As a conservative, monarchist and Christian, I had been encouraged by the political success of Tony Abbott, and quite seriously underwhelmed at the idea of Malcolm Turnbull becoming Prime Minister of our closest ally, major trade and investment partner, and more generally the most similar country in the world to New Zealand.
On its own the latest round in the Italian-style revolving Prime Ministership in Australia wouldn’t have prompted a post on a blog that is mostly about economics and public policy issues. But reading stories this morning in which the incoming Australian Prime Minister is quoted as praising John Key’s economic management was just too much. Turnbull is quoted as saying
“John Key has been able to achieve very significant economic reforms in New Zealand by doing just that, by taking on and explaining complex issues and then making the case for them. And I, that is certainly something that I believe we should do and Julie and I are very keen to do that again.”
I grabbed a piece of paper from my bedside table and starting trying to jot down on the back of the envelope the “very significant economic reforms” in New Zealand over the last seven years.
It was a short list. I couldn’t think of any.
Perhaps Turnbull had in mind the tax package of 2010? Some of it might have been useful, but (a) it was pretty small in the scheme of things and (b), as the Treasury pointed out at the time, the net effect of that package was to raise the average tax rate on business income, not lower it.
From almost seven years of a Key-led government, I managed a few other small useful items for the list of reforms:
- Some modest welfare reforms (but 10.3 per cent of the working age population – and one in three Maori – is still on working age welfare benefits)
- Partial privatisations (of minority stakes only) in several state-owned companies
- The wind-back of Kiwisaver subsidies (but, on the other hand, policy is now to make Kiwisaver compulsory)
- The establishment of the Productivity Commission
- Some very modest reforms to the Resource Management Act
- Some modest labour market reforms (probationary periods)
- Minor planned changes to the anti-dumping regime.
No doubt there are others, but if anyone can point me to a “very significant economic reform” undertaken in New Zealand since November 2008 I’d be grateful. I don’t count closing the fiscal deficit. It is welcome of course, but we’ve had persistent deficits despite record high terms of trade, and simply closing a deficit is not itself an economic reform. Weak wage pressures across the economy have made fiscal management a lot easier than might have been expected.
And the problem with even the list above is the list of measures that could appear on a “steps backward” list:
- Higher effective corporate tax rates
- The debacle of the earthquake-strengthening legislation
- The continuing debasement of our skills-based immigration system, both in the way it is administered and in formal announced policy.
- New overlays of financial market regulation
- The re-establishment of direct government controls over who banks can and cannot lend to
- The continuation of a regime of “corporate welfare”, including for example the Sky and Tiwai Point deals, and the smell that the Saudi sheep deal gives off
- The degree of central government control of the Christchurch repair project, involving both wasteful projects (some of which may not finally go ahead), and the way central government has artificially boosted land prices and impeded the prompt redevelopment of the central city.
- The continuing apparent decline in the rigour of public sector policy advice, and in the use of robust cost-benefit analyses in underpinning policy decisions.
- Increased first home buyer subsidies.
- Undermining housing affordability with mandatory insulation etc requirements for rental properties
- Continuing increases in minimum wages, from very high levels (relative to median wages) at a time when unemployment is quite high, and policy was supposedly oriented to getting people off welfare.
- Heavy investment in the newly state-repurchased loss-making Kiwirail
But, mostly, the story is just about the failure to do anything much. I’ve previously quoted some quite-inspiring Key lines from a speech just before the 2008 election.
I came into politics because I believed New Zealand was underperforming economically as a country. I don’t think it’s good enough that so many New Zealanders feel forced to leave our country each year to seek higher wages in Australia. I don’t think it’s good enough that our average incomes lag so far behind the rest of the world. And I think it’s unforgivable that the Labour Party has done so little to address these fundamental challenges.
I believe that a very big step change is needed in our economic performance to ensure New Zealand can make the most of its considerable potential. Growing the economy of this country continues to be my driving ambition. I stand before you today ready to deliver on that ambition for New Zealand.
You have my personal commitment that if I am elected Prime Minister in eight days’ time I will work tirelessly over the next three years to deliver the stronger economic future our country deserves.
That commitment was made just before the Prime Minister was elected. A year later, in its first report in late 2009, the 2025 Taskforce, established (and then abolished) by the current government included on one of its front pages another aspirational quote from John Key, now well-established as Prime Minister.. The quote the 2025 Taskforce used (from the SST of 8 Nov 2009) was “Our vision is to close the gap with Australia by 2025”
Fine words, but there has been almost no action.
Fine words, but with no tangible results. New Zealand has made no progress in closing gaps with Australia over the seven years John Key has been Prime Minister – not on GDP per capita, not on national income per capita, and not on productivity either. If anything, we’ve drifted further backwards. I put lots of charts in this post last week, but here are just a few reminders:
Real GDP per capita for the two countries, where we’ve done a little worse than Australia.
And here is real GDP per hour worked.
Of course, our Prime Minister has won three successive elections, the last two rather narrowly, and that must sound quite appealing to the backbenchers in marginal seats in the Liberal Party’s caucus. But if Malcolm Turnbull is serious about economic reform – which frankly seems unlikely – he shouldn’t be looking across the Tasman for inspiration and example.