What to do with Treasury

Written By: - Date published: 2:28 pm, December 5th, 2008 - 38 comments
Categories: community democracy, economy, Environment, national/act government, public services, workers' rights - Tags:

It’s good to see Treasury’s extreme right-wing prescription for New Zealand has not been wholly embraced by the National Party – and it’s easy to see why. While Bill English (a former Treasury wonk himself) no doubt agrees with the policy ideas and direction outlined by Treasury, he has the disadvantage of being accountable to the public again in a few years’ time. Treasury, on the other hand, does not. Perhaps it’s time that changed.

The Treasury has long been a stalking-horse for the neoliberal project in New Zealand, in fact the Treasury was instrumental in kicking it off in the 1980s and 90s. Since then, regardless of who has been in government, their advice has been to further the neoliberal project of slashing workers’ rights, cutting taxes for the rich and underfunding our public services.

This time is no different. In the latest briefing, Treasury is suggesting a massive wealth transfer from the poor to the rich by increasing GST and cutting the top tax rate to 30%.

They want to amend the RMA to undermine community democracy by “trading off broad participation versus speed and certainty” and ruin the environment by changing “the balance between environmental protection and economic growth”.

They also want to, among other things, roll back workplace health and safety, take away your holidays, bring back discrimination against young workers and make it easier for your boss to sack you unfairly.

Reading the briefing it becomes apparent there’s little or no evidence provided to back up these policy prescriptions and nothing in the way of balance. It’s just the same old ideological crap they’ve been peddling since the days of Roger Douglas.

This raises an interesting question. When it becomes apparent that Treasury is to the Right of even the National Party and seemingly incapable of offering balanced advice, what’s the point of having it around? This question is even more relevant for a future centre-left government.

Perhaps it’s time to take a leaf out of Treasury’s books and apply to them the same standards they apply to others. I propose the next Labour-led government opens Treasury up to competition from the private sector. This will surely improve outcomes and lead to more balanced and less politicised advice.

Treasury will still exist, of course, but the government would tender out its advice to the private sector. According to Treasury’s own prescriptions, the level of service should improve and the quality of advice should rise significantly. Plus, the introduction of market pressures should put downward pressure on the bloated public sector wage packets of Treasury staffers.

The discipline of market forces can be wonderful thing. Treasury might like to try it.

38 comments on “What to do with Treasury”

  1. IrishBill 1

    Perhaps we could dispense with them altogether and just employ one person to change the date on the briefings every year.

  2. Rich 2

    Rather than maintaining a monoculture, a future Labour government could require treasury to employ a board of economists from a range of different schools of thought, a bit like the UK’s MPC.

  3. Tane 3

    Well, that would be the sensible option. I still quite like the idea of getting Brian Easton, Roger Kerr and Jane Kelsey into a three-way fist fight until only one of them is left standing. The winner gets to write the brief to the incoming government.

  4. IrishBill 4

    My money’s on Jane.

  5. Tane 5

    I dunno, Roger Kerr strikes me as the kind of guy who’s taken a few blows to the head, and yet he’s still standing.

  6. ghostwhowalks 6

    Didnt Kerr take a few kicks to the goolies from Deborah Coddington as well.

    The mans a cybor !

  7. Tim Ellis 7

    Tane wrote:

    I propose the next Labour-led government opens Treasury up to competition from the private sector. This will surely improve outcomes and lead to more balanced and less politicised advice.

    An interesting idea, and I don’t have a problem with governments purchasing policy advice. I’m not sure that there are many private sector organisations with the capability to provide detailed analysis and policy advice. But I don’t see how it will provide “less politicised” advice. If Treasury knows it will lose work if it advises the Government something the Government does not want to hear, then that does not make the environment politicised. Likewise, if private consultants simply tell Government Ministers what they want to hear, then that does not lead to less politicised advice, either.

    I appreciate much of your post was written in jest, but it simply isn’t true that Treasury has some neo-liberal agenda. Their position is to provide policy options to the Government of the day and follow the current government’s policy prescription. It’s up to the Government to set the policy parameters and get analysis from the Treasury on the consequences of different policy options.

    As for particular prescriptions that the Treasury might recommend, I don’t see how that’s relevant. It’s a political decision as to which options are followed, and those decisions rest completely with the Minister of Finance. Bill English doesn’t come on television and say: “We are introducing a capital gains tax, irrespective of how the public feel, because the Treasury recommends it.”

