‘Creating “policy space” in the aftermath of the CGT debate’

Published on STUFF, 24th April 2019

Finance Minister Grant Robertson talks CGT and the Budget.

For anybody with a belief in the public interest benefits of evidence-based policy, the shelving of a comprehensive capital gains tax (CGT) after a short debate is a setback. It suggests we do not have the “policy space” to take on big issues in New Zealand. If a leader with good will, vision and stature cannot advance an evidence-based policy in the public good, who can?

And it is not as if we are talking about policy made on the hoof. GST is a policy element that is embedded in the tax architecture of every advanced economy of consequence, including the heart of capitalism – the United States – and our cousins across the Tasman. This is a policy component that has been worked into tax systems in different forms around the world (including ours through the bright-line test), with various wrinkles ironed out, delivering fairer taxes and more even-handed investment incentives. This was not a proposal of whim or caprice, but one with substance, strong analytical foundations, and a proven track record in many countries we compare ourselves with.

What this case suggests is that we simply lack the “policy space” in New Zealand to take on big issues. From my observation, there simply was not the attention given to presenting and discussing the merits of the proposal in a balanced manner. The “debate”, such as it was, was dominated by commentary from individuals and agencies with a vested interest in defeating the proposal, greatly amplified by the media. This is what one might expect, but there was little push back: the universities were largely absent; the economic columnists hedged their bets, as did the consulting companies and bank economists; other commentators largely treated the issue as a political one. I am not sure I saw a single authoritative, independent source giving the proposal a fair hearing, although some media outlets provided useful summaries close to decision day.

With a three-yearly electoral cycle, an intense arena of political contest, a media consumed by sensation, and a diminished public service, we have a limited “policy space” in which issues of substance, contention, and long-term import can be developed and debated without the oxygen being sucked out of them in short order by the intensity of partisan contest, the short-term calculations of the political cycle, and the surge of vested interests.

With the growing pressure to publish, universities have largely absented themselves from too close an engagement with contentious policy questions, although some have developed policy institutes. The PHARMAC and State-Owned Enterprise models are other instances where long-term policies, often of a politically-sensitive nature, can be developed and implemented by experts and technocrats, to a large extent shielded from direct political intervention, although in the case of PHARMAC that space is also regularly contested. 

Appointing a Royal Commission is another device for developing policy. Without that, Auckland would not now be marking a decade as a single city (rather than an arena of fractious local authorities). That could never have been achieved under “normal politics”. Another approach is to establish independent commissions and commissioners that report to Parliament, thus retaining their independence and authority. There is also the Productivity Commission.

However, some countries have seen the opening up of space necessary for long-term policy development with the founding of think tanks, many of them independent and non-partisan. For example, senior public servants, academics, and corporate and NGO leaders in Australia lobbied for the establishment of a heavyweight independent think tank to support evidence-based policy. Thus was established the Grattan Institute in 2008 with an initial $34 million endowment and a stream of policy briefs since then around seven key policy areas under the overarching theme of “a liberal democracy in a globalised economy”.

Of course, in the end it is politics which decides policy issues of any kind, and in a democracy that is how it should be. But at present it is arguable that “the politics” – whether it be the mechanics of MMP or the actions of vociferous and powerful vested interests – is pre-empting the policy debate. It is conceivable that a well-stocked and flourishing policy space could actually influence the politics. Some minds might be changed. Public opinion might shift. 

Without sufficient policy space, however, there is the danger that New Zealand is destined to let the dynamics of the electoral cycle, the contest of party politics, the short-term focus of the media, and the thicket of veto groups pre-empt important policy developments and debates of long-term consequence. 

Peter Davis is Emeritus Professor in Population Health and Social Science, and founder of the COMPASS policy research centre, at the University of Auckland. 

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