From madness to mainstream

Rodney Hide

Taxation

Speech to the annual Lincoln University Postgraduate Conference, Lincoln University, 10am, Wednesday August 17

Ideas matter. And good ideas are better than bad ones. That’s why thought and critical debate are so important.

Thought and critical debate are crucial to knocking out bad ideas and replacing them with better ones.

Our actions are based on our ideas. And for our actions to have good and rational purpose then so too our ideas must be good and rational.

It shouldn’t need saying that thought and critical debate are important – but in politics and especially in an election campaign, thought and critical debate are not much in evidence much of the time.

The benefits of higher education to me are less about the subject matter but more about learning to think critically about ideas and to learn how to grow and improve our knowledge.

We soon forget the facts, the figures, the details of the subjects we study at university but the critical thought processes we learn stay with us forever. They enable us to appraise and test new information and new ideas, to develop our understanding and to grow our knowledge.

We learn that it is ideas we are debating – not people. We learn to look at ideas and appraise them objectively against logic and experience, to test them critically, and to do so independently of who first raised them or put them forward.

We learn to put up our ideas and watch them be tested and debated, knowing that it is the ideas that are being tested and appraised, not us. We learn to separate ourselves from our ideas knowing that we can change our ideas thereby eliminating mistakes and building on the better ideas and in doing so improve our understanding and be better people.

We learn humility, as we learn that we can be wrong. But in that humility we develop an inquiring mind as we realise our knowledge can grow and improve. We learn to welcome debate and critical appraisal.

To be open to new ideas and new ways of doing things, to have the critical turn of mind that can appraise and test new ideas and to admit error and mistakes is the key to living a full and successful life in whatever field of endeavour you choose including, I should say politics – although in politics oftentimes certitude and rigid ideology appear preferred over an open, inquiring mind. We debate each other as much as our ideas and the admission of error and mistake amongst our political leaders remains sufficiently rare as to be reportable and seen as an admission of weakness.

But of course politics is a quest for power more than a quest for truth.

And so we shouldn’t be surprised that the public play of politics doesn’t always follow best epistemological practice.

But embedded in democracy is the very process by which ideas get proposed, debated, bad ones thrown out and good ones adopted. It’s not perfect by any means. But it’s much easier to throw out bad governments in a democracy than to try and overturn a rotten dictator.
Democracy does provide a feedback loop where governments can be peacefully changed without bloody revolution.

The change doesn’t just happen at election time either. There is the ongoing political debate and tussle that a parliamentary democracy provides.

We have seen how good ideas can take root and grow in our democracy first hand.

When ACT arrived in Parliament the very idea of allowing people to keep more of what they earn was considered a mad idea. We were a lone voice. Tax cuts were considered fringe. Whacky. The country couldn’t afford them the National Party thundered. Labour campaigned to put taxes up – and they did.

ACT was accused of being a party of the rich, of wanting to dismantle government and of not caring for people. Simply because we believed that people can spend their own money better than government – and were prepared to advocate that.

And so the debate was had. And was won.

Now tax cuts are mainstream. I had the shock of my life when Jim Anderton came out in support of cutting company tax. I first checked that no pigs were flying past my window – but no – Jim was serious.

The far left are promising tax cuts.

Michael Cullen talked tax cuts in this year’s Budget. Notice I said talked. His delivery was disappointing. A packet of chewing gum in three years’ time.
But the public response to Cullen’s failure to deliver tax cuts was swift and sharp.

Tax cuts are now firmly on the political agenda – thanks to ACT. Even TV3’s worm liked tax cuts.

The idea of letting people keep more of their own money has taken deep root. We now need to just make it happen.

But there are tax cuts and there are tax cuts.

Tax cuts need to be substantial.

That’s the problem now for the National Party. They have let expectations build about the size of their tax cuts. Their problem is how to deliver.

National have boxed themselves up fiscally by committing to Cullen’s super fund. That thing that sucks up $2 billion a year and sticks it in an investment sock overseas. The Cullen Fund does nothing to boost growth. In fact, it depresses growth. The $2 billion-a-year Cullen Fund keeps taxes high and thereby kills off investment, jobs and business that we would otherwise have.

