With no new ideas and advice that more teachers is a "low impact" strategy, Treasury's briefing to government just doesn't get it. Plus: What do you think about a capital gains tax?
And that, my friends, is why we don't let economists or economic ideologues of one persuasion or another run the country. At least not usually.
The Treasury's briefing to the incoming government came out yesterday with suggestions to cut income tax for the richest New Zealanders, increase GST, introduce a capital gains tax, and cut superannuation. That fetid mix would never win an election and if National were to take such it advice it would surely lose the next one. It is further evidence, if we needed it in these muddled, troubled times, that society is more than the economy and that economic purists should largely be ignored by polite company.
The briefing starts sensibly enough, urging the government not to let the short-term financial crisis blind it to its medium-term responsibilities. It says that the country's – and by default the government's – success will be judged by the living standards enjoyed by all New Zealanders. So far, so wise.
But it quickly veers off into some dark and windy side-roads. There's the same hackneyed 'low taxes will lead to high growth' mantra, the bleeding obvious (did you know that globalisation and technology will change our lives?), and some uncalled-for musings on social policy.
At a time when economists around the world are being challenged to come up with new solutions and ideas, thinking at the Treasury seems stagnant. One example: Green policies are something to be opposed for the economy's sake, not a potential economic opportunity. The Green Party's plan to spend $1 billion to insulate New Zealand homes is dismissed in sniffy fashion as not based on rigorous enough cost-benefit analysis. No mention of the wide range of tradespeople who could be employed under such a scheme – more than would be employed building roads, I'd imagine; no mention of the productivity gains from improved health; no mention of the the savings on the national grid if occupants then needed less power... and those are just off the top of my head.
Still, National's canned that already, so no worries there, Mr Whitehead.
Ironically enough, the only use of the word sustainability in this briefing regards our fiscal position and the limiting of public spending.
The briefing goes on about cutting taxes for the rich (yawn!) and reforming regulations, but despite Alan Greenspan's admission just weeks ago about the "flaws" of deregulation, the Treasury doesn't bother to mention such issues.
At times the briefing tilts its head towards democracy, remembering that the economy is meant to serve society; that is, the point of a strong economy is a better living for you and me. But it often talks about government policy as if it was exclusively about and for business.
You might ask what else you should expect from the nation's number-crunchers. Perhaps it would even be best if Treasury limited itself to the economic matters it is meant to understand best. But, no. It claims the right to offer advise on social policies such as education and superannuation.
Its foray into education is one of the most blood pressure-raising parts of the document. We should, Treasury suggests, be "shifting investment in the compulsory sector from high-cost/low-impact strategies (such as lower student-teacher ratios) to high-impact strategies (such as improving accountability for student achievement".
Has anyone in Treasury ever spoken to a primary school teacher? They spend half the document rabbiting on about productivity and toss in a few comments about how "a highly skilled labour force is critical for economic growth", but think more teachers in more classrooms is a bad idea? Instead, they'd prefer money going to more "accountability for student achievement". That sounds like code for more exams, but surely even they aren't seriously advocating more tests instead of more teachers... are they?
Treasury's also reluctant for government to offer any more public-spending stimulus to the economy. Is that prudent or mindless Friedman-ism? It says our fiscal stimulus package is around 2.8% of GDP in 2008/09, "already larger than the stimulus being undertaken in most OECD countries". I'd want to check that, but with France today announcing a package worth 33 billion euros, I'm skeptical. Treasury must realise that this is just the beginning of the stimulus packages. Come January, Barack Obama will leave our eyes watering with the plans he will announce and many more billions will be announced through 2009. John Key can't stop where he has and say, 'right, job done'.
Isn't this period of guaranteed low inflation and low contracting costs exactly the right time to be spending big on infrastructure if we're serious about medium-term growth? The Treasury can't seem to decide what it wants.
