Speech to launch of ACT Alternative Budget,

Going for Growth: ACT Alternative Budget 2002 Speech by Rodney Hide

Sunday 19 May 2002 Rodney Hide Speeches -- Economy

Speech to launch of ACT Alternative Budget,

9.45am, Crowne Plaza Hotel, Auckland, Sunday May 19, 2002

All of us anxious to rev up the economy had a boost last week. Finance Minister Michael Cullen announced ACT's tax policy. He's proposing to drop the rate of tax to 19.5 cents in the dollar. He made the announcement on Tuesday. His Bill has gone to the Finance and Expenditure Select Committee for submissions and consideration.

It's designed to put more money in the pocket of taxpayers, spur entrepreneurial flair and investment, and simplify the tax system.

The ACT party has a much bigger influence than we often realise. When we first proposed a top rate of just 19.5 cents Michael Cullen scoffed. Now he has gone and implemented our policy.

The ACT party agrees with Michael Cullen's radical tax reduction in every respect but one. His new top rate of tax applies only to Maori Authorities and all their subsidiary businesses. The Crown Forestry Rental Trust and the Treaty of Waitangi Fisheries Commission and their subsidiary businesses are to be taxed now at 19.5 cents. All other businesses will still be taxed at 33 cents.

We don't accept that tax policy should be formed on the basis of race and suggest that if 19.5 cents is such a good idea then it should apply to all taxpayers without regard to race. Why should Chinese or anyone else for that matter pay a tax rate different to Maori? What's next? Tax rates based on how much Maori blood taxpayers possess?

But Michael Cullen is going even further. He's also proposing to relax the rules for the charitable purposes exemption. The exemption won't be knocked back now just because blood ties connect members. The IRD say this new exemption "is especially relevant to iwi-based and hapu-based entities". Provide they meet the other tests - income tax will be essentially abolished for them. That's not bad Mr Cullen. Now what about the rest of New Zealand?

And this is what ACT's alternative Budget is about -- a Budget to boost the entire economy and assist everyone, not just the selected few.

Labour and Alliance: The Wrong path

The Labour-Alliance Government has put New Zealand through a 180-degree spin. It has returned under the banner of "The Third Way" to picking winners. Deputy Prime Minister Jim Anderton declared on election night the end of "hands off" government. His hands have been firmly on the economy ever since.

Helen Clark says the state must use "the full ability it has to facilitate, co-ordinate, and broker". What she means is to facilitate the chosen businesses and industries through the thicket of rules and regulations that the state has first erected as an obstacle. The impediments are placed in the way of the many and lifted for the few.

The Labour-Alliance Government has:

· hiked taxes,

· re-monopolised the labour market,

· re-nationalised accident insurance,

· increased red-tape, and

· passed retrospective tax laws back to 1986.

Each of these actions has made doing business in New Zealand harder. Higher taxes have reduced the return from working, investing, and entrepreneurship. Increased red tape has increased the risk of doing business in New Zealand.

The New Zealand economy grew an average of three percent through the 1990s. In the five years up to Mr Peters' disastrous spend-up the economy grew an average of 4 percent. Last year, the Labour and Alliance government with the best economic conditions for a generation managed only a paltry 2.3 percent.

The growth rate per capita has fallen continuously under the Labour-Alliance Government. It was 3.4 percent for the year ended December 1999. It was 3.3 percent for year ended December 2000. It was 1.4 percent for the year ended December last year. The result of the present government's policies has been continually falling growth.

Labour's economic approach is that of its general approach - handouts to the few. We have seen this approach. Jim Anderton "facilitated" Sovereign Yachts' development at Hobsonville airbase through a thicket of government mandated procedures and processes in five months. It's estimated that they would have otherwise taken ten years. But why facilitate just one business? Why not facilitate them all? Other yacht builders have complained that their proposed developments are tied up for years in mad Resource Management Act processes and yet there is no relief for them. That's because "Third Way" economics is about power and control. The politicians in power get to decide who will and who will not be facilitated.

