The strangulation of regulation: how do we deal to the New Zealand virus?

Transcription

1 The strangulation of regulation: how do we deal to the New Zealand virus? Roderick Deane Background charts for a discussion at the Wellington Club 8 August 2012 Sir Roderick Deane is Chairman of Pacific Road Group in Sydney & the NZ Seed Fund, & a Director of Woolworths Ltd in Sydney. He is also Patron of IHC & Chairman of the IHC Foundation. He was previously Chairman of Fletcher Building, ANZ National Bank, Telecom NZ, Te Papa Tongarewa (the Museum of NZ), City Gallery Wellington Foundation, & a Director of the ANZ Banking Group in Melbourne. At an earlier stage he was CEO of Telecom NZ, Electricity Corporation of NZ, Chairman of the State Services Commission, Deputy Governor & Chief Economist of the Reserve Bank of NZ. He was also Professor of Economics and Management at Victoria University of Wellington, a Director of TransAlta Corporation in Canada, and Alternate Executive Director of the International Monetary Fund.

2 Sensitive New Age Economic Rationalists (fellow economists - Sydney waterfront) 2

3 Some illustrations of our dilemmas The size & burden of Government Overseas debt will NZ be a Euro cot case? The crowding out of the private sector Telecommunications - Think Big revisited The erosion of our capital market Overwrought corporate governance High house prices & declining house ownership But we do know how to do much better 3

4 Slow productivity growth is the price of backing off reforms Index Pre-reform Sources: Statistics NZ; ANZ NZ multi-factor productivity growth Post the economic reform period Reform retreat After the Employment Contracts Act and 1991 Budget

5 A persistent risk factor is the external constraint % of GDP 5 NZ s external current account history 0 Forecast Sources: Statistics NZ; ANZ 5

6 The traded goods sector has been squeezed from Value-added in Non-Traded Goods Index 2000 = Value-added in Traded Goods Mar-1988 Oct-1988 May-1989 Dec-1989 Jul-1990 Feb-1991 Sep-1991 Apr-1992 Nov-1992 Jun-1993 Jan-1994 Aug-1994 Mar-1995 Oct-1995 May-1996 Dec-1996 Jul-1997 Feb-1998 Sep-1998 Apr-1999 Nov-1999 Jun-2000 Jan-2001 Aug-2001 Mar-2002 Oct-2002 May-2003 Dec-2003 Jul-2004 Feb-2005 Sep-2005 Apr-2006 Nov-2006 Jun-2007 Jan-2008 Aug-2008 Mar-2009 Oct-2009 May-2010 Running four quarter totals

7 7

8 Government debt and net foreign asset position Source: OECD, IMF, Statistics NZ, Savings Working Group

9 Kiwis have a much lower income than even Tasmania Trans-Tasman Per Capita Incomes Year Ended June 2010, $NZ Western Australia $100,220 Northern Territory $88,270 Queensland $67,460 South Australia $60,970 Victoria $67,800 New South Wales $70,140 ACT $96,560 New Zealand $43,260 Tasmania $57,370 9

10 The rebirth of growth in the core public service 70,000 FTEs Core Public Service staff (June years) 60,000 50,000 40,000 30,000 20,000 10, Source: SSC

11 For a fair selection everybody has to take the same exam: please climb that tree 11

12 Government pay rates are higher than private sector... and increase faster $ per hour 40 Public versus Private Sector Pay Rates (Average Hourly Earnings) Public Sector Private Sector 10 Sources: Statistics NZ, ANZ

13 Are Kiwis really this sick? 9% Trends in main benefit types among the working age population, Proportion of working age population 8% 7% 6% 5% 4% 3% 2% 1% 0% Domestic Purposes Benefit Invalid's and Sickness Benefit Unemployment Benefit Source: Ministry of Social Development Statistical Reports and Statistics New Zealand population estimates. 13

14 Dilemma: communications has fastest productivity growth; now ended up as the most regulated industry Labour and Multifactor Productivity in the New Zealand Measured Sector Average annual compounded growth rates % 9% Communication services Labour Productivity 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% Mining Construction Furniture and other manufacturing Accommodation, cafes, and restaurants Electricity, gas, and water supply Forestry and fishing Finance and insurance Manufacturing Retail trade Wholesale trade Measured sector Agriculture, forestry, and fishing Transport and storage Textile and apparel manufacturing -2% -2% -1% 0% 1% 2% 3% 4% 5% 6% Multifactor Productivity 14

