ACT’s five point plan to grow the economy

Tauranga, 15 September 2014

Extract from speech

ACT has a five point plan to double the rate of economic growth. The Treasury long term forecast for growth is 2% a year. We can lift it to 4%.

Two percentage points may not seem like much. But it is. Over just 15 years, it will make the difference between the economy growing by 35% and growing by 80%. That is a huge difference.

ACT’s plan is based on sound economics. It will deliver more than any plan of any other party.

While National can take credit for getting us through the Global Financial Crisis, the pre-election forecast shows the economy is slowing.

Labour has no answer. They simply want to return to the old Muldoonist policy of picking winners – giving taxpayers’ money to industries that David Parker thinks are the future.

So do the Greens. Although, of course, they disagree with Labour about which industries are the future. Which goes to show what’s wrong with the policy of picking winners.

Who is likely to make better investment decisions: private investors risking their own money in search of profits or politicians risking taxpayers’ money in search of votes?

ACT is the only party that understands that wealth is created by the enterprise of the population, not the self-supposed genius of politicians. We are the only party that understand that our economic progress requires less political interference, not more.

Our carefully costed five point plan for economic growth will set enterprising New Zealanders free to get on with their business.

1. Cut the company tax rate from 28% to 12.5%

Economic research shows that high company taxes raise little revenue but inhibit investment, growth, job creation and real wages. New Zealand now has one of the highest real company tax rates in the OECD. Cutting the company tax rate will grow the economy. It can be funded mainly by eliminating “corporate welfare”, the corrupt practice of giving taxpayers’ money to who can win favour from politicians and bureaucrats.

Economists reckon that cutting the company tax rate by this much would, on its own, increase the long term economic growth rate by at least one percentage point.

2. Cut the top rates of incomes tax from 33% and 30% to 24%

In our Alternative Budget published in May, we showed how cutting middle-class welfare would allow us to reduce the top rates of tax significantly. By middle-class welfare we mean the transfer of taxpayers’ money to people who are not hard up. The most obvious examples are interest free student loans and Working for Families for people on incomes above the 30% income tax threshold of $48,000.

High marginal tax rates are a serious deterrent to work, risk-taking and investment in education. Lowering them will not only encourage enterprise. It will encourage enterprising foreigners to come here and enterprising Kiwis to stay here.

3. Cut red tape

Before New Zealand had the Resource Management Act, housing was affordable. The RMA has allowed Councils to drive up the cost of land and development.

The RMA has had a similar effect on business. The cost of a new business proposal has risen enormously. Many entrepreneurs faced with significant RMA costs and delays simply give up.

Reforming the RMA will not only make housing affordable again, it will make many business proposals viable.

But the RMA is only part of the problem.

National has generated more red tape than Labour. Having a “one size fits all” new earthquake code will put billions of dollars of costs on home owners and businesses.

Last Saturday’s newspaper reported that the developer of an adventure boating experience says the new safety code is so over the top he will go out of business. Bob Jones wrote last week about spending $4,500 on a resource consent to alter a building’s window.

ACT has proposed that a cost-benefit test be applied to all government regulations. This will remove billions of dollars of cost and waste.

4. Welfare Reform

Welfare reform is an important part of ACT’s economic plan. New Zealand has 200,000 able bodied adults on welfare.

Moving adults from benefits to work does not merely reduce government spending and increase taxes. It increases the incomes of those who move into work. It is the best way to lift the incomes of New Zealand’s poorest households.

We applaud the measures taken by National. But more can be done to incentivise the able-bodied to move from welfare to work.

In the 1990s, President Clinton introduced time limits on the receipt of federal welfare assistance to families. No one could receive federally financed welfare assistance for the equivalent of the sole parent benefit for more than 5 years over their lifetime.

These time limits on reduced single parent welfare cut caseloads by two thirds over all, and by 90% in some states.

The subsequent declines in welfare participation rates and gains in employment were largest among the single mothers previously thought to be most disadvantaged: the young (aged 18-29), mothers with children aged under seven, high school drop-outs, and black and Hispanic mothers. These low-skilled single mothers were thought to face the greatest barriers to employment.

Employment of never-married mothers increased by 50%; employment of single mothers with education less than a high school graduation increased by two thirds; child poverty fell dramatically.

Rebecca Blank is the leading economist working in the field of welfare reform, and she has been the Acting Secretary of the Department of Commerce in the Obama administration. In 2002 she said that “nobody of any political persuasion predicted or would have believed possible the magnitude of change that occurred in the behaviour of low-income single-parent families”.

ACT believes that we should follow the Americans and introduce time limits here. It will help tens of thousands of unemployed people back into work. Nothing will do more to reduce youth unemployment.

5. Increase the number of Partnership Schools

20% of pupils leave school with so little learning they are unemployable. They can barely read or do arithmetic.

ACT has shown Partnership Schools (or charter schools as they are called overseas) work for disadvantaged pupils. We would allow all state school boards to choose to opt out of Ministry of Education control and become Partnership Schools.

The improved education of the pupils attending them will bring huge benefits not just to the pupils but the whole economy.

* * * * *

ACT has set out its fresh new policy ideas and the research to support them.

No other party has any practical policies to grow the economy.

Why not vote for the party with solutions?

On Saturday, Party vote ACT.

ends

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