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David Seymour Speech: ACT’s Budget for Middle New Zealand

The BFD

David Seymour
ACT Leader


Business.

I just wanted to get in early. Grant Robertson almost completely forgot to mention business in both his pre-Budget speeches. I didn’t want to risk the same mistake.

Welcome thank you to Price Waterhouse Cooper and the Wellington Chamber of Commerce for hosting us today.

There is a short prayer, attributed to St Francis of Assisi that reads “Lord grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.”

If Grant Robertson had been around in Assisi’s time, it would read differently. “Lord grant me the credit for the things I cannot change, the courage to ignore the things I could, and someone good at marketing to hide the difference.”

That’s the context in which we enter this year’s budget.

On the face of it, these are rosy times. If you believe the Government’s protestations, we have low unemployment, manageable debt, and a very mild economic contraction that compares well with other countries’ performance.

The Government, if you believe the rhetoric, is taking a proactive response, with a focus on growing productivity through “infrastructure, skills, research and innovation, and trade connectivity.”

The easy option is to enjoy the ride. Why get alarmed when the Government says don’t worry, be happy?

Well, I’d like to argue that:

  1. We need to be more honest about the context. If we mistake good luck for good management, we won’t prepare for future challenges
  2. We do have serious challenges, and we need the courage to change them rather than ignore them
  3. We need to move our politics from good marketing to real problem solving, at present the chasm is truly awesome

The Context

Of all the hands dealt, New Zealand’s Government had the least difficult COVID ride. There are some countries more isolated, some more sparsely populated, some have more generous healthcare budgets, a few might even have more cohesive societies and better institutions. No country, though, could match New Zealand’s suite of advantages going into a viral pandemic.

I thought I might have missed one, so I asked Chris Hipkins in Parliament and he couldn’t name one either.

Despite this good luck, we’ve depended on an enormous fiscal blow out. Thankfully for the Government, there’s been more luck.

The crisis occurred during the Adrian-in-Wonderland era of Modern Monetary Theory. Normally borrowing $30 billion per year for several years on end would be calamitous for five million people. Not in wonderland. The Finance Minister is able to make the exceptional, but accurate, claim that the Government’s interest bill is actually lower.

Lazy political commentators report that Labour had a landslide victory at last year’s election. The smart, or should I say funny, money is on Social Credit. They are the ones having their policy implemented.

Of course this approach to monetary policy has at least one consequence. House prices increased 22 per cent when zero immigration and weak economic growth suggest they should have fallen. The social and political consequences are large.

If inflation and interest rates rise, they will be much larger.

But, as Fred Dagg liked to say, “we don’t know how propitious are the circumstances.” We’ve also enjoyed very strong terms of trade including a rising milk price.

We need to acknowledge all of this, because without a good dose of realism, we won’t turn our minds to greater challenges. If things seem good it’s because a captive labour market is being primed by massive fiscal stimulus, subsidised by unprecedented monetary policy, supported by excellent terms of trade.

There is frenetic domestic activity as people salt their Adrian-bucks into the walls of their homes, but this does not an economic strategy make.

More Serious Challenges

In reality we face much more serious challenges. The first one is the end of simple COVID.

COVID 2.0

The COVID situation we faced last March may not have been easy, but it was at least simple. We didn’t know much about the virus, but we knew we were an Island. Locking down and locking out was the obvious choice, with political consensus at the time.

Now four underlying trends are changing COVID. In our March paper on the topic, ACT called it COVID 2.0.

Vaccines are changing the virulence and infectiousness of the virus.

So far, no COVID variant is a vaccine buster, but variants of the virus may yet undermine the vaccines.

New technologies, such as near-instant anti-body testing, mean that screening can go from country level to individual level. Imagine, for instance, testing everyone at an airport gate lounge for antibodies. A whole plane load of people can travel without danger.

Finally, there is fatigue. Public and private balance sheets are less able to take another hit after the last one. At home, another special opportunity to learn about sourdough doesn’t sound as appealing as last time.

In this world of vaccines and variants, technologies and fatigue, the rest of the world is slowly but surely moving on. Simply locking down and locking out is no longer the dominant strategy.

Our response has to evolve, but will it?

