Monday, 30 November 2009

2025 Taskforce (updated)

The 2025 Taskforce headed by Don Brash has made 35 recommendations to help close the income gap between New Zealand and Australia. The full report, "Answering the $64,000 Question: Closing the Income Gap with Australia by 2025: First Report and Recommendations", is available here.

The slides from the media briefing, by Don Brash, held for the release of the First Report and Recommendations are available here. What is interesting from this briefing is what the Taskforce is NOT recommending:
We heard proposals but do not recommend:
• Increased government funding for R&D
• Picking winning sectors, industries or firms
• Compulsory private saving
• New or enhanced government financial institutions
• Changing the exchange rate regime
• Typically these address symptoms – our focus is on getting the overall economic environment right
So what isn't recommended looks right. What is recommended?

Government spending
1. Government operating spending (as measured by core Crown operating expenses) as a share of GDP should be reduced by 2012/13 to 29 percent, the same share as in 2004 and 2005.
2. Beyond 2012/13, government spending as a share of GDP should be reduced materially further. To achieve this, the level of core Crown operating expenses per person should be capped in real terms.
3. The Public Finance Act should be amended to require the Minister of Finance to specify publicly a medium-term target for core Crown operating expenses, either in real per capita terms or as a share of GDP. In each Fiscal Strategy Report, the Minister of Finance should be required to report publicly on steps being taken to ensure that that goal is met.
4. The Government should undertake an in-depth examination of the scope for further institutional changes to strengthen long-term spending discipline. Examples of such institutions could include a Taxpayer Bill of Rights and/or an independent Fiscal Advisory Council.
5. Expert taskforces should be established to scrutinise each major area of government spending, with a view to proposing more effective models for delivering those services that the public sector will continue to fund.
6. Processes for evaluating government spending should be materially strengthened, including greater use of rigorous and transparent cost-benefit analysis for both new spending proposals and periodic reviews of the value that is being obtained from existing spending programmes. Enhancing the quality and rigour of such analysis should be a key priority for the Treasury.
7. Ambitious welfare reform measures should be undertaken as a matter of priority to reduce the very large number of people of working age currently receiving welfare benefits.
8. Early steps should be taken to lower the actual and prospective costs (as a share of GDP) of New Zealand Superannuation. The eligibility age should be increased progressively, with increases linked to ongoing improvements in life expectancy, and for some years payments should be indexed to the CPI rather than to after-tax wages.
9. Remaining KiwiSaver subsidies should be abolished.
10. Health:
a. A funder-provider model should be reintroduced in the hospital sector, allowing much greater private sector involvement in the provision of taxpayer-funded services.
b. Universal (unrelated to income or health status) subsidies for doctors’ visits should be abolished.
c. Subsidies for prescription pharmaceuticals should be substantially reduced, with those in generally good health and not on low incomes paying the full price up to a cap.
11. Education:
a. The substantial increases in subsidies since 2005 for early childhood education and day-care should be reversed.
b. A funder-provider model should be adopted for the school sector, allowing new providers to enter, with all-up per student funding equivalent to that for existing state schools.
c. In the meantime, governance and accountability structures in the school sector need to be reformed to provide better incentives for stronger performance and greater accountability for teachers, principals and schools.
d. Government-imposed fee caps on university fees should be abolished.
e. Market-based interest rates should be reintroduced for student loans.
f. Governance of the public tertiary sector should be reformed, including exploring the rationalisation of the non-university sector and the establishment of universities as independent foundations.
g. A full review should be undertaken to identify, and recommend reform of, those areas in which various government education agencies (Tertiary Education Commission, Education Review Office, Ministry of Education) have become overly prescriptive, and to explore other, less intrusive, monitoring and accountability options to achieve policy ends that pass a cost-benefit test.
12. Average tax rates should be substantially reduced, as ambitious expenditure restraint permits. Cutting core Crown expenses to 29 percent of GDP would, for example, allow the maximum personal tax rate, and the company and trust tax rates, all to be reduced to 20 percent.
13. Serious reforms should be undertaken to reduce the high effective marginal tax rates facing many middle income taxpayers with dependent children as a result of the abatement provisions of the Working for Families tax credit scheme.
14. Reductions in average tax rates should be achieved by reducing income taxes, and doing so having regard both to the importance of administrative simplicity and minimisation of tax avoidance on the one hand, and to the evidence that taxes on capital income can be particularly detrimental to economic performance on the other.
Government assets
15. All businesses owned by central government which are operating in markets where competition is actual or feasible should be sold.
16. Local governments should be strongly encouraged to sell their trading enterprises.
17. To strengthen governance while businesses remain in public ownership, an independent Crown Commercial Appointments Commission should be established, to be responsible for making recommendations to Ministers for Board positions on all Crown commercial enterprises and for vetting and publishing suitability assessments of all appointees to such boards.
18. The New Zealand Superannuation Fund should be wound up and its assets used to reduce gross government debt.
19. Congestion charging should be introduced in central Auckland and in any other cities where a cost-benefit analysis supports doing so. Full road-user charging, differentiated by place and time of road use, should be introduced as it becomes economically efficient to do so.
20. Rigorous and transparent cost-benefit analyses should restored to the prime place in guiding decisions on all public capital spending, including infrastructure spending. All such cost-benefit analyses for projects involving the outlay of more than $50 million should be formally reviewed by Treasury.
21. Mining:
a. A governance framework should be put in place to facilitate the best economic use of those mineral resources in which the Crown has a direct ownership interest (under both land and sea).
b. Mining developments on or under sensitive Crown land should generally be permitted provided that they pass a full cost-benefit analysis.
c. Development of mineral resources should be undertaken by private operators, with the Crown securing its financial interest through appropriate royalty-type arrangements.
22. A Regulatory Responsibility Bill should be enacted, based on the draft proposed in the recent report of the Regulatory Responsibility Taskforce.
23. Property rights should be added to the list of rights specified in the Bill of Rights Act.
24. Substantially improving the quality of regulatory impact analysis being undertaken before legislation is introduced and/or government regulatory powers are extended should be treated as a matter of high priority by Ministers and central government agencies. Such analysis should be an integral part of all policy development and review processes, to ensure that the full costs and benefits, to all sectors, are appropriately and rigorously factored into government decision-making.
25. An independent Productivity Commission should be established as a centre of microeconomic and regulatory analytical expertise. The Commission should be authorised (and resourced) to undertake reviews of matters referred to it by Ministers, and of issues it identifies as requiring further in-depth analysis and research.
26. A high quality independent taskforce should be constituted as a matter of urgency to review resource management law from first principles, including identifying the policy goals that should be served by such legislation and assessing the best ways of achieving those goals.
27. When determining the zoning of land for residential purposes, local authorities should be required by statute to take explicit account of any differences between the price of residential-zoned undeveloped land and the price of other undeveloped land in similar areas. These differences should be reported on by local authorities each year, with a strong presumption that scarcity of zoned land, as reflected primarily in price differences, should prompt action to increase the supply of residential land.
28. A system of tradable water rights should be established urgently.
29. Labour market:
a. Labour law should be amended to strengthen the freedom of negotiation between workers and their employers, including, for example, streamlining provisions governing dismissal of workers, and putting less emphasis on procedural matters.
b. Statutory provisions allowing enforceable mutually-agreed probationary periods for new employees should be extended, from the current maximum of 90 days for those working for small firms to a maximum of 12 months for employees of firms of any size.
c. For employees earning in excess of $100,000 per annum, employment relations should be governed by the standard provisions of contract law rather than by the Employment Relations Act.
d. The youth minimum wage should be reinstated as a matter of urgency, and minimum wage rates should be reduced to the same ratio to average wages that prevailed in 1999.
30. Immediate notice should be given that from 1 January 2011 all remaining tariffs will be removed.
31. Foreign investment restrictions should be further reviewed, starting with a strong predisposition that a much more liberal regime should be introduced.
32. Emissions trading legislation and any future emissions reduction targets the Government adopts should be independently monitored and periodically reviewed. Such reviews should focus on monitoring the economic impact of any carbon abatement goals, and the impact of chosen abatement regimes (here and abroad) on prospects for achieving the 2025 goal.
33. A review of the Commerce Act should be undertaken, with a focus on restoring the primacy of economic efficiency considerations and long-term consumer interests in the design and conduct of competition policy.
34. The Government should strongly encourage the transformation of Fonterra into a conventional company structure with fully-traded outside capital, using any appropriate instruments at its disposal.
35. Zespri’s monopoly on the export of kiwifruit to markets outside Australia should be removed.