We have a poorer economy than we would otherwise have, thanks to the Cullen Fund.
Don Brash was right when he called the fund “financial smoke and mirrors”. He was wrong when he turned around and backed it.

Don Brash’s backing of the Cullen Fund is costing taxpayers and the economy dearly. It is seriously constraining National’s ability to deliver on its promise of big tax cuts.

And believe me they need to be decent. New Zealand needs every advantage we can have to compete internationally and reverse the drain of New Zealand talent overseas.

That $2 billion a year would be far better in New Zealander’s pockets than a government sock. The way to provide for the elderly in the future is not to salt money away into a big government sock – but to ensure a strong and prosperous economy. And the Cullen Fund fails to do that.

We need big tax cuts. But tax cut design is important too.
The key cut to make is to the rate of tax – especially the top rate and the business rate of tax. It’s these rates that affect people’s behaviour.

Working overtime to earn an extra $100 only boosts your pay packet on the top rate of tax by $61. Labour’s top rate of tax puts a 39 per cent penalty on productive activity.

That’s the rate that needs to be cut.

For tax cuts to boost our economy they must not just return money to New Zealanders, they must boost the reward for work, for saving and investment and for entrepreneurship. And that means a cut in tax rates especially the top rate.

ACT has led the debate on flattening New Zealand’s tax rates.

All eyes will be on the size of National’s tax cuts and their cutting Labour’s 39 per cent envy tax. Of course, National opposed Labour putting the top rate of tax up. But they also opposed Labour’s Employment Relations Act, the Cullen Super Fund, disbanding the combat air wing – and they have now gone along with these Labour Party policies that are costing us dear.

National is a conservative party. They don’t toss up new ideas. They just administer the policies that Labour introduces.

But one thing National should be staunch on is cutting that top rate of tax – immediately. That’s what will boost investment, business, and incomes to the benefit of all New Zealanders.

I can remember the uproar in Parliament when ACT put up a bill to end the Treaty Grievance Industry and race-based preferences. We wanted all claims in within a year, all claims heard in five years and all claims settled in ten. Senior National Party Ministers declared time limits unworkable. They declared ACT racist.

Of course, New Zealanders are a fair-minded people and don’t believe for a moment that entitlement should be based on race.

ACT’s Treaty policy is now National’s Treaty policy. Now National wants to end race-based preferences.

An idea that was considered quite mad politically is now mainstream.

And Helen Clark is now calling for time limits on historical claims too.

Good ideas do matter. They don’t win in politics overnight, but over time good ideas win out over bad ones.

And basing policy on race like Labour and National have done is a very, very bad idea.

That’s how good ideas can drive out bad ideas in politics. It just takes a little longer than everyone would like.

We have all been disgusted by the constant reports of able-bodied young men too sick to work, but fit enough to rob and beat old ladies. But welfare reform was considered a political impossibility when ACT came to Parliament. MPs of all parties would privately agree with ACT, but say it was not politically possible to talk about it. Well, ACT did. And we kept debating and arguing and now welfare reform, to stop the abuse of the system is mainstream policy. It hasn’t happened yet – but it will.

I remember having it explained to me by a senior National MP that there was nothing to be done about crime. That rising crime was a given sociological fact and that the challenge was how to manage it.

It was all to do with how kids were brought up these days and modern life.

The police and the justice system were viewed as just processing crime but not affecting it.

That was why National used automatic parole to save money. As far as National was concerned prison wasn’t serving any good purpose so why bother.

ACT never accepted that defeatist idea. We knew policing could make a difference. We knew that prison could act as a deterrent. At the very least criminals can’t offend while locked up.

We kept at it.

And now zero-tolerance for crime and truth in sentencing is gaining political acceptability.

Labour has come up with too little too late in promising 100 more police. But at least it’s in the right direction. And National now campaigns to end parole. That’s good. ACT will make sure they deliver on that promise and amend the mistake they made.

So in politics, good ideas can drive out bad. What we need is the process by which new ideas get introduced and debated. That’s been one advantage of MMP. It has bought more parties to Parliament, greater diversity and most importantly new ideas. Sure, some of the ideas have been whacky. I am thinking of Green policy. But they haven’t taken hold.

That’s the importance of critical political debate. To test new ideas. To assess them. To throw out the bad ones and adopt the ones that are good. It’s a continuous process.