    The Treasury is in the luxurious position of being able to recommend appropriate policy prescriptions on economic efficiency, irrespective of the political consequences of following those decisions. That’s how it should be.

  8. Tane 8

    Tim, good to see you recognise it was written largely in jest. But when you look at the briefings over the years it’s clear they’re from a very narrow and very particular ideological position.

    I realise it’s up to the Minister to decide on the value of the advice, as English sensibly has here, but my question is more around the value of the advice. If I were Minister of Finance in a centre-left government I’d find the latest briefing absolutely useless. I think Treasury is in serious need of reform to bring in a wider range of viewpoints.

  9. tsmithfield 9

    I’m interested in why you consider raising GST a transfer of riches to the wealthy.

    Surely higher GST means the wealthy pay more tax since they buy more things.

  10. gingercrush 10

    I think he was pointing to Treasury advice for personal tax cuts to be more in line with business taxes.

  11. Tane 11

    tsmithfield – GST is a regressive tax. Everyone pays more, but the poor pay a higher proportion of their income on GST than the wealthy so it hits them hardest.

    Meanwhile the rich are more than compensated through a cut to the top tax rate, while those on low-middle incomes get nothing.

  12. Stephen 12

    seemingly incapable of offering balanced advice

    Tim wrote a good post, but I would also ask: what on earth is “balanced advice”? Why not the best advice? As Tim said, they work in the sphere of economic outcomes (perhaps only GDP); I think it’s pretty likely that these prescriptions would make the ‘economy’ better, without necessarily increasing social welfare. Making actual decisions is for the politicians – the ones with ‘values’.

  13. Tim Ellis 13

    Tane said:

    But when you look at the briefings over the years it’s clear they’re from a very narrow and very particular ideological position.

    It’s the position of “what is best for the economy”. That isn’t the be-all and end-all of ministerial decision-making. The RMA is a classic case in point. It is a balance between economic and environmental interests. It’s Treasury’s role to advise what the economic trade-offs are. There are plenty of officials from other departments who are qualified to advise on the environmental imperatives. From those respective arguments, Ministers can make sensible decisions based on a range of policy advice.

    If I were Minister of Finance in a centre-left government I’d find the latest briefing absolutely useless. I think Treasury is in serious need of reform to bring in a wider range of viewpoints.

    Obviously I disagree. Treasury is already big enough as it is. I think Treasury’s advice in this area should be restricted to advising on economic efficiency. The MSD is perfectly capable of advising on welfare issues; the Ministry of Health is surely capable of coming up with good arguments for various public health initiatives, to name a few. Everything’s a balancing act. I don’t think anybody in Government really believes that Treasury’s briefing to the incoming government is going to be the only advice that a government receives on policy issues.

  14. We can outsource to our mates at Crosby/Textor, John has them on speed-dial.

    How about a Treasury focus group?

  15. Greg 15

    The reason treasury is so neo liberal is because it employs economists. Now most economists are very right wing (saying they’re not is akin to saying most scientists don’t believe in climate change). The beauty of treasury is that its not politicised so it can say what it wants with no political consequences.

    To look at the validility of arguments you have to first look where the incentives lie. For political parties the strong incentive is to win votes (to say what the public want to hear) – thats why National’s gone so leftish. Treasury’s sole incentive is to improve New Zealand – that way they get more respect and probably a higher pay packet. If you put the content aside, which group would you trust more?

  16. Tane 16

    Why not the best advice?

    It’s the position of “what is best for the economy’

    Because there is no simple ‘best’ answer. Economics is not a science and there are hugely diverging schools of thought on what works best. Furthermore, economic opinion is heavily reliant on value judgements, as is this Treasury report.

    When all opinion from Treasury is from an extreme neoliberal viewpoint I think there’s room for some balance.

  17. ghostwhowalks 17

    Isnt increasing GST in the present situation beyond reasonable economic advice , its so barmy as to defy belief.

    The UK for instance has cut GST.

    As for the rest of their forecasts, seem to be out of wack with actual results as well. yet still they are pumped out using the same spreadsheets that havent been updated in 20 years or so

    Then again if no one follows their advice they cant be shown to wrong….

  18. Stephen 18

    Because there is no simple ‘best’ answer. Economics is not a science and there are hugely diverging schools of thought on what works best. Furthermore, economic opinion is heavily reliant on value judgements, as is this Treasury report.

    When all opinion from Treasury is from an extreme neoliberal viewpoint I think there’s room for some balance.

