I have no regrets, sang Édith Piaf. And neoliberal architect Don Brash sings from the same songbook.
Bob Gregory wrote this week about the neoliberal policies of Rogernomics, “promoted by a small mini-elite of economists” who were really just promoting a “political ideology in disguise”.
The Newsroom article was illustrated by a photo of a much younger Don Brash, taken, I would guess, about 30 years ago, shortly after I became Governor of the Reserve Bank. The caption said I had at least been honest enough to enter politics quite explicitly while “others continued the masquerade”.
Looking back on the six years of Rogernomics, I can think of almost no economic policy of that era which should have been done differently.
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Nobody today seriously thinks it was desirable, or even feasible, for New Zealand to continue making 10 different models of car behind extremely high protection; or to continue subsidising the production of more sheep-meat than world markets could absorb.
Nobody thinks double-digit inflation was a good way of running the economy – yes, it benefited those who had borrowed to the hilt to invest in real estate, but severely disadvantaged others.
Nobody thinks that having high income tax rates but umpteen loopholes for those in the know about how to avoid tax was a sensible way of running the tax system.
Nobody wants to go back to the day when to get a new phone connection might require waiting for two years.
Nobody wants to go back to the time when you had to apply to the Reserve Bank for permission to remit even a small amount of money overseas.
I was privileged to be part of some of those late ‘80s reforms.
The clear majority of New Zealanders receive more from the state in cash and benefits than they pay in tax, with the entire net tax take paid by a relatively small minority.
I chaired no fewer than four separate tax advisory committees – one on the design of GST, one on rural sector taxation, one on life insurance and superannuation, and one on “the accrual tax treatment of income and expenditure” (too complex to explain in a few words!).
What motivated Roger Douglas as Minister of Finance was to make the tax system fairer and to close off loopholes in the tax system, which to that point had enabled those with smart tax accountants to avoid huge amounts of tax.
And that’s exactly what those tax reforms did. Introducing a GST meant catching large numbers of people who had been able to avoid paying tax almost entirely. On the basis of previous income tax returns, the Treasury had expected there would be about 120,000 businesses that would register for GST – in the event, nearly 180,000 registered.
Yes, introducing GST also meant that some low-income people would have paid more total tax than previously, so Roger Douglas reduced income taxes to offset that to ensure that low income people were no worse off than before. And if they hadn’t been paying income tax previously, he introduced a family tax credit – in effect a negative income tax – to offset the impact of the GST.
The closing of loopholes readily available through investing in the rural sector (think kiwifruit and deer) or through other techniques then available to the corporate sector meant that tax rates could be reduced without loss of tax revenue – indeed, in many cases with a gain in revenue.
I was privileged to be appointed Governor of the Reserve Bank shortly after my colleagues had, with input from internationally renowned economists like Charles Goodhart, hit upon a world-leading plan to restructure the relationship between the Government of the day and the central bank.
That structure correctly acknowledged that the inflation rate which the central bank should target is an essentially political matter, not one to be made by bureaucrats; but that the target should be on the public record, to avoid politicians manipulating monetary policy to their own political advantage. Central bankers should be held accountable for delivering that rate of inflation.
The New Zealand Reserve Bank was the first in the world to formally introduce an inflation target – now copied by almost all the world’s central banks – while the relationship between politicians and central bank pioneered in New Zealand has been copied by Australia, Canada, the United Kingdom and Sweden.
The problem today is not the legacy of the 1980s but the failure of successive governments, central and local, to free up the supply of residential land. When the price of a 400 square metre bare section in Flat Bush is $800,000, housing is going to be outrageously expensive, and economic pressure on a great many households extreme.
But what about the effects on income inequality of these reforms?
If the numbers are taken at face value (and there are some good reasons for not doing so given the radical change in the tax system in the late 1980s), there was a reasonably significant increase in income inequality after tax and benefits during the late 80s, with a broadly unchanged measure of income inequality after tax and benefits in the 30 years since – some years a bit more unequal, in some years a bit less unequal.
It remains true that the clear majority of New Zealanders receive more from the state in cash and benefits than they pay in tax, with the entire net tax take paid by a relatively small minority.
How to explain what appears to have been a real increase in severe economic hardship in recent years? That has nothing to do with the so-called neoliberal policies of the late ’80s. On the contrary: overwhelmingly the main reason for that increase in genuine poverty is the outrageous increase in house prices (and related rents) over the past three decades, and particularly the last 15 years.
When the median house price in Auckland goes from about three times the median household income (as it was in the early ‘90s) to around 10 times the median household income today, anybody who doesn’t own their own home and is on an average income is under the most severe economic pressure, and no amount of tinkering with free school lunches and free period products is going to make any significant difference to that pressure.
The problem today is not the legacy of the 1980s but the failure of successive governments, central and local, to free up the supply of residential land.
When the price of a 400 square metre bare section in Flat Bush is $800,000, housing is going to be outrageously expensive, and economic pressure on a great many households extreme.
But don’t blame Roger Douglas or Ruth Richardson for that.