In COVID 2.0 we argued that the Government must adopt five principles for the COVID response from here:

  1. Transparency: the Government should regularly publish the scenarios it is planning for over the coming months and years, and how it will make decisions when new information becomes available
  2. Fast tech uptake: In all decision making, the Government should be asking itself, could better technology assist? There should at least be a one-stop-shop for triaging private sector ideas
  3. Risk management: wherever possible, the Government’s response to COVID and its
    costs should be proportional to the risk faced. For instance, we should not be treating all international arrivals the same when some come from places with no COVID.
  4. A culture of admitting failure: too often the Government has defended its response against all reason, apparently keen to maintain public confidence. The Valentine’s Day outbreak has shown how risky this strategy is. Creating a culture of constructive criticism would allow the Government to maintain confidence and improve.
  5. Improving wellbeing: policies must be assessed based on whether they will improve overall welfare (or wellbeing).

Note the Government’s budget commentary focuses more on the past 12 months than the coming 12 months. The next 12 months will be more complex, so they really need the Government’s attention.

The Budget’s focus could be based on inviting criticism and setting New Zealand up for future pandemics, but there is no such thinking.

Productivity

One of our biggest long-term issues is the total lack of productivity growth. The Government should have declared a crisis of low wages.

Some countries have low wages but are growing quickly. Others are growing slower, in part because their wages are already high.

New Zealand is one of a small number of OECD countries with both a low level of labour productivity and low productivity growth. Countries with productivity records similar to New Zealand are Mexico, Greece, Portugal, Israel, and Japan – so a mix of struggling economies. We are a country of independent spirits… Pioneering and productive. I believe that we can do so much better.

We once wanted to be in the top half of the OECD. For productivity we’re now 30 per cent below the average of the top half of the OECD. We’ve made no progress on this since 1996.

It also matters for our culture. Wage growth doesn’t just mean more money for life saving drugs… It means that our actions today deliver a better tomorrow for all New Zealanders.

The next generation won’t believe in freedom if their efforts today make no difference tomorrow.

New Zealand’s productivity paradox is a hard problem, but the Government is making it harder with constant attacks on business.

  • Continual minimum wage increases, even in the middle of a recession
  • Additional costs in the form of domestic violence leave, an additional public holiday, additional mandatory sick leave, and a proposal for parent teacher interview leave, all pushed onto business. They may be noble aims, but they should not be funded by employers
  • The spectre of compulsory unionism forced on an entire sector or occupation by only 10 per cent of workers
  • New restrictions on foreign investment during a pandemic
  • Sector specific regulatory attacks on farming, oil and gas, and mining that make it harder to do business and introduce uncertainty along the way
  • A Zero Carbon Act, layered on top of a perfectly adequate Emissions Trading Scheme, that amounts to central planning of the economy through carbon budgets

The common theme is that business is seen as a thing to be taxed, regulated and prodded, as being useful only in as much as it helps achieve other political goals.

The alternative view is that a business is the nexus of entrepreneurs, investors, skills, and customers. It is a way of organising resources to produce the goods and services we need for a better tomorrow. A large part of Government’s focus should be about making it easier to do business, but we’re not hearing any of that.

In Grant Robertson’s speech on Monday business was mentioned twice. Once as a recipient of the wage subsidy, really a transfer to workers, and again as having their supply chains disrupted, something the Government is partly responsible for. That was it.

Business isn’t getting much love from this Government today, but the most important indicator of where our country will be in 30 years is what children are learning today.

Skills

Well, in all the standardised international measures, PISA, PIRLS, and TIMMS, New Zealand students are in a sustained decline. Students today are learning less than they were 10 years ago. We were once a top performer and are on our way to being a middling one.

One reason for that might be attendance. Learning is hard when you’re at school, but it’s impossible if you don’t show up at all. We now face nearly one in 10 students missing more than 30 per cent of school. It is chronic absenteeism. It will lead to a massive cohort of students unequipped for the 21st century. It is one of those times that calling something a crisis is not an exaggeration.

The second reason is that when they do show up, what they learn is being progressively dumbed down. The idea that teachers should be knowledgeable people transferring their knowledge to children has gone out of fashion.

Instead, students are supposed to happen on the accumulated knowledge of civilisation at their own initiative in what’s called ‘student centred learning.’ The problem is we now have teachers whose own education was under this system. We are being dumbed back to the stone age, forgetting the knowledge of our civilisation one generation at a time.

These are the kinds of problems that a proactive budget would address.

Infrastructure

We also have a major problem with infrastructure. At the heart of our housing problem is a shortage of urban land. We are not short of land in New Zealand. What is the difference between land and urban land? Infrastructure.

