His voice should be heard. As minister of finance in 1984, he faced a major financial and economic mess. It took him and the next four ministers of finance to deal with that mess, but he set the path. His party took many tough decisions. They worked.
He likely thinks, along with many others, that Budget 2024 does not get to grips with the scale of the fiscal problems the country faces. It proposes a long war of attrition against head-in-the-sand spending pressures; a war it could well lose.
To be fair, Budget 2024 is work in progress, a first step. The government is focused on the broader task – facilitating greater prosperity. The results remain to be seen.
Sir Roger’s starting propositions are that people should be able to make their own choices, that everyone should have the same chance to do well, and that a strong economy helps everyone.
Many would agree.
Sir Roger highlights the fiscal bankruptcy of New Zealand’s welfare state, which Treasury’s projections to 2060 make crystal clear.
He espouses the following principles for remedies: First, each generation should pay for itself; second, everyone should provide for themselves, as much as possible (self-reliance); third, choice and competition empower consumers.
Philosophically, this aligns well with ACT’s liberal vision, the party Sir Roger founded.
Sir Roger’s principles are a long way from the utopian concept of a cradle-to-grave welfare state, which at its best, is a socially supportive doctrine. But at its worst, it could turn New Zealand into a bludgers’ paradise. Attitudes to the expansive welfare state depend in part on one’s view of human nature.
Sir Roger’s most important remedy would replace the current national superannuation scheme with a mandatory individual savings scheme for all New Zealanders.
Government spending cuts would fund “tax reductions” of $8,620. Of that, $6,000 would go into people’s individual retirement savings accounts. The rest would buy health insurance.
Sir Roger estimates that within 50 years, 80% of New Zealanders retiring would each have $2-4 million in their individual accounts. That is the carrot.
(The number needs to be checked. It is not clear what is being assumed about future supplementary contributions, interest rates, inflation, and tax. Ignore that for now.)
The proposal does not appear to require New Zealanders to cut back on household consumption, either during their working lives or in retirement. No belt-tightening then, except for government spending. Nor does it require governments to run fiscal deficits.
The $8,620 per person is to be funded by cutting annual government spending. The proposal seems to assume that households will not materially increase their out-of-pocket spending on the cut items.
It is as if the cut spending did not benefit households. That will certainly be true for some of the cuts, but for what proportion?
The proposal also assumes $2,620 a year for health insurance will suffice. It might not for people with pre-existing conditions and predispositions.
To dig deeper, how does the scheme stack up against Sir Roger’s principles?
Surely the first generation to pay for its own retirement must also pay for the retirement of the preceding generation? That transitional problem is a tough one. It temporarily violates Sir Roger’s principle that each generation should pay for itself.
The proposal is also at odds with his self-reliance principle. The flat $8,620 represents a large within-generation subsidy for those who pay little or no income tax.
In defence of the proposal, all realistic alternatives probably also do the same. Sir Roger’s proposal has the virtue that people would feel greater ownership of their retirement provision.
Governments would have to regulate the individual retirement savings accounts, watching what is taken out and where the funds are invested. What if they are invested in a family “business”?
Net taxpayers might feel frustrated. Their taxes fund their own $8,620 per year plus the amounts paid to those who are not net taxpayers. And they get regulated to boot - they lose choice over the compulsory element of their retirement saving.
There are other worries. What would stop the next big spending government from restoring the cut spending programmes, and more? Might a future government mandate where retirement accounts are to be invested? What would prevent the $6,000 amount from being a political football every general election? What happens to those who squander their retirement savings?
At a deeper level, the scheme would entrench future cross-subsidisation at around current levels. Why do this? Surely, as productivity growth lifts incomes, the need for future cross-subsidisation to alleviate poverty should fall?
Debate over this issue should not be at the expense of the elephant in the room when it comes to a better future for New Zealanders – productivity growth.
New Zealanders who are clamouring daily for more government spending are clamouring for a higher standard of living.
Faster productivity growth is the most sustainable way of meeting their demands.
Dr Bryce Wilkinson is a Senior Fellow at The New Zealand Initiative, Director of Capital Economics, and former Director of the New Zealand Treasury. His articles can be seen HERE. - where this article was sourced.
To be fair, Budget 2024 is work in progress, a first step. The government is focused on the broader task – facilitating greater prosperity. The results remain to be seen.
Sir Roger’s starting propositions are that people should be able to make their own choices, that everyone should have the same chance to do well, and that a strong economy helps everyone.
Many would agree.
Sir Roger highlights the fiscal bankruptcy of New Zealand’s welfare state, which Treasury’s projections to 2060 make crystal clear.
He espouses the following principles for remedies: First, each generation should pay for itself; second, everyone should provide for themselves, as much as possible (self-reliance); third, choice and competition empower consumers.
