Guest Post by Sir Roger Douglas: Why a Lack of Imagination Threatens Our Future

This post was written by Sir Roger Douglas, New Zealand Minister of Finance, 1984 - 1988.

The poverty of thought that lay at the heart of last year’s budget (2021) and other measures announced by the Ardern government during their period in office, highlights why our country continues to descend into an economic & social mire, and why the future of our democratic systems - at least in their current form - might even be under threat. It was a budget not only devoid of courage but, more importantly, devoid of imagination.

Why is imagination so important? Because imagination serves as the starting point for change and because, in falling back on the old trope that bigger government equals better government, the PM & Minister of Finance have demonstrated that they lack the courage to do what is right and so obviously necessary for NZ if we are to prosper and grow over the next 10 to 50 years. Instead they elected to walk a soft and easy path - one walked by too many governments before them – and which they believe will help them successfully navigate the next election. They have decided to tax and borrow, spend and hope.

Sadly, much of the revenue generated by the budget will be wasted on the bureaucratic health, education & welfare empires that Labour has built up over the past four years.

This government, like the Key and Clark governments before it, is trying to tax the nation to prosperity. The only effect will be to cut productivity growth in the same way it has in the past. Unfortunately, when our current government looks to the future, it envisages a larger state, higher taxes, government ownership and delivery of social services and even greater opportunity for it and its army of bureaucrats to meddle with our lives. In the process it has given up on fiscal prudence and sentenced New Zealand to low productivity growth.

Simply put, the Ardern government has chosen to shovel money into the bureaucracy and then sit back, blindly hoping that such a wasteful policy will eventually pay dividends by delivering access to the kind of decent education, quality healthcare, and targeted welfare that helps rather than harms the poor, and which has been increasingly denied them.

Hope really is the operative word here.

It is the increases in welfare that drive Treasury’s Long Term Fiscal Projections for the period 2021 to 2061. In its historical trends scenario, Treasury estimates net debt will become 197% of GDP or $2,902 billion, the government operating deficit will be 13.3% of GDP and debt financing costs will go up by 7.8% of GDP. Healthcare, education and Super are projected to rise by 8.1% of GDP - a situation the current government is doing its best to simply ignore.

Treasury’s suggested policy options to help fix these issues are in many ways unbelievable and raise the issue of whether the current Treasury is capable enough to do the job it has been charged to carry out. Treasury propose the following ideas: raise the age of eligibility for super, adjust the amount paid by government for super using inflation rather than wages, raise tax revenue by an increase in all existing personal income tax rates, ten more years of fiscal drag where income tax thresholds are kept where they are today, increase the existing goods and service tax rate and the company tax rate as well, look at taxing capital, land, wealth and inheritance, and spend less on health.

Frankly if this is the best advice Treasury can provide, then as a country we should be looking elsewhere for our economic and social policy advice. The time has long past when civil servants pay no price for being wrong.

The only policy option I can think of that would be worse than Treasury’s set of old tired policy options, would be a continuation of the policies the current Government has been following over the past two years of printing money. Turning on the printing press is, of course, one way politicians can repudiate their promises but they can only do so at a huge cost to its citizens. Inflation is in fact a very nasty way to deal with debt, because it normally falls hardest on the young and the poor who are generally unable to take steps to lessen the costs associated with it.

I would not however put this option past the current NZ government. The only way to solve the problems we have throughout the welfare area is to give the money the government spends back to those who earned it or most need it, and empower them to purchase their own education, their own health coverage, their own insurance against risks like job loss accidents and sickness, and to save for their own retirement.

By doing this, we can shift power away from a system of government that is becoming more & more wasteful and self-serving, and deliver it instead to individuals & families. This, surely, is the purpose of our democracy. It is meant to deliver government of the people, by the people, for the people; not government of the people, by the government, for the government.

Currently, for all but a privileged few, our government decides where our children get educated, whether or not our medical treatments will go ahead, and what level of income assistance we require. Worse, the recipients of these hand outs are treated as children to be managed by a bureaucrat who knows very little about them, and cares even less.

Is it surprising then, that within such an environment, more money does not deliver better outcomes? Is it any wonder that the lot of the most disadvantaged in our society, including Maori and Pasifika, continues to get worse, despite the continuous, increasingly empty promises, that ‘the times, they are a changing’?

The only way yet discovered for improving outcomes while keeping costs down is to restore control to the individual, and allow providers to respond to their needs. Unfortunately for all of us, none of our current political parties have the capacity or imagination to offer such an opportunity. For them, it is better that we suffer the tyranny of the status quo, the politics of borrow and hope, than its more courageous and life-changing alternative – that we might put our trust in the people and empower them by giving them control of their own lives.

Here is the kind of future we believe many of us imagine for our country: a NZ where

• Inequality is ended.

• Everyone is treated fairly.

• Privilege no longer exists.

• Everyone enjoys a reasonable standard of living.

• Quality, timely healthcare is available to all.

• Every child has access to a first-rate education.

• A job exists for everyone who wants to work.

• Our social welfare system protects and assists those who require support.

• Every New Zealander has the opportunity to enjoy a comfortable retirement.

• All Kiwis have the ability to own a home, if they want one.

• Everyone not only enjoys wide-ranging opportunities for self-fulfilment, they are part of a caring society that neither judges nor denies on the basis of gender, race, religion, or sexual orientation.

Such a future is possible (indeed, the policies required to bring it about already exist), but it will require a rare kind of political courage and imagination. It will require governments to hand some of their power back to the people and trust them to manage their own lives; and it will require the kind of thinking that places an emphasis on the future of our country and our children, rather than on the short term dictates of being re-elected.

We no longer live in a world where old divisions between left & right, socialist & conservative suffice. We live in a new world, where new ways of thinking are required. We must throw off the failed policies of the past 20 years, the empty convenience of our biases, our propensity to label & dismiss instead of engage in mature debate, and rethink what it means to govern.

If we do that, then there is hope yet not only for our nation, but the myriad individuals who call it home.