Brash economic recommendations unheeded

BY COLIN ESPINER
Last updated 16:38 30/11/2009

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Most of the prescription offered by the 2025 task force for catching up with Australia is "too radical" for the government to pick up, says Finance Minister Bill English.

Dr Don Brash's medicine for the New Zealand economy includes slashing government spending by $9 billion a year.

In his just-released report on how New Zealand's average incomes can catch Australia's by 2025, Brash has outlined a radical plan that would see social spending slashed in order to cut tax rates to just 20 percent.

The report proposes either a flat tax rate of 20 percent or 25 percent for wage and salary earners and 12.5 percent for profits, interest and dividends.

It says anyone earning more than $14,000 a year would pay less tax and that would lead to "a surge of enterprise, excitment about the future, and stronger economic growth".

But to pay for the tax cuts and to stimulate the economy, Brash's report proposes cutting government spending to 2005 levels of 29 percent of GDP within three years.

That would see some $9 billion cut from core government operating spending. Proposals for achieving this include:

* "Ambitious" welfare reform including cutting beneficiary numbers, raising age of super eligibility, fewer universal subsidies

* Scrapping Kiwisaver subsidies and axing the Cullen super fund and using the cash to repay debt

* End cheap doctors' visits and scrap prescription subsidies for middle class

* Cut funding for early childhood education

* Scrap interest-free student loans

* Abolish youth minimum wage and cut adult minimum wage

Brash's report also recommends changing labour laws to make it eaiser to sack workers, extend probationary period for new workers from 90 days to a year, and making high income earners subject to contract law rather than employment law.

At the press conference Brash said that unless tax rates and government spending were cut, the Government's goal of catching Australia "cannot be achieved".

He said if the Government ignored the recommendations "there may be some other cunning plan but I'm not aware of it".

Brash denied he was  suggesting slashing spending, saying a $9 billion cut was only taking spending back to 2005 levels.

"Some are saying this is Roger Douglas. It's actually more Michael Cullen."
 
He urged the Government and the public to consider the recommendations rather than dismissing them as too radical.

"It would be a great shame if, instead of a period of conversation and reflection on the whole report and the issues it raises, particular interests launched instead into immediate commendation or condemnation of specific line items."

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Prime Minister John Key said during the 1980s and 1990s New Zealand underwent radical economic reform while Australia took a more incremental approach. The trans-Tasman neighbour was now in much better shape.

"In that regard I am not convinced that absolutely radical big bang reform is the right way to go," Mr Key said.

"It would certainly have a dramatic effect on New Zealanders and in the short term it would feel very much like we were pulling the rug out from underneath them."

Mr Key said the Government would also keep its promises.

"We campaigned on some core commitments, like not raising the age of super or putting the interest back on student loans, and we would be breaking those commitments if we went and did that so we are not going to."

The taskforce was set up as part of a support agreement with the ACT Party which has a key policy plank of a flat tax and takes its name from the year that New Zealand aimed to catch up with Australia.

Mr English said the government would "pick it's way" through the report to see what recommendations it could implement. But it already had a significant programme underway to boost the economy and the report made recommendations that the government "certainly won't accept". That would require it to break election promises and it was not going to do that.

"The report is too radical for the government to pick up and just push it through."

 He did not accept Dr Brash's insistence, meanwhile, that New Zealand could not catch Australia economically without implementing the proposals.

"There's always more than one way of achieving economic growth."

Dr Brash said cutting back government spending levels to those of five years ago would fund the supposed tax cut programme.

Labour leader Phil Goff questioned the motivation behind the taskforce.

"It makes you wonder why you would set up a committee led by Don Brash who has come up with an entirely predictable and discredited agenda," Mr Goff said.

"Why would you do that other than maybe to frighten the hell out of people, put up a straw man and then say 'look we're only going to go part way toward that agenda' and everybody breaths a sigh of relief because the slashing that occurs isn't quite as extreme as the Brash proposal."

- with TRACY WATKINS, and NZPA

- © Fairfax NZ News

166 comments
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Mohron   #166   06:16 pm Dec 27 2009

Yes, I do agree that Don Brashes recommendation is too radical. The govt of the day should encourage people to go and work instead of relying too heavily on dole. The unnecessary support in funding for students in who has been hopping from one course to another aimlessly studying on the pretext of receiving dole has to be completely reduced. The bulk of education spending is on dole however productivity does eventuate.

Many Private Training Establishments need to be carefully scrutunised in providing not only simple course for seeking educational funding purpose instead an positive outcome in employment should be realised.