The result for Jim Anderton's "Triumph of his Job Machine" has proved a disaster for the taxpayer, the military and the boat building industry.

The same with hand-outs to business. The politicians and bureaucrats get to decide who will and who won't benefit - and produce a great deal of paper work in the process. It gives them power and makes them feel important. But it doesn't assist the economy. A tax cut helps every business equally and keeps politicians and bureaucrats well away from having to make business decisions.

The policy of "picking winners" is a policy of state cronyism where political favourites and mates are rewarded while everyone else suffers. The ACT party intends putting an end to that. All businesses and all people should be treated equally.

Personal Responsibility and Individual Responsibility

Dr Michael Cullen declared Dr Don Brash's speech at the Knowledge Wave Conference a great ACT speech. We agree. In announcing our Alternative Budget we respond point by point to Dr Brash's speech. It is based on the philosophy of personal freedom and individual responsibility. It looks to reward hard work, enterprise and thrift. In so doing it sets a sharply different philosophical and policy direction to that of the present Labour-Alliance Government.

Increasing Productivity

Ultimately, it is productivity, or output per person, which mainly determines the standard of living, and it is clear that increasing GDP per capita by 3.6 per cent per annum means at least trebling the rate of productivity improvement which New Zealand has achieved in recent years (not much above 1 per cent).

Improving productivity involves a whole host of things that can be loosely grouped under three headings:

· improving human capital

· improving physical capital, and

· improving technology.

Improving Human Capital

To improve our human capital, we urgently need to improve the quality of our education system.

According to an OECD report released in April 1998, nearly half of the workforce in New Zealand cannot read well enough to work effectively in the modern economy. 70 per cent of Maori New Zealanders, and about three-quarters of Pacific Island New Zealanders, are functioning "below the level of competence in literacy required to effectively meet the demands of everyday life".

ACT believes that parents and care-givers should have choice of schooling for the children under their care and believe that education would benefit from competition and entrepreneurship just like every sector of New Zealand. Accordingly, we propose to:

· Introduce flexible funding immediately. Parents will be able to take their child's share of government funding and use it on a school of their choice, private or public.

· Provide schools with a greater ability to run their own affairs. Boards will be better placed to respond to the needs of their communities.

· Make schools and teachers accountable for results in part through external examinations and introduce nationwide testing for basic skills uptake at primary school level.

· Allow successful schools to expand facilities and staff at the same or other locations so that more children can share in their success.

· Free schools and teachers to innovate and achieve.

· Confine any national curriculum to a few core subjects and focus it on learning, not political correctness.

· Allow successful boards or private providers to take over the management and operation of poorly performing schools

· Abolish zoning to give all parents the right to send their children to the school of their choice and encourage schools to opt out of bureaucratic control and instead be run by parents, teachers or professional educators.

· Encourage state schools to become independent schools.

· Dedicate a greater proportion of resources to the preschool sector.

Ladies and Gentlemen, the very prosperity and fulfilment of future generations hinges on how well we teach our young people. We should all hang our heads in shame at our performance. The state collective is doing for our children precisely what it did for the soviet economy. We can and we must do better. Only ACT has the prescription.

Improving Physical Capital and Technological Uptake

One obvious way of increasing the output per person employed is to give people more physical capital to work with. We want New Zealanders also using what we have in the smartest way possible - the key here is technological uptake.

To improve on both investment in capital and technology we must increase returns to investment and remove the obstacles to business. That means slashing the red tape strangling the economy.

The ACT party's philosophy of personal freedom and individual responsibility naturally entails a respect for private property and the sanctity of contract. The massive intrusion of government into people's lives is the direct result of successive governments having no regard for private property or contracts freely entered into. The result is a massive reduction in freedom and very high compliance costs known as red tape. The negative impact on growth is considerable as decisions are made costly, are delayed and rendered uncertain. ACT intends taking the axe to red tape.

