Same old economic plot will only deliver same old outcomes

With little distinguishing several of Labour and National’s vital policies from one another, economics professor Robert MacCulloch says the party leaders are competing for the lead role in a movie with the same economic plot.

Robert MacCulloch
Robert MacCulloch is the Matthew S. Abel Professor of Macroeconomics, Business School, University of Auckland

Opinion: Former Prime Minister Jacinda Ardern studied communications. Her replacement has been a policy wonk and politician for much of his life. The leader of the Opposition was a brand manager. It’s not what you would expect from a country traditionally known for admiring practical producers and fixer-upperers, preferring actions not words and valuing substance over form.

So let’s scrape away the red and blue coloured paint jobs of our two main parties and look underneath the bonnet. Across a swathe of policies, only shades of grey exist. Good examples come from National’s “five-point plan to fight inflation and strengthen our economy”. What is this plan?

1. Return the Reserve Bank to a single focus on price stability

This first point is a great soundbite, given inflation is about 7 percent, and we want to see it drop. However, changing the Bank’s mandate from Labour’s dual (stable prices and maximum employment) to National’s single (only stable prices) would have little effect on monetary policy.

The technical reason is that competent Central Banks now pursue the identical aim of medium to long-run price stability under both of these mandates. The dual one just promotes employment as a short-run goal.

Inflation is presently high in New Zealand because of coronavirus, Adrian Orr and Vladimir Putin, not the nature of the mandate.

2. Stop adding unnecessary costs to businesses and employers

The World Bank has long placed us at the very top, or near the top, of 193 nations in terms of having the most “business-friendly regulations”. Our position has remained similar irrespective of whether National or Labour is in power. The current NZ Treasury Secretary, Dr Caralee McLiesh, helped construct this ranking when she worked at the World Bank.

What’s more, I tried persuading National when it was last in government only to pass new regulations when the quantified benefits outweighed the costs so as not to impose a net burden on society. At the time, some of those rules related to health and safety. National was never interested.

So it comes as no surprise that during that party’s term in office, just like Labour’s, the number of regulations zoomed upwards. We have the data.

3. Remove bottlenecks in the economy holding back growth

What are these “bottlenecks”? During the Key years, Aotearoa’s growth was primarily driven by immigration, tourism and construction. Does National wish to return to these same three drivers of growth? One suspects so.

Faced with a possible recession, Labour has become desperate to turn on the immigration and tourist taps again. Moreover, National and Labour together supported the same new law allowing three-level townhouses to be built on most residential sites in our major cities.

Why are all of these policies converging? Because neither party has a clue how to improve domestic productivity. For starters, both have failed to reform our schools and universities to change us into a high-wage, high-skill economy when given the chance.

4. Restore discipline to government spending

The current pressures on government spending are mainly due to health care stemming from our ageing population. It is this phenomenon that is blowing out Treasury’s long-term projections, which show public debt on track to be 100% of GDP by 2048, regardless of which party is in power.

The way to change these projections is to find far more efficient ways of delivering quality healthcare services for all. Options exist, but National and Labour are not interested. Politicians from both parties have privately rejected plans to make our system work more along the lines of proven, better performers like Singapore. They’ve quietly hidden their opposition.

As for the wage-subsidy scheme, which was the single biggest item of government pandemic spending in 2020 and 2021, it attracted bi-partisan support from National and Labour. Strikingly, both parties favoured paying it to big, not just small, businesses. Fletcher Construction is still sitting on a cool $70 million of tax-payer money it got that way.

5. Prioritise tax relief for workers

After “reviewing” its policy of dropping the top income tax rate from 39% to 33%, National is now only “prioritizing” cuts, leaving the two major parties close to full agreement on income taxes, corporate taxes and GST.

It’s no coincidence. The spending blow-outs in health already underway mean neither has a snowball’s chance in hell of providing significant tax relief without adding to the exploding debt path projected by Treasury.

Overall, these shades of grey over such vital policies have turned our big party leaders into actors, not writers or producers, competing for the lead role in a movie with the same economic plot, regardless of who wins the part.

This article reflects the opinion of the author and not necessarily the views of Waipapa Taumata Rau University of Auckland. It was first published in the New Zealand Herald on 26 January, 2023.

/University of Auckland Public Release. View in full here.