An Address to the 2011 Act Party Conference

12 March 2011

Rodney Hide, Ladies and Gentlemen,

Thanks very much for inviting me to speak to you today.

As you know, I'm not a member of the ACT Party, but this is the fourth time I've spoken to an ACT meeting since I left Parliament - four times the number of times I've spoken to the National Party over that period! ACT seems to make a habit of inviting speakers from other political parties to address them, and I compliment you on that.

May I also compliment you on the role ACT played in setting up the 2025 Taskforce.

Just before the 2008 election, John Key gave an excellent speech.

In it, he talked about how committed he was to catching up with Australia.

He sounded really concerned about the fact that, year after year, we were losing our children and grandchildren across the Ditch for a better life in Australia.

Straight after the 2008 election, the National Party reached a Confidence and Supply agreement with the ACT Party.

And as you know, one of the key parts of that deal was that the Government would aim to lift New Zealand's living standards to the Australian level by 2025.

Well, promises are easy.

Helen Clark promised to lift New Zealand back into the top half of the OECD within 10 years.

But did her actions match her words? Did she manage to take us even part way up the ladder?

No.

In nine years, she didn't manage to lift New Zealand by a single rung.

She was careful to avoid being held to account for her broken promise. As time went by and our economy went nowhere, she even tried to pretend she'd never made the promise.

So after the 2008 election, ACT reminded National that it had been banging on about catching Australia for years - Don Brash did it, John Key did it. So ACT said "Put a date on it"!

To John Key's credit, he did - 2025.

Not only that: he agreed to set up an advisory group to suggest the best ways to achieve that goal.

Even more amazing, he did something which most politicians don't like doing: he agreed to be held to account, by accepting that the advisory group should report on progress towards the goal every year.

I was not part of the post-election negotiations of course, but I suspect that the ACT Party played a big part in getting the Government to put a date on the goal to catch Australia, and to agree to be held to account on progress.

Why is that such a big deal? Why bother catching Australia? Don't we have a perfectly good country now?

Well, we do have a good country now. Actually, we have a great country now. Let's celebrate that.

It's a country of wide open spaces, of soaring mountains, of giant kauri forests, of magnificent fiords, with a great climate.

A country rich in resources - fast-growing forests, rich dairy land, a vast fishery, large deposits of coal and iron sands, and a plentiful supply of water - in fact, more water per capita than almost any other country on Earth.

A country which gave the world Ed Hillary, Peter Blake, Katherine Mansfield, Ernest Rutherford, Kiri Te Kanawa, Susan Devoy, Peter Snell, Archibald MacIndoe, Peter Jackson, Jane Campion, Roger Douglas, Roger Donaldson, Richard Hadlee, Dan Carter and William Pickering.

A country which was the first in the world to grant women the vote, and one of the first to grant all men the vote.

A country where we take it for granted that an election will be held at least every three years, and that a government will be elected without bloodshed, with the army safely in its barracks.

But, my friends, this great country is today at risk as never before.

Part of the danger lies in the gradual decline in our living standards as compared with living standards in other developed countries. A century ago, we were one of the three or four richest countries in the world. Even 50 years ago, we were in the top 10. Now we'd be lucky to make the top 30. Our relative decline is one of the steepest on record anywhere in the world.

The gap between us and Australia shows what's happened. For most of our history, living standards here were pretty much on a par with those in Australia - sometimes we were a bit better off, sometimes not quite as well off, but broadly pretty much on a par.

That began to change about 40 years ago - not, please note, as a result of the big boom in Australia's exports to China over the last five or six years, but about 40 years ago.

In one sense, it isn't the gap between us and Australia which finally matters. That's simply a symptom of our more general failure to keep up with other rich economies.

But the gap with Australia does matter more than where we are on some OECD ladder. (Let's face it: most Kiwis don't know what the OECD ladder is.

Australia is only three hours away. No visa needed. They speak the same language (more or less). They play the same sports.

In the last 10 years, 280,000 Kiwis have gone to Australia - the equivalent of all the people in Whangarei, Gisborne, Masterton, Nelson, Timaru and Invercargill. We all know friends or family who have gone.

Why have they gone? Well, there were no doubt several reasons, but overwhelmingly the main reason was the fact that wages are much higher in Australia than here, especially for those with the skills we desperately need to retain.

