By Andrew Patterson, RadioLIVE Business Editor
Give it a few months and no one is likely to remember much about Finance Minister Bill English’s fourth budget.
When I spoke to him last week on my Drive programme on RadioLIVE I described the budget as bland and lacking in imagination. With most of the key polices already pre-announced it was only a couple of minor tweaks, including additional taxes for smokers and no more tax free income for paper boys and girls that caught the headlines – the latter being particularly petty given the Government’s stated aim of encouraging a savings culture amongst young people.
Of course, the government has to get on top of its growing deficit and return the accounts to surplus. No question on that score. Even Labour agrees that’s a key priority.
But that didn’t mean the Government couldn’t deliver a budget that contained a few smart, well thought-through policy ideas to demonstrate it’s as innovative in its thinking as it’s expecting the private sector to be as the key driver of economic growth in the future.
In a nutshell: That was the whole problem with this budget – it failed to sell a message of ambition.
While Prime Minister John Key famously said he was “…ambitious for New Zealand’s future” there was very little in this budget that demonstrated that ambition, despite the tough economic times in which it was formulated.
While it was commendable that some additional funding was allocated to science and innovation, even this didn’t fit within an overall strategy that was immediately obvious.
For instance, the budget speech talked about “$60 million having been allocated to a National Science Challenge which will seek innovative solutions to specific questions of national significance,” but how exactly will that work in practice?
Few details have been outlined about the practicalities of such a challenge and one assumes that significant amounts of research dollars will be required to invest in the development of appropriate solutions that are generated from the competition.
As Professor Shaun Hendry, President of the Association of Scientists, pointed out in an interview with me this week, when inflation is taken into account, the Ministry of Science & Innovation’s spend has increased by only 3% in total.
Something therefore doesn’t add up; particularly if the Government believes this strategy is going to be responsible for driving its, so far, illusive growth agenda.
Perhaps more concerning, though, is the Government’s complete lack of focus on the long term issues facing NZ’s ageing population and the two giant elephants in the room - superannuation and health.
It seems strange that the country is almost completely united in its view that something needs to be done about raising the age of entitlement for national super, and yet the Government remains steadfast in its belief that there isn’t a problem.
This is inherently the fundamental problem with the nature of governments. They only think in terms of electoral cycles. Of course, this is supposed to be the role of Treasury, though it regularly seems conflicted in its “master-servant” relationship with the government of the day.
Perhaps NZ needs a separate, independent body with responsibility for long term policy issues in the same way that the Reserve Bank is mandated to manage monetary policy independent of government. Such a body could be initiated to manage the country’s long term policy development and provide recommended strategies that the government of the day would be collectively bound to implement.
Governments have a terrible legacy of ignoring problems until they reach a crisis point and superannuation and health care spending look like being this country’s nemesis.
China is the global benchmark for long term economic planning as anyone who has visited Shanghai’s premier Urban Planning Centre will confirm. I was fortunate to see this amazing facility for myself a few years back. It contains one of the world’s largest scale models displaying exactly how the city will look in the year 2050 – every hospital, shopping centre, apartment block and school - in fact literally everything in terms of its infrastructure. It’s quite extraordinary to see in real life as the photo above depicts.
While China’s model of decision making isn’t strictly comparable with our own, their emphasis on planning is one of the reasons its economy is so incredibly successful – every aspect of its economic growth is planned in a series of incremental time periods. However, it’s the process that China adopts to arrive at those planning outcomes that is the genius of its system. What China does is to create a contestable environment for ideas that allows innovative thinking to flourish, thereby allowing the government to be the beneficiary of the process. No one government organisation, minister or department has a monopoly on the process.
New Zealand could well learn from this approach. We have nothing similar in NZ. Our universities are simply teaching and research institutions - which operate as silos - rather than being centres of integrated, innovative thinking and ideas factories that could benefit both the government and the country as a whole with their output.
Of course, some ideas occasionally make it through the filter, but why couldn’t we see this process become both contestable and integrated into Treasury’s policy development much more than exists at present?
As former Treasury adviser and NZ Institute CEO David Skilling so aptly put it in a piece published in the Herald last week: “NZ needs to align all major policy areas as a coherent response to globalisation while developing an economic strategy [detailing] how the country should compete internationally, how risk exposures such as an ageing population and education and labour market policies are managed, and how the country positions itself in the world. It will need to over-invest in order to overcome the disadvantages of its distance from global markets and exposure to international forces.”
This will be a real challenge for NZ to embrace, but should be the basis for future planning by both government and the private sector. First we need to determine what it is we want as outcomes and then set about engineering the process by which those outcomes should be achieved.
The Government has begun to embrace this approach domestically by setting goals for the reduction in crime and pass rates in education. Perhaps it’s about time collectively we took the same approach to our international competitiveness as an economy.
We regularly talk about first world and the third world economies, but rarely are second world economies mentioned. NZ is increasingly at risk of becoming a second world economy if we don’t begin to significantly invest in our future.
If we took David Skilling’s advice and adopted such an approach, perhaps then we might see budgets in the future that are significantly more imaginative and ambitious in their outlook than we saw from the Government last week.
Andrew Patterson hosts RadioLIVE Drive, weekdays from 3pm, and Sunday Business, weekly from 9am.