The debate over tax cuts, law and order, welfare reform and racial preferences would not have advanced politically in New Zealand at all if it had been left to the two old parties of National and Labour. The debate would have just stayed around the margins of policy rather than the big issues tackled in a principled way.

That’s a key role the ACT party has played and will continue to play.

Yes, we play a big role in holding governments to account. That’s an important role. But so too is the advancement of new and fresh ideas to political debate.

There is much that needs to be done. We are having the debate through the election campaign and the challenge ahead is to deliver on what New Zealanders want – more money in their pockets, safer communities, and an end to welfare abuse and racial privileges.

And what of the big ideas ahead?

The big challenge ahead in politics is to better hold politicians to account. We need better accountability. We especially need to be doing better in how politicians go about spending our money. Labour has been totally profligate.

The economic good times have rolled the money into government coffers. Labour has pumped up taxes and they have spent it. We have a rich government – and a poor people. Their needs to be far better discipline on politicians’ spending.

We have seen it this election campaign. Every party other than ACT, has attempted to bribe voters with their own money – or actually other people’s money. ACT consistently has simply wanted Kiwis to keep more of what they earn.

Winston will promise Grey Power whatever they want. Never mind that present super policy is not sustainable in the long term.

Winston’s not worried about the long term – his interest is the here and now and votes. The problem in 20 years won’t be his to deal with.

National than tried a bid – with your money – for the student vote. National’s promise was that interest on student loans would be tax deductible. National’s mistake was in thinking they could outspend Labour on buying votes. Labour countered with wiping all interest on student loans. Labour will always be prepared to be more profligate than National.

National’s counter to this was weak, as their main complaint was simply that it was more generous – and hence more appealing than National’s policy.

Of course, graduates would be far better off with ACT’s tax policy than free interest. They would pay off their loans quicker and have the benefits of lower taxes for the rest of their lives. Tax cuts also benefit everyone – not just those with loans – and benefit the entire economy.

But you can see the problem. Politicians win support by taxing widely and then focussing the benefits on narrow interest groups to win the support they need to govern.

The result is government spending always ratcheting up. It’s much easier to sock taxpayers for more than to address existing spending priorities.

We need a better discipline on government spending. After all, it’s your money that politicians are spending – not theirs.

That’s a debate to be had in the coming years. We can do better. We need a better framework within which politicians make spending decisions.

The rules within which politicians operate need to encourage good policies, not bad policies. The Fiscal Responsibility Act and the Reserve Bank Act are two pieces of legislation that do just that. Proper budgeting and sound money now win votes.

In the absence of the Fiscal Responsibility Act, politicians would still be funding their election promises by running deficits for future generations to pay. And in the absence of the Reserve Bank Act, politicians would be running loose monetary policy in the run-up to elections in the hope of stimulating the economy at the expense of ever-higher inflation.

These two pieces of legislation serve to make politicians more accountable and align good economics with good politics. But we can do better.

We need a Taxpayer Bill of Rights.

Such a Bill would constrain government spending in real terms to its present level per New Zealander.

That would put a great discipline on politicians. They could always fund new programmes, but they would have to find the money within their existing budgets like everyone else. They couldn’t just always turn to the taxpayer for more money.

It would fix spending in real terms per head to what it is now. It would force politicians to live within a tight budget.

There is no reason for real spending per New Zealander to ever-increase. It does so because that’s how politicians win votes. But that ever-increasing spending comes at an extraordinary cost, as the cost of government far outweighs the benefits received.

The Taxpayer Bill of Rights would reward politicians who spend existing budgets better, rather than those who constantly expand government budgets.

That’s what we need to be striving towards. The waste in government is truly sickening but there’s insufficient incentive on politicians and civil servants to eliminate that waste as long as their easier option is always just to sock the taxpayer for more.

There would need to be provision for government to increase spending per head above the rate of inflation. That approval could require a three-fourths approval of Parliament or a national referendum.

Yes, we can do much to improve on present policy and I have outlined how.

But as we look to the years ahead the demand upon our politicians will be for greater accountability and better value for taxpayer dollars.

And it will be the ACT party that leads that debate too, just as voters have come to expect.

Thank you.

ENDS

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