But I'm especially interested by its choice to raise the issue of a capital gains tax again. As we all know, we're one of the few OECD countries without one. It's never a good time to talk about a capital gains tax – when house prices are high everyone's fat and happy and no-one wants to know, when house prices fall it's just another brick weighing down the market. But we need some way to stop our obsession with housing as investment and to make home ownership more affordable for more people, don't we? I'd be really interested to hear what the community thinks about capital gains tax. Here are some pros and cons to get you started...
Comments (8)
when house prices fall it's just another brick weighing down the market
So people couldn't taken their capital losses and use them to defray their tax liability? Suprely that's the quid pro quo for taxing gains?
"Instead, they'd prefer money going to more "accountability for student achievement"."
This is code for "performance based pay", where teachers are paid depending on how well students do in exams. No surer way to get teachers teaching to what is on the exam paper, rather than to encourage broader thinking/critical analysis skills.
Where to start?
Just a couple of points.
1 What on earth gives you the idea education is a 'social' policy? It is a cornerstone of economic policy, in case you haven't noticed. Treasury is simply confirming the growing public disdain for an education system which fails to teach kids to read and write but makes sure they know all about treaty principles.
2 Only a died in the wool socialist thinks that business is somehow divorced from society. That's the sort of arrogance which has just been consigned to the dustbin by the electorate.
Adolf,
I'll be interested to hear what you think about the Ministry for Social Development's analysis of the Reserve Bank's performance then. I'm assuming what's good fo the goose is good for the gander...
Education is indeed key to our economic success. But by dismissing lowering the pupil:teacher ratio as worthless shows a very poor understanding of where growth and productivity comes from. As you say, education is a cornerstone of that.
And in case you hadn't read the piece, I made the point about how the economy serves society, which is the opposite of implying the two are divorced.
Tim
Maybe you employed a ghost writer. here's the bit which caught my eye.
"But it often talks about government policy as if it was exclusively about and for business. You might ask what else you should expect from the nation's number-crunchers. Perhaps it would even be best if Treasury limited itself to the economic matters it is meant to understand best"
Then in the same breath you seem to want two bob each way.
Business, social policy, economics, monetary policy, fiscal policy are all inextricably intertwined. Surely it is possible that the people in Treasury actually know that and when they talk about a particular part of fiscal or monetary policy they can reasonably expect their readers know that they know it?
I'm not suggesting Treasury is always right but your commentary was, I thought, unbalanced, sniffy and essentially a foot stamping tantrum about the shelving of the disastrous ETS. A sort of outraged shout from someone whose pet project suddenly has gone up in smoke.
But hell, the other 90% was great stuff!
I think that Treasury has every right and every ability to say "we need x result from the education system." However, I don't see why it should think that it is well placed to advise on how to get that result.
I suspect, on no proof whatsoever, that the change of government combined with the failure of the economic consensus has empowered the advocates of unpopular policies. No doubt there are many good ideas that have been repressed by Labour's leftism, which can now come to the fore, no doubt there are also many ideas which have been repressed because they are just bad. Still, now is the time for all the civil servants to bring up their pet policy in the hope the government will embrace it. Or so I assume.
As money-men, though, John Key and Bill English, no doubt already has a fairly good idea of what they wants to do with the economy. They're going to be far more interested in the figures and I would assume feel more than qualified to draw their own conslusions from them.
Capital gains tax seems complicated... I would suggest that drastically altering the tax system, particularly in a time of economic difficulty, is probably unwise. There are, more than likely, companies which are using the loopholes that not having the system provides to help balance their books. At current, I think we want them to do that?
I suspect also, that if we did have one, that it would also provide loopholes to avoid paying tax. Why force companies to find and adapt to these new loopholes in a time of hardship?
At any rate, National seemed to have their tax policy pretty well worked out some time before the election, and introducing a new tax might not gel with the whole anti-tax policy. It's also not very exciting and thus probably wouldn't enthuse anyone enough to counter the annoyance of the corporates.
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