Look up!

Dr Eric Crampton
Insights Newsletter
26 May, 2017

While Budget days bring focus to the Government’s spending priorities, there is no budget day for regulation. Regulation never gets the same attention as spending, but it is at least as important. The Public Finance Act constrains government against doing particularly silly things in the budget, but it remains too easy to get regulation horribly wrong.

Yesterday’s Budget coincided with the culmination of one notable bit of regulatory success, to which we will return.

While the changes in the tax brackets were seven years coming, they only partially adjust for inflation since the brackets were set in 2010. David Seymour’s proposal to inflation-index the tax brackets would solve that problem, but rob the government of the political opportunity to package inflation adjustments as tax cuts.

The Government’s commitment to drive down net debt is particularly welcome. It provides the flexibility to take on debt should another earthquake demand it, and helps constrain against launching new and expensive entitlement programmes.

That constraint is necessary. By 2030, net debt will start reaching worrying levels due to the government’s reluctance to do much on the costs of an aging population. Greater spending discipline is needed if New Zealand is to avoid tax increases in the 2020s.

But while the Wellington policy wonks' eyes (ours included) were glued to spreadsheets, trying to put the Budget into perspective, something remarkable happened at Mahia. New Zealand entered the space age. Rocket Lab launched the first test flight of its Electron rocket.

It is usually jingoistic nonsense for a government to take credit for private sector innovation. Rocket Lab is a great private sector success story and the culmination of a decade’s work by Peter Beck. But it also could not have happened without quick and nimble regulatory reform in Wellington – something for which government is not normally known.

We cover more of the details in our coming report on regulation in the digital age. Because New Zealand was starting fresh, MBIE took the opportunity to lay the framework for world-leading rules. New Zealand’s regulatory framework for relatively simple launch approvals, combined with its geographic position, provides a remarkable opportunity.

Last night’s news brought the Government some praise for the Budget. But the real praise is deserved for the rocket ships – a beautiful display of Government's having got that bit of regulation right. 

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