Alan+M+   #165   03:31 pm Dec 06 2009

Taskforce 2025

NZ Government, a taskforce of vision commissions, Their work now presented but who of them listens? To those tasked to attest, how to equal our neighbour, Nought but flack is directed, for fear of disfavour!

Do we care to revere the wisdom thus shared? or despair at continued, NZ cupboard bared? With our neighbour Australia, we once yoked the same, but our faltering has brought us to financial shame!

Arise little nation, with vision once sound, and shrug off the hindrance that long held us bound; thrust thought mediocre, in reckoning state, stepping equally yoked with Aussie our mate!

dunedinite   #164   01:17 am Dec 02 2009

As a kiwi who's lived in and out of the place over recent years, I've been amazed at the bitterness and sniping on both sides of debates like this. Until the late 1970s we were on a par with Oz in terms of income etc. Thanks to Robert Muldoon, we then went backwards for years. I've lived and worked in Britain, Asia, Australia and NZ, and have to say that I probably won't ever live in NZ again. Crime's too bad, income inequality is too bad, neither of the major parties inspires confidence, race relations are appalling. Members of my family have by and large moved to Oz, where housing's more affordable, wages are better and schools are far better. NZ's slipped behind on all those fronts as well. But instead of tackling these problems we just rage at anyone who says NZ's not the place it used to be. It's not Godzone (probably never was). You have to live outside a country for a while to see it objectively. While I'm no fan of Don Brash, he's right in that we're overtaxed. Helen Clark also wasted huge amounts of money doubling the size of government knowing that the jobs created would largely go to Labour voters.

Dan   #163   12:01 am Dec 02 2009

Nick #143 - brilliant idea! I'm a far righter myself, but I think it would be highly interesting for Labour to commission some of their own to write a similar report - let's see what ideas they come up with. A good idea is a good idea regardless of whom it comes from, and we need to be looking everywhere we can. At the moment, Brash's ideas are the best, and I support them, but they're the best by default - there are no other ideas on the table.

SuziQ - I can see what you're saying, but by artificially raising the wages as you suggest you end up undermining the whole structure. People need to be getting paid what they are worth, not X amount simply because that's what Joe Bloggs across the road is getting. If you feel it's not enough, work harder, upskill or find another job. I don't want to be insulting here, but if you're getting paid below average maybe it's because you're a below average worker. And I can say that because as fully half of the ownership, management and labour in a business that last year grossed $1.2m, I only paid myself $14k. Let's see you take on that much responsibility before you start moaning about how much you don't get paid.

Wyatt   #162   09:38 pm Dec 01 2009

Lord forbid NZ should ever do anything "radical".

Let's bumble on like always. She'll be right.

Neil   #161   05:51 pm Dec 01 2009

This discussion really comes down to how people believe they should live their lives. Is the accumulation of money and possessions the ultimate goal of an individual? Is being ranked ahead of other countries like Australia the ultimate goal of NZ? For people who live happy and fulfilled lives, the answer to these questions is "NO". Life is about contributing to society, helping others when you are not obliged, enjoying time with family and friends, and having fun! The so-called income and GDP gap is really irrelevant when you think about what life is all about.

Liam   #160   03:37 pm Dec 01 2009

I sure hope all those harping on about paying back student loans (or even the draconian idea of imprisoning someone while they fight against a compounding debt) and the saturation of degrees aren't baby boomers who received a free education. It would reflect poorly on your character to suggest that others should struggle for what was handed to you on a platter.

Burdett   #159   01:45 pm Dec 01 2009

The voting public only needs to know one thing ... "left or right ... never trust a politician"

SuziQ   #158   01:23 pm Dec 01 2009

Pete 156 you have said it exactly, it need not be about closing the income gap if commodities cost less here, but at least in Australia the worker is left with some of their take home pay to spend or save as they choose, here after paying for everything there is nothing left for anyone to try and save for their future or spend as they wish. The average wage is supposed to be $25 per hour - I am still looking for someone I know that is earning that, and if that is so then I am so underpaid it is not funny. Nothing will change under this government or any subsequent government because they don't want to rock the boat there does have to be some sort of reform to the welfare system that is fairer, there needs to be a shift in mentality that the state owes us, we should have adopted the Australian super scheme years ago and although we will never have the mineral wealth of Australia we should have been protecting our jobs instead of sending them off shore, when the economies pick up internationally just watch the massive exodus from this country we will lose our young people and replace them with what I wonder.

Samela   #157   12:05 pm Dec 01 2009

#149 Having also lived in Australia, I know this isn't always true. Often a salary offer will be a 'package' which includes the 9% super. I agree that the super scheme in Australia is far superior to that of New Zealand, but it's not fair to suggest that it's an added bonus of your salary when this is not always the case.


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