Read this interview with Roger Douglass, former New Zealand finance minister and the initiator of New Zealand’s market reforms, which now have stalled for a decade.
Douglass tells us: “Government spending on welfare, retirement income, health and education has now reached $8,000 per New Zealander and $24,000 per household per year [that is Kiwi dollars, take 55 American cents as a ballpark figure for the time period in question]”. At the same time the quality of these services has not been rising. Douglass proposes tax credits for these services instead, combined with market provision on the supply side.
Unlike with vouchers (see Alex’s previous post on vouchers), the state would not have to define what constitutes an acceptable education or social service. This is a significant advantage of Douglass’s notion of tax credit. On the other hand, the reform institutes the equivalent of a negative income tax or guaranteed annual income. A welfare payment that is automatic and easy to collect has bad incentive effects and runs the risk of becoming a new middle class entitlement, increased before every election.
Douglass describes “believability” as the biggest obstacle to reform. Given that a large change would be in the offing, most New Zealanders simply would not believe that they would receive equal or greater quality services for the same or lower net price.