in the Wellington Region - will leave for Australia over the next 15 years.

The first New Year’s resolution is clear – the government needs to slim down. I find it unbelievable that National who rightly complained so bitterly about the years of wasteful spending by the Labour Government, suddenly when they get into power they cannot find any wasteful expenditure to cut. To the contrary, they seem to have borrowed more money to spend.

The simple truth is we will never spend or tax ourselves to prosperity. It is a shame that National still needs to learn such a basic lesson.

The second resolution should be to focus on what really matters.

The core services such as education, healthcare and welfare are very important government service. However, government has been increasingly bad at providing them. Our education system is failing our young people – a third of school leavers fail to achieve NCEA Level 2 or higher. For Maori, 56 percent will not gain NCEA level 1 or above before they leave. Some of our schools are so unsafe that the police are stationed within them. A classroom surrounded by police officers is no proper learning environment, and so it is hardly surprising that 30,000 school students cut class every day.
Children are voting with their feet every day and choose to be away from dilapidated classrooms, rigid curricula, violence and the monotony of the classroom environment. In education the government should resolve to empower parents.

In welfare, 13 percent of the adult population are receiving a benefit; this is compared with 2 percent in 1960. Approximately 1 in 5 kiwi children will live in a benefit-dependent household. Recent figures show 352,707 people are on some type of benefit. For every 6 workers, 1 person is on a benefit. Add in superannuation and the aging population, it is likely that our children will live in a world where for every one person receiving a government hand out they will be supported by just 2 workers. This is not sustainable.

In health, the number of practising physicians is 2.3 per 1,000 people. This is almost 1 fewer physician per 1,000 people than the OECD average. There are 6.2 hospitable beds per 1000 people – that is over one hospitable bed fewer than the worldwide average, and 12 hospitable beds per 1,000 people fewer than Switzerland. Every year, hundreds of people continue to die on waiting lists because our health system is overstretched.
If Government tax funded money could solve all these problems New Zealand would have solved them already. We spend vast amounts on all these areas, but get substandard services in return. We have made ourselves poorer to afford all of this, but do not get the kind of services we want. We need to rethink how we approach these areas.

In welfare, the government should resolve to get two-thirds of those on benefits back to work. Despite unemployment reducing sharply between 1999 and 2008, expenditure on welfare soared - part of this was done by transferring people onto the sickness and invalids benefit. We will never solve the problem by just moving people around. The number of sickness and invalids benefits has increased by almost 70 percent in the last decade. In that period the population has increased by 12 percent and spending on health has almost doubled – it is very difficult to argue that the figures represent a declining level of health in the population. Rather it seems for some that it is has become a life-style rather than a transition. Now, welfare is an important safety-net, but it should not be a life-style. In many ways, society has failed these people. The schooling system failed them, leaving them with low skills.

The minimum wage has then ensured that they have been locked out of jobs. The first step would be to focus on the minimum wage. The youth minimum wage should be reintroduced. Those who deny that the youth minimum wage has had no effect on youth choose to ignore the growing evidence. Some minimum wage apologists cite the comparisons between today’s recession and the 1991 recession to show that unemployment hit youth equally hard even when there was a minimum wage. However, the evidence clearly demonstrates that the 2009 recession has hit 15-19 year-olds harder relative to 20-24 year-olds, than was the case in the 1991 recession. If this is not the effect of the youth minimum wage, then what other reason explains it? Why do we force young people to accept $4.50 an hour on the benefit, when they could earn $10 an hour working for an employer? When we do, we give those on the benefit the incentive to supplement their income through illegal means – joining a gang becomes a very lucrative business.

The second focus should be to introduce a work test for those on the invalids/sickness benefit, to make sure that they are genuinely incapacitated.

In health, the government should resolve to restore the right incentives. If we look to other places around the world we can find practical templates to model our healthcare system on. Singapore has one of the best healthcare systems in the world. Infant mortality rates and life expectancy are among the best in the world. However, what makes it amazing is its cost effectiveness – the government spends very little money making it a good system. The Singapore government spent between 1 and 3 percent of GDP annually on healthcare. To contrast, New Zealand spends around 8-9 percent of GDP – that is over 20% of all the money that the government directly spends. What Singapore does is make it compulsory to have a health savings account in which individuals pre-save for medical expenses. The government also offers an option of taking out catastrophe insurance – it will pay for any medical procedure over approximately $10,000. The real key is they allow for the private market to operate providing both hospitals and insurance. These compete with the public hospitals making them more competitive. The government even requires these private hospitals to publish pricing lists to encourage comparative shopping. The real point here is it balances incentives – the individual can make a trade-off between medical care and the cost.

This is missing at the moment in New Zealand. Individualised health accounts and catastrophe insurance will see the money we currently spend on health redirected to the individual. This will give each and every one of us greater control over our own healthcare – we, not bureaucrats, will make the decisions about what is needed. In addition, costs will decrease as hospitals and clinics compete for business. Only if the system encourages competition will the cost-plus culture be avoided, making us all better off while still delivering healthcare to all.

The third resolution the government should make is to have a spring clean of the government’s books.

The National Party talk of being bold, yet their vision in terms of state assets would be bold only in North Korea or the Labour Party caucus room. Even Cuba, the communist bastion, has embarked on more bold policy in relation to state assets than the National Party. Why is it that pretty much every country around the world continues to move Government owned business into the private sector, yet, New Zealand lags so far behind? In New Zealand it is ideological to want to privatise, for the rest of the world it is rational.

Privatisation is not done for ideological gratification. It is done because it works. It is important to appreciate why it works. The real reason you want to do it is not to make a quick buck, but to make New Zealanders wealthier. Higher wages and cheaper products are a result of business productivity. Productivity is achieved by making the underlying regulations right, by getting in new managers and opening old ones up to competition. We need to put these businesses in the hands of managers who are accountable to the owners and have to serve the customer in order to survive.

Before the electricity industry is privatised we need to be sure that the regulatory environment is spot on. Competition is the key. It is competition that ensures value. We should seek to get maximum return from these assets not through the price the asset is sold for but from New Zealanders gaining their return in lower real prices and in more jobs.

The problem with National’s approach to privatisation is that they will get none of the benefits and keep all of the problems. By only moving a small amount into the private sector they will continue with the status quo i.e. protecting existing managers from competition.

New Zealand’s outlook is bleak – today we sit in a position similar to the one in 1984. The difference though is that in 1984 we made tough decisions; we outlined the goal that we wanted to achieve and moved swiftly to attain it. The public were supportive because they were able to see what we wanted to achieve and returned the Government with an increased majority in 1987. The point is, we did this by pursuing the right policies, not by doing what was popular in the short term. If you cast your mind back over the last two years of the National Government, can you think of one piece of quality reform that has made New Zealand better off and will be remembered in 10 years?

I find it pretty amusing for a party to spend nine years in opposition, arguing against most of the major changes brought about by Labour - working for families, the lack of privatisation, the abolition of youth rates, freezing of tariffs, the re-regulation of the labour market, among others, and then to do nothing about it when in power. The National Party just don’t get - and until they try to set the agenda rather than following blindly what Labour leave in their wake, they will continue to fail New Zealanders.

ENDS

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