    Well the advice in question is from an ‘incoming briefing paper’ or whatever, and I suppose the mandate for those is a question of economic efficiency – perhaps that is the ‘school’?.

    On the need for balance – the politicians with ‘X’ values can surely now ask Treasury to take those values into account in order to produce a new paper, couldn’t they?

  19. Tane 19

    The school is neoliberalism, it’s a particular way of doing things – deregulate, deregulate, deregulate – and it’s based on the value judgements inherent in the ideology. It’s certainly not the last word, or the only word, on economic efficiency.

    Respected economists, from New Zealanders like Peter Conway and Brian Easton, right through to Nobel winner Joseph Stiglitz, would beg to differ from Treasury’s analysis. The right-wing economist’s trick is to make you think he’s objective and simply interested in ‘efficiency’.

  20. burt 20

    Tane

    Might be interesting to do a graph of economic growth vs treasury advice followed analysis. As you describe how useless the last few years of treasury briefings have been to govt, while I contemplate how NZ slipped quietly into recession over the last few years I wonder if Treasury are the ones who got it wrong?

  21. Tane 21

    The NZ economy grew faster under Labour than it did under National, so if you’re implying National listens to Treasury more than Labour and were right in doing so then you might want to re-consider your argument.

  22. burt 22

    Tane

    I’m happy with my position, because what I’m saying is you talk about how treasure advice over the last few years has been useless. Over the last few years our economy has stalled well in advance of the current global credit crisis. NZ growth has been slowing for some time. We are now in our third quarter of recession, something that makes us quite special in OECD terms. Dr. Cullen was well know for his ‘ideological burp’ comments about treasury.

    If you want to do a fair comparison, look at National’s last term prior to 1999 and Labour’s term that has just ended. It’s the fairest way to examine their relative policy impacts on growth. Labour inherited a strong economy in 1999, not so for National in 1990 or 2008.

  23. sweeetdisorder 23

    Tane

    “The NZ economy grew faster under Labour than it did under National….”

    Weak answer, you can not compare two governments under 2 different economic periods. Its comparing apples and oranges. You get a better idea comparing different counties under the same economic period (although not ideal) we see NZ slipping from 19th to 22nd place from 1999-2008 in the OECD GDP per capita.

  24. Tane 24

    sd – I know, I’m mocking burt’s simplistic attempt at an argument.

    Speaking of simplistic, I’d have thought you’d know better than to quote OECD numbers without context – such as the EU subsidies to laggard European economies that have pushed them up the table.

  25. sweeetdisorder 25

    Tane

    I said it was not ideal. But it is one measure of a countries strength against others in the same period. We should have done better. We didn’t. When developing countries were creating a sizable middle class, then goods such as dairy should have propelled NZ up the OECD scale many times why did we go down?
    ,
    Surely the EU subsidies vrs our outstanding dairy exports would have canceled each other out? Fact is we went down. Dress it up however you want.

  26. Tim Ellis 26

    GWW wrote:

    Isnt increasing GST in the present situation beyond reasonable economic advice , its so barmy as to defy belief.

    It wouldn’t happen in the present economic situation. I’m not an economist or a tax specialist, but the general idea is that when the economy is growing, you want to encourage saving by discouraging consumption, and encourage production by reducing personal and corporate tax.

    The problem with income tax is that you need to have very high and quite steeply progressive taxes to raise large amounts of revenue. Increasing GST by 5% would raise about $4.1 billion a year. You could lower all personal income tax threshholds by 5%, compensating all income earners for the increased GST, for about the same amount. The consequence would be far greater incentives to earn more, and lesser incentive to spend that money.

    As I say you wouldn’t do that in times of recession when you actually want people to dip into their pockets and spend more in the economy, but it seems to make perfect sense to me in the long-run.

  27. Gustavo Trellis 27

    Tim has it – the problem is people look at these things and assuming they will all be rolled out at once. Lowering tax brackets and freeing up some money now will work, and perhaps upping GST at some time in the future would be ideal. I’d be happy with a less aggressive tax structure in times of recession and a more aggressive ones to captalise on the good times for infrastructure investment. But then again, I’m not treasury, am I?

    Anyway, the point is not to just arbitrarily up GST without offsetting it pretty heavily for lower income earners, because it’s fairly well established that GST is regressive.

  28. Draco T Bastard 28

    TE wrote:

    I appreciate much of your post was written in jest, but it simply isn’t true that Treasury has some neo-liberal agenda.

