Opinion: Three big problems and four quick wins for next government

OPINION

“God’s own country” was how our longest-serving Prime Minister, Richard “King Dick” Seddon described New Zealand. The moniker he popularised for his country also proved enduring – even if by the late 20th century,
it had become abbreviated to Godzone.

Yet, as the 2023 general election approaches, New Zealand feels less blessed than it has in the past.

Despite our rich cultural heritage, beautiful geography and youthful multicultural population, “teetering on the brink” sometimes seem a more apt description than “heavenly”.

Persistent inflation has triggered a cost-of-living crisis. Despite the ballooning size of our core bureaucracy, public service outcomes continue to deteriorate.

Students are leaving the state school system with declining rates of literacy and numeracy. Waiting lists in the public health system are growing, as are shortages of medical professionals. A domestic crime wave is sweeping the country.

Meanwhile, prospective homeowners face some of the most unaffordable housing in the world. And increasingly-polarised voters are threatening social cohesion.

Some of these problems are longstanding. Others are new. Either way, new thinking is needed to solve them.

Fresh thinking abounds in The New Zealand Initiative’s latest report, Prescription for Prosperity: A Briefing to the Incoming Government. Published last week, it draws on more than a hundred evidence-based research reports analysing many of the country’s most intractable challenges.

The report provides an independent, evidence-based manifesto for any incoming government wanting to restore the country’s fortunes.

Prescription for Prosperity outlines practical proposals for improving housing affordability, enhancing education outcomes, restoring price stability, streamlining regulations, managing the environment, increasing productivity, and reducing government spending. In total, it covers 21 separate public policy challenges.

Controlling inflation is the immediate priority. Stable prices are the key to solving the cost-of-living crisis. They are also critical to economic growth and prosperity.

Reserve Bank out of control

Blame for New Zealand’s inflationary spiral sits squarely with the Reserve Bank of New Zealand (RBNZ). Excessive money-printing, conflicting goals, grandiose aspirations and distractions and a lack of core expertise have all contributed to the monetary policy failure.

The new government must rein in an out-of-control RBNZ and narrow its focus to long-term price stability.

Beyond inflation, the big three areas for reform are education, health and housing. These are all fundamental to the good life. Yet all are areas where New Zealand faces crises.

An incoming government must reverse the two-decades-long slide in educational attainment by New Zealand school students. For too long, official policy and discussion about schooling have been dominated by ideological beliefs rather than evidence.

Meanwhile, the Ministry of Education makes little effort to evaluate the education policies it promotes.

Prescription for Prosperity sets out the changes needed to curriculum and assessment, pedagogy, teacher training, remuneration and incentives to return the state school system to world-class.

The most immediate challenge in healthcare is to ease the shortage of healthcare professionals, especially GPs.

In the short-term, the new government must launch an aggressive and targeted recruitment programme for overseas-trained doctors, and implement policies to retain the existing GP workforce.

Longer term, student intakes must be increased, alongside programmes to improve the productivity of the existing GP workforce.

Beyond the shortage of healthcare professionals, the next government must reassess reforms undertaken by the current regime.

There is no clear evidence structural reforms taken in response to the Simpson Report (centralisation) alone will lead to better health outcomes.

A new approach focused on patient needs and relying on better incentives and accountability mechanisms is needed. Research from Emeritus Professor Des Gorman and former Treasury Secretary Dr Murray Horn for the Initiative points the way.

Housing rounds out the trifecta of social policy disasters covered in Prescription for Prosperity.

House prices in New Zealand are among the most unaffordable in the world. High housing costs hurt the “average Kiwi”. But they hit the poorest hardest. Unaffordable housing causes poverty. It decreases labour mobility. And it harms social cohesion.

The Initiative’s manifesto draws on nearly a dozen research reports analysing the cause of our country’s severely unaffordable housing.

Superficially, planning laws are to blame. But the real cause runs deeper. For councils, population growth is a costly inconvenience, requiring improved roading, public transport and other public infrastructure. Yet our councils are cash-strapped. It is little wonder that they get in the way of growth.

To change this, central government must incentivise councils with new forms of funding to encourage them to free up land for housing and enable them to provide the necessary infrastructure for growth. Prescription for Prosperity draws on international experience from countries like Switzerland and the United States to show how this can be done.

Four quick wins

Solving crises in education, health and housing will take time. But, in the meantime, four reforms offer immediate “wins”.

The new government must reintroduce fiscal discipline for spending decisions. The focus should not just be on new spending. A comprehensive review of existing spending is also required.

Research from New Zealand and overseas finds immigration improves productivity and GDP per capita growth. An immigration reset away from the current immigrant-hostile settings is also urgently needed.

Along with easing immigration blockages, the new government must ease restrictions on inward flows of foreign capital. New Zealand has among the most restrictive settings to foreign direct investment (FDI) in the OECD.

Yet international data shows FDI benefits domestic economies. Countries like Ireland that invite international investors typically boost competitiveness, not just by attracting foreign capital, but also the accompanying technologies, management expertise and access to overseas markets.

Freeing up the restrictions in the Overseas Investment Act should be an immediate priority.

Finally, the new government must restore flexibility to New Zealand’s labour markets. New Fair Pay Agreement legislation should be repealed. It risks locking in one-size-fits-all practices, harming productivity growth. Over time, this will harm Kiwi workers and firms, along with consumers and the unemployed.

Taken together, these reforms will improve productivity growth and get New Zealand back onto a stable and sustainable path to prosperity. Without them, the country will be forced to make tough choices, such as aggressively raising the pension age, cutting entitlements, or substantially increasing taxes and debt.

The incoming government can spare New Zealanders the looming tough times. But only by implementing bold, fast and comprehensive reforms.

– Roger Partridge is chairman of the New Zealand Initiative.