Bruce Cotterill: Luxon’s growth strategy vs Hipkins’ tax plans

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Chris Hipkins says he wants to widen the tax base, while Christopher Luxon is keeping his focus on the bigger game. Photo / Mark MItchell
THREE KEY FACTS:
Bruce Cotterill is a professional director, speaker and adviser to business leaders. He is the author of the book The Best Leaders Don’t Shout, and host of the podcast Leaders Getting Coffee.
OPINION

I’ve been observing the Prime Minister over the past few weeks. I must
admit there was a time when he didn’t have me convinced, but it feels like he’s growing into both the role and the enormity of the challenges that go with it.

As we’ve all heard, he is repeatedly stressing the importance of getting our economy back on track. He might feel like he’s repeating himself excessively, but there’s a two-pronged message in there. Firstly, an acknowledgment we’re off track. Secondly, a commitment he’s trying to turn that around.
He’s walking the talk too. He and his colleagues are spending plenty of time “on the road”looking for business and investment. Although I’ve never met him, I suspect he’s pretty good in that environment. On the expense side, it feels like he’s trying to get the cost of running government back to a manageable level too, while looking to ensure the money we do spend lands in the right places.
I think he’s made it pretty clear along the way how bad a state our economy is in. From this observer’s perspective, it is important for us to understand he’s not exaggerating the economic story for political purposes. As the stats continue to roll out, the story they tell is not a pretty one.
We have problems aplenty across the economic spectrum. For example, we’ve just learned the nation’s GDP fell again in the June quarter, this time by 0.2%. With our population increasing over the period, the GDP per-capita result is probably more meaningful. That’s minus 0.5% for the quarter and minus 2.7% for the year.
For an alternative view: Matthew Hooton – The Govt is distracted on the economy, and bigger problems loom
Reining in our explosive current account deficit is another challenge proving to be tough going, with the reading for the June quarter widening by another $269 million to $7.2 billion.
We have challenges in the energy sector too, with supply not meeting demand and the resultant price pressures forcing even large businesses to either cut back or in some cases close down as a result.
The good news is the PM is taking those hits on the chin and keeping his focus on the bigger game.
A couple of weeks back Luxon, along with a group of New Zealand business leaders, was back on the road again. This time the targets were Malaysia and South Korea. His mantra is a simple one. If we’re going to get out of this mess, we have to grow our economy he says, repeating himself again. He speaks openly about economic ambition and how his aspirations for the country can be achieved only if supported by a stronger economy.
The contrast with his predecessors could not be more extreme. Whereas the previous Government seemed to ignore the benefits of hanging out with the international business and foreign affairs community, this lot is doubling down in that very important space.
But the contrast doesn’t stop there.
Former Prime Minister and still Opposition leader Chris Hipkins appeared on Q+A on TVNZ, where he proclaimed future Labour Party policy would seek to “expand the tax base”. In fact, in a flip-flop that would usually have journalists racing for the exclamation point button on their keyboards, he is now advocating for a capital gains tax. He also said our debt-laden economy “needed to borrow more money” to alleviate the pressure we are under to fund infrastructure and services.
And there we have it. In only a couple of paragraphs, the difference between our previous Government and the one now in office.
While the new incumbents are travelling the global investment community, selling our wares to the world with the aim of growing our economy, their predecessors want to borrow more and increase the tax base.
There’s an old saying about learning from one’s mistakes that the present Opposition clearly doesn’t get. One of the single biggest issues in our economy right now is that at every level, we are carrying too much debt. Government debt. Business debt. And household debt. Credit cards, mortgages and second-tier finance. And despite the lessons of the past few years, a Labour government would borrow more money.
In case no one has noticed, we have businesses falling over all over the place. At the centre of many of them is a statutory demand from the IRD. Make no mistake, the IRD is the lender of last resort. And let’s not blame it. It is the Government’s much-needed revenue line and all it’s seeking to do is collect its overdue debtors.
Most thinking business owners will let that number at the IRD pile up only when credit cards are full, traditional funding lines have dried up, and there’s no more room on the mortgage. That’s at the personal level.
Then there is the state of big business. The past month in particular has been notable for the number of big businesses either restructuring or closing down. Methanex was the latest. It’s not hard to argue that the policies of the Labour-led Government, which Hipkins was a part of, is at least partly responsible for their dramatic downsizing.
Winstone Pulp International is closing not one but two North Island paper mills because of unsustainable energy prices. One of that industry’s CEOs recently wrote in this newspaper that “the sawmilling sector now has 40% excess capacity and prices are down 10%”. Stats like that will kill an industry and with it a heap of jobs, and take a chunk out of our export sector.
Our economic woes are not limited to business either. A couple of our local councils have just had Moody’s rating agency downgrade their credit ratings. Surprise surprise, one of them is in Wellington. That will make it harder and more expensive for it to borrow more money.
And so we sit with plenty of evidence that the borrow, tax and spend strategy of the previous Government will kill an economy rather than save it. That approach has left us indebted, insular and exposed. It also resulted in us losing a bit of our belief as a nation, belief in our political leaders, our bosses, and in many cases ourselves.
If you want to save the economy a few things strike me as obvious. It’s not dissimilar to running a business. Look for ways to grow the revenue line. What can we sell to our customers that they don’t buy at present? Where can we find new customers to buy our products? When we see Luxon, Peters, Collins and McClay knocking on the doors of business and governments around the world, that’s what they’re doing. We should be celebrating every success they can generate from such activities.
On the expenditure front, they’ve had some flak for cutting government staffing numbers. But let’s not forget, the number of jobs being cut from the public service is smaller than the number of people who were added to the public payroll in the two years before they took over.
This week the Government has pushed back on working from home. With that announcement came the news the Public Service Commissioner and many government department CEOs do not have a record of how many people are working from home. We’ve since heard stories of people not logging in for days and weeks at a time. It’s not too much of a stretch to wonder whether some of those collecting a pay cheque from the taxpayer are turning up at all.
Of course there’s pushback and many are saying it’s not fair or it doesn’t suit them. Let’s remember that working from home was introduced to enable the country to continue operating during pandemic-enforced lockdowns. Those situations no longer apply. Working from home is, quite appropriately, gradually becoming a luxury rather than a right. In a productivity-challenged marketplace, it’s time to go back to work.
One of the challenges of leadership is getting people to willingly do the things they would not ordinarily want to do. The Prime Minister and his colleagues are attempting to do that by painting a picture of a future that sounds more promising than the past.
To meet that future, we must recapture our desire to be better. It was once one of our amazing strengths. It’s now a substantial weakness. Part of it is confidence. Part is ambition.
Aspiration starts with the individual. One of the key enablers of aspiration is education. While their predecessors led an unimaginable decline in the performance of our education system, by almost every measure this Government is unapologetically serious about turning it around. It’s pushing a new curriculum, changing in-school behaviours and driving attendance. It’s early days, but some numbers are already changing for the better.
There’s pushback there too. Teacher unions are saying it’s not possible to learn a new syllabus between the end of one year and the beginning of another. But we’re not asking our educators to start teaching applied maths or nuclear physics.
With every stage of progress will come complaints from those who are not happy. Those who feel that they had it better under the previous Government will continue to protest. That’s okay. That’s democracy.
But right now, our troubled little economy has a very simple choice. Do we go back to looking inward, increasing taxes on the people, borrowing more money, and spending ruthlessly to keep the masses happy?
Or do we cut our cloth, sell our produce to the world, educate our people and create a sustainable way of life that puts us back among the best in the world.
It seems like a simple choice really, and from this distance, it appears we’re finally having a decent crack at it.
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