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Countdown To The Budget - Education

Posted on 19 May 2009

Over the past nine years education spending has increased substantially. Under Labour, education spending increased 43 percent in inflation-adjusted terms – yet what did this massive increase achieve? Looking at Year 5 Maths and Science from 1994 - 2008 achievement decreased while Government spending soared! This is only one example of the many failures in education.

Denying parents choice over the school their child attends ultimately, and predictably, results in poor educational achievement. Parents want their children to succeed but, unfortunately, there is a severe lack of school choice in New Zealand – unless you’re wealthy.

The wealthy have school choice – they can move zones to get their child into the school of their choice, or they can pay twice (through taxation, and again through fees) to have their child educated at a private school. Others are forced to send their child to the local school.

With a captive market, there is little incentive for schools to respond to their customers’ needs. In fact, schools have come to serve what the politicians and bureaucrats in Wellington want, leading to a lack of focus on the core function of education – being able to read, write, and perform arithmetic.

So What Choice Do We Have?

Option A - ACT New Zealand’s Policy:

ACT supports giving every parent an education tax credit to purchase education wherever they want – be it the local school or one far away, be it private or public. Once parents have the capacity to choose where their child is educated, schools will compete for students. Competition will lead schools to focus on their core role, improving educational achievement (as we saw during the 1990s).

Competition between schools will keep the cost of schooling down, ensuring that future increases in the amount of money available for education will result in genuine quality improvements, and is not wasted like Labour’s spending.
ACT also supports performance-based pay for teachers. This is hardly radical - in every other job (except politicians), people are paid on the basis of their performance. The capacity to get a promotion or move up the pay scale incentivises people to work harder and improve their skills. Is it any wonder that when hard work does not pay we see declining educational achievement?

Option B – The Rest:

Every other Party in Parliament is wedded to the status quo. They still believe that if they appoint the right person as the Minister of Education, they will get more out for the money we put in. Politically powerful organisations, like teachers’ unions, will continue to demand pay increases and better working conditions, even when such changes have been shown to be ineffective at improving educational outcomes.

Special interest groups are never satisfied - any new benefit quickly becomes the expectation, and more and more demands are made. Maintaining the status quo – where teachers and bureaucrats, not parents, control education – will continue to strain the education budget. As expenditure continues to rise, as Finance Minister Bill English has promised, we will see little value for money.

If You Think Option A Is The Best Move Forward [ACT’s Policy]:

By allowing parents to determine where their child is taught, many parents send their child to a school that is more appropriate for their learning needs. By allowing diversity in education, educational outcomes improve. Moreover, as schools respond to the incentives and try to attract new pupils, the education system is seen as more responsive and flexible.

Since teachers are now being paid what they deserve, quality people are attracted to teaching and educational outcomes rise.

If You Think Option B Is The Best Move Forward [All the other’s policy]:

Education spending continues to rise, but educational achievement remains stubbornly stagnant and in some cases reverses. Parents of children who are locked into their local school wish they could afford to send their child elsewhere. Many families sacrifice other necessities just to get their child out of the local school.

As spending continues to increase, so do the demands of the Teachers’ unions. Previous success in wage negotiations breeds a sense of entitlement and privilege, once again emphasising teachers over pupils and parents.

Further Reading:

Markets v Monopolies in Education: A Global Review of the Evidence

School Accountability, Autonomy, Choice, and the Level of Student Achievement: International Evidence from PISA 2003$FILE/JT03255304.PDF

The Role of Government in Education

What’s Wrong With Our Schools?


Countdown To The Budget - Health

Posted on 18 May 2009

Health spending has substantially increased over the past nine years. Under Labour health spending increased almost 54 percent in inflation-adjusted terms to now make up 20 percent of Government spending, and eight percent of Gross Domestic Product.

Despite this increase doctors’ productivity reduced 15 percent, while nurses’ productivity dropped 11 percent. The only gain in health sector productivity was that of cleaning staff – and this service was outsourced to the private sector. Everyone agrees that healthcare should be available to all when they need it but the current system is not delivering.

Unless something is done to stop the system sucking up resources without increasing output, then we are destined to spend too much and achieve too little.

So What Choice Do We Have?

