by Don Nicolson
Former National Leader, Don Brash’s latest 2025 Taskforce report, comes with a sharper warning for the Government.
Rhetoric, the Taskforce warns, is divorced from policy reality.
But you also get the impression our politicians are ‘playing the man’ heading the Taskforce, than leading a much-needed public discussion about growing our economy.
Look at the insulation that has gone into the domestic economy since 2008 and before, every bit as much as what has gone into homes. The resulting ‘rough edges’ of the worst recession since the 1930’s, have been smoothed, or have they been brushed under the carpet?
Governments, of all hues, have embraced MMP’s dark praetorian truth – you have to bribe the electorate on a scale that would have made Richard Seddon blush.
Aside from some marquee differentiating policies, the only political metric in town is a crude ‘maximising’ of the party vote. Yet government should be about long term policy with some short term political considerations.
MMP corrupts all of this.
Under MMP, a government’s focus is all about short-term politics interspersed with some longer term objectives, as long as these don’t trip up the former. Yet polls are showing a growing disenchantment with MMP. ‘Middle New Zealand’ is waking up to the economic, social and political miasma it creates. Those Kiwis leaving for Australia warn us that something is rotten in our body politic. That rot is called MMP.
So please put your preconceptions of Dr Brash to one side and reflect on one core message - reducing Government’s size.
When the global meltdown hit the United Kingdom ‘insulation’ was tried and it failed miserably. Banks like Northern Rock failed and billions of pounds of Government recapitalisation didn’t stop its economy imploding. The British Labour Party suffered the predictable in May, but this is where any parallel with our last election ends.
The UK’s coalition Government, that odd couple of Conservatives and Liberal Democrats, was put together in some five days. As the first coalition since 1945, this feat was achieved, not only under an electoral system we’d cast off in pique, but in far less time than it took to form our current Government. Instead of waltzing into Downing Street dispensing placebos, there was brutal honesty about the UK economy.
Words like ‘cuts’ and ‘austerity’ are used openly and often.
While New Zealand continues to borrow to maintain spending, the UK initiated a root and branch review of all spending with two exceptions. Proving the short term political expediency point, its National Health Service is ring-fenced. Bizarrely, the same applies to Overseas Aid – then again – this is a coalition.
There were mostly no sacred cows either. The Harrier jumpjet, talisman of the 1982 Falkland’s War, is being scrapped along with the ships carrying them. Britain is getting replacement aircraft, but not for another decade. Before then, the Royal Navy will get two new non-aircraft carriers, one of which will be mothballed or sold.
And if you ignore Dr Brash’s message you ignore some home truths.
The British Government consumes around 42 percent of the UK’s Gross Domestic Product (GDP). Right now, our Government consumes 44 percent of our economy – eight percent more than what it did in 2000, or NZ$30 billion more in real terms. On sovereign debt, what a government owes as a percentage of GDP, New Zealand benefits from debt levels four times less than the UK’s current 65 percent. All good then.
But if you then look at the rate of debt growth in the government and non-government sectors since 2000, then our debt growth has outpaced the UK’s. Total New Zealand debt has grown by almost a third of GDP in just the first decade of this century. But that’s all okay because we owe ‘just’ 130.2 percent of GDP, or some NZ$246 billion. This is MMP’s encouragement of the ‘feel good’ coming home to roost. We all embraced debt leading to a major economic hangover. But under MMP, no politician wants to risk dispensing the medicinal cure.
Here’s another contrast.
In October, the UK’s Chancellor of the Exchequer, George Osborne, announced a ‘repair’ job on the UK’s massive deficit. Some 16 percent of all UK public spending will be cut by 2014, with overall UK public borrowing reducing to one percent of GDP by 2016. Thousands of public servants will go and programmes slashed. You get the impression a much stronger and resilient British economy will emerge.
Even now, our comparative June quarter growth rates tell a disturbing picture. The UK’s ‘uninsulated’ June quarter growth rate was four times higher than New Zealand’s ‘insulated’ and sickly 0.2 percent June result.
And here’s a major economic warning. In July, Treasury warned that the New Zealand Government debt trajectory would pass 100 percent of GDP by 2050. Think Greece, Italy and Iceland. Over the Tasman, our Australian cousins have, for 25 years under both Labor and the Coalition, continued economic reform. When you combine that with commodities it creates success. We’ve got the commodities but our Government’s $30 billion spending growth in real terms, has become an economic millstone.
If 2010 was the UK’s turning point, was 1996 seemingly ours?
MMP has put successive governments into political straight-jackets with mounting tough decisions put to one side.
We increasingly face economic and political entropy so if we desire a real future for our children and our grandchildren, MMP’s ‘gotta-go’.
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Don Nicolson is President of Federated Farmers
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