The first report of the 2025 Taskforce looked at a whole bunch of statistics and, taking into account differences in the cost of living, we concluded that in 2008 Australians were on average about 35%, more than a third, richer than we are.

Of course, what do you expect! Aussies have all those minerals, so of course they're richer than we are!

That's the typical excuse used by politicians of every stripe (not by ACT politicians to be fair!), but it's a lie.

Yes, Australia has a huge wealth of minerals, and that's undoubtedly helped them enormously in the last few years. But as I've already noted, the huge boom in mineral exports from Australia is quite a recent development.

What's more, we too have an enormous wealth of resources - including many minerals, even if we make a virtue of not using them.

A United Nations survey done in the 'nineties looked at natural resources in about 100 countries. What the survey found was that New Zealand was the second richest country in the world in terms of natural resources per head, beaten only by Saudi Arabia.

What's more, natural resources are neither a guarantee of wealth - think the Congo - nor needed for wealth. Think of some of the rich countries which have virtually no natural resources - Japan, Singapore, Denmark.

It's simply cop-out defeatist nonsense to claim that we can't match Australian incomes because of their mineral wealth.

Well, if the gap was 35% in 2008, what's happened in the last three years? Has the gap got wider, stayed the same, or got narrower?

The 2025 Taskforce hasn't yet looked at the numbers for this year, and in fact we didn't even try to make a new estimate in our second report last year. Year to year changes in the gap don't mean very much.

But nobody I've spoken to claims that the gap has got narrower over the last three years, and most people think it has got wider - with continuing weak economic growth here and strong economic growth in Australia over that period. Certainly, the high level of migration to Australia continues unabated, as we were reminded just a few days ago, and that tells you something.

More serious is the fact that no informed commentator thinks the Government has yet put policies in place to give us even a remote chance of catching Australia by 2025.

Make no mistake: catching Australia by 2025 is a huge challenge. Closing a 35% gap over the 17 years from 2009 to 2025 would have needed New Zealand incomes to grow by nearly 2% faster than those in Australia every year for that whole period.

Even assuming that the gap is no bigger now - and it almost certainly is a bit bigger - the shorter time between now and 2025 means that New Zealand incomes now need to grow by more than 2% faster than those in Australia every year for that whole period.

Last year, the Governor of the Reserve Bank, Alan Bollard, was asked on a TVNZ programme whether we could catch Australia. Paraphrasing slightly, he said we didn't have a dog's chance - that we'd have to be content with the crumbs from Australia's table.

I don't know whether he meant that we literally couldn't catch Australia, or just that we certainly won't on our current track.

Either way, I'm glad he made the comment, because it prompted the Prime Minister to say that we would not be content with the crumbs from Australia's table - "we want the entrée, the main course, and the dessert".

I absolutely agree with him.

But tragically, progress towards that goal has been extremely slow.

True, we've seen a few steps forward. All employers have been allowed to hire staff with a 90 day probationary period (another thing which the ACT Party clearly can claim considerable credit for). That has given some people their first step into a lifetime of productive employment.

Personal income taxes have been reduced, in exchange for increased tax on spending.

A modest start has been made on reforming the RMA.

The moratorium on new aquaculture projects has been lifted.

Progress has been made on improving the road network.

But relative to the size of the challenge, progress has been glacial.

Take investment. If we're going to lift incomes for all New Zealanders, we need to increase productivity, or production per worker. That doesn't mean working people harder or longer. It means giving them more tools to work with.

And how do we do that? We need to remove the obstacles to investment and increase the incentives for investment.

In other words, we need to streamline approval processes, not have them drag on for months and years, as is far too often the case now.

And we need to reduce the tax on the profits which businesses can make on investment.

Didn't the Government do that in the last Budget? Yes and no. Certainly, the "headline" company tax rate was reduced from 30% to 28%, and that was a step in the right direction. But other changes, including those to the depreciation on buildings, mean that, taking all the changes into account, the effective company tax rate went up on average by about 1%, not down.

It is now widely accepted in the economics literature that investment is very sensitive to tax rates, and that if we want to stimulate a radically higher level of investment the tax on profits needs to be radically reduced - to the ultimate benefit of all New Zealanders. Increasing the tax on company profits seems entirely unhelpful.