Why do we have abominable standards of urban water quality on the beaches of our largest city? Infrastructure. The Government talks a big game on infrastructure but even when all the restraints are loosened, they can’t deliver.

We recently discovered that barely half of the $3 billion of COVID recovery projects were shovel ready as promised. Astoundingly, the Government has introduced an implementation unit so that its policies are actually delivered. What they should have done is helped councils who were furiously slashing projects afford to continue. Instead, they engaged in an ecstasy of fumbling to come up with their own projects.

There’s got to be a better way.

What the Government could do -ACT’s Alternative Budget

ACT has produced an alternative budget. It is a lot of work and we do not have the resources of a large party, let alone the Treasury. But it’s possible because ACT attracts talented people. It’s necessary because we believe we are not only here to oppose, but propose.

Fiscal Changes

ACT’s alternative budget is a budget for middle New Zealand. It aims to reduce wasteful spending and therefore debt. It reduces tax on middle incomes by dropping the 30-cent rate to 17.5 per cent. It reverses many of the impositions that Government has put onto business in recent times.

By 2025, ACT’s alternative budget will reduce public debt by $23 billion, returning the Government books to surplus that year. It will cut taxes by $14 billion over four years, by delivering $34 billion in savings.

ACT’s alternative budget makes a series of other policy changes to improve the conditions for wealth creation.

COVID-19 Response Changes

As the COVID pandemic becomes more complex, our response must become more sophisticated. In March ACT produced COVID 2.0, a comprehensive approach to dealing with COVID as vaccines and variants, technologies and fatigue take over.

The Government’s response has been chaotic at best. David Clark’s infamous absence created the cult of Ashley, and the response has been inappropriately dominated by one ministry as a result. ACT would begin the process of establishing an Epidemic Response Unit based on Taiwan’s Central Epidemic Command Centre to replace the leadership of the Ministry of Health. The Ministry is a policy agency. COVID-19 requires a tailored, long-term government approach.

The Government has just triumphally announced that it will start letting people use some of the MIQ capacity it’s been leaving empty. It is like a kid that shows up at after the race is run. Presumably at least some of those people will be coming from places where there is no COVID. Their greatest chance of catching COVID will be in MIQ, because the Government has no concept of managing risk.

We would adopt a risk-based plan for reconnecting with the world, introducing a traffic light system where MIQ requirements are more stringent for high-risk countries and less stringent for COVID- free countries.

Further on the concept of risk, ACT would establish a workstream to help encourage business travel from low-risk countries, taking a small step towards allowing more access to New Zealand for business and investment.

Every month I have some interesting and often worthy group visit me to pitch COVID-fighting technology. Sometimes they are already selling their product to offshore clients. They see me because the Government still doesn’t have a clear place to triage ideas. It is like the Government’s COVID response is fortified against the commercial world with the Ministry of Health as gatekeeper.

Technology gives humans an enormous advantage over viruses, but our response has often not used it. ACT would make better use of saliva testing, ëlarm, and COVID-Card like technologies.

Housing and infrastructure changes

At the core of New Zealand’s social problems is a shortage of housing. Transient school students, no money for food and clothes after rent, kids in cars and garages. No Government has solved it. This Government just moved the kids to motels. Nobody has solved it because they haven’t got to the core of the problem we are hopeless at producing urban land.

ACT would repeal and replace the Resource Management Act. Land use restrictions created by the RMA have exacerbated the housing crisis. We need a complete, first principles overhaul of the Act.

But it’s no good consenting land that isn’t serviced. ACT would change the incentives. We’d share half of the GST on new builds with the council where is was built. We know councils give faster service when there is revenue directly attached. Just try parking your car in the wrong place. Imagine if councils started issuing resource consents with the enthusiasm that parking wardens issue tickets. Imagine if they also had the revenue to fund infrastructure.

These are the kinds of forward thinking, decisive, structural changes that will actually make housing abundant. Everything else is just perpetuating the shortage then playing politics over who misses out.

We Need to Celebrate, not Denigrate, Business and Employment

ACT’s Alternative Budget reverses the Government’s recent workplace relations changes, including the Matariki public holiday, new sick leave entitlements, and 90-day trial changes. These changes, while well-intentioned, reduce new employment opportunities and hurt the very people the Government is trying to help.

ACT will reinstate 90-day trials for all businesses. These trials reduce the risks associated with hiring workers, giving firms the opportunity to take a chance on people they wouldn’t otherwise employ. Young or low-skilled workers, or people who have been out of work for some time, have the most to gain from being employed on a trial basis.