    They’ve been trained in modern economics which has largely gone the way of Monetarism. They may not have any specific politicization but their training has taken care of that. They’re right-wing Neo-liberals and there’s almost nothing that can be done about it.

    SD wrote:

    …then goods such as dairy should have propelled NZ up the OECD scale many times why did we go down?

    At a guess I’d say it was because so few people directly benefited from the massive rises in the price of dairy and thus that increased return wasn’t adequately spread out through the economy.

  29. haha – that initial post was really well done. I need add nothing more, lest it taketh away from the original.

  30. gingercrush 30

    Eh it simply isn’t true that diary returns don’t benefit New Zealand. If anything the great economy we had for several years was a direct result of very good returns in dairying and agriculture. Those dairy returns go to the farmer who then spends in small provincial towns and cities, those workers in retail etc also spend it while the owners invest back in New Zealand via property and goods and services as well as investing in the sharemarket and companies. In otherwords the great economy New Zealand enjoyed for several years under a Labour-led government was due to consumer spending, exports and the housing boom not to mention proper investment in infrastructure again.

    First, the dollar hit a big low think 39 cents US. This combined with strong commodity prices saw great export returns. Secondly, increased immigration saw a number of people moving to New Zealand. High immigration and great returns on exports saw that money flow elsewhere in New Zealand. This saw consumer spending increase. Interest rates which were historically low and increased spending capacity saw investment in housing via people buying second homes etc. This also meant constant house price movements which made people feel they had more money than they actually did. Thus lead to high consumer spending. What it also saw was investment in building. Both houses and commercial buildings. Immigrants needed homes and people felt richer, thus house prices rose considerably. Investment in infrastructure by the government, immigration, the housing boom, consumer spending and great export returns saw unemployment fall to the lowest they’ve been since the 1970s. This meant more people had the capacity to spend money. Thus even more consumer spending.

    Therefore, farmers particularly dairy farmers felt much richer and they spent money or invested back into their farms meaning more spending. Immigration and consumer spending saw a big housing boom eventually leading to real investment in the stockmarket. Hence, why what was once in the late 2000s eventually made it way past 3000 and almost the mid 3000s.

    Labour was smart to not bring major changes to the country as we saw in the 80s and 90s thus there was a certain stability that allowed the economy to grow and prosper at a longer period than it should have. The only problem is the economy in many ways grew in a way not sustainable. Growing an economy via immigration (which has since ceased and has seen immigration fall while high emigration is also taking place), government investment, consumer spending and of course the housing boom is dangerous. Consumer spending is done via debt while housing prices remain only high for so long. Too much government investment can be dangerous and when you have unemployment at 3% eventually when things cool down you’re going to see that rise again. Not to mention the economy being on a high and increasing commodity prices saw many consumer items rise sharply while earning capacity stayed relatively slow.

    Eventually, there comes a time when we feel poor. That was already set in motion a year and half ago as the housing market cooled, the dollar was high, oil prices rose, several financial companies flopped, earning capacity is low etc etc. We were likely in for a slow period but then international money troubles means the low is lasting longer and is even more damaging.

    Thus DAIRYING was I believe a direct cause for great economic growth. Dairying combined with consumer spending, immigration, high export returns, investment in property, housing boom, investment in the stockmarket, government stability saw our economy rose as each of those things slowed so did our economy.

    The bad news is international forces made the down bit even downer. The good news is that those same forces that saw our economy be on a high are coming into play again.

    Eventually New Zealand’s low dollar, low interest rates and increased immigration along with recovery in commodity prices will see the return of a housing boom leading to lower employment and sharp increases in consumer spending. If we’re smart we’ll invest in more businesses which we didn’t do last time. We’re still far too reliant on consumer spending and housing booms for a larger economy. what we really need is the capacity to grow what we export outside of farming and tourism. We do that and our economy will be far stronger and we will see real rise in terms of where we are on the OCED.

    The greatest gift Labour gave us was their insistence to not do major reforms to our economy. The best thing we can ask for in a National-led government is stability. If National can run a stable government, eventually we will see a healthy economy again and strong growth.

  31. Draco T Bastard 31

    Eh it simply isn’t true that diary returns don’t benefit New Zealand.

    I didn’t say that it didn’t benefit NZ – I said that the direct returns were too narrow. $1m going to one person won’t benefit the economy as much as that same $1m going to 1000 people. You’ll get more velocity and need a wider range of services allowing for more businesses to grow.

    what we really need is the capacity to grow what we export outside of farming and tourism.

