Friday, February 13, 2009

Did Douglas give the speech?

It has a partisan interest in claiming this, but Labour-aligned blog The Standard says that Sir Roger Douglas didn't deliver the speech that was put out in his name, because it had been released early by mistake. According to the post, the Herald report on which I also based my own write-up was written only from Douglas's published remarks and a reporter did not attend the speech.

In the scheme of things, the slip-up doesn't really matter much. But if true, it does reflect somewhat poorly on the Herald as the report should have made this clear, especially since the report was accompanied by a photo of Douglas appearing to deliver a speech at the Rotary club. Was photographer Martin Sykes actually sent or was this a file picture? As for the speech itself, what did Douglas actually deliver and does his tax plan, as reported, stand?

UPDATE: I have found my own answers at the other end of the blogosphere.

Wednesday, February 11, 2009

Douglas's Orewa speech

Having been selected by Don Brash as the "greatest living New Zealander", Sir Roger Douglas has made his way to the former's favoured speaker's corner: the Orewa Rotary Club. He brought with him a "new" tax plan - essentially yet another reworking of the ideas which have circulated since the publication of Unfinished Business in 1993. Reading the report in today's New Zealand Herald, under the new plan, the first $30,000 of income would be "tax free" in return for paying for one's own health insurance, retirement and welfare costs. Above the $30,000, a flat tax rate of 15% would apply. But the new catch is that this proposal would be optional - people would be free to stay with the default system of public provision.

First, some comments on the plan itself. Well, dropping the "compulsory" nature of the plan may look fair enough at first glance, but it makes little sense overall. As Brian Fallow - a commentator far better placed to analyse these issues than myself - notes, a flight by the rich to the new individual system would create a sizeable fiscal hole to the government's spending, because only 10% of taxpayers contribute 50% of tax revenue. Moreover, it was always my understanding that a compulsory, uniform insurance model was necessary to keep premium costs to a reasonable level. Insurance works on the basis of risk - as long as everyone, including the healthy types, is insured, the premiums from healthy people balance out the costs generated by the chronically ill.

A compulsory system is certainly how the German system operates - a model which in other respects has always been very similar to what Douglas has proposed. All residents in Germany are required to purchase health and unemployment insurance, pay into a pension fund AND pay taxes on top of this. Although the quality of care is very high (waiting lists do not exist as the nature of insurance means you have a right to care when necessary) this doesn't mean what you pay is much lower overall. This is despite a tax-free allowance of 7,664 Euros (about $20,000 NZD) per person. However you calculate it, health care in particular costs a lot of money.

Still, a compulsory insurance-based system such as Germany operates has definite merit over both public-provision systems (such as New Zealand and the United Kingdom) and mixed systems (such as the United States, where insurance is also not compulsory, leading to relatively high premiums). It is more transparent, you have a choice of health insurers (i.e. competition) and a compulsory pension scheme leads to a high level of national savings, the lack of which is a perennial New Zealand problem.

The problem with Douglas's ideas is that it is really a half-hearted solution. If implemented, I wouldn't expect either the public provision system (caring mostly for the less well-off) or the insurance-based model to work particularly well. Neither would have the numbers to bring costs down via economies of scale. Why not stick with the compulsory model? A radical idea does not become less radical by chipping at the edges.

But whatever the merits of Douglas's proposed scheme, I'm not sure whether this is the issue in 2009. For me, the real story is that Douglas, an ACT MP, is strolling around giving Opposition-style speeches to the Orewa Rotary Club. Hello?! ACT is in GOVERNMENT! While Opposiiton politicans do not have access to the corridors of power and can be expected to give speeches setting out what they "would do", ACT is not in this position anymore. Why doesn't Douglas just tell Rodney Hide about his ideas? As a minister, I'm sure Hide would be only too happy to take these to Prime Minister Key. If they are any good, they'll end up on an order paper.

Of course, Douglas's plans would never be seriously considered by National. A reinvention of the tax system is not about to be undertaken by a party of the status quo, especially not at the behest of a 4% co-operation (not even coalition) partner. A reminder: this is what is written in the National-ACT co-operation agreement:
National and ACT note that United Future favours reducing and aligning personal, trust and company taxes at a maximum rate of 30%. They agree that such a tax structure is a desirable medium-term goal.
If this is the medium-term goal, perhaps National would be happy to consider Douglas's ideas as a long-term goal - as in Never-never land. Frankly, Douglas is wasting his breath giving speeches like this in 2009. We know his philosophy and what he would implement if ACT won 50% of the vote. ACT does not have and will never have this opportunity. But now his party finally has a voice in government, Douglas could turn himself to "small-picture", achievable goals. There are plenty of reforms which National might contemplate. An optional insurance system with a flat tax is not one of them.

Are there tactical reasons for giving such a speech? It has been suggested to me that it is part of an attempt by ACT to retain its individual identity - previously a difficulty for small parties which have helped to form the government since MMP was introduced in New Zealand. I'm doubtful of this for three reasons - 1) the election is three years away and there is plenty of time for raising the party profile once some policy wins have been recorded, 2) it has been proven that Douglas's ideas have never really driven broader support for ACT anyway and 3) I simply don't believe Douglas thinks in this tactical fashion.

