Rod Oram: Why new leaders and policies are needed

This election comes down to a simple choice on a vast array of complex issues. Rod Oram looks at National's record and concludes more of the same won’t deliver for New Zealand.

National says vote for us: Our policies have delivered what New Zealanders need, and will continue to do so.

Labour says vote for us: We know how to do all the things National hasn’t done, and will fail to do.

If only government were so simple.

Thankfully, our electoral system gives us a bit more choice. We can split our constituency and party votes; or we can vote only for minor parties. But National or Labour will lead the next government, so this column focuses almost entirely on them.

National’s track record:

It came to power in November 2008 at the height of the Global Financial Crisis. It was singularly unprepared for the job. It had spent the previous nine years in opposition micro-managing issues and shuffling leaders seeking to regain power. It had failed to develop its policies to respond to the fast-changing world.

A year later, its economic strategy still consisted of only a dozen or so A3 sheets of paper, reported Colin James, the veteran political journalist.

As it promised in the election, National established a tax working party, which later proposed many remedies to the distortions in our tax system. But the government ignored them. Instead it cut the top rate of tax; and it raised GST, which it promised in the election it wouldn’t do.

By early 2010 the government unveiled its Economic Growth Agenda. This quickly morphed into the current Business Growth Agenda (BGA). It focuses on six ingredients: infrastructure, exports, innovation, capital markets, natural resources, and skilled and safe workplaces. Note, Agenda not Strategy, a word Steven Joyce, the Finance Minister, says he has a deep aversion to.

Economic conditions in National’s second term were markedly different from the first. Growth was resuming here and abroad. Rebuilding Christchurch, booming global dairy markets and a soaring stock market gave ample scope for the government to be opportunistic with the likes of the partial sell-down of state-owned electricity companies.

The government progressed the regulatory reworking of financial markets and some other frameworks. But it was abysmally slow on others such as workplace safety and the environment.

The BGA was fleshed out with hundreds of government initiatives, ranging from ambitious to trivial, and from new to co-opted from existing activity.

The two most important for developing a more sophisticated, higher value economy were Callaghan Innovation and the Primary Growth Partnership.

It took the government four years to establish Callaghan as its dispenser of R&D funding. While the tech sector is expanding at a decent clip, it’s still not clear how useful Callaghan is. Most of our tech companies are still lagging seriously behind their international competitors, the Productivity Commission has reported.

PGP’s 22 projects to date have attracted some $750m of funding from government and the private sector. The meat sector accounts for almost half of that. Yet, it has utterly failed to reform itself. Its very limited improvement augers badly for PGP overall.

Likewise, the government’s early targeting of oil, gas, mining and back-office financial services as boom export sectors have all been busts.

Booms and opportunism

National’s third term has benefited from big booms in migration, tourism, housing, and construction. Again, the government has been highly opportunistic, but it has lagged badly on strategic policies and investment to cope. Infrastructure, housing, construction capacity, the environment and climate are just five of the crucial areas.

It has managed government finances well. But it has been weak on economic strategy. For example, it offers no views on how rapidly the global economy is changing; or on how to reorient technology, education, skills and other policies New Zealanders need to seize those abundant opportunities.

On Thursday, National gave yet another example of its failure to understand the future. It said it would sell off Landcorp’s assets to young farmers on a lease-to-buy basis.

“There is no clear public good coming from Crown ownership and little financial return to taxpayers,” Nathan Guy said. “We think that some of these farms are better off in the hands of hard working young farming families who are committed to modern farming and environmental best practice.”

Clearly Guy, who is National’s long-serving minister for primary industries, doesn’t know Landcorp is our largest and most progressive farmer. It is starting to shift away from commodities by investing in its farms and by working directly with retailers and manufacturers overseas; by diversifying away from dairying; and by pioneering sophisticated management systems for its farms, and the people and environment on which they depend, as I reported in this column. Landcorp has made a lot more progress in the two years since.

Under nine years of National’s governance GDP per capita has grown by barely 1% a year in real terms, which is not much ahead of the OECD average. Wealth inequality has risen, environmental sustainability has fallen and productivity growth, the factor determining our standard of living and economic resilience, remains among the lowest in the OECD.

On current trends and policies, we will achieve none of National’s 2025 goals: catching up with Australia’s GDP per capita; lifting exports from 30% of GDP to 40%; and doubling the value of exports.

The near future:

National says there’s no need to change policies. It says current ones and the strong economy will deliver much more, enabling it in a fourth term to make big inroads on the big economic and social challenges outstanding.

But that’s not the future Treasury or the Reserve Bank forecast last month. They said GDP growth will peak next calendar year then decline. The Reserve Bank is the more cautious of the two, forecasting growth of 2.1% in the year to September 2020 – just before the next election.