15 Telecommunications dilemmas Regulatory tsunami $3 billion cut off Telecom s value Telecom earnings decline sharply & continuously after that Govt. invests $ 1.5 billion in fast broadband Refuses to conduct a cost/benefit analysis But claims this will promote economic growth However most downloads are movies, music & porn UFB connected to 176 schools, 8 use it Rural broadband 485 schools, only 6 use it Fast broadband now being offered free to Dec 2012 Pacific Fibre cable project falls over 15

16 NZ has an inadequate capital market Domestic Stockmarket Capitalisation as % of GDP Australian Stock Exchange New Zealand Stock Exchange Sources: World Federation of Exchanges, Statistics NZ, ANZ. 16

17 Regulators at work 17

18 Decline of the capital market Decline in NZ market value relative to GDP Huge contrast now with Australia Takeover regulations Commerce Commission Few new listings in NZ Higher fees Burdensome listing structures Director liability Annual reports too much detail? Prospectus requirements too many risks? Financial advisers role Fund managers performance Finance companies 18

19 Housing in the doldrums Consents (sa) 3500 New Dwelling Consents and House Sales House sales (sa) C onsents (LHS) House sales (adv 4 mths, RHS) Sources: ANZ, National Bank, Statistics NZ, REINZ 19

20 The escalation of house prices 20

21 It s one of the earliest examples of builders flouting local planning laws 21

22 Why are houses so expensive? Regulatory costs NZ versus Australia Local body fees Urban land restrictions and scarcity Resource Management Act Time taken for approvals The Fletchers case study Leaky buildings Productivity Commission report - over 300 pages 22

23 Regulatory creep is an ever accumulating problem Number of Pages of New Primary Legislation by Decade 1900s to 2000s 35,000 30,000 25,000 20,000 15,000 10,000 5, s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 23 Source: Parliamentary Library.

24 Regulation and taxes are the biggest problems Biggest problem facing small business Inflation Access to Finance Supply Shortages Management Rent Rate of Pay Interest Rates Cashflow Other Exchange Rates Turnover Competition Tax Burden Regulation Lack of Skilled Employees Percentage of respondents (300 respondents) 24 Source: National Bank of NZ; data for 2005

25 It s always Sit, Stay, Heel never Think, Innovate, Be Yourself. 25

26 Business adaptability has been severely eroded Regulatory Dilemmas Regulation begets regulation Regulation overrides commercial solutions Regulation and changes induce uncertainty It imposes high transactions costs Diverts energy into rent seeking behaviour And away from focussing on winning in the market Regulation always has unintended consequences It concentrates on past issues rather than future growth Success ironically attracts regulation Regulation reduces flexibility It ultimately impedes the competition it pretends to promote Reduces attractiveness of NZ for foreign direct investment 26

27 Regulators: the new rock stars 27

28 Some Regulatory Solutions Regulatory Standards Bill Compulsory published cost/benefit analysis Time frame regulatory processes Time frame each regulation Tighten consultation time frames Reduce the hordes of regulators Apply much more common sense Get over political correctness Change culture and attitude How can we help instead of how can we prevent Chances of all this happening low to zero 28

29 In summary The post reform period proved we could grow faster We were among the best for productivity growth But then we eroded the gains Government sector grew much faster than private sector The fiscal surplus became a deficit Overseas debt and government internal debt have been rising rapidly Regulations again became widespread and constraining The global financial crisis added to our woes We addressed inadequately the big policy challenges These relate to taxes and government spending Particularly in social welfare, health and education Infrastructure and the regulatory environment The private sector is getting crowded out Yet that is the source of growth and productivity gains 29

30 The essence for stronger economic growth Lower taxes Smaller government Less intrusive less costly regulation Protect property rights Stable fiscal and monetary policies Do not try to pick winners Get closer to Australia Grow with China, India and SE Asia Recognise that most economic growth comes from the private sector 30

31 Once again I find myself in the rather awkward position of having to ask one of you for a biscuit 31