Beware of ACT’s kite flying.

We must be careful with kite flying, as indeed with the whole of Act’s thinking, as what we once dismissed as ludicrous right-wing mischief, may end up in a hastily drafted bill and then an Act of Parliament.

In the 2020 election run up, some of us pilloried Act for its crazy suggestions. I wrote in the Daily Blog: Vote ACT for a shattered economy  :

“The policies are so ill conceived it is perhaps a bad idea to give them any air-time. But voters who are disillusioned with National appear to be flocking to ACT.  They need to take a hard look at their disastrously contractionary recipes for poverty that are exactly the opposite of what is needed.”

That was nearly five years ago. Just look at what right wing contractionary policies we are getting now. We have a really nasty recession prolonged by austerity policies. Now that some ACT voters too re feeling the pain.  Can we expect some more kites to fly?  In An analysis of Act policies  I warned of Act’s 2020 kite flying on ill-conceived unemployment insurance

“On the loss of employment, a taxpayer can claim 55 percent of their average weekly earnings over the previous 52 (or fewer) weeks. The maximum yearly payable amount is $60,000.  Insurance can only be claimed for one week for each five weeks the person has worked, up to a maximum of 26 weeks per claim. Someone who has worked continuously for only one year could claim up to ten weeks’ employment insurance.”

I wrote,

According to ACT the ‘worthy’ working middle class must at all costs maintain their superiority- as they have “paid high taxes for years” When they lose work “they get little back in benefits” and what a huge calamity it would be for them to drop to the existing unemployment benefit and face “the stigma associated with welfare created by long-term beneficiaries who have made it a lifestyle choice.”  That phrase “a lifestyle choice” reveals the heart of ACT. Oh the faux outrage now that the middle class discover how miserable the welfare system actually is.  How could they possibly be treated as if they were just a ‘welfare beneficiary’?   How appealing it might look that ACT can come to the rescue.  How predictable all this is to a weary welfare sector unable to make any progress on the fundamental issues of welfare reform with the Labour coalition government. 

The latest kite flying is found in his 2025 State of the Nation speech, where David Seymour suggested that New Zealand should consider giving each citizen $6000 to spend on private health insurance instead of relying solely on the public healthcare system. He argued that this would provide individuals with more choice and potentially better value for their healthcare.

He said “we now spend $6000 per citizen on healthcare” asking the audience how many of them would give up their right to the public healthcare system if they got to spend on their own private insurance.

What on earth did he mean? Surely not that people would forego access to the public system if they take up the $6000? Some people, wealthy enough to have private health insurance already, might opt for the $6000.  At best, others would gain limited coverage to a small number of benefits, or very little in other words.

On further thought, it is even more sinister.

The health system costs $30 billion to run, that divided by 5 million population gives $6000 each. When the $30billion is given back to us, instead of to the public health system, money flows to competing private insurers who will have to buy the services we could previously access. Private insurers will have huge administrative costs and must charge enough to make profits. Competing private insurers will reject the bad risks (including those already sick) so many people would lose access to even the minimal public system we now enjoy under universal provision.. Would freedom loving ACT legislate to outlaw competition so no one can be rejected?  Is this the trojan horse for full privatisation? My head hurts at the absurdity of it all.

Saving money, reducing the size of the state are what it is all about. Be afraid. Be very afraid.

We never thought a well-liked, successful and efficient school lunch scheme with so many spillover benefits for communities would ever be replaced with a poorly conceived centralised system that serves unpalatable food, if it even gets to schools on time. Just to save $100m.

There is so much anti-state, anti-government spending rhetoric at present that we’re in danger of losing sight of the fundamental reasons for a sound, secure, and well-supported public sector.

Take a major role that the state plays: the provision of the welfare state: a combination of spending on education, healthcare, care services, benefits, social housing, accident compensation, superannuation and working for families.

The commonly understood purpose of the ’welfare state’ is to help the poorest in society. It ameliorates the highly unequal outcome of free market economics.  In economese jargon we might say this is its “equity role”

But there is an even more fundamental role for the welfare state, “the efficiency role” that is very poorly understood. Even if we had a highly equal distribution of resources, people would not be able to purchase the certainty security and protection they crave though private insurance because in economese jargon ‘the market fails’.  Private insurance works well only in limited circumstances and those circumstances are contested vigorously to  exclude people from payments.

In the very unequal New Zealand we have now, wealthy citizens can always look after themselves but, free market insurance would be non-existent to protect the vast majority from the large risks they face.

Thus, there would be no inflation-proofed private annuities (secure inflation proofed income that for as long as you live in retirement), nor any long- term income protection adjusted for inflation or wage growth for sickness, accident or unemployment. On the global front, private insurance is proving deficient for adequate protection in time of climate change, natural disasters, with properties becoming uninsurable at any price over time.  Many risks are not random but systemic- a huge challenge for the future of private insurance.

Private insurance works best when the risk of the misfortune is well defined, the event insured against is random, the costs of claims are finite and predictable, and annual premiums can allow for adjustments and re-estimation each year.

Private insurance is quite good, for example, at car insurance, life insurance, and limited health insurance to cover some events, but with lots of fine print.

The many risks faced by New Zealanders, i.e. being born sick or with a disability, being very old or very young without wealthy families, being afflicted with a disabling disease, needing long term care, are hard to price and have open ended costs which private insurance companies run a mile from.

Most of the things we enjoy from the state or collective provision do not meet the criteria for successful private insurance.  For good reason, insurance companies would be totally uninterested in supplying products to cover things like paid parental leave, Working for Families, unemployment benefits, NZ Superannuation, preventive healthcare, environmental quality, earthquakes and affordable basic healthcare in a complex world.

While a small private health insurance sector for the rich can work to relieve some pressure on the state especially for limited well-defined elective surgery, the public health system must be supported and enhanced, not undermined by private insurance mythology as proposed so disingenuously by David Seymour.