Monday, 7 December 2009

Brash to Garth George (updated)

In the New Zealand Herald Garth George attacked the report of the 2025 Taskforce. Don Brash has now replied to the George attack
Garth George was way off beam in his attack on the first report of the 2025 Taskforce.

Leaving aside the personal invective, he claims that the "biggest absurdity" in the report is the proposition that New Zealand can and should catch up with Australia.

He says that "there is just no comparison between the two countries", with Australia having five times our population, 32 times our land area, and huge resources of minerals. Well, those are factual statements about Australia, but they ignore some important facts which he would be aware of had he read the report.

First, there is no correlation between living standards and population - if there were, India would be super-rich and Singapore would be poor.

Second, there is no correlation between living standards and land area - if there were, Russia would be super-rich and Finland would be poor.

Third, there is no correlation between living standards and mineral wealth - if there were, the Congo would be super-rich and Japan would be poor.

In any event, a recent World Bank study showed that, in per capita terms, New Zealand has more natural resources than almost any other country in the world.

For most of New Zealand's history, our standard of living has been very similar to that in Australia - sometimes a bit ahead, sometimes a bit behind.

And the Taskforce didn't off its own bat decide that catching Australia again by 2025 would be some good idea: the goal was set by the Government itself, and the Taskforce was set up both to advise on how best to achieve the (very challenging) goal and to monitor annually progress towards achieving it.

Too often in the past, governments have announced grandiose commitments to lift living standards - such as the last Government's commitment to lift us into the top half of developed countries within 10 years - but then totally ignored those commitments, hoping that nobody would notice it. It is to the Government's credit that they made a commitment and then established a mechanism to hold them to account.

Garth George accuses the Taskforce of recommending a whole range of things which we do not recommend.

For example, he accuses us of recommending a flat personal income tax, and notes that if such a tax were established a whole range of low income people would have to pay more tax.

But whatever the merits of a flat tax, the Taskforce did not recommend such a tax. What we did say was that, if core government spending were cut to the same fraction of GDP that it was in both 2004 and 2005 (29 per cent), the top personal rate, the company tax rate, and the trust tax rate could comfortably be aligned at 20 per cent. Under such a tax structure, all those earning above $14,000 a year would pay less income tax, while nobody would pay more income tax.

Nobody seriously argues that government was vastly too small in New Zealand in 2004 and 2005 (the end of the Labour Government's second term in office), so why the ridiculous reaction when the Taskforce suggests reducing government spending to that level?

Mr George also suggests that we recommended abolishing subsidised doctor visits, and implies that we are advocating an American approach to healthcare. This is again utter nonsense. We suggested targeting subsidies for doctor's visits at those who need them, either because they have low incomes or have chronic health problems.

He suggests that we favoured removing subsidies for early childhood education. Again, not true. What we said was that those subsidies - which have trebled in cost from $400 million a year to $1.2 billion a year over the last five years - should be focused on those who need them.

The recommendations of the 2025 Taskforce are actually totally in line with orthodox thinking in most developed countries, and are almost entirely consistent with the recommendations of the recent OECD report on New Zealand.
I agree with Brash in that the recommendations of the Taskforce are in line with orthodox economic thinking. As I have noted before there is
[n]othing 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.
If George really wants to get upset about something to do with the 2025 report then I would suggest the lack of government action in implementing the recommendations of the taskforce should be his target.

Update: Not PC has been writing about 2025 and all that, Kiwiblog notes that Brash responds to George, Homepaddock points out that Brash responds to George and that there is No conspiracy in the fact that the Herald did not print the rebuttal earlier.

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