A High Growth-Low Welfare State

Hon Sir Roger Douglas, ACT New Zealand

February 15 2009

The reactions to my Orewa speech (Brian Fallow, New Zealand Herald 'wealthy get tax relief' or John Key, 'idea is fundamentally flawed'), are disappointing but not surprising - clearly, the politics of gesture or pigeon-holing still reigns supreme while New Zealand's problems escalate.

Will the policy I outlined at Orewa help the rich? It will - but not nearly as much as it will help the poor. Why? Because rich and poor taxpayers alike get precisely the same tax relief: $6,150.

That means someone on $30,000 per annum will pay no tax at all, while someone on $100,000 will pay no tax on the first $30,000. Thereafter, they will pay a flat rate on the balance of $70,000. It is the current system, apparently supported by Fallow and Key, that denies options and opportunities to the poor - while the poor are forced to queue for healthcare, (sometimes dying on the waiting list), the wealthy get the care they need through private provision.

How is it then, that the option I propose - which puts the poor in the same position as the rich and allows them to get treatment when they need it - hurts the poor?

The poor will also have $4,000 a year inflation-proofed to save for their retirement compared to being unable to save under the present system. For someone saving under this option from ages 18 to 65, that equates to $1.8m or $850,000 in dollar-of-the-day terms.

How does this adversely impact on the poor? Or is it simply that there are some who want the poor to rely on the good-will of the taxpayer or the whim of a politician?

The size of Government spending is set to balloon under National from 30 to 36 percent. The tax-cuts will be financed by mortgaging our future, with the interest on the increased debt having to be paid back by future generations.

Under Labour, we mortgaged our houses to buy consumer goods; under National, we are about to mortgage our children's future. Under Labour's rules, New Zealand became a high-tax low-growth welfare state.

My speech at Orewa shows how to obtain a high-growth low-tax welfare state. Labour moved the State from a growth-oriented model to an income re-distribution model. This saw New Zealand take a dive in productivity from three percent to around one percent.

In New Zealand we have come to believe that we are all getting a free lunch. There is no free lunch. For instance: pensioners may enjoy free trips to Waiheke but, unless you know what kind of trade-off has been made to obtain such free rides, it is hard to think of this as bad policy.But let us go back to the cut in productivity and, hence, the foregone rises in the average wage resultant from the policies of redistribution.

For pensioners the dive from three percent to one percent productivity-growth per year over the past nine years has meant they are missing out on around $100 per week per couple. Those who thank the past Labour Government for their free trips to Waiheke - and other redistribution policies, like more money for art and racing - need to think again.

For wage earners, was the loss of around $180 per week really worth it? Or for pensioners, around $100 per couple? Perhaps we should stop fiddling with the cents; and get on with the dollars.

ENDS

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