Treasury forecasts multifactor productivity -- the key determinant of improvements in our wages and wealth -- will actually decline in the next two years, then grow weakly in the following two years. We will remain near the bottom of the OECD on this vital measure of economic health and competitiveness. As a consequence, wage growth will barely outpace inflation.

Treasury also forecasts the growth of export volumes will ease in the next two years to less than 2% a year, which is below their long-term average; and our current account deficit – the key measure of our trade and investment relationships with the rest of the world - will worsen.

Business is changing its mind

Meanwhile business leaders have made a sharp change in their strategic focus. In the New Zealand Herald’s Mood of the Boardroom survey before the 2014 election they had listed their top five priorities, in order, as: budget surplus: economic growth; international trade; strengthening of Chinese relationship; and our place in the world.

Their bottom five were: tackling housing; mental health (including suicide); poverty and homelessness, environment and water quality, and the wealth gap.

Their top issues this election are: infrastructure; housing; productivity; education; and inequality, the Herald reported on Tuesday.

“New Zealand has made a generational change in the business community. It seems to have developed a much greater social conscience, and that may be reflected in the election,” Kim Campbell, CEO of the Employers and Manufacturers Association, said at the launch of the survey.

The survey asked business leaders to rate the government’s performance. The lowest scores were housing 2.43 out of 5; environment and water 2.5, and homelessness 2.43.

Moreover, 63% of companies said they expect their business to change more in the next five years than they have in the past five years; and they want a government that can help them do that.

The mood is changing too at the small end of town. MYOB says its recent survey of 400 SME operators saw support for Labour jump to 29%, up from just 10% at the same time last year, while National remains strong at 44%, although it is down 13 percentage points in the past year.

The choice:

National’s top three priorities for business are: “train kids”; continue to grow R&D; and ensuring New Zealand was open to the world, Steven Joyce, its finance spokesman, told business leaders at the Mood of the Boardroom breakfast on Tuesday.

Labour’s are: “A relentless focus on skills and retraining”; lifting R&D; and to give small businesses more access to capital, Grant Robertson, its finance spokesman, told the audience.

Superficially, there’s little difference between the two parties. But in those brief lists, Robertson demonstrated greater understanding of, and ambition for, New Zealand businesses than Joyce.

Robertson’s emphasis on retraining reflects his work leading Labour’s Future of Work Commission on how technology, trade and economics are rapidly changing the way companies operate and the reskilling their employees need to remain relevant.

His emphasis on lifting R&D reflects Labour’s policy to reintroduce the R&D tax credit. Then all companies get help to lift their innovation. That is the international norm, rather than selected recipients being funded by taxpayers via Callaghan, which is a Kiwi quirk.

His emphasis on capital for business reflects the way a capital gains tax encourages investment in productive assets rather than housing. Capital Gains Tax is the international norm; its absence here distorts our economy and diminishes our productivity.

Labour has far from all the right answers, and hopefully it will drop some of its seriously wrong ones such as removing the urban/rural boundary in Auckland. That would cause cheaper housing to proliferate far from jobs, to the great disadvantage of lower income families; push up the cost and inefficiencies of infrastructure; and accelerate urban sprawl. By and large, though, Labour is pushing some useful new thinking.

National, in contrast, is far too busy defending its record of the past nine years to admit where it has failed, let alone to think about how it might do better.

Joyce, for example, denies there is a housing crisis. He says home construction will boom for the next six years. But his own government’s recent construction pipeline report shows it will peak next year then fall back, for example, in Auckland to the previous peak in 2005. The government had done nothing to grow the capacity of the construction sector, nor is it offering any policies to do so.

English says productivity is growing nicely. But his own government’s data and analysis show he is absolutely wrong. He also says wages have grown twice as fast as inflation. But that assertion surprises many voters.

More of the same won’t deliver for New Zealand. Hopefully, new leaders and policies will.

Support parties:

If Labour forms the next government, it will need support parties. Depending on election results, it will have some options:

New Zealand First would offer the most MPs. But its leader is irascible, and his policies muddled and too favourable to people as old as he is.

The Maori Party would offer a few MPs and a strong Maori perspective and connection.

The Greens, if they survive, would offer some MPs and plenty of policies on green growth, a concept novel in New Zealand, but old news elsewhere. Back in 2009, the Harvard Business Review devoted a whole edition to the subject. Among its conclusions:

"Our research shows that sustainability is a mother lode of organisational and technological innovations that yield both bottom-line and top-line returns. Becoming environmentally friendly lowers costs because companies end up reducing the inputs they use.

"In addition, the process generates additional revenues from better products or enables companies to create new businesses. We find that smart companies now treat sustainability as innovation's new frontier."

If the Greens clawed their way back to 8% of the party vote, Barry Coates would resume his seat in parliament. A 25-year veteran of international negotiations on climate change and sustainability, he knows far more about those subjects than any other MP.

If we change our government on September 23, we would join voters in Canada and France. Like them, we would embark on a new political, economic, environmental and social era which promises greater progress for all.

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