Economy Key

Anti-dismal posted a few weeks ago about comments that John Key will be the most economically literate PM for a good while, but then pointed out that some of the economic policies signalled in the election are poor. Now that he is PM it is time to review these in the light of the Act agreement.

His list is:

• Transition relief package - this is pure politics. There is no mention of this in the agreement itself, and it is still in the post-election plan, so it stays. But it is short term, so any damage is minimal. I don't see it as a moral hazzard.
• Requiring the Cullen fund to invest 40% in New Zealand - I complained about this earlier. No mention of it in the agreement. Anti-dismal is surely right. Key concerns are political interference, crowding out of private investment, and lower returns from the fund (the latter being a bit of a joke at this point, admittedly)
• Fibre internet - well who knows. Again no mention the in agreement. I can't understand why the government needs to get involved, and (now living rurally) I would settle for ADSL. But certainly our Internet is seriously sub-standard and it is a major opportunity for improvement. I hope and trust that National does not intend to nationalise anything in this area (see another Anti-dismal post on this), and that they would limit themselves to subsidising private sector infrastructure builds. Even this is fraught with difficulty. It is certainly a can of worms.
• No SOE sales - re-iterated in the agreement. This is seriously stupid, as there are assets which are just aching to be sold and we could do with the money. Still, I see it as a political calculation. There are other priorities which can easily keep the government legislatively busy for the first term. If the citizens come around to the idea then they can fire up the trademe site later. It is probably also worth mentioning that at least most of the SOEs make money. In 1984 the problem was that government departments like NZ Post and Railways were not only useless but they also lost money, meaning that we were better off not having them at all. OK, railways is not going to be a good bet, but most of the other others are ok. The need to privatise is not hugely urgent in terms of a growth inhibitor, I would think.

I would add to the list the goal of catching up to Australia by 2025, stated in the agreement. That is a long time away. It is either a measure of how unambitious National really is, or a measure of how far away we really are, perhaps even both. But it is a sobering thought. In my view, a resource boom has to figure in this catch-up - we have plenty of coal, probably lots of oil, and wood is not a problem. We need to ditch the environmentalists and move forward on all of these.

In National's defence, I would also point out these policies from the agreement. While not strickly economic, I believe they have significant short-term economic potential:

1. RMA - reforming this could provide a huge boom in infrastructure projects, assuming the financial markets recover and can provide the funding. Who would even think about a new power station, or a hydro scheme with the RMA as it is now?
2. Regulation - no one even knows what excess regulation costs us. It is a lot. I'd like to see a full report on this, trying to estimate the cost of particular regulations throughout the economy.
3. Tax - I promise to get out of bed every morning when the top tax rate is abolished. I'm not the only one.
4. Climate Change - introduces significant business uncertainty in some areas, so signalling a more cautious approach here has to be worth another 0.5% on GDP

So my view is not as dismal as Anti-dismal, and altogether anti-dismal in some areas which Act brings to the table! It will be interesting to see how it pans out.

UPDATE: Kiwiblog's take on the agreement is here.

Comments

[Paul Walker]

My view isn't as dismal as it was. There are some good things in the Act National agreement, as you point out. For what they are worth, yesterday I made a few quick (dismal?) comments on the agreement here http://antidismal.blogspot.com/2008/11/nationalact-deal.html". But my worry is still

"What does this mean? With confidence and supply guaranteed by the Maori Party, National could govern without Act. This weakens Acts ability to force to changes to National's policy, in particular economic policy. For those, like Eric and me, who hoped that National would move down the road of economic reform this is bad news. Act has lost much of its power to push National down that road. Key has the votes he needs to stay in in the centre, to occupy Labour's territory and not move at all. "Labour Lite" could be here to stay and we could see the worst government since Muldoon."(http://antidismal.blogspot.com/2008/11/national-act-and-maori-party.html)

The proof will be in the eating. But if Key wants to stay in the centre, now he can, and economic reform could be the loser for this. I hope I'm wrong.