Connection lost

Two pieces on the editorial page of The Oz this morning, both saying something. The first was from Oliver Hartwich, Tony Abbott should follow Kiwi path to reform. The Kiwi path to reform seems to consist of two useful ideas: work out a valid set of priorities and then create a political constituency that will back the changes required.

Key’s recipe for implementing reforms is simple. His government spends at least as much time on carefully preparing policy changes as it spends on their implementation.

Ah, but you must also know where you have to spend your political capital. What sorts of thing has John Key being pursuing?

Since Key became Prime Minister in 2008, New Zealand has reformed a number of areas. The top income tax rate was slashed to 33 per cent while GST rose to 15 per cent. The government part-privatised some state-owned companies, particularly in the energy sector. It has become more difficult to remain on welfare in New Zealand with stringent work expectations introduced for benefit recipients. Fiscal policy has been tight with the budget on track back to surplus.

Sounds good. Sure no Senate in NZ but at least I can see that they have kept their eye on the ball. Meanwhile, what does our PM spend his political capital on? Another change we have to make is the title of the article. Here is where he spends his political capital:

I seek constitutional recognition of Aboriginal people in a form that would complete our constitution rather than change it.

Such cheap sentimentality is barbarous, absolutely inane. There is not a person out here who actually thinks it would make a dime’s worth of benefit to Aboriginal welfare but there are plenty of reasons to believe it would do damage to our Constitutional order. If this is really why h wanted to be the PM, one way or another, he won’t be Prime Minister for very long.

A policy experiment in the South Pacific

Apparently we ran an experiment in economic policy here in the South Pacific which is described here:

[New Zealand] Treasurer Bill English said last week that he would cut public spending as a share of gross domestic product by more than twice as much as the Abbott government has announced.

In fact, without a minerals boom to line government coffers and despite a huge repair bill from two devastating earthquakes, New Zealand’s budget will be back in surplus by $NZ400 million ($370m) next financial year, rising to $NZ3.5bn by 2018.

English, now in his sixth year as New Zealand’s Treasurer, commendably chose not to emulate the world’s greatest treasurer Wayne Swan and kept a tight leash on public spending before and after the global financial crisis, preferring to cut income taxes and lift consumption tax. The Key government, facing election again later this year, is now reaping the rewards.

It wasn’t just our Wayne who took this road to ruin. Virtually everywhere was the same, with the US leading the way into an economic darkness it is impossible to see ending any time soon. But try to tell someone that Y=C+I+G is an economic death trap. But if you doubt it, look at the comparison with Australia.

The culmination of almost two decades of mainly populist budgets, the Abbott government will spend $6200 a person on cash welfare next year, over 25 per cent more than New Zealand’s government will on each of its citizens (converting all amounts to Australian dollars).

Education spending, at $2900 a person, is 10 per cent more generous in Australia but health expenditure is torrential by comparison: Australian state and federal governments will lavish more than $4600 a person to keep Australians alive and healthy, almost 50 per cent more than is spent in New Zealand. No methodological quibble could bridge such stark differences.

The relative splurge extends to hiring, too. Australia’s population of 23.5 million is about 5.2 times New Zealand’s, but as of June last year we had 8.4 times as many public servants: 1.89 million across our state, federal and local governments compared with New Zealand’s 226,000. . . .

Apart from a bloated public sector and a wellspring of whingeing, what does Australia get for its vastly more indulgent public spending? Much higher taxes, for one thing. The marginal income rate most Australians will pay from July — 34.5 per cent — will be higher even than New Zealand’s top 33 per cent rate, which makes a mockery of our 49 per cent top rate, which will be higher than China’s and France’s.

Undisciplined government spending will pull an economy into the dust. Such spending is a disaster both economically and then politically as governments try to pull things right.

And then there is also the delusion that low interest rates will propel an economy upwards, yet another Keynesian bequest.

Even rising interest rates have been unable to dent record high confidence levels among New Zealand households and businesses.

There is no “even” about it. High interest rates, or at least high enough to shut non-productive borrowers out of the money market, are a major factor in keeping an economy on track and growing. Economic theory today is comparable to the theories Adam Smith was writing about criticising in 1776 if not actually worse.