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PoliticsJuly 13, 2017

To offer a real alternative, Labour and the Greens may yet tear up their fiscal pledge


If they want to move the dial and mobilise young people, Labour and the Greens could jettison the budget rules they signed up to, writes former National Party cabinet minister Wayne Mapp, in the first of his new series of columns for The Spinoff.

The election is now just over two months way. It comes on the back of a wave of electoral unpredictability in the United States, the United Kingdom and France. Even in Australia the federal election was unexpectedly close. Will this volatility apply in New Zealand, or is everything just too predictable?

Even if the government changes, however, the differences will be mostly stylistic. Perhaps the electorate senses this, explaining the relative lack of interest in the election so far.

New Zealand has been largely immune from the economic uncertainly that has beset much of the world. There has now been six years of sustained growth. In large measure this reflects something that agricultural economists had long forecast. That there would come a time when the global demand for high quality animal based temperate climate products, such as dairy, would dramatically expand. The key to unlocking this opportunity has proved to be China. The opening of the Chinese market to our products insulated us from the financial buffets affecting North America and Europe. As a result our politics lacks the sharpness evident in other countries.

One of the features of such a long period of growth has been the resetting of economic expectations. A sense that if this is how the economy works, there are big risks in going down a different path.

The most important signal that this might be the case is the Labour-Green Budget Responsibility Rules. In essence this pledge accepts the basic shape of the economy as it currently stands. That the size of government at 30% of GDP is about right, that there should be no tax increases, and that there should be sustainable surpluses. Obviously there is space for policy differences with the current government, but only within constraints. Presumably the two parties agreed to these rules because their polling research showed that the most persuadable voters had indicated they were broadly happy with the overall shape of the economy and expected things to be fixed within those parameters.

The last nine years show just how big a change the Budget Responsibility Rules represents. Over its term of office National has slowly shrunk the size of the state from 35% of GDP in 2008 to 30% of GDP in 2017, without the swingeing austerity measures witnessed in the United Kingdom.

The 30% level is seen by National as an appropriate balance between public spending and private spending. There is no particular magic in the actual number, whether it be 30% or 35%, or in the case of Europe, typically 40%. Rather the number signifies the underlying philosophy of governments of the left or right to a greater or lesser commitment to markets and private choice. The sustained effort of constraining government expenditure represents National’s ideological commitment to private autonomy. Individual people, families and firms are seen as best positioned to grow the economy. In short, the preference is for people to retain their own money rather than having it taken off them to be spent by government for wider public purposes.

National has to operate within the world of real politik. It is not so wedded to market philosophy that it is blind to voter expectations. The current size of the state has allowed real growth in health expenditure and an expanded infrastructure spend. But National has constrained government expenditure in virtually every other area, most of which do not directly affect the daily lives of New Zealanders. While public servants in Wellington might complain about a decade of fixed budgets, this chiefly affects the Wellington bureaucracy, rather than the delivery of services out in the community.

A growing economy has disguised the shift of the size of government from 35% of GDP in 2008 to 30% in 2017. A larger workforce and shrinking welfare rolls automatically reduces government expenditure. As a result the 2016 budget was able to increase basic welfare payments, even as the size of government shrank. This year’s budget provided modest tax cuts and increases in Working for Families. Health and education received real per capita increases.

But will Labour and the Greens’ Budget Responsibility Rules survive? The parties may yet conclude that it is imperative to dump the constraints of the rules in order to make themselves more electorally appealing. If being fiscally prudent has the effect of so limiting policy choices that they cannot offer a different platform to National, what is the point in keeping them?

It would be easy to imagine a more leftwing platform that involved a lot more government spending. Just for starters, a universal student allowance, free doctor visits up to age 18, 3% interest loans for first-home buyers, and a dramatic boost to public transport would certainly cost several billion dollars. Manifesto commitments like this would require significant tax increases.

But younger voters might be up for it if they saw themselves getting a better stake in society. At present young people feel excluded from the property market. They may well feel that there is little point in supporting the current economic settings if it does not include them the most fundamental human needs of decent and secure housing. In any event it would not be young voters who would be paying the tax increases, it would be their parents.

Such a programme has real risks. New Zealand is not in the grip of austerity. National would readily paint this programme as endangering all the economic gains of the last few years. However, National will need to have its own positive programme of government spending in order to hold the reins of government. It will inevitably address the social deficit, especially in housing. Perhaps also unleashing innovation, which will have its own appeal to at least some younger voters.

Our election, at least on the policy front, has been looking boringly predictable. The polls have barely shifted in the last year or so.

The main uncertainty has been Winston’s choice. Which side will he go for?

Of course that is no small matter. He would be deciding the government. With the Labour  and Green Budget Responsibility Rules, it might be more about changing the people in the ministerial offices, rather than changing the direction of government.

Perhaps what is needed to shift the electoral dynamic is an election fought on a wider range of policy alternatives. Not one just concerned with changing the personnel, but one that gives real choice to the voters.

Keep going!