Something is happening – In New Zealand that is

I’ve commented before on my view that three or four of the best films I’ve seen in the last 10 years have been from New Zealand.

Once were Warriors and In my Father’s Den were amongst the best films I’ve ever seen. Then there was Whale rider. I can take or leave the Lord of the Rings movies, but they were certainly a well made tour de force.

Against that Australia hasn’t had much to offer. Michael Duffy hops in on the subject of Australian films here though he turns it into a bit of an ideological point.

I don’t know if the point stands up as I presume that some of the best New Zealand films were made with government subsidy like the best Australian films. Then again, I don’t know how seriously he’s making the point. Nevertheless I agree with him on the substance. When was the last really good Australian film released? I can’t think, though I don’t see them all and I could easily have missed some that were good.

In any event, as the rest of this post argues, films are just a microcosm. Lots of good and interesting things are happening in New Zealand and we should be more appreciative and interested in it.

New Zealand seems ahead of us in indigenous relations (though we have an unusually difficult problem it seems to me and I don’t have any smart ideas about what to do). I’m not necessarily sure that the actual mechanisms they’re using are all that crash hot, as I am suspicious of racial discrimination positive or negative, but Maori culture and language sure seems to be pretty mainstream over there and New Zealanders tell me Maori feel pretty good about themselves. 60 per cent of Maori now have jobs, up from 43 per cent in 1991.

However there’s a backlash in this election. In many ways I agree with the National Party’s objection to entrenched positive discrimination on the basis of race – like special Maori seats in Parliament. So perhaps I’ll leave that in my ‘don’t know’ column

Then there’s women. I’m not particularly enamoured of feminist activism and feminist agitation for positive discrimination these days however strong the case might have been for it in the past. But (I’m guessing) that hasn’t played a huge role in the four top positions in New Zealand having been held in recent years by women. That’s Governor General, PM, Chief Justice of the High Court (I htink) and Leader of the Opposition.

Then there’s New Zealand’s anti-nuclear position. I like it I must say. Why do any of the Western powers have nukes right now (rather than maintain some capacity to build them if necessary) can someone tell me? And their non-supine foreign policy. I agree they’re in a rather luxurious position. But they’re also handling their own interests well, with a bit of idealism thrown in.

New Zealand now has a carbon tax raising what seems would be over $3 billion if it were implemented over here. Not small beer. Of course it makes no sense if you see it entirely from their own self interested point of view. But if we stick resolutely to that principle we’ll never be able to take global environmental action on any subject.

New Zealand’s economic reform was much more zealous in the 1980s and 90s and much less successful, though I expect a fair bit of that was beyond their control. But for some time anyway, there’s been a lot of impressive thinking and doing going on over there. I recall when I was writing a paper and an op ed on risk and government with Ric Simes, a lot of the really interesting papers on risk and Government investment and asset allocation were from the New Zealand Treasury.

As regular readers of Troppo will know, I’ve been working on a ‘progressive essay’ arguing that we could and should increase savings in Australia without compulsion by increasing the ‘default’ rate of superannuation contribution early drafts of which I’ve posted on Troppo recently here here and here. The ‘behavioural economics’ research indicates that a lot of savings behaviour is driven by conceptions of what is ‘normal’ and by procrastination. The upshot is that you can improve things by establishing a situation in which the ‘do nothing’ option results in higher rather than lower rates of superannuation contribution at the same time as leaving people free to opt out. (Andrew Leigh et al proposed the same thing in their Imagining Australia).

After I posted my drafts, ‘Economics Focus’ in the Economist reported that New Zealand had become the first country to respond to the new research not a bad rate of innovation. The idea is obvious enough, but only when pointed out. Given that the bulk of the research is less than a decade old (though Akerlof wrote about procrastination in the early nineties) announcing a scheme by 2005 seems pretty impressive as is being first with something obviously sensible.

Here’s the ‘box’ I’ve written into the essay.
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Box One: New Zealand leads world with default savings scheme

Antipodeans are rightly proud of their political and economic innovations having led the world in such areas as full male suffrage, female suffrage and the ‘Australian’ or secret ballot. In the 1980s and 1990s both countries were at the forefront of economic reform though Australia’s more moderate approach now seems to have been superior.

As Australia was an innovator with policies such as HECS and the Child Support Agency, so on 19th of May this year New Zealand became the first country to announce the introduction of a default savings scheme.

Having no compulsory superannuation and modest tax incentives for savings, New Zealand’s position is different to Australia’s. Thus whereas the compulsory system is always likely to overshadow any default scheme in Australia, the New Zealand default scheme is regarded by its architects as a major plank of savings policy.

In “tilting of the playing field towards participation”, from April 2007 employers must deposit four percent of their employees’ wages into the ‘KiwiSaver’ scheme run by their Internal Revenue Department. As an incentive, the government offers a fee subsidy on the management of the funds, makes a $1,000 contribution and also makes an additional payment of up to $5,000 for a housing deposit after three years in the scheme. (Labor has just promised to raise this to $10.000 after five years in the current election.)

Opting out takes a little more effort than the default option and can only be done between the second and forth weeks in a new job. Thereafter the money is invested in the fund until retirement. Contribution holidays can also be taken at any time, but four percent contributions resume after the five years holiday with the employee retaining the right to take further holidays.

