letter by Susan St John published in NZ Herald, 1 February 1999

Roger Kerr claims that Australia is doing much better than New Zealand because the cuts to welfare spending have gone further there. Surely their success reflects other factors, such as advantages of size and natural wealth?

The latest OECD data show that Australian general government expenditure is around 36% of GDP, not 33% as Kerr claims. While the NZ figure is not given, Roger Kerr calculates it for us at 40%. [*]

Even if it is this high, the comparison with 36% in Australia is dubious. For example, the state subsidises private saving for old age. This hidden tax subsidy is similar to state spending but is not counted as such. Likewise, their compulsory superannuation levies of 6% of payroll don't get counted as a tax , nor the emerging compulsory pensions as state spending. Taking these two factors alone into account reduces the difference in percentages of GDP between us to negligible proportions.

In the meantime the top tax rate in Australia will stay at 47 % following tax reform this year. The compulsory pension contribution takes this to an effective 53%. The question is, how do they do so well if high taxes are so bad?

letter by Roger Kerr published in NZ Herald, 1 February 1999

The account of Australian economic policies by the Grey Power president, Don Robertson, suggests that he is seriously out of touch.

Australia began its programme of economic reforms earlier than New Zealand, in 1983. The overall pattern is very similar, and Australia has been pulling ahead in recent years. Thus Australian tariff levels are broadly in line with those of New Zealand and Australia is committed to full free trade by 2010. Australia has under-taken far more privatisation than New Zealand in recent years, extending to electricity and other infrastructure industries.

Its ratio of total Government spending to gross domestic product, at around 33 per cent, is well below New Zealand's 40 per cent ratio. [*] Its state pension arrangements, with both an income and an assets test, are much stricter than those of New Zealand (Grey Power's advocacy for them would, indeed, benefit future generations). Most of Australia's other welfare arrangements are also more restrictive than ours.

Australia has been moving on labour market reforms and now GST. It is hard to think of many major areas where Australia is not now more advanced with reform than New Zealand and, not surprisingly, its economy is performing more strongly, as Mr Myers argued.

PS:

The Treasurer, Bill Birch, reaffirmed in a radio interview on 3 February 1999 [Newstalk ZB; 5:15pm] that taxation in New Zealand is currently 34% of GDP. Kerr's estimates are for what the OECD calls "general government" and not just central government.