We will:

· Review all regulations in order to eliminate burdensome elements that fail a rigorous regulatory assessment;

· Introduce a Regulatory Responsibility Act that would that make it harder to impose regulations in future in the absence of a well substantiated need;

· Require the issue of compensation to be formally addressed whenever a regulation is proposed that would impair property rights;

· Give priority to reducing the burden of regulation in respect of employment, economic development and taxation, as well as compensating businesses for their costs;

· Review the RMA on a first-principle basis, removing all the generalised central planning and command and control elements. It would be replaced by case-by-case regulations where they are necessary to supplement the common law;

· Restore a much greater role for common law actions and remedies.

We also must improve the transport infrastructure in some parts of the country - in the areas where forests are reaching maturity by upgrading roading systems, and in Auckland by completing the originally planned motorway system.

The best way to increase returns to investment as Michael Cullen acknowledges for Maori Authorities is to reduce tax. High tax reduces people's freedom by reducing their disposable income. It reduces economic opportunity by reducing the return to hard work, entrepreneurship and investment. We will:

· Initiate a five-year programme of tax cuts to take the top rate of corporate and personal tax to 20 cents in the dollar.

· Move to a two-tier tax system initially by reducing the top rate of company and personal tax to 28 cents, ensuring that those on low incomes are not made worse off.

· Implement the key recommendations of the McLeod report

· Review the international tax regime in order to reduce the cost of capital to New Zealand borrowers and to encourage New Zealanders to participate in the global economy

· Cap the total amount of income tax any individual must pay at $1 million a year in order to encourage high-net-worth immigration and successful New Zealanders to stay in New Zealand or return

· Eliminate less efficient taxes as the fiscal position permits. These include selective excise taxes, and the payroll tax to fund the ACC tail. Some user charges are likely to fall into this category.

The above programme will boost growth and reduce dependency. But government must do more. The health system is failing us. And government is not providing its core function of providing New Zealanders with security on the streets or internationally. Accordingly, the following policies are proposed:

Security of the Nation

Government's fundamental responsibility is the security of the Nation. Australia in the same region as New Zealand has increased defence spending in its Budget, citing concerns spurred by September 11 and security issues within the region. ACT believes the run-down of our defence capability under successive governments must stop. The most effective defence is collective defence and ACT proposes that New Zealand rejoin the ANZUS alliance as the only affordable and credible way to upgrade our defence capability.

Zero Tolerance for Crime

We can't function in a society we were are not safe in our homes, in our streets or at our work. We can't function where our property can be stolen almost at will. We have to toughen up on crime.

ACT proposes Truth-in-Sentencing where offenders serve the full court imposed sentence. Conservatively, this will lower serious crime by 25%. ACT also supports the New York approach of Zero Tolerance for Crime, targeted at entry-level criminals. In New York it has lowered violent crime by 30%.

The economic cost of crime is now estimated at more than $6 billion dollars a year and is a serious barrier to growth.

Providing systems of law and order is a pre-requisite for a civic society.

Restoring some personal responsibility to the justice system must be a priority.

Health

New Zealand spends per capita above the OECD average, but is now rated number 41 by the World Health Organisation.

Just pouring money into the system has not worked. Waiting lists have only been reduced by tricks, such as making patients wait to see the specialists to go on the waiting list and by purging the lists by referring still ill patients back to GPs.

The findings of the Gibbs report in 1988 are still valid today. The most inefficient independent hospital is more efficient than the most efficient public hospital. We must make more use of the private sector.

Again in health, encouraging New Zealanders to take more personal responsibility for their health is a large part of the answer.

Conclusion

We can be a freer, more prosperous nation, but only ACT has the policies to achieve that result. We must play our part in regional security. We must secure our streets, our places of work and our homes. We must lift our game dramatically in education. And we must lower the cost and risk of doing business in New Zealand but cutting taxes and red tape.

ACT commends our 2002 Alternative Budget to the nation.

For more information visit ACT online at http://www.act.org.nz or contact the ACT Parliamentary Office at act@parliament.govt.nz.