The Prime Minister will make a big speech tomorrow at the opening of Parliament. Apparently it’s going to set out the government’s tax policies. Be prepared to be disappointed. That way if the package is good, you’ll be elated.But seriously, tomorrow’s speech needs to articulate a way forward – a wishy-washy yes maybe speech won’t cut it. Luckily, I suspect the way it’s been talked up in the media implies JK’s office knows it.

It won’t be Labour that ends John Key’s dream run. No, 2010 will be the year that makes or breaks John Key’s premiership. Showing some testicular fortitude now by moving the country towards significant changes in how much tax we pay, and what we pay it on, will significantly alter our future course as a country. Allan Bollard is right – we won’t catch Australia if we don’t make some bold changes.

Fixing the tax system is not a silver bullet though. The government must also address our long-term spending problem; the fact we are living beyond our means. Because today’s spending problem is tomorrow’s debt problem – and that debt will unnecessarily burden future generations. That’s why I care about these issues – because of our future generations. I don’t want them burdened by some previous government’s inability to control its own spending, as my generation was during the 90s thanks to Muldoon’s spending binge of the late 70s and early 80s. So come on John, show us you’ve got a pair and give us the step change we need.

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Key says personal tax cuts still on Govt agenda

Excellent news. Harmonise the personal tax rates with corporate tax rates by cutting wasteful government spending and increasing GST.

Popularity: unranked [?]

Adolf at No Minister isn’t happy that this blog is continually critical of our finance minister, Bill English, and approvingly quotes from an op-ed English had published in NZ Herald. Adolf rightly points out that Bill hasn’t literally “done nothing” as Finance Minister, and does have a few initiatives under his belt (albeit some of those listed by Adolf aren’t the work of English – education standards are the work of the Education Minister).

But that’s not the point – when even The Standard is pointing out that English isn’t doing ‘anything’ in terms of policy implementation (where they’d otherwise be moaning he’s cut funding to some quango or sold something off), you’ve got to wonder. Now I don’t think The Standard has got it right for a minute on the rhetoric of English’s op-ed. The real story – reading between the Labour Party lines – is that they aren’t moaning about the centre-right decisions of the Key Government, because aside from there being no spending binge, there aren’t any.

Compared to the first terms of both Sir Roger Douglas and Ruth Richardson, English hasn’t done much. In his defence he hasn’t had a currency crisis to deal with or the BNZ melting down and requiring a taxpayer bail-out. But the most annoying part is that Bill hasn’t done as much as Mikey Cullen did in his first year – or in other words, he hasn’t fully undone Cullen’s tax increases and Reserve Bank fiddles. I suspect Bill’s problem is that he’s was formerly a policy wonk, lapping up forecasts and spreadsheets at number 1 The Terrace. He prefers to take advice from all quarters, thrash out every argument before making a decision. That’s great if you’re a Treasury official, but not when you’re the Minister of Finance. As Cullen’s tenure shows us, sometimes a little guile is needed to get where you want to go.

Anyway, here’s the next ten suggestions in this series:

11. Develop innovative governance arrangements to facilitate economies of scale in accessing natural resources.

Bit too much waffle for my liking – what exactly is a “innovative governance arrangement”? So long as property rights are respected and upheld, I have no issue with accessing natural resources. Economies of scale will come if a business is able to invest enough capital in developing its production. Perhaps they’re really after some sort of government created co-operative between, say, mining companies for equipment?

12. Amend the RMA to more clearly establish the security and allocation of water rights for time periods that are fit for purpose where capital investment is involved, e.g. hydro generation or industrial process plant.

As mentioned previously, water rights are a critical issue for farmers and the agricultural sector generally. Getting the water issue right is critical for New Zealand’s development. To that end, the Government should create a system of water rights that can be traded, and establish systems for assessing the amount of water available for allocation and metering its use. In other words, apply market mechanisms to water.

13. Develop a replacement for the scrapped R&D tax credits.

A good replacement would be lower company taxes generally. However, from my contacts in business who invest in R&D (albeit mainly in the software development industry) it seems the real problem isn’t a lack of money to spend (which was what the tax credits were aimed at) but a lack of skilled staff to employ. The Government ought to encourage IT graduates to work in New Zealand – perhaps by some sort of bonding scheme?

14. Develop a national innovation strategy, including innovation priorities.

Not to be cute, but it’s not very innovative to have an innovation strategy.

15. Develop incentives for stronger links between public research organisations and the private sector.

The New Zealand Institute report Standing on the Shoulders of Science also proposes this.

16. Better coordinate publicly funded research for commercial application.

17. Ensure the tax review working group examines the role tax can play to promote private sector innovation expenditure and investment.

Luckily, this has been done. Now for action.

