Reserve Bank Governor Don Brash has suggested the welfare system needs a radical overhaul to boost economic growth.
Brash told the Catching the Knowledge Wave conference in Auckland that New Zealand cannot radically improve its economic growth while people are paid benefits with no incentive to work.
Brash, emphasising he was speaking on his own behalf and not in his role as Reserve Bank Governor, says it will be extremely difficult to catch the knowledge wave unless economic growth doubles.
He says improving education is one solution.
"It can't be good for our growth or for the employment prospects of our young people that nearly half the workforce in New Zealand cannot read well enough to work effectively in the modern economy."
Brash says teachers are "scandalously underpaid," but the government has its hands tied with social welfare payments.
He says the welfare state needs an overhaul to reduce the $13 billion paid every year in benefits and superannuation.
"We will not achieve a radical improvement in our economic growth rate while we have to provide income support to more than 350,000 people of working age," he says.
Brash says consideration should be given to dropping payments to able-bodied workers, placing a time limit on benefits, scrapping the minimum wage and raising the age limit for superannuation.
Responding to Brash's comments, Prime Minister Helen Clark says: "Fortunately we do employ Dr Brash as the Governor to run monetary policy and not social policy".
But National's Jenny Shipley says the advice makes sense.
"You can't wish yourself wealthy, you have to do the work, and Don Brash went through a series of things that we need to do as a country if we all want to have more money to take home at the end of the week," Shipley says.
His blueprint horrifies an ex-pat Kiwi economist.
"Brash's solution of cutting back on much of this social expenditure I think is a recipe for social disintegration," says Robert Wade of the London School of Economics.
That recipe also includes maximum personal tax payments of $500,000.
"If such a regime encouraged a thousand entrepreneurs to come to New Zealand and the government were to gain, say, an extra $500 million a year in tax revenue to finance more early childhood education, who amongst us would be worse off," Brash says.
And the OECD is watching recent government policy reforms closely.
It says the new industrial relations framework poses risks to business, health and education spending needs careful checking, the top marginal tax rate is driving skilled workers off-shore and there needs to be a rethink on research and development spending.
"I understand that the New Zealand 2001 budget has committed resources to this area and this is a welcome step but we think much more needs to be done in this area," says OECD deputy secretary-general Sally Shelton-Colby.