From what has been published so far, KiwiSaver looks thoughtfully designed.

* If an employee does not pick a provider, he is randomly allocated to a default provider which will be selected through a competitive tender process designed in part to negotiate lower fees.

* The system integrates with competitive funds management and with employer contributions negotiated within the workplace.

* Leaning from the dismal Australian experience in this regard, small balances will also be held until they accumulate to a minimum level to avoid costs to the providers.

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This isn’t just a cobbled together policy. Our own superannuation policy was visionary as the ALP never ceases to remind itself. It was also callous, slapdash and neglectful of the interests of less secure and well paid workers.

Thus, extra-ordinarily, the ALP introduced what was basically a ‘flat tax’ system with the result that the tax concessions it embodied were much higher for the rich, and offered much lower incentives and in some cases disincentives to the less well off.

Thus the extra-ordinary spectacle of fruit pickers having initially 3% of their wages and later on substantially more only to be parked in accounts where they were gobbled up in fees that were a massive proportion of the funds invested and/or lost as people moved on. Nearly one percent of GDP sits in unclaimed super accounts today.

And what have we done in the last ten years? The Coalition has introduced a tax it promised not to which made the system substantially more progressive. And it’s now removed it. And we’ve spent over five years working through the enormous complexities of choice of fund. Choice of fund is a worthwhile objective. But it’s been done in a way that is expensive and confusing for the punters.

Compare the New Zealand system in all these respects. The relevant minister Michael Cullen has spoken of the need not to swamp people who are new to the system with too much information too early. Too right! The scheme has modest tax concessions as it should have if it’s not to be a giant tax minimisation opportunity for those who would save the money anyway.

And the form of concession is a mirror image of the Australian system. Instead of a flat tax, there is a flat subsidy. Result? The subsidy is naturally self limiting and the greatest relative assistance goes to the least well off. Those loud of mouth and broad of vision who engineered the Australian system take note. You can still be visionary but you’ll do your mates more favours in the end if you attend to the detail!

The New Zealanders have also done what we did with HECs and the child support agency and what the Swedes have done. They’ve understood that in situations such as this the infrastructure of a scheme can be critical to it’s efficiency.

And in both Sweden and New Zealand that infrastructure is the tax system which will enable workers to track their super (it will be very hard to lose an account) and lower transactions costs for employers who only have to make a super payment to the Department of Internal Revenue which will then allocate the money to a default fund or a fund of the employee’s choice. It is almost certainly a much better system for almost everyone, although the level of choice it provides may conceivably be less. (On the other hand with lower infrastructure costs, it may create a platform for more choice than would otherwise be possible.)

Further, as the money has rolled into the coffers of the New Zealand Government, it has not just sprayed it around as we have. It has used it to accelerate debt repayment and to build government net worth. In contrast to our own Government’s policy of talking about the intergenerational threats to the budget in the long term whilst offering next to nothing either in terms of day to day discipline on outlays or longer term structural responses, the New Zealanders have held their nerve. The budget surplus in New Zealand is only a little smaller than our own budget surplus despite our economy being over five times the size.

These policies appeal to me for various reasons. Firstly the size of sustained surpluses in good times are a kind of index of the extent to which a government is able to rise above the crude pressures of the next election and think about longer term issues. Of course just as Jeff Kennett’s huge surpluses were irresistable to his Opposition so too have been New Zealand’s surpluses to the Nationals who are promising huge tax cuts without specifying property how they’ll be funded (where have I heard that before?). They’ll also do away with KiwiSaver’s modest cost to fund tax cuts.

Secondly they do this not only by example building up surpluses which then becomes ripe for pillage by political successors of whatever political persuasion. They’ve also done it by institution building. We’re still dithering over the Future Fund and talking of parking spare shares there. We only set up the Future Fund after successive Treasurers had ridiculed the idea of a Government investment fund but been forced into having one by selling assets to the point that negative net debt levels were to be reached.

By contrast the New Zealanders – urged on by some of those people writing the thoughtful papers in their Treasury – have done all this (though they did it with foresight – not having been forced into it by looming negative net debt). Theirs is a genuine intergenerational policy.

The New Zealand Superannuation fund now makes substantial calls on the New Zealand budget (of nearly the size to GDP of our current surplus) and so redefines budget balance as a substantial surplus something only a few other countries (like Norway) have done. (I don’t know the detail, but to do this really well, I’d hope that during downturns it also permits lower contributions and indeed some unwinding of the assets of the fund. I think the former is the case but not the latter).

Anyway, no doubt there are downsides. But it’s an impressive performance.

I find it amazing that we know so little, that the ALP isn’t jumping up and down showing the world that a Labor Government can be economically responsible, innovative and consistently advantage the mass of people rather than the wealthy. Certainly they seem to be more responsible than their opponents election promises look like they are.

Meanwhile I read Tim Colebatch’s take on New Zealand where I presume he’s just been for the election on Sept 17. Sadly New Zealand experiences no net population growth amongst under 40s and decline if one excludes Maori. With a much larger economy Australia enjoys economies of scale which mean life is easier for us even if we don’t try as hard (Just as it is for American policy makers even though they try even less hard!). So Australia can pay its workers more 30 percent more and lure many of the most productive New Zealanders away.

Doesn’t look like we’ve lured too many filmmakers though!