18. Offer support for basic applied research.

19. Relax co-funding requirements for government grants.

20. Simplify the current funding system, minimise the bureaucracy and make funding more transparent.

Not knowing much about the science sector, I can’t really comment. However, these proposals all seem to be reasonable.

Popularity: 32% [?]

A while back I mentioned a report by Business NZ called “Setting New Zealand Apart” a blueprint for creating productivity growth and making the New Zealand economy more competitive internationally. Read alongside the “nuggets” of the 2025 Taskforce Report and Tax Working Group, the reports ought to provide a good basis for John Key’s Government over the next two years into the 2011 election. This is the first post in a five-part series on these “nuggets”.

We already know in the 70s this country fell behind Australia, and it was only in the 1990s and 2000s that we started to first tread water and then catch up, albeit slowly. Labour’s spending binge from early 2005 – 2008, relentless expansion of regulation and strangulation of business in general helped kill the growth off again. New Zealand’s productivity statistics 1978 – 2008 show some serious problems for our capital productivity, good growth for labour productivity (thanks to a lot of us working longer hours for less) and sluggish growth of ‘multi-factor’ productivity (that’s the two others – labour and capital – combined).

Productivity Growth

While productivity isn’t the silver bullet that will save our economy, it does matter a lot. Anyway, here’s the 50 recommendations Business NZ made, what the Government is doing to implement them, and what the 2025 Taskforce recommended:

1. Create a “New Zealand Productivity Commission” to keep on top of new regulation and review existing regulation.

While I’m generally opposed to new bureaucracies, the Productivity Commission (along the lines of the Australian Productivity Commission) would be a good thing. The 2025 Taskforce states such a body would have expertise in micro-economic policy.

2. Make regulatory bodies more accountable.

We should ensure that regulators get it right first time. An investigation into the possibility of a wider merits review process would provide a strong start. This could provide a framework to safeguard against inappropriate regulation and provide more accountability for decisions.

3. By mid 2010 deal to the top five areas of red tape for business.

The top five areas are:

1. Tax;
2. health and safety in the workplace;
3. Employment Relations Act;
4. ACC;
5. the Holidays Act.

The Government is set to introduce legislation on the Holidays Act and has already amended the Employment Relations Act for greater flexibility. The two sticking points seem to be ACC and Tax. Key won’t want to scare the horses with further ACC changes, and tax is a no-go area thanks to Mr English’s determination that there won’t be further tax cuts. I suspect the Government won’t move on tax until 2011, hoping a tax cut might bolster its support in an election year.

4. Develop a national Infrastructural Plan.

This is already underway, as a part of the Treasury, and should be out in the next couple of months.

5. Develop a national Transport Plan.

There doesn’t appear to have been anything done on this yet. C’mon Steven!

6. Electricity

Gerry’s made good progress at cutting red tape and axing the useless Electricity Commission. But more needs to be done to create a more competitive environment.

7. Telecommunications

Business NZ recommends going back to a “light-handed” regulatory environment.

8. Phase two of RMA

The report recommends creating a technical experts group to deal with water issues, something which matters greatly in rural areas. Good stuff. Meanwhile they also proposed codifying the right to compensation for the removal of property rights and / or restrictions on land use. Again, this is a good thing, and something that is missing from the Bill of Rights.

9. Include property rights in a Bill of Rights Act.

This is a fairly simple change in law – however, its implications for Government and New Zealand’s constitution generally are wide-ranging. That doesn’t mean it’s not worthwhile. Perhaps National can get a proposal for property rights in the Bill of Rights Act in its Constitutional Inquiry this year?

10. Ensure that decisions that may result in access to resources being closed off have the value of their future use explicitly recorded as part of
their cost-benefit analysis.

Seems practical. Perhaps some sort of legislative “ratchet clause” on the value of the land’s resources?

Part II coming soon…

Popularity: 33% [?]

Yes – please use contraception – you can’t figure public from private conversations, and should not be breeding.

• Google looks at a one-word homepage;
• Before and after fail;
• Tom Scott gets it wrong sometimes, and right other times.

Popularity: unranked [?]

As you’d imagine I’m rather excited about the Taskforce 2025 report’s announcement tomorrow at 1:30pm. It appears some of the recommendations have already been leaked to the media – apparently there’s plenty of spooky tax cuts, spending cuts and privatisation.

This looks like Politricks 101 to me – leak the “extreme” recommendations of the report (i.e. what Espiner has reported) and disassociate yourself from them, only to accept the more moderate recommendations (perhaps some tax cuts and base re-allocation, sinking lid spending cuts, etc). Key’s argument that National campaigned on not privatising or cutting spending is credible from this perspective, but not if he wants to close the gap with Australia. The moderate path will be enough to win National another term in office – but then what?

Key ought to use the Taskforce report, and the Tax Working Group, to form the basis of his campaign in 2011. That would give a National-led government a mandate to make change, inject vitality into business and the economy at large.

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