Nothing particularly new or radical in any of this. There are a number of good ideas in contained within the recommendations. Things like a flatter tax system and restraints on government spending. The water rights trading scheme is an ideas whose time has come. More privatisation is an idea whose time has come again. Welfare, education and labour market reform is clearly needed, etc. But the devil is in the detail, so how successful any actual reform would be would depends on the details of that reform. Not that the government will have the balls to take action on any reform.

A quick overview of things that seem a bit odd to me. I don't get 34. The institutional form of Fonterra is up to the owners of the company, it has nothing to do with the government. If the owners are happy with the current co-operative structure then the government has no role is trying to change it. As to 33, may be doing away with the Commerce Act altogether should be considered. In regard to 26, doing away with the Resource Management Act should be looked at. As for 25, I'm not sure what benefits a Productivity Commission would actually bring.

Update: Homepaddock comments here, Kiwiblog here, here, Not PC here, Kiwiblog again here, MacDoctor here, Karl du Fresne here.


Crampton said...

Quibbles aside, how much would you bid to have the whole slate adopted without any changes whatsoever? 10% of PDV of all future income? More?

Paul Walker said...

A good question Crampo. The thing to ask is how long do I expect to live to see the benefits of such an adoption and how long do I expect the changes to last even if made in full now. Both of these issues give me a short time horizon which means I made not be willing to pay as much as 10%.