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The man who would be Finance Minister

Rod Oram talks with the most likely candidate to take on the role of Finance Minister should National manage to win back power.

Economics and business will feature in this year’s election, just as they always do. So with the election date announced this week, it was timely to interview Paul Goldsmith, National’s Finance spokesperson. After all, he would likely be the next Finance Minister, if there were a change of government.

My first question to him was about the world. Are we seeing unprecedented upheavals and shifts, and if so how are they affecting New Zealand?

There are “head winds”, such as trade tensions between the US and China, he replied. But “point to me a time there hasn’t been uncertainty.”

The impact on us, though is minimal. If there’s a slowdown in China, for example, we are so small a country we can still prosper in our niche markets. “You can’t really go past the simplest measure being [our] terms of trade which are at colossally high levels.”

In its economic policy document launched last August, National set the goal of doubling our two-way trade with China to $60 billion a year within the decade.

But Goldsmith didn’t offer any context to the sharply increased complexity of that challenge. So, instead, it’s worth me repeating a quote from last week’s column:

“Open borders, liberal democracy and free markets are under threat around the world. Instead, the moment is being shaped by rising nationalism, authoritarianism and a Chinese economic system to rival Western capitalism,” concluded a recent New York Times article.

But you will find no mention of such issues if you look in National's economic policy paper or read National leader Simon Bridges’ speech that launched it.

Instead Bridges remarked to the audience: “It’s appropriate to have a New Zealand wide company that specialises in tax hosting us today. I will outline exactly why tax, or less tax, is so important to us later in this speech.” The pledges he announced were indexation of tax brackets, no new taxes, and repeal of regional fuel taxes.

The policy document lists all 22 MPs who constitute the party’s economics team, out of its caucus of 55. Yet, led by Bridges and Goldsmith the team offers almost entirely a restatement of the previous National government’s policies.

Goldsmith particularly emphasised the Business Growth Agenda led by Steven Joyce, the Economic Development Minister of the time. Joyce made it very clear this was not a strategy, because he said he didn’t believe in those.

Rather it was a framework to try to generate some synergies from hundreds of government initiatives, most small and some large, in six areas: infrastructure, exports, innovation, capital markets, natural resources, and skilled and safe workplaces.

Of the few new but minor additions to policy this time around, Goldsmith pointed to National’s goal to invest in getting the University of Auckland into the top 50 universities in the world, which in turn, he said, would help lift NZ business sophistication.

The University is 83rd equal in the QS World University Rankings 2020. It’s worth noting that the university already has 13 subjects in the top 50, led by archaeology at 23rd. Law (44th), though, is the closest they get to business and economics.

In so far as Goldsmith articulated an economic vision it ran only to making sure regulations were light, costs cut and workplaces flexible so businesses could innovate.

But is there anything else new in the policy document that would help improve our poor record on productivity growth and on businesses’ value add and value capture?

The biggest difference “is the additional focus on costs for NZ families and businesses,” he replied. “We had a big focus in the previous government on growing the economy…and that’s good. But housing is the most obvious example. Double your income but if the cost of housing has trebled you haven’t necessarily advanced.”

In so far as Goldsmith articulated an economic vision it ran only to making sure regulations were light, costs cut and workplaces flexible so businesses could innovate. Of those, “regulatory restraint is the key part to it.” He wants governments to achieve over time the same strong regulatory discipline they have achieved with fiscal matters.

But can you name a country, I asked him, which has succeeded primarily because of its exemplary regulatory culture?

“Well, I think what you find it’s about having the conditions that economies need over the decades to continue to succeed and do well.”

Above all, he hopes over time New Zealand will work its way back into the top half of the OECD by increasing its investment and productivity.

Yet, I replied, New Zealand has been ranking high on measures of government, institutions and regulations for the past several decades in the likes of the World Economic Forum’s Global Competitiveness Index, thanks to economic reforms in the decade to the mid-1990s.

Business competence has improved more slowly. Yes, there are gains in the likes of sophistication, value creation and capture, as I wrote in this column last October.

But our productivity and thus our wealth has continued to lag badly. In 1990, we ranked 20th in the OECD in terms of GDP per capita, but only 21st in 2008 and 27th in 2018. We are still some 10 percent below the OECD’s average GDP per capita.

How will doing more of what we’ve done for the past three decades finally make us wealthy? I asked. Goldsmith offered no explanation.

Yet as a trained historian, Goldsmith is a keen student of that period. He has written a number of biographies of people he admires such as politicians Don Brash (a book which was largely funded by National party donors) and John Banks, and business leaders such as Doug Myers, Alan Gibbs and Bill Gallagher.

There are a few such “out-spoken” voices from business today but far fewer than there were 20 or 30 years ago, he said. “We desperately need to have a loud voice from the broader business community reminding people of the basics around our competitiveness and the things we need to do.”

"It’s about getting those settings right and unleashing that strength we’ve got. And that’s what we’re sort of going to talk about this year.”

Which business people do you admire today? I asked. He said he wouldn’t “name names…in case they think it’s some kind of pitch.” But after some gentle persuasion, he said: “The most fascinating guy we’ve got is…old Rocket Man…I have a mental block…”

“…Peter Beck,” I offered…

“…he’s a great guy. I’m drawn to people who have strived to take on the world from New Zealand and export, people like Bill Gallagher.”

Which economists, and other thinkers, have helped shaped your view of the world? I asked.

“You’ll type cast me if…[I answer]. I’m nervous about doing that.”

I said I was sure we’d read some of the same economists so we could swap notes.

“Obviously I’ve read the sort of Hayek and Friedman ages ago; and the more modern ones, I’ve looked at Stiglitz and those guys [and] I felt obliged to wade my way through the Thomas Piketty stuff but I’m not convinced by a lot of those arguments [on inequality].”

And which networks and sources do you use informally to keep you up to date with this fast-changing world?

“My regular reading mix is a combination of The Economist and the Wall Street Journal, and the Guardian for an alternate view; and I’ve got sort of half a dozen people who send me articles from all over the world, one is a professor of economics, one is an active market trader…and I try to ensure I don’t give the gospel from one particular source.”

At the end of the interview, I asked Goldsmith if there were any subjects he’d like to add or to develop some more.

“Our fundamental economic message is I think a positive one in the sense that we think New Zealand fundamentally does have a very bright future. Has a lot going for it. Should be doing well. We’re frustrated that, I think, we’re under-achieving at 2 percent growth for a host of reasons that we can go through. But you know, still fundamentally I think New Zealand’s got a lot going for it. It’s about getting those settings right and unleashing that strength we’ve got. And that’s what we’re sort of going to talk about this year.”

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