    This I agree with but NACT won’t do anything to bring it about – they will continue to over support farming instead.

  32. George 32

    Both in the standard today –

    “It’s good to see Treasury’s extreme right-wing prescription for New Zealand has not been wholly embraced by the National Party – and it’s easy to see why. While Bill English (a former Treasury wonk himself) no doubt agrees with the policy ideas and direction outlined by Treasury’- ‘what to do with Treasury’ Tane, December 5th 2008

    “Treasury’s briefing to Bill English as the new Minister of Finance must’ve pissed him off big time. Aside from the expected ideological burp (already covered in depth by No Right Turn) it reads like a long list of Labour achievements and calls on National is reign in its irresponsible promises.’ – Treasury – Labour left us in good shape- eddie, December 5th 2008

    while i appreciate the fact there are two different authors, can someone please claim the credit for being right?

  33. george. they cover two different aspects of the briefing – the first is treasury’s recommendations, the second treasury’s assessment of the position labour left us in

    captcha: ‘time sunshine’, i agree captcha, see youse later

  34. burt 34

    Tane

    sd – I know, I’m mocking burt’s simplistic attempt at an argument.

    More like mocking your own ability to think about what you are saying before you say it.

    According to you Treasury advice is useless… not following it has landed us in a recession… Yes it’s a pretty simple argument, pity you didn’t think of it before you forgot that Treasury is not the policy division of the current govt. Tim Ellis did spell it out pretty clearly.

  35. Ari 35

    Tim: I could get behind a GST increase to discourage spending if we use the 5% overall tax reduction to steepen the tax curve a bit, rather than relieve the top bracket- preferably by making the annual amount you’d earn on the minimum wage tax-free. We would also have to increase welfare payments to compensate for the increased spending tax, which I doubt would be popular, so you may actually end up with the impression that taxes are being increased from such a redistribution.

    According to you Treasury advice is useless not following it has landed us in a recession Yes it’s a pretty simple argument, pity you didn’t think of it before you forgot that Treasury is not the policy division of the current govt. Tim Ellis did spell it out pretty clearly.

    Firstly, he didn’t say Treasury advice was objectively useless, he said it is highly economically liberal (you can probably read that as “neoliberal”, if you like) and this bias can make some of Treasury’s less tailored advice (such as the post-election briefings) more annoying than helpful for left-wing governments. I think it’s a fair criticism that Treasury is not doing well enough in tailoring its advice to specific governments, especially as they’ve shot right of National this time.

    Secondly, prove that this recession resulted from not following treasury’s advice. That’s a very bold claim and it requires appropriate evidence, which I doubt you’ll find- because it so happens that there is a global credit crisis going on that is a far simpler explanation for our current, comparatively minor economic issues.

  36. burt 36

    Ari

    Tane said: “If I were Minister of Finance in a centre-left government I’d find the latest briefing absolutely useless.”

    So you are right, Tane didn’t say it was objectively useless, he said it’s absolutely useless.

    I think what Tane is not seeing, and it’s bloody obvious really, is that the longer the current govt deviates from the broad policy recommendations of Treasury the more Treasury advice will move against current govt policy.

    It’s a bit like trying to drive a car with a bent bent back wheels in a straight line, the further it travels the more ‘off track’ it gets and the more you need to haul on the steering wheel to try and correct it from running off the road.

    If we had an determined right wing govt for 9 years I wouldn’t be surprised to see quite strongly left wing policies coming from Treasury. We need to remember that Treasury act in the best interest of the country rather than the best interests of the current party governing. Treasury don’t really care if their recommended policies will win votes, they just care about projected economic outcomes.

  37. burt 37

    Ari

    Secondly, prove that this recession resulted from not following treasury’s advice.

    You are right, it’s probably impossible to prove. However our slide down the OECD ratings (which has not only just happened suddenly with the global crisis) is probably sufficient evidence to suggest to any reasonable person that NZ has been heading in the wrong direction. Well the wrong direction according to Treasury, it’s possible Tane thinks a slowing economy and falling GDP per capita is a good thing.

  38. burt 38

    Ari

    We would also have to increase welfare payments to compensate for the increased spending tax, which I doubt would be popular…

    That really is the crux of the issue. As far as Treasury is concerned, ‘popular’ is a marketing problem for the current govt. Govt deciding economic policy on what is popular is when we get allegations of ideological burps from Treasury.

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