Defence spending would jump dramatically and more state-owned companies would be floated on the share market to raise billions of dollars under ACT’s alternative budget
Most people with a passing interest in economics will have heard of the phrase “guns and butter” or “guns versus butter”.
ACT’s deputy leader Brooke van Velden will certainly have heard it. As her boss, David Seymour, likes to point out, she is the only member in this Parliament with a degree in economics
Taught in first year university economics it refers to the dilemma governments face when allocating spending to the military (guns) versus social investment (butter).
New Zealand governments outside wartime have heavily favoured spending on “butter”. Finding more money in their pockets or enjoying better public services have had more allure for voters than watching RNZAF jet fighters streak over our cities.
The push by ACT to lift defence spending to two percent of GDP is a significant lean towards guns rather than butter.
In presenting his alternative budget at a breakfast hosted by insolvency firm Waterstone in Auckland on Monday, ACT Leader Seymour advocated a much more “hawkish” stance in line with that being progressively adopted by Australia.
“The world has changed beyond our border. We need to reinvest in the ANZAC alliance, and that starts with matching our neighbours at two per cent of GDP defence expenditure. It would put us in a position to invest towards being part of an inter-operable ANZAC defence force in the South Pacific. The alternative is that our allies give up on us in an increasingly dangerous world.”
Currently, New Zealand’s defence spending is around 1.5 percent of GDP. The Government recently suspended a plan to buy a new Naval vessel capable of patrolling the Southern Ocean due to the impact of Covid on the country’s finances. In contrast, Australia is spending just over A$804 million buying drones and helicopters and setting up mobile stations in Antarctica as a response to China stepping up its presence in the frozen continent.
Seymour has been openly expressing his concern over China since 2020, telling Newsroom back then, “These guys [CCP] are really bad – camps, surveillance and suppression; we are very naïve in the way we look at it.”
Fighter jets and new warships
ACT’s defence spokesperson, Dr James McDowall, says ACT wants to lift the annual amount spent on the military to $9.15 billion by 2026. “That is nearly double what Labour is doing now. When Helen Clark scrapped the Air Force’s fighter wing (in 2001) she said New Zealand was in a benign strategic environment – well that has totally changed.
“We have had such a lack of capital investment [in military hardware] that the Aussies may soon start to turn their backs on us.”
So what sort of equipment does ACT think we need?
“Everything has to be interoperable with Australia. The thinking is around the Airforce and Navy. We are not going to buy nuclear submarines like Australia is but we should look at the Hunter Class frigates they are building to replace their eight Anzac frigates. We have two Anzac frigates that have been through many updates,” says McDowall.
The Australian Navy describes the Hunter Class as providing it with “the highest levels of lethality and deterrence our major surface combatants need in periods of global uncertainty.” The warships are being built in South Australia and will start entering service in the late 2020s.
Australia is spending A$16 billion on replacing its F/A 18 Super Hornets with 72 F 35 stealth fighter jets which McDowall says he is looking at “with great interest” but concedes that buying some of the F/A 18’s might be more appropriate for New Zealand.
Before ACT’s policy could take effect it would need to be in Government and have buy-in from National, which is likely to have other spending priorities.
“We have had weak hints from National that they may be interested in doing this. I would say that from a classical liberal point of view we are now in a position where we need to defend Western democracy.”
Slicing the butter
Increasing spending on defence sits alongside ACT’s other priorities of cutting taxes by $3.2 billion, returning the Government’s books to the black, and spending more on education. A lot of butter needs to go.
Raising the age of eligibility for Superannuation is central to ACT’s plans. Seymour argues that New Zealand is becoming a global outlier by sticking with a super age of 65.
“Australia, the U.K, the U.S, Germany, Ireland, Italy, the Netherlands, Norway, Spain among many other countries have, or are raising their retirement ages to 67 or 68.
“The demographic dividend of the baby boom is now counting against us. When a baby was born in the 50s, they could expect to live to 69. Now, thanks to healthier lifestyles and the miracles of modern medicine, life expectancy is 81. People who might have looked forward to four years of superannuation after turning 65 stand to collect 16 years’ worth.
“At the same time, the number of taxpayers to support them is dwindling. The baby boom peaked with 27 births per 1,000 of population in 1961. Today that figure is 12. By any measure, the commitment of successive Prime Ministers to keep the retirement age at 65 is blind and irresponsible. It is contemptuous of younger taxpayers.”
Seymour says ACT would begin raising the pension age from 65 immediately and raise the age by two months every year until it reaches 67 in 2035. After that, the age would be indexed to life expectancy.
The change would save $16 billion over 12 years.
“The effect on those already retired would be nothing. Nothing changes for them. Someone who is currently 59 would be eligible at 66 instead of 65, in seven years instead of six. Someone who is currently 53 or younger would be eligible at 67, in 14 years instead of 12.
“We hear people say it’s not possible for people with physical jobs. I have some sympathy for that view, but I think it’s overstated.”
ACT would save $2 billion a year by scrapping the Fees Free scheme for students starting tertiary education, getting rid of Kiwisaver subsidies and means testing the winter energy payment.
The other major component of ACT’s cost reduction plan is to get rid of $8 billion in Government debt, and the interest we pay on it, by flogging off 49 percent of at least five SOEs. Seymour describes it in more politically palatable language as, “extending the mixed ownership model.”
“The Mixed Ownership Model has been an enormous success. It is a politically durable and economically robust compromise between state ownership and privatisation. It drives productivity by applying market discipline to firms and provides cash for government debt repayment, while reassuring those sceptical of privatisation that the majority stake remains in public hands.
“It has the additional benefit of deepening New Zealand’s anaemic capital markets with new listings on the NZX. Based on book value, the sales would raise $8 billion to reduce government debt.
“Best of all, it is a policy that Labour invented for Air New Zealand, so there should be a broad political consensus around it.”
Seymour says the Government would lose $100 million in annual profit but would be mitigated by the companies performing better in the long run.
The SOEs earmarked by Act for a partial sell down include Assure Quality, New Zealand Post, Kiwibank, Transpower and Kordia.
“They are all good businesses, or have the potential to be. So why shouldn’t Kiwis be able to buy in to them?
“The alternative is to keep $8 billion dollars of debt on the government’s books as interest rates rise, and give up on the opportunity to make key companies more efficient,” says Seymour.