Letter from Elsewhere with Anne Else
Would The Real Dr Brash Please Stand Up?
I’ve watched with amazement as Dr Donald Brash’s public image has been transformed in the media over the past year. Gone
is the tinder-dry, committed neo-liberal economist with an absolute aversion for the welfare state and an equally
absolute faith in cutting both taxes and government spending, so that magic invisible hand can do its stuff. Instead
we’re being wooed by his doppelganger: a somewhat nerdy but sincere defender of the “mainstream” and “family values”,
who thinks hard-working New Zealanders should pay a bit less tax – but without cutting essential services, of course.
New Zealanders seem to have very short memories when it comes to the recent political past. I can never understand how
Grey Power is so enamoured of Winston Peters. Apart from Ruth “The state is not your friend” Richardson, who tried to
foist a very mean means-tested pension on an unsuspecting public overnight, Winston Peters is the only politician who
has done his best to abolish National Super completely. He tried to replace it with an individual savings scheme. Around
40 percent of men, and a whopping 85 percent of women, would not have been able to save enough under his scheme to give
them even the most basic income in old age, way below what the existing arrangements provide. But he was dissuaded only
when 97 percent of the country voted against it. This happened less than ten years ago. Surely they can’t have
forgotten?
As far as Dr Brash is concerned, the amnesia is more understandable, because he hasn’t been a politician very long.
Before he became an MP, he was Governor of the Reserve Bank, and what he said and did then (apart from interest rates)
rarely made the headlines.
But every so often, Dr Brash did come out with something that showed exactly where he stood on the political spectrum.
The most striking example was the Hayek Memorial Lecture he gave in London on 4 June 1996.
Friedrich von Hayek (1899-1992) was an Austrian economist who regarded the welfare state as a form of “serfdom” – a
judgement Dr Brash agreed with in his lecture. Here are some samples of what Dr Brash said then about some of the
important issues coming up again in this election. This, too, was less than ten years ago. There is no reason to believe
he has changed his mind since.
Employment: Deregulate completely
“The deregulation is not complete. The [Employment Contracts Act] provides for certain minimum entitlements that must be
observed in employment contracts, including a minimum wage, minimum holiday entitlements, parental leave and equal pay
for men and women. As well, the Act provides for an Employment Court to settle labour disputes, which may, however, like
other disputes, be appealed to the Appeal Court…”
“Labour market legislation…leaves an activist Employment Court reaching decisions which can hardly fail to discourage
employers from hiring new staff. In 1994, the provisions of the Minimum Wage Act 1991 were extended to young people.”
Social welfare, health and education: Forget social justice
“Hayek grounded his theory of the rule of law in an ancient conception of justice that reflected principles of higher
law and was contradicted by modern notions of `social' or `distributive' justice. He also advanced a constitutional
scheme, involving an upper house of Parliament, that he hoped would ensure that legislation routinely observed the
principles of the rule of law. It has to be said that New Zealand has made little progress in these respects. The
welfare state remains little changed, reflecting the continuing currency in New Zealand of modern, collectivist, notions
of social justice.”
[as opposed to ancient notions of dog-eat-dog individual competition and every man, woman and child for themselves?]
“Although New Zealand's welfare state has undergone some reform - and given the almost total absence of significant
reform of welfare states elsewhere that is itself a considerable accomplishment - it has not been subjected to the kind
of radical restructuring which the rest of the economy has experienced… there can be little doubt that further reform in
the areas of income support, education and health-care would yield considerable benefits - personal, social, fiscal and
economic.”
Privatisation: More is better
“There is clearly scope for further reform, despite the very substantial progress which has been made over the last 12
years [since 1984]. Government still owns major trading activities which could, in principle, be privatised - New
Zealand Post, the Electricity Corporation (and its progeny, Contact Energy), and the Accident Rehabilitation
Compensation and Insurance Corporation (ACC) to name just three.”
Tax: Flat is best
“The flattening and lowering of income-tax rates [since 1984] approaches…[but] does not fully realise the flat…tax that
Hayek advocated as the requirement of the rule of law in this area.”
[In case you have forgotten, a flat tax means taxing everyone, no matter how little or how much they earn, at exactly
the same rate – Roger Douglas suggested 25 cents in the dollar. It makes those on low incomes much poorer and those on
high incomes much, much richer. It also drastically reduces the tax take, so the government can no longer afford to
provide health, education and social welfare, though it could still pay for police - and it would need a lot more of
those.]
Government spending on income support, education and health: The lower the better
“Between 1991 and 1995, the share of GDP consumed by state spending on income support, education and health fell from
25.8 percent to 24.5 percent. In that sense, the reforms may be regarded as having been successful. But it is worthwhile
for both supporters and critics to recall that, at present levels, state spending on those activities remains well above
the 21.6 percent of GDP spent in 1983/84.”
What did this celebrated fall in government spending mean? It’s important to remember that official unemployment leapt
from 4 percent in 1986 to 11 percent in 1992. For Maori and Pacific peoples, who were worst affected by restructuring,
it peaked at around 25 percent.
So it would have been perfectly sensible for government spending in these three areas to rise, rather than fall. But no!
To Dr Brash, a fall of 1.3 percent in government spending was clearly much more important than sustaining its citizens
through hard times.
(It’s also worth noting that the impact of all those wonderful “reforms” on jobs was so massive that by 2003, official
unemployment rates were still generally higher than they had been in 1986.)
Now Dr Brash is saying that National will cut taxes, though he hasn’t spelt out any details. So there’s been a lot of
discussion in the media lately about whether tax cuts are affordable, and what kind of cuts in government spending there
might have to be to pay for them. (For an excellent overview, see http://www.scoop.co.nz/stories/HL0507/S00170.htm
But going by Dr Brash’s past thoughts on the subject, this is missing the central point. It’s quite simple: tax cuts
good, government spending bad.
It doesn’t really matter what the spending buys, or where it would have to be cut to pay for lower taxes. Getting taxes
down is a Good Thing precisely because it means that government spending has to come down. If this means core services
have to be cut, that’s a Good Thing too, because government spending is a Bad Thing. Full stop. The lower taxes are, and
the less the government has to spend, the better.
So there you have it. Just don’t say you didn’t realise.
**********
- Anne Else is a Wellington writer and social commentator. Her occasional column will typically appear on a Monday. You
can subscribe to receive Letter From Elsewhere by email when it appears via the Free My Scoop News-By-Email Service