And in lots of other ways, some big and some small, the Government seems to be moving in the wrong direction.

Take the ETS for example. Before the election John Key said we should be fast followers and not leaders in the race to reduce carbon emissions.

Yet after the election his Government introduced an all-sectors Emissions Trading Scheme.

We weren't being fast followers, or even slow followers, because at this point none of our three largest trading partners - Australia, China, and the United States - has done anything similar, though to be fair Australia is now talking about doing something.

Or take the youth minimum wage, which the last Labour Government abolished in 2008, requiring employers to hire teenagers on the same wage that they'd pay a fully qualified adult.

Not only has the National Government made no move to reintroduce a youth minimum wage, the National Party actually voted against the Member's Bill in Roger Douglas's name which would have achieved that objective.

This despite National knowing that after Labour abolished youth rates, youth unemployment shot up by 12,000.1 That's 12,000 young people who now don't have jobs.

Thanks to Labour's action and National's failure to reverse it, thousands and thousands of young people now leave school or training and go straight onto the scrap-heap.

These young people don't have the skills to earn the minimum adult wage - but they'd be quite happy to take a job for a couple of dollars an hour less.

But the Government says these teenagers have to find a boss who's prepared to pay them an adult wage for no relevant experience and few skills.

Otherwise they have to go on the dole.

If they can't get a job for $13 an hour, they're not allowed to accept one for, say, $10. They have to go home and lie on the couch receiving a benefit for $5! That has to be inexcusably daft!

In doing this, the Government has denied them the chance to support themselves. In effect, it's said to them, "If the dole isn't enough, maybe you should do some burglaries, deal in drugs, or get pregnant and live on the DPB."

The Government has comprehensively ignored the recommendations in both the first and second reports of the 2025 Taskforce, while insisting that it's still taking the goal of catching Australia seriously.

There's been a tendency for some in the media to dismiss the views of the 2025 Taskforce as "just Don Brash's views", forgetting that the Taskforce actually has four members.2 The others all have strong views of their own - Judith Sloan, formerly a member of the Australian Productivity Commission and now a professor of economics at Melbourne University; Bryce Wilkinson, a prominent Wellington economist; and David Caygill, a former Minister of Finance in the Labour Government of the 'eighties, and in the 'nineties the Deputy Leader of the Labour Party under Helen Clark. None of them likely to accept what I say uncritically!

The reality is that the recommendations of the Taskforce are closely similar to the recommendations made by umpteen other advisory bodies, including the OECD and the IMF. What we've been saying is regarded as conventional wisdom elsewhere in the world. But our recommendations are being studiously ignored.

Am I being too pessimistic? Well, it's interesting to note that Transpower has just published a study about the future of New Zealand's electricity grid. The study makes assumptions about growth in the use of electricity over the years to 2050. Various scenarios are considered, but the one with the fastest growth in electricity usage assumes a growth of just 1.75% annually. Because growth in electricity usage has tended to be roughly related to economic growth, that doesn't suggest that Transpower sees a dynamic New Zealand economy, hell-bent on catching Australia over the next 14 or 15 years. Whoever wrote that report - and though I'm a director of Transpower I swear I had nothing to do with writing it! - whoever wrote it knows this Government only too well!

The Treasury assumes that trend growth in the New Zealand economy will be only 2.7% over the long-term - again, a long way short of the kind of growth needed to catch Australia by 2025. They too can read this Government.

This dismal prospect should be a huge concern to every New Zealander. If the gap continues to widen, Kiwis will continue to flood across the Tasman and our children and grandchildren will grow up cheering for the Wallabies.

Not only that: we will continue to become a more and more unequal society. To hold onto those with skills in high demand in Australia, we will have to pay them the kind of money they could get in Australia. And since we can't afford to pay everybody Australian wages, income gaps within New Zealand will get bigger and bigger. It will be the poor without marketable skills who will be on the losing end.

What's the situation right now? Even before the Christchurch earthquakes, the Government was spending vastly more than it was receiving in tax revenue - and borrowing the thick end of $300 million every single week. In fact, at the moment the ratio of government spending to the size of the economy is bigger than in any year of the last Labour Government.

