On Monday Rodney Hide will take a paper to the cabinet to set up a 2025 commission. This is an ambitious undertaking.
The 2025 commission is part of the National-ACT support agreement.
The two parties agreed to set a “concrete goal of closing the income gap with Australia by 2025”. They also agreed that would “require a sustained lift in the productivity growth rate to 3 per cent a year or more”.
Crudely put, that seemingly modest target requires on average every person to produce one-thirtieth more output for the same effort each year for 16 years. Working one-thirtieth longer won’t do.
History says that will not be easy. Through much of the 1980s productivity growth was 1-2 per cent. It doubled to around 2.5 per cent through the 1990s after the 1980s/early 1990s reforms driven by ACT founder Sir Roger Douglas, then slid back this decade to around 1 per cent — one-hundredth more for the same effort each year.
Australia’s productivity growth has been higher. There is now roughly a one-third gap between wages and salaries here and in Australia for the same work. Though taxes, other fees and smaller entitlements to government help cut this margin a bit, it is still wide enough to have attracted large numbers to Australia.
The opening of that big wage and salary gap coincided with the 1980s/1990s reforms here and the early aftermath of the reforms. During the 2000s decade, when Labour-led governments re-regulated, the gap continued to widen, but only modestly.
Opponents of ACT-type economic polices make much of this coincidence. Supporters make much of the coincidence of the rise and fall in productivity growth with those events.
Take your pick of explanation. ACT and National said bluntly: “Both parties recognise that achieving this (3 per cent a year) goal will require significant improvements in institutions and policies.”
What improvements? The two parties declared a “joint commitment to limited government — government limited to its proper role — and greater economic freedom” which “will need to be consistently adhered to.”
Hence the 2025 commission. It is to be a “high-quality advisory group” to investigate the reasons for this decade’s slower productivity growth, “identify superior institutions and policies in Australia and other more successful countries and make credible recommendations on the steps needed” to match Australia by 2025.
It will “report annually on the progress made to improve the quality of institutions and policies and whether New Zealand is on track to meet the 2025 goal”.
Setting a goal for 2025 is safely distant, even more safely distant than a goal for greenhouse gas emissions cuts by 2020, which countries are supposed to set by December.
John Key will not be Prime Minister in 2025, Bill English will not be Finance Minister and Hide will not be Minister for Regulatory Reform. As ageing statesmen they will be able to blame any failure on the intervening Labour-led government.
But annual reports by a commission are a different story.
In the early years ministers will be able blame slow progress on the Clark government and cherrypick an item or two.
Thus Jonathan Coleman glowed on Wednesday that “Helen Clark and Phil Goff were waving Kiwis goodbye. John Key is welcoming them back.” Actually, very little of that migration change can be ascribed to the change of government. It is the result of the ebb and flow of the economy here and in Australia and elsewhere. When the world and Australia slow, fewer leave and more return.
But come 2013 or 2014, if 3 per cent a year is not being consistently achieved, the 2025 commission’s reports could be embarrassing.
The Clark government experienced this in a minor key when it instituted regular social reports measuring “wellbeing and quality of life” but the negatives in those reports were offset by gains as unemployment fell and Working for Families and other packages cut in.
That policy dimension is the second risk in the 2025 commission. The commission is to assess whether ministers are putting in place the right policies — according to the commission’s judgment — to lift productivity growth.
This highlights Hide’s two big portfolio responsibilities: cutting regulation and the local body rate burden.
Last week he sset out his thoughts for making it easier for ratepayers to restrain local councils. He has come up with a raft of ideas to get departments and ministers to hold back from making new regulations and start to cull or soften existing regulations. In September the advisory group on his regulatory responsibility bill will report: the aim is to legislate constraints on regulation.
Hide is ambitious and energetic. In March Key requited that ambition with a promise to the ACT conference of a “bonfire of regulations”. But he has paired cautious conservative English with Hide in the work on regulation.
Will English let Hide light the bonfire? The 2025 commission will tell us, year by year. That will be interesting.