ACT will pause minimum wage increases for three years. The Labour Government increased the minimum wage as the economy was going into recession and businesses were in lockdown, costing thousands of jobs. Increasing the minimum wage further while the economy is recovering will put a handbrake on business growth and the creation of new employment opportunities.

Fast-track mining consents

We are a mineral rich country that exports more miners than minerals. We have industry using Australian Coal, and, rumour has it, aggregates, because we make it far too difficult to get mining consents.

It takes too long – between five and 10 years – to get permits and resource consents to open a new mine, and only investors with the deepest pockets would ever risk investing under the current Government. ACT would fast track this process.

The oil and gas exploration ban is one of the silliest policies any Government has ever imposed. It may be that renewable energy powers 100 per cent of our future. But we can’t be sure. If it does, proven gas reserves will be worthless. But, in case it doesn’t, why on earth wouldn’t we let people spend their own money (and employ people and pay taxes and permit fees) looking for them?

Repeal the Zero Carbon Act

We support the goal of reducing New Zealand’s emissions. However, we believe that the ETS is the most efficient, cost effective, and fairest way to achieve that goal. ACT will therefore repeal the Zero Carbon Act and reject the Climate Change Commission’s recommendations.

New Zealand must play its part on climate change, but any response must be simple, politically durable, and effective. If we are forced to make significantly deeper emissions cuts than our trading partners, we will impoverish ourselves and push economic activity and emissions to other countries.

The Commission’s proposed interventions in the agriculture, transport and energy sectors will not reduce emissions any more than the ETS is already designed to achieve, but will impose greater levels of bureaucracy and cost.

The ETS is New Zealand’s best tool for reducing emissions. It provides a market-based mechanism to incentivise efficient emission reductions across every sector, has wide political buy-in, and renders most of the Commission’s recommendations redundant.

Freshwater rules

New Zealand’s diverse landscape means farming practices vary across regions as farmers adapt best practices to local conditions. One-size-fits-all regulations set in Wellington are impractical. ACT will remove the ability for certain freshwater rules to be set from Wellington and instead devolve them to regional councils who are best positioned to understand the local conditions and have direct relationships with stakeholders. This reflects the need to work collaboratively to ensure better outcomes for farmers, the local community and the environment.

Regulatory Standards Bill

One of the most important things we can do to lift productivity, incomes and our quality of life is to improve the quality of our regulation and law-making.

ACT constantly hears from hardworking Kiwis who are affected by badly made laws that take up their time and energy. There’s no penalty for poor law-making, and New Zealanders pay an enormous price as a result. Governments of all stripes can and do make rushed and poorly thought out laws that are divisive and chilling. Poor law-making impoverishes New Zealanders in the long term.

My Regulatory Standards Bill will require that any law or regulation be accompanied by a certificate declaring that it is compatible with the principles of good law-making. Good law-making means that a law or regulation is consistent with the rule of law, does not unduly impair property rights, has benefits that outweigh its costs, does not duplicate existing laws, and solves a clearly defined problem.

If a law or regulation is inconsistent with the principles of good law-making, any citizen can go to court and have it declared to be so. This does not invalidate the law,
but it will embarrass the makers of bad laws into fixing their mistakes. The Regulatory Standards Bill would not stop Parliament or the government making laws and regulations, but it will shine sunlight on their activities.

Overseas investment

Overseas investment is crucial for our continued growth. It injects capital, knowledge and technology into New Zealand companies, making them more productive and allowing them to increase wages and grow jobs.

ACT will exempt investors from OECD countries from the need to receive Overseas Investment Office approval to invest here, except in respect of investments in residential land, streamlining the process to bring capital into New Zealand. These investments would still be subject to the call-in regime where national security interests are at stake.

Membership of the OECD is restricted to countries committed to preserving and advancing democracy and free markets. Many OECD nations are already our allies on national security issues and are, therefore, low-risk sources of investment.

Conclusion

We need to acknowledge we face some real problems. We cannot live forever in a fools’ paradise of isolation, cheap money, and mounting debt.

We need honest conversations about the challenges we face. We need to look into the future and confront our problems in a frank and open way. Incidentally, a culture of free and open debate is a helpful thing.

We need to recognise the role of business in generating wealth. Business should not be an afterthought in the Government’s policymaking at budget time, it should be central to any Government’s thinking.

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