Option A - ACT New Zealand’s Policy:

ACT would halt health expenditure increases in real terms until the system is adequately designed to ensure that increased expenditure delivers real outcomes.

The problem is that the Government pays for health – meaning consumers have poor incentives to seek value for money, doctor’s have poor incentives to provide cost-effective treatments, patients use the system more than they truly need, and taxpayers have to meet the increasing costs of healthcare. Moreover, because there are poor incentives for patients to seek quality treatment for low costs, productivity growth is typically low – and, in recent years, has been negative. The increasing costs of healthcare force us to ration it – some people get treatment, others wait in a queue, and some will never receive treatment.

ACT wants the money we currently spend on health redirected to the individual, giving each of us greater control over our own healthcare. Patients will make the decisions, not bureaucrats. As a result, costs will decrease as hospitals and clinics compete for business. Only if the system encourages competition will the cost-plus culture be avoided, making us all better off while still delivering healthcare to all.

For urgent medical attention, people would be encouraged to take out catastrophic health insurance.

Option B – The Rest:

Increase health spending. Although spending will increase the number of operations (it will be hard even for Government to completely waste money), productivity will slip as the resources are taken up by the bureaucrats and others for marginal gains in output. The increased health spending will need to be borrowed in today’s economic climate, forcing tax increases on future generations of taxpayers.

This is the kind of policy that every other Party in Parliament would implement. They fear the special interests that are represented by the Health bureaucracy, the licensed doctors’ profession, and other spending advocates. They will never make the system deliver for the consumer or the taxpayer.

Your Decision:
What would you do if you were the Finance Minister? Which option would you choose? See below for the outcome of your decision.

If You Think Option A Is The Best Move Forward [ACT’s Policy]:

Consumers are finally allowed to decide where to spend their money. This forces hospitals –public or private – to compete on an equal footing for the business of the individual. This process reduces costs and focuses the system on delivering for the individual.

At the same time, as they are now purchasing healthcare, individuals need not queue or get a bureaucrat’s permission before receiving treatment. Productivity increases allow more people to receive the healthcare that they need, enabling people to live more fulfilling lives.

If You Think Option B Is The Best Move Forward [All the other’s policy]:

Health spending continues to increase with a lot of the money being sucked up by the bureaucracy and other wasteful areas. As there is no pricing system, the Government does not buy healthcare where it is most cost-efficient. Productivity continues to decline, as the increases in output are only minor compared to the extra resources being poured in.

The increased spending creates real strain on the Government’s Budget. Borrowing to spend on entitlement programmes leads to a likely downgrading of the Government’s credit rating, increasing the costs of borrowing and forcing tax increases on future generations of New Zealanders. Bureaucrats begin to worry about the sustainability of health spending with the impending retirement of the baby-boomers. As that time approaches, people realise the current system is not working. Such a realisation will force the Government to make the kind of cuts in healthcare funding that people fear. Because we were unwilling to make the right decision, we are forced to bear the pain of unstructured cuts.

Further Reading:

Medical Savings Accounts

Productivity Performance of New Zealand Public Hospitals

Patient Power

The Wrong and Right Ways to Reform Medicare


A Recipe To Grow The Economic Cake

Posted on 14 May 2009

Yield: An equitable serving for all


2½ cup Productivity
1½ cup Fiscal Responsibility
1 cup Sound Infrastructure Investment
6 eggs Full of Savings
3/4 cup Free Trade
6 tablespoons of Choice in Health and Education
2 teaspoons of Skilled Migration
1 teaspoon of Government

Ingredients for Icing

9 tablespoons Tax Cuts (more to taste)
7 oz sweet Economic Freedom
½ cup Entrepreneurial Spirit


• Preheat economy oven
• Combine all ingredients liberally, taking care to restrain the amount of Government as too much will prevent the cake from rising and will create a bitter taste.
• Take a laissez-faire approach to cooking time, avoiding the temptation to adjust the settings.
• Once the cake has cooled, apply icing liberally.
• Enjoy the extra large servings – Bon Appetit!


• If you want a smaller cake as Labour delivered, increase Government expenditure, restrict trade, increase taxes and introduce Government central planning.


