The 2025 taskforce recommendations

The 2025 taskforce made a total of 48 recommendations for initiatives that will help close the income gap with Australia. The media will probably only highlight half a dozen, so I thought it would be useful to list them all here, and add my thoughts to them.

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.

I think a target of 29% of GDP for operating spending is an excellent target, and will probably do more than anything else to help lift national incomes. There is an overwhelming amount of evidence that countries with the state at 25% to 30% of GDP grow much faster than those with larger burdens.

It is worth noting that 29% is what we had in 2005, so it is not a level unknown to us. The problem is that as surplus grew, Dr Cullen grew spending even faster in his desire to avoid tax cuts.

However it is not politically possible to achieve it by 2012/13. I would think by 2017 (end of three terms) might be possible, without causing major disruption.

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.

I generally support a cap in crown spending in per capita inflation adjusted terms. However this may restrict options too greatly as new technologies in medicine (that are expensive) might become unaffordable.

What I would suggest is for spending per capita to increase no more than CPI+1%.

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.

This is very sensible, and even if 1 and 2 are not adopted, we should require Governments to be transparent about their spending plans.

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.

Agree, so long as they are effective in standing up for taxpayers, and adding to fiscal discipline.

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.

To some degree this has already been happening.

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.

Agree.

Specific

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.

I agree. At a minimum we should do what Bill Clinton, a Democratic US President, did.

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.

Firstly the Government has said it will not do this, and I don’t want the Government to become one of broken promises. But I certainly expect a future Government to increase the age of eligibility in line with age expectancy. I’ve not yet received the data I need to make a call on whether part of superannuation (maybe from age 65 to 70) should be linked to CPI instead of average wage.

9. Remaining KiwiSaver subsidies should be abolished.

I do support retaining KiwiSaver with matching employer contributions. That provides enough incentive for people to take it up, so direct state subsidies are not needed. I think KiwiSaver has worked well for encouraging a savings culture amongst younger NZers especially.

However again the current Government got elected on a series of promises, and as much as ACT voters may not like it, it is not going to break its word on current commitments. But such changes do not have to happen before 2011. There may be room to seek a mandate for some of these changes at the next election. If one does not get a mandate for such changes, then you will get wiped out at the election, and have them reversed anyway – a lose/lose.

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.

I support greater private sector involvement, but I don’t think the sector could handle another major reform. And again, there were specific election commitments here.

b. Universal (unrelated to income or health status) subsidies for doctors’ visits should be abolished.

This I strongly agree with. Subsidies should be targeted to those who most need it. It is ridiculous that Eric Watson gets subsidized doctors visits. And it is very inefficient to tax people to then just give them that money back in subsidies.

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.

Again, I generally agree, but with a note of caution that middle income families can’t afford a big increase in the costs of medicines. But a total cap may help with that.

11. Education:
a. The substantial increases in subsidies since 2005 for early childhood education and day-care should be reversed.

Again this was an election promise, so I don’t see change there. As a general rule I much prefer spending in the area of early childhood than tertiary but I don’t know enough about whether the increased subsidies have just rewarded families already using day-care facilities, or has allowed lower income families to access day-care.

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.

Yes.

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.

Too generic to say aye or nae too.

d. Government-imposed fee caps on university fees should be abolished.

I have long advocated these should go.

e. Market-based interest rates should be reintroduced for student loans.

This won’t happen as again it was an election promise, but for the future it would be sensible to have a policy of at least charging enough interest to cover inflation. Otherwise we are effectively paying people to borrow money they don’t need.

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.

Possibly. Need more details.

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.

Again, need more details.

Taxation
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.

The Government’s goal is to get the top tax rates down to 30%. Let’s do that first and then look beyond.

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.

Absolutely.

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.

Agree.

Government assets
15. All businesses owned by central government which are operating in markets where competition is actual or feasible should be sold.

I agree, but note again the Government has a clear election policy. I just hope that for 2011 they have a more flexible policy. At a minimum I would like to see some SOEs take in minority private sector shareholdings, so they gain the discipline of being a listed company,

16. Local governments should be strongly encouraged to sell their trading enterprises.

Agree, but not always one size fit all.

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.

This seems a good idea, and should be under the OIA, so if a Minister refuses a recommendation this will be transparent.

18. The New Zealand Superannuation Fund should be wound up and its assets used to reduce gross government debt.

I agree, but again note the clear Government policy means this won’t happen.

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.

Strongly agree. Here I am with the Greens. Road users should pay for the costs of roads.

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.

I would have thought this is already the case.

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).

Not sure what is meant by such a governance framework but I support better economic use of our mineral base.

b. Mining developments on or under sensitive Crown land should generally be permitted provided that they pass a full cost-benefit analysis.

Agree, but recognizing that costs must include conservation, environmental and tourism costs. Applications should be decided on a case by case basis.

c. Development of mineral resources should be undertaken by private operators, with the Crown securing its financial interest through appropriate royalty-type arrangements.

Agree.

Regulation
General
22. A Regulatory Responsibility Bill should be enacted, based on the draft proposed in the recent report of the Regulatory Responsibility Taskforce.

Agree.

23. Property rights should be added to the list of rights specified in the Bill of Rights Act.

Also agree. It would be great to have Crown Law advising Parliament if proposed laws breach property rights of certain individuals or groups.

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.

Agree, and I think Rodney has underway.

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.

Have long advocated an independent Productivity Commission. The Australian one has performed well with bipartisan support.

Specific
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.

I am unsure how much this differs from the RMA reviews underway.

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.

Sounds sensible. Land scarcity is what partly has led to a runway property market.

28. A system of tradable water rights should be established urgently.

Agree in principle.

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.

Agree. The 90 day grievance free period for small businesses seems to be working very well with no horror stories about it.

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.

That goes beyond my comfort level. Maybe 6 months for small firms, and 90 days for larger firms. Generally a dud employee can be detected fairly early on and 12 months seems too long to me.

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.

That is what the situation was before the ECA for all non union employees. I would want to see data on how many employees over $100k are using the ERA provisions to see if there is a problem.

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.

I agree on reinstating the youth minimum wage. The abolition appears to have been a disaster with the blowout in youth unemployment through the recession. I do not support turning the clock back on the adult minimum wage but agree there should be a ratio of the minimum to the median wage.

30. Immediate notice should be given that from 1 January 2011 all remaining tariffs will be removed.

Agree, Disgraceful the Government has extended them to 2015.

31. Foreign investment restrictions should be further reviewed, starting with a strong predisposition that a much more liberal regime should be introduced.

I think this is underway and has been mainly implemented.

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.

I think this is in the ETS legislation.

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.

Seems sensible.

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.

Don’t know enough to comment.

35. Zespri’s monopoly on the export of kiwifruit to markets outside Australia should be removed.

In principle I agree.