NZCPR Newsletter: Aspirational Reform

The last six years of inept management by the Hipkins-Ardern Labour Government has exposed a multitude of problems facing the country that need to be addressed.

Since poor public sector performance has become the norm in most policy areas, the lack of resilience of many New Zealand families to cope with the resulting adversity, is now a growing concern.

Nowhere is this more evident than in health, where the contrast between being forced onto a public hospital waiting list for specialist treatment, and having the resources to pay for private care, could mean the difference between life and death.

As a nation, surely our goal must be prosperity – lifting living standards so all New Zealanders have the ability to protect themselves from misfortune and enjoy a decent life.

So how do countries become prosperous?

Essentially it all comes down to the role of government.

If a government tries to do too much and be all things to all people – the ultimate goal of socialism – it will fail on most counts, as we have just witnessed. Not only that, but an expanding bureaucracy dominates the economy, over-regulating the private sector and disincentivising wealth creation.

Alternatively, if governments limit their activity to doing what they should do well - and in the process, empower citizens through sound policies with good incentives, then widespread wellbeing and prosperity can be achieved.

This wisdom of good government was captured by the influential American leader Rev William Boetcker at the turn of the 20th century:

You cannot bring about prosperity by discouraging thrift.
You cannot strengthen the weak by weakening the strong.
You cannot lift the wage earner by pulling down the wage payer.
You cannot help the poor by destroying the rich.
You cannot further the brotherhood of man by inciting class hatred.
You cannot keep out of trouble by spending more than you earn.
You cannot build character and courage by destroying men's initiative and independence.
And you cannot help men permanently by doing for them what they could and should do for themselves.

The problem we face, however, is that few political leaders have the vision or courage to introduce transformational reforms that will genuinely empower New Zealanders to build a brighter future for themselves and their families.

As a result, entrenched policy failure continues to create poor outcomes.

In education, the ongoing decline in student achievement has left New Zealand lagging behind our trading partners, with truancy rates increasing to the point where, in Term 2, only 47 percent of students met the criteria for regular attendance at school compared to 63 percent in 2017 before Labour became government.

Meanwhile, in many other countries high standards are maintained by empowering parents to send their children to whichever public or private school best meets their needs – with education funding following their child to the provider of choice. In Holland, the state monopoly in education ended in 1917, creating a vibrant private school sector, and Sweden now has a thirty-year track record of school choice.

In New Zealand education funding follows the child at preschool and tertiary levels, where parents and students are free to choose the provider that best meets their needs. But primary and secondary schools largely operate as state monopolies, with parents having little choice of where they can send their child – unless they can afford private education.

Isn’t it time the funding followed the child at primary and secondary school as well, so parents are empowered to better ensure their child’s learning needs are met?

When it comes to health, it’s a tragic reality that our public health system has become a lottery. If you are lucky, you will get excellent care when you are very sick. But if you are unlucky, you could die while waiting for specialist care – unless, of course, you have health insurance.

Many countries around the world, including Switzerland and Germany, ensure citizens have access to excellent health care when they need it through universal health insurance cover.

In Singapore, health insurance is part of a broader compulsory savings program, the Central Provident Fund - a contributory scheme established in 1955 to provide high standards of cost-effective health care, as well as funds for home ownership, and a generous annuity on retirement.

So, the question is, if other countries can provide universal health cover, that eliminates hospital waiting lists and provides treatment when needed, why can’t we?

Welfare is another area where policy failure has not only been allowed to persist but has literally destroyed generations of lives. For fifty years a benefit has been in place that has incentivised family breakdown and the alienation of fathers on an industrial scale, leaving mothers struggling to raise children on their own, often in unstable environments of drugs, violence, and abuse.

The end result is intergenerational welfare dependency and the creation of an underclass where child abuse is rife, educational failure commonplace, and gang involvement and crime the norm.

Failed policy is at the heart of this sociological disaster but to date, no political party has had the courage to replace the stand-alone sole parent benefit with support based on work - which is the norm in most other countries.

National came close in 2010, when their Welfare Working Group recommended replacing all existing benefits with a single Jobseeker Support payment. They argued that a single benefit would send a strong signal that all able-bodied beneficiaries receiving welfare are expected to find a job. And while exemptions would have been provided to those unable to work due to illness, disability or having a young child, the policy would have refocussed welfare back to its original purpose of providing a hand-up to employment and independence from the State.

While National implemented many of the Working Group’s proposed reforms, they failed to introduce the single benefit. As a result, over the last six years, Labour’s loosening up of work testing requirements has led to more and more children being raised in single parent families on welfare - putting them at grave risk of poor outcomes in life.

One bright spot in the burgeoning welfare statistics is that teenage birth rates are falling. It appears that an ‘income management’ system introduced by National and retained by Labour is partially responsible.

