Don Brash's cultural challenge

Be warned: a boss who runs a company off the rails and then takes a big payout might get a tongue-lashing from the National party’s new leader. Don Brash wants the public to back business and rich rewards for failure don’t help.

Brash backs high salaries for those who create jobs. But “it is quite outrageous that people who destroy large quantities of shareholder wealth and thousands of jobs seem to end up with very, very large payments,” he said in an interview [Thursday]. He will say that “occasionally in speeches”.

Brash is keenly aware of surveys showing that the public doesn’t trust business and doesn’t make the connection between business and the country’s wealth. That sort of politics can undo his economics.

One of eight policy pointers he laid out in a major speech to the National party conference in July* — a speech that might be called his economic manifesto — is to “encourage a culture in our schools and in our society more generally which values business and businesspeople and recognises the importance of enterprise”.

Without such a culture, Brash’s programme of tax cuts, spending limits, asset sales, less regulation of business and the workplace and greater scope for private provision of education runs straight into a wall of public resistance.

And it is there he risks losing the political battle against Helen Clark and Michael Cullen. They are itching to paint him as a heartless technocrat.

So you might think Brash is planning an urgent campaign to change the culture in favour of business. Actually, no.

He will build it into his speeches. But “this is not something a political party alone can substantially change,” he said. A “smooth marketing campaign” would not shift “deeply inculcated” attitudes of teachers and “institutions like churches”. Indeed, “I am not assuming that two or three terms of a National government would have a huge impact”.

And first there has to be a National government. For that he has to outgun Clark and Cullen. He got a taste on Thursday of what is to come from that quarter. Cullen lashed him for an “outright lie”.

In a newspaper interview Brash had repeated his July aim of a 30 per cent top personal and company income tax rate, costing $1.7 billion and referred to the $5.6 billion 2002-03 operating surplus.

That, Cullen said, was the OBERAC version (operating balance less revaluations and accounting changes) and didn’t actually represent available funds — which, “as an ex-Reserve Bank governor”, Brash knew. The cash surplus was around $1.2 billion. Brash would have had to borrow for his tax cuts.

Brash does know the difference and insists the OBERAC is a more valid measure over time on which to base longer-term policy.

And he was not talking of making the cuts immediately. “There is sufficient budgetary margin to give scope to reduce tax rates quite extensively,” he said, particularly the company rate cut — but not to move personal rate to 30 per cent immediately because that would cause “an undesirably large fiscal stimulus which would create difficulties for monetary policy”.

And he flatly ruled out going into fiscal deficit to fund tax cuts, as United States President George Bush has. At this stage in the demographic cycle, with baby boomers about to retire in large numbers, the country should be running surpluses at least big enough to cover the government’s capital spending.

Nor would top personal and company rates be the only ones to change.

“If you are looking from a growth angle, you have to look at the marginal tax rates of the people most likely to invest,” he said. “But you have to look at other rates as well. And there is sufficient room to manoeuvre so that in fact one can undertake both growth-enhancing tax reductions and reductions which improve the lot of low-income New Zealanders.”

He doesn’t have his party’s sign-off for the 30-30 rates yet. That was to have happened at the abandoned strategy caucus on Thursday. No new date has been set.

That hiatus permeates his economic programme at this time. Where he could be firm and challenging in July, he is now more circumspect.

In July he said if his party was serious about 4 per cent GDP growth, it needed to cut spending. He suggested holding increases to no more than the rise in population and inflation. That would cut spending by 5 per cent of GDP over 10 years — and cut a swathe through social spending.

What he was going to put before the abandoned strategy caucus was a proposal to “look at rate at which we expect major categories of spending to grow and compare that with that kind of constraint. The key question is, can we deliver the kinds of government services which most New Zealanders want?”

The same for asset sales. “We don’t yet have settled policy” of what his government would sell — though he has said natural monopolies like Transpower should not be — nor of the method of sale, though he leans towards share floats because they are more publicly acceptable, more politically “feasible”, even if they don’t maximise the sale price.

Likewise with taxing foreign investment. He “has sympathy” with the government having ruled out general tax concessions and with the need to deal with anomalies surrounding venture capital (notably in the different rates of tax here and in the investor’s home country), on which Cullen announced some changes last month [October]. But more work is needed.

Brash, of course, is in favour of foreign investment and as Prime Minister would campaign abroad for more, as Clark and Cullen have. But he doesn’t think a government can steer investment to, for example, greenfields projects. It is “not a homogeneous blob of money which you can encourage this way or that way”. Most of it is an “investment by a particular company looking at a particular industry or sector and there is no point in asking a telephone company in America to invest in high-tech grass growing”.

More important would be create a more attractive microeconomic climate — that is, reduce regulation. He focuses particularly on the Resource Management Act, workplace law, the Hazardous Substances and New Organisms Act and, for some investors, the wholesale electricity market.

He would aim to have “three or four big bits of law” ready for drafting by the election. Where has he drawn his advice on those from? So far, mainly from business interest groups, such as the Road Transport Forum and Business New Zealand.

He has not assembled a coterie of highly qualified experts feeding in advice on, for example, electricity, though some had indicated they would help when the leadership changed. “At this point we haven’t got into very many of those specific policy areas at a detailed level.”

One “big bit of law” to be tackled is what to do with the Cullen superannuation fund. He has floated the idea in the past of a higher qualifying age in place of the fund. But again, policy has yet to be decided.

What Brash insists on is more honesty in super policy. Both Labour and National have been “less than totally frank” and people were cynical about politicians. He will, he said, be honest “even if it hurts politically”.

That would be a seriously big culture change.

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Don Brash identifies two challenges vital for the future of the country. One is economic growth “because it delivers the capacity to provide good education and hospitals, etc. It is not an end in itself. One of the ends is a situation where enterprising New Zealanders want to live in New Zealand.”

The other, at least equally large in his mind, is “the deterioration of race relations” between Maori and non-Maori, on both sides of which there are “huge resentments”. “I think that has a huge potential to damage us, if we don’t get it right.”

“Failure on growth policy, failure on race policy can both blow us apart.”