Luckily, thanks to the careful management of the government's books by National in the 'nineties and, let's be fair, Labour in the first few years of their nine year term in office, the level of government debt relative to the size of the economy is not too bad at the moment. But it's accelerating like a Ferrari.

A year before the earthquakes, the Treasury calculated that the ratio of government debt to the size of the economy would reach a totally unsustainable 220% by 2050 unless policies were changed. Despite that warning, policies haven't changed.

The Prime Minister knows that policies have to be changed. But when, I ask you, does he intend to turn his mind to the challenge?

Take New Zealand Super for example. John Key knows that there need to be changes in that scheme. How do I know that? Because it's clear that John Key can count, and that's the only skill you need to know that the scheme can't stay as it is now. But Mr Key has said it won't change while he's Prime Minister. Why on earth did he box himself into a corner on this issue? Even the Labor Government in Australia has just announced that the age of eligibility for their taxpayer-funded superannuation scheme has to go up.

Sadly for all of us - and especially for younger New Zealanders who will either have to pay the bill for current extravagance or have to flee the country - the Government has made no attempt to signal the need for a change in New Zealand Super, has made no attempt to reverse any of the truly dopey policies put in place by the Labour Government in its last term (think interest-free student loans), and has made only occasional rather weak attempts to explain to the public why the track we're on now simply can not go on.

(An honourable exception is Bill English, who from time to time does try to tell people why some major changes are needed. As we all know, he quickly finds the ground cut from under his feet.)

And now come the devastating earthquakes in Canterbury. I was brought up in Christchurch, and my sister and her family still live there. I was educated at Canterbury University, where some of the classic buildings in which I took lectures have suffered significant damage. The devastation of that beautiful city is a national calamity. And the difficulties under which many Christchurch people live - with no water and no sewerage - are truly awful.

I have no doubt that the Prime Minister is absolutely sincere when he says the Government wants to do everything possible to help the city. It's just a tragedy that he hadn't cut out some of the wasteful government spending before now, so there was more scope to assist. I hope he's got the courage to do so now, with the government's fiscal position about to get even more seriously out of whack.

I want to talk a bit about an issue having nothing directly to do with economic growth. But it's an issue which has a lot to do with economic growth indirectly, and is another serious threat to our future. And that's the whole issue of the Treaty of Waitangi and the place of Maori New Zealanders in our society.

And I want to talk about this because, as long as so many New Zealanders are focused on the past, and assuming that a government cheque will somehow make them wealthy, we will never reach our full potential as a country.

As most of us know, the Treaty of Waitangi guaranteed to all New Zealanders "the same rights and duties of citizenship as the people of England". (Those are the words of the English translation of the Maori version of the Treaty, which is what Maori chiefs signed up to in 1840.)

And the National Party campaigned in the last three elections on a commitment to one law for all New Zealanders.

But since being elected, the National Government has moved time and time again in the opposite direction.

• National no longer talks about its promise to abolish the racially based Maori electorates.

• The Government is in a Confidence and Supply Agreement with the race-based Maori Party.

The Maori Party makes no secret of its desire to see the New Zealand constitution restructured.

They want it to be a partnership between Maori and non-Maori. A partnership that confers special privileges on Maori. A partnership in breach of the clear meaning of the Treaty of Waitangi, since there is absolutely no mention of partnership in the Treaty.

• To appease the Maori Party, Parliament is debating legislation to surrender Crown ownership of the foreshore and seabed despite evidence that the 2004 legislation has been working adequately.

They've signed up to change against the wishes of the general public - and despite the fact that the Prime Minister gave a commitment that the new law would not go ahead without widespread public support. At the moment, it appears that not even most Maori Party supporters support the proposed Bill.

• The Government signed the United Nations Declaration on the Rights of Indigenous Peoples.

Among other things, this says indigenous peoples have a right to "self-determination" and "autonomy or self-government in matters relating to their internal and local affairs, as well as ways and means for financing their autonomous functions". What on earth does that mean in the context of 21st century New Zealand, where most people calling themselves Maori are a blend of races?

• The Government has made no attempt to change the clause in the RMA which directs local councils to consult with their communities and with Maori, as if Maori were somehow distinct from the community in which they live.