Income management passes control of a beneficiary’s welfare payments onto a case manager, who ensures that essential services such as housing, power, and debt repayments are taken care of through direct debit arrangements. Funds for food, medical care and other ‘approved’ basics are available through Payment Cards, with a small amount of cash provided as ‘discretionary spending’.

Since welfare was only ever meant to provide short term assistance in times of need, when someone remains on a benefit in the longer term, managing budgets can become problematic. That’s why income management was recommended for teenage parents.

It turns out, however, that one of the great attractions of a welfare lifestyle is having full control of the “free money” that’s provided. If there is no “free money”, then not only do fewer people sign up, but more leave the system sooner.

That’s why it makes great policy sense to extend income management to anyone who has been on welfare for longer than six months, because at that stage, without intervention, there’s a real risk of budgeting difficulties and entrenched dependency.

Another area of major policy concern is superannuation.

With the number of retirees set to double within forty years, and two parties in Parliament already promising to raise the age of retirement, it is likely to be only a matter of time before the burgeoning costs force other parties to join in the chorus.

But raising the age of retirement or reducing pensions are not the only options.

Back in 1974, Norman Kirk’s Labour Government introduced the New Zealand Superannuation Act, a contributory superannuation scheme. The brainchild of Labour MP Sir Roger Douglas, had the scheme not been axed by Prime Minister Robert Muldoon in 1975, it would have transformed New Zealand’s economic future and ensured every New Zealander had a comfortable retirement.

In a Herald article in 2007, Investment Analyst, the late Brian Gaynor explained that if the scheme had been allowed to continue, New Zealand “would be called ‘The Antipodean Tiger’ and be the envy of the rest of the world. We would have a current account surplus, one of the lowest interest-rate structures in the world and would probably rank as one of the top five OECD economies.

“Most New Zealanders would face a comfortable retirement and would be the envy of their Australian peers. The Government would have a substantial Budget surplus and we would have one of the best educational and healthcare systems in the world.”

In 2014 Infometrics estimated that if the scheme had been retained, it would have been worth almost $300 billion – more than the New Zealand Super Fund, Kiwisaver, and the NZ Stock Exchange combined.

What the NZ Super Scheme showed in its short life, was the power of compound interest, and the profoundly positive effect that good policy can have on a country.

So, given that far better policy options exist than those currently in place in New Zealand, that would empower Kiwis and dramatically improve our quality of life, why haven’t they been implemented here?

This week’s NZCPR Guest Commentator, former Labour Party Finance Minister Sir Roger Douglas believes it is a lack of imagination and courage that holds governments back. He points out that traditionally National tends to be the party of the status quo, but while Labour has been the party of reform in the past, this time they got it dreadfully wrong:

“Unfortunately, when the Labour government looked to the future during its six years in office, it envisaged a larger state, higher taxes, government ownership and delivery of social services and an even greater opportunity for it and its expanded army of bureaucrats to meddle with our lives. In the process it gave up on fiscal prudence and sentenced New Zealand to low productivity growth.

“Simply put, the Ardern government chose to shovel money into the bureaucracy and then sit back, blindly hoping that such a wasteful policy would eventually pay dividends by delivering access to the kind of decent education, quality healthcare, and targeted welfare that helps rather than harms the poor, and which has been increasingly denied them.

“Surely the purpose of our democracy is to deliver government of the people by the people for the people, not government of the people by the government for the government. Given its history, Labour should know this better than any other New Zealand political party.”

In reality there have only been two periods of major reform in New Zealand and that’s when the years of protectionism and ‘think big’ left the country on the verge of economic collapse.

The comprehensive economic reform programme introduced in 1984 by the Lange Labour Government - which floated the dollar, reduced taxes, eliminated subsidies, and introduced a multitude of changes including the State-Owned Enterprise Act, the State Sector Act, the Reserve Bank Act, and the Public Finance Act – was followed by National’s passing of the Employment Contracts Act and the Fiscal Responsibility Act.

Together those reforms transformed New Zealand from an economic basket-case into a prosperous modern economy.

But over the last thirty years, things have deteriorated, and without genuine reform, New Zealand is well and truly on the slippery slope to third world status.

Roger Douglas believes the answer lies in empowering New Zealanders through aspirational policies that eliminate all forms of privilege and deliver top quality social services - including a generous retirement fund to guarantee quality of life in old age.

Creating the right incentives for individuals to become independent of the State is, of course, the exact opposite of the last six years of suffering under Labour and it represents a change in the direction that all governing parties have adopted over the last thirty years.

But isn’t this the future New Zealanders deserve? 

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Dr Muriel Newman established the New Zealand Centre for Political Research as a public policy think tank in 2005 after nine years as a Member of Parliament. The NZCPR website is HERE. We also run this Breaking Views Blog and our NZCPR Facebook Group HERE.