Philosophically, this aligns well with ACT’s liberal vision, the party Sir Roger founded.
Sir Roger’s principles are a long way from the utopian concept of a cradle-to-grave welfare state, which at its best, is a socially supportive doctrine. But at its worst, it could turn New Zealand into a bludgers’ paradise. Attitudes to the expansive welfare state depend in part on one’s view of human nature.
Sir Roger’s most important remedy would replace the current national superannuation scheme with a mandatory individual savings scheme for all New Zealanders.
Government spending cuts would fund “tax reductions” of $8,620. Of that, $6,000 would go into people’s individual retirement savings accounts. The rest would buy health insurance.
Sir Roger estimates that within 50 years, 80% of New Zealanders retiring would each have $2-4 million in their individual accounts. That is the carrot.
(The number needs to be checked. It is not clear what is being assumed about future supplementary contributions, interest rates, inflation, and tax. Ignore that for now.)
The proposal does not appear to require New Zealanders to cut back on household consumption, either during their working lives or in retirement. No belt-tightening then, except for government spending. Nor does it require governments to run fiscal deficits.
The $8,620 per person is to be funded by cutting annual government spending. The proposal seems to assume that households will not materially increase their out-of-pocket spending on the cut items.
It is as if the cut spending did not benefit households. That will certainly be true for some of the cuts, but for what proportion?
The proposal also assumes $2,620 a year for health insurance will suffice. It might not for people with pre-existing conditions and predispositions.
To dig deeper, how does the scheme stack up against Sir Roger’s principles?
Surely the first generation to pay for its own retirement must also pay for the retirement of the preceding generation? That transitional problem is a tough one. It temporarily violates Sir Roger’s principle that each generation should pay for itself.
The proposal is also at odds with his self-reliance principle. The flat $8,620 represents a large within-generation subsidy for those who pay little or no income tax.
In defence of the proposal, all realistic alternatives probably also do the same. Sir Roger’s proposal has the virtue that people would feel greater ownership of their retirement provision.
Governments would have to regulate the individual retirement savings accounts, watching what is taken out and where the funds are invested. What if they are invested in a family “business”?
Net taxpayers might feel frustrated. Their taxes fund their own $8,620 per year plus the amounts paid to those who are not net taxpayers. And they get regulated to boot - they lose choice over the compulsory element of their retirement saving.
There are other worries. What would stop the next big spending government from restoring the cut spending programmes, and more? Might a future government mandate where retirement accounts are to be invested? What would prevent the $6,000 amount from being a political football every general election? What happens to those who squander their retirement savings?
At a deeper level, the scheme would entrench future cross-subsidisation at around current levels. Why do this? Surely, as productivity growth lifts incomes, the need for future cross-subsidisation to alleviate poverty should fall?
Debate over this issue should not be at the expense of the elephant in the room when it comes to a better future for New Zealanders – productivity growth.
New Zealanders who are clamouring daily for more government spending are clamouring for a higher standard of living.
Faster productivity growth is the most sustainable way of meeting their demands.
Dr Bryce Wilkinson is a Senior Fellow at The New Zealand Initiative, Director of Capital Economics, and former Director of the New Zealand Treasury. His articles can be seen HERE. - where this article was sourced.
3 comments:
Labour left us with one of the worst GDP growth rates in the world . We were 180th of the 189 countries considered by the IMF late last year, and most of the countries worse than us were affected by the loss of Russian oil. We also had the worse balance of payments current account in the OECD. Not surprisingly, the media covered all this up until after the election. Labour, Greens and TPM were still saying spend spend spend. Reminds me of a cartoon that was printed during the Muldoon Era, showing a man asleep, dreaming of relaxing in the sun with a cocktail in a tropical paradise, while in fact his house (or hovel) is collapsing around him.
Bryce is correct that the only real answer is to improve our productivity. Yet the NZ Initiative, which he is a Senior Fellow at, also insists that high level, unskilled immigration is also what is needed.
Perhaps he could spend some time into explaining how both these ideas can be valid at the same time. I have found no one that can come up with a reasonable explanation, so it would be great if he, or one of his fellow Fellows, could enlighten the masses on this conundrum.
I always cringe when I see the words “…improve productivity…”. Productivity is what economists and financial commentators refer to when they are blocked in their thinking, or maybe want to appear to be insightful or virtuous. But It’s not something one can order in or legislate for. It’s the result of all sorts of other decisions and processes across the economy and society. It’s a bit like weather…you don’t “fix the weather” or “change the weather”. It just happens. Yes Govt can alter research or capital investment incentives but improving productivity is largely out of their hands, certainly in the short and medium terms. In the long term productivity is a function of strong education, sound fiscal and monetary policies, social and political cohesion, and of course global technology advances.
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