• The Government supported legislation which has resulted in non-elected Maori representatives sitting on all the committees of the Auckland Council, and possessing a vote that is equal to the votes of those who were elected by all the people of Auckland. (I'm sure Rodney will want to comment on this when I've finished.)

And why? Such an arrangement was clearly not required for Maori to be involved in decision-making in Auckland. The recent local body elections resulted in three Maori members being elected to the Council - meaning that Maori councilors make up roughly the same proportion of the Council as do Maori in Auckland's population. There was absolutely no need for designated Maori seats on the Council, or for a Maori Statutory Board.

• Early this week, the Minister for the Environment appointed the members of the Establishment Board of the Environmental Protection Authority. One of the four people appointed was Maori, hopefully appointed on merit.

But why does the Environmental Protection Authority also need a Maori Advisory Committee? Sometimes I think this Government can see no other races in New Zealand except Maori!

Don't get me wrong. Maori traditions are an important part of New Zealand culture and should be respected as such.

But for the life of me I can't see why so many public events must begin with a prayer or lengthy speech in Maori, even if none of those present can understand it. Most New Zealanders these days don't say any prayers. Why should they have Maori prayers they can't understand thrust upon them?

Nor can I fathom why some government agencies assume that all New Zealanders should respect the animist religious views of a tiny minority.

We must not, we're told, have a barbeque on Mount Taranaki.

We must not, we're told, build a road where a taniwha might be offended.

We must not, we're told, let pregnant or menstruating women visit the national museum.

We are now in the 21st century, when the vast majority of all New Zealanders, Maori and others, do not share these animist beliefs.

And what of the Treaty itself?

I've always believed that the Crown should pay compensation where it can be shown that it breached its commitment to protect the property rights of Maori.

I still believe that. Article II of the Treaty guarantees those rights.

But Article III of the same Treaty makes it crystal clear that all New Zealanders should have equal rights under the law, with no special privileges for any creed, or for any culture, or for any race.

It doesn't matter whether those New Zealanders are of European, Maori, Pacific Island, Asian or other ancestry.

And it doesn't matter whether they're descended from those who arrived 700 years ago, or whether they became New Zealand citizens yesterday

It is my very strong belief that, unless we can get these tensions between Maori and other New Zealanders resolved in the right way - in the way clearly envisaged by the Treaty of Waitangi - we have no show of catching Australia. We will remain distracted by issues which were in fact resolved in the best possible way in 1840.

Chris Trotter - not a person who would be a regular voter for ACT or for National I suspect - recently noted that "any state which invests one part of the population with more rights than another, or strips a minority of citizens of rights enjoyed by their neighbours, is quite rightly condemned for promoting inequality."3 He was writing about New Zealand and he was absolutely right.

There is a final issue I want to touch on quite briefly, and that relates to our welfare system.

At the moment, we have some 350,000 adults of working age on a benefit, and a large number have been on a benefit for years, even decades. Far too many of these people are Maori, but right now that isn't my point.

My point is that if we're to have any chance at all of catching Australia we have to get every able-bodied adult onto the field of play.

We have often beaten Australia at rugby, and sometimes at league, cricket, netball and basketball. But mid-way through the second half, trailing by 35 points, we will never win this game of Economic Prosperity unless we have a full team of able-bodied people on the field. Right now, we haven't. You don't win rugby matches, or indeed any other matches, if you have 10% of your players sitting on the side-lines. Or if you have some of your players arguing about whether it's even worth trying.

The Working Group on the benefit system has come up with some gutsy recommendations. For everybody's sake, we have to hope that the Government won't treat those recommendations with the same contempt they've treated those of the 2025 Taskforce.

Mr Chairman, New Zealand can have a great future. It can offer all New Zealanders a rich and rewarding life, with income levels on a par with those in other developed countries. It can offer all New Zealanders equality before the law.

We must insist that whichever party leads the next Government commits itself to those goals. I'm certainly willing to do all I can to achieve that end.

--

1 An estimate made by Eric Crampton, an economist at the University of Canterbury.

2 When the first report of the Taskforce was produced, in 2009, the Taskforce had five members. Mr Jeremy Moon, the founder and CEO of Icebreaker, resigned his membership of the Taskforce in early 2010 because of pressure of other business.

3 The Press, 15 February 2011.

ENDS

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