Indeed, recall that ACT was given its best dose of oxygen in a good while when National openly announced its intention to form a government with the smaller party in the last month of the election campaign in the spring. In this regard, a deepening of co-operation might not be helped by criticism by Douglas of National's "lack of vision" - also in his Orewa speech.

Perhaps. The other reading could be that Douglas is now irrelevant. He is free to spout off about what he likes, but without a ministerial warrant he has little real clout and National is free to ignore him. Instead, the Tories work with Hide and his more workable proposals.

And perhaps this sums up Douglas's role as an MP - some noise now and then to generate media coverage, some idealistic proposals - but little real impact on the legislative process.

Tuesday, February 10, 2009

I hate quoting myself but...

After a hectic campaign year in the blogosphere, your correspondent has been busy with other things and is still on a break from regular blogging. In the meantime, I urge you to enjoy the excellent series of posts on ACT's early history by Dr. Bryce Edwards and indeed other posts on his academically-focused blog, Liberation.

I have particularly enjoyed his work on New Zealand First. In a recent post, Dr. Edwards takes a look at the party's future with the help of a Herald on Sunday article, for which he was interviewed. While this may seem beyond the scope of this blog, as an (ex-)MMP party, there are many lessons ACT can learn from New Zealand First, including the role of the 5% threshold. While ACT's circumvention of the 5% mark is undoubtedly a short-term blessing for the party, it is unlikely to be a long-term saviour. I placed the following comment on Dr. Edwards's post:
Another excellent post Bryce. I'm somewhat surprised that of all papers the HoS is interested in investigating the future of an extra-parliamentary party - makes a change from house price and "drink drive mayhem" investigations. Well done to David Fisher on what seems to be a well-researched piece.

The future of the "MMP 1.0" parties like NZF, ACT and UF and the 5% threshold is something I've thought quite a bit about since the election. I'm not so sure the 5% threshold itself is the problem, but rather the gimmicks which exist to get around it. Currently we have UF, ACT and the Progressive (deliberately no plural!) trading off the gimmick which allows them to gain representation by winning one electorate seat. OK, UF and Progressive are just single MPs - de facto independents. But this was not more accidental than intentional - obviously they hoped for more votes on the day to gain another MP each. Then we have the Maori Party which trades off the reserved Maori seats.

I'm not criticising these parties for doing this - why wouldn't you go for the safe route to get into Parliament, especially when you see the precarious positions of parties which try the gimmick-free route, such as the Greens and NZF? But the problem is the system - by having these gimmicks, risk-taking and the targeting of genuine niches and the creation of new cleavages is discouraged.

For example, if ACT had to get to 5% to stay in Parliament, I suspect it would have changed its tactics markedly to generate "wider" appeal - not in the sense of becoming more moderate, but more radical (think anti-beneficiary and anti-affirmative action campaigns - even anti-immigration). Since Hide has held Epsom, ACT has shied away from anything too controversial as it needs to hold on to the "blue-rinse", more moderate elderly voters in Epsom - and not frighten the horses.

The only true 5% MMP party - in the sense it was intended - are the Greens. And well done to them - they've picked a niche which is substantive and sustainable (for want of a better word) enough to continuously attract enough voters election after election.

The case of the Maori Party is similar - because it can concentrate on winning just the Maori seats, it can afford to appeal to just a small percentage of Maori. Most Maori still give their party votes to Labour. If the Maori Party had to win 5% of the party vote - something which should be easily achievable when the Maori population in total is around 15% - it would also have to appeal to the many Maori who choose to be on the General roll. Again, this would probably mean more "extremist" views and a more defined position on the left-right spectrum, because the success of niche parties relies upon them being outliers to the mainstream parties.

Of course, the danger for parties like the Maori Party and ACT is that if they gave up their "safe but boring" campaigns based on quirks in the system, and only competed for a 5% share of the party vote, they could and probably would fail. Why? Because they are simply not popular enough and are children of their own time. Bryce is absolutely right that parties like ACT and NZF were offshoots of the neoliberalism debate of the 1980s and 1990s, just as the Maori Party was a product of the Seabed and Foreshore and Orewa speech debates of the early 2000s. Eventually the fervour and enthusiasm for the parties begin to fade and with it, the parties' niches on the political spectrum.

The challenge for political actors is to create a timeless political party, peddling issues which are so perennial that they can fuel a party indefinitely. The rights of the working class is one such issue - that's why Labour still exists after 90+ years, even though the working class has become today's middle class.

The environment is another, which explains why the Greens are still going strong (and they are, despite some snide comments from the right since the election about the Greens' "poor" performance of double ACT's party vote result).

Finding such a long-life issue is easier said than done - and it's almost certain that there isn't one at the present time sufficient enough to excite a significant proportion of voters.

But 200 years ago, no-one would have seriously considered that a party based on representing the interests of the working class could prosper, because the working class as a proportion of the population as a whole was still insignificant - and of course the working class was disenfranchised anyway. And 50 years ago, no-one would have seriously considered that a party could prosper simply based on environmental issues, anywhere in the world. Another issue will arise, not today, not this year, but certainly in the future.

In the short run, parties which trade off the gimmicks in the version of MMP which New Zealand adopted are successful. They are in Parliament. New Zealand First is not. But in the long run, parties like ACT are in my view preventing the creation of genuine and substantive niches, both because they are preventing themselves from transforming and because collectively they mop up the vote which could go towards a third-party with a genuinely significant niche.