Competition Is The Key

Posted on 13 May 2009

Article by Sir Roger Douglas
Wednesday, May 13 2009

"Free marketing and deregulation are not right wing policy stances. They are the policies of those who believe in individual liberty and the availability of choice in a competitive environment." - Aubrey Begg, Labour MP for Awarua 1972-75.

It's time for New Zealanders to stop and think about what we want New Zealand to be like in 20 years. Prime Minister John Key's recent speech on the Budget set out all the areas where National would not cut Government spending and showed that his Party is willing to continue - like Labour - spending in the areas that cost the most: health, education and welfare.

I do not oppose spending on health, education, and welfare - but I do oppose spending without ensuring that it delivers value for money. After nine years of Labour, surely we have learned that spending money without getting the incentives right results in declining productivity?

The facts are clear: health spending increased 50 percent in real terms under Labour, yet doctors' productivity dropped 15 percent. Unless we get the system right, increased spending will be wasted.

While outlining the areas he was unwilling to seriously examine for waste, Mr Key essentially said we wouldn't receive the proposed tax cuts due on April 2010 and 2011.

National is meant to be the Party that advocates tax cuts and if it could deliver additional productivity gains of just 0.7 percent across core Crown expenditure, the 2010 tax cuts would be affordable. If National were to deliver both sets of tax cuts, the productivity gains would have to be just 1.45 percent.

What does delivering efficiency gains actually mean?
It means getting more out of the resources that we put in - ie more operations, or better education outcomes.

During the 1980s, we achieved substantial productivity gains from some simple reforms - for example: the corporatisation of Tauranga Port improved services while freeing up resources for other uses. The port went from having a ship turnaround time of 12-13 days, and manned by 44 workers, to having a turnaround time of 30 hours manned by four workers. These are the kinds of gains we need in health, welfare and education. Billions of dollars are at stake.

The problem with the current health system is that there is no transparency, and the general public is unaware of the actual costs of treatments. This means that it is the Government that gets to decide which treatment option is appropriate and when the patient can expect to receive it. As such, patients inevitably end up queuing for healthcare - sometimes dying while they wait in line.

Second, because the Government is unwilling to purchase healthcare wherever it is cheapest, there is a lack of competition between the public and private health sectors. If we were willing to do this, we would see costs decrease as the incentives to compete and innovate were increased.

National, however, has promised not to address health and education expenditure. It has promised not to touch student support, subsidies for small business, or Working for Families. When National tells us that tax cuts cannot go ahead, it is really saying that it places a higher priority on those things than it does on tax cuts.

The tragedy is that some of those schemes - like Working for Families - could be delivered in a positive way through a tax reduction, rather than through cash payouts to those working. The difference is the effect that it has on incentives: lower taxes encourage people to work hard and get ahead; cash payouts discourage people from seeking promotions, as the effect of abatement is such that they can be made poorer when they earn more.

"Taxes are paid in the sweat of every man who labours. If those taxes are excessive, they are reflected in idle factories … and in hordes of hungry people tramping streets and seeking jobs in vain." - Franklin Delano Roosevelt, US President 1932-45.


Here We Go Again

Posted on 07 May 2009

Prime Minister John Key's recent comments on the Government's plan to increase spending in the upcoming Budget only demonstrate how out of touch with reality he really is, ACT New Zealand Finance Spokesman Sir Roger Douglas said today.

"How can Mr Key proudly announce the Government's intention to increase spending in health and education when, over the past five years, doctors' and nurses' productivity has dropped 15 percent and overall health productivity has dropped eight percent," Sir Roger said.

"The simple fact is that unless the Government changes the existing incentives in health, education and welfare - which makes up 66 percent of the Budget - New Zealand will continue going nowhere. How long does it have to take before the Government finally realises that doing more of the same just won't cut it anymore?

"From 1996-2008 National and Labour Governments increased spending from $11,300 to $18,850 per person, in real terms. This equates to $7,500 for every man, woman and child. Throwing good money after bad has had the predictable effect on our productivity growth, which has slumped in recent years.

"One would have hoped that Prime Minister John Key and his Finance Minister Bill English would have learnt from past mistakes – apparently not," Sir Roger said.