Editorial: Strong medicine

OPINION: The glaring gap between Australia's standard of living and our own is a thorny issue.

Back in the good old days we were on a par with our Australian cousins but since the 1970s we have steadily lost ground to the point that a family of four in Australia earns an average of $64,000, or 35 per cent more than in New Zealand.

When former Prime Minister Helen Clark was elected back in 1999 she pledged to take New Zealand out of the Organisation of Economic Cooperation and Development dunce class and back up to the top of the pile.

She failed spectacularly in this regard and Prime Minister John Key has set the target of closing the gap with Australia, and by implication taking us back up the OECD league tables, by 2025.

To this end Mr Key commissioned the 2025 taskforce, led by former Reserve Bank Governor and National leader Don Brash, to try and do something about it.

Dr Brash and the taskforce reported back yesterday with a set of 35 reforms scripted by former finance minister Roger Douglas 25 years ago.

The Brash formula can be described as slash Government spending, cut employee rights, sell a lot of assets and lift productivity and our economic performance as a result.

Top of the Brash agenda is tax cuts, with individuals and businesses paying a flat rate of 20 per cent. The idea is that the cut will stimulate the economy and lift productivity, more than making up for the shortfall in revenue for the necessities in life such as health and education. At the same time Dr Brash wanted to cut some universal benefits, including interest-free student loans and subsidies for early childhood care education. Overall government spending would be slashed by $9 billion to 29 per cent of GDP in four years.

Other recommendations include using the superannuation fund to pay back debt and introducing congestion charges on roads. The retirement age would be increased progressively, and Kiwisaver subsidies abolished. Unfortunately for Dr Brash, his proposals are mostly politically suicidal and the Prime Minister has been upfront enough to tell him so.

Labour smells a rat, believing Dr Brash is being used as a stalking horse to frighten Kiwis with a series of right wing reforms, which are immediately but not completely discredited as too radical by the Government.

Then, a few years down the track, some of the ideas will be revived when the time is right. This ignores one pertinent fact. Mr Key is the most popular prime minister in recent history, with an unassailable lead in the polls against an ailing Phil Goff.

If Mr Key really believed the Brash reforms would work, he would never have a better chance of ramming them through. Perhaps he thinks the Brash recipe is too painful for too little gain. While Kiwis are unhappy about the income gap, they do not have an appetite for the pain required to fix it. After all, if you want to enjoy Australia's standard of living, paradise is a cheap plane ride away.

- © Fairfax NZ News