Forty years ago, the then Labour finance minister drove through radical changes in the face of an economic crisis. The same is required now, Sir Roger Douglas tells The Spinoff.

Listen to Juggernaut: The Story of the Fourth Labour Government here.

In June 1980, Roger Douglas was sacked. Frustrated by what he saw as feeble efforts by the Labour opposition to propose a serious challenge to the Muldoon approach, he had released to the media an “alternative budget”. A furious Bill Rowling stripped Douglas of his transport portfolio and demoted him from the front bench. 

“I just felt the need to say something,” Douglas told The Spinoff for the podcast series Juggernaut. “I thought that New Zealand was going down the drain, that the National Party weren’t taking it anywhere. More particularly, I didn’t think that the Labour Party was offering any real alternative. I’d worked out what I believed. And it was important for me to say it.”

Forty-four years later, after a journey that saw him launch an economic revolution as finance minister for the fourth Labour government and go on to found the Association of Consumers and Taxpayers and Act Party, Douglas is still at it. “I got sacked for it once. So I might as well keep going,” he said, having arrived in the studio clutching a fist full of papers, including his alternative budget for 2024. 

His assessment today is as stark as it was then. When Douglas took the reins in 1984, he inherited an economy in crisis. Muldoon – both prime minister and finance minister – had presided over a time of deep protectionism. There were price freezes, wage freezes, interest rate freezes. As Muldoon refused to devalue the dollar after the election, the country came close to defaulting on its international obligations. And now? “We’re in as much trouble today as we were in 1984,” said Douglas.

Douglas points to a Treasury document called He Tirohanga Mokopuna – the 2021 combined Statement on the Long-term Fiscal Position and Long-term Insights Briefing. “That tells us essentially, that if we stay on the same path as we are at the moment, we’re going to go broke.”

We should all be fretting, said Douglas, over the projected surge in the cost of healthcare, superannuation and education – as well as the cost of servicing debt. Health is expected to climb from 6.9% of GDP today to 8.6% by 2045 and 10.6% by 2061. The Treasury assessment: “Net debt is likely to be on an unsustainable trajectory if expenditure and revenue follow historical trends.”

That way lies “chaos”, said Douglas. “It can’t be allowed to happen. But not one government has done anything about it.”

As far as solutions are concerned, Douglas said Treasury’s suggestion of adjustment to tax and trimming expenditure is “not the answer”. His prescription, true to form, is “much more radical”.

In a document entitled “Why a lack of imagination and courage threatens our very future”, he lambasts “the tyranny of the status quo, the politics of borrow and hope”. He writes: “Governments of the past 30 years [who] have all chosen to shovel money into the bureaucracy and then sit back, blindly hoping that such a wasteful policy would eventually pay dividends.” 

Instead, Douglas argues, “the only way yet discovered for improving outcomes while keeping costs down is to restore control to the individual” – to “put our trust in the people and empower them by giving them control of their own lives”. 

That entailed the introduction of “pay as you go” for superannuation and competition to the health and education sectors, even to social security. “They’ve got to introduce competition and choice into the welfare sector. And if they do that, they’ll get enormous improvement in productivity,” he said. Douglas had first floated the idea of creating competitive markets in these territories in a 1987 budget options paper. “And of course, that’s what Lange and I fell apart on.”

It was this set of proposals – the most radical of four budget options presented to colleagues in 1987 – that prompted David Lange to tell cabinet minister Michael Bassett that his finance minister appeared to have “gone mad”. “Which is a judgement,” Douglas told The Spinoff. “I won’t say necessarily sound. I didn’t think I’d gone nuts.”

Differences on similar issues – competition in welfare and tax policy – was what prompted Douglas ahead of the last election to criticise the party he founded in the early 90s, Act, saying it had “lost the plot” and “is not the Act party I formed in 1993”.

Seymour told the Spinoff at the time: “Sir Roger is possibly frustrated that Act is not as radical as he wants it to be. Our tax policy today is much less radical than the 23% flat tax that he fell out with Lange and lost his job over. We still respect Sir Roger for his service to New Zealand, and hope he is enjoying his retirement.”

In a speech on values to party members earlier this year, Labour leader Chris Hipkins observed that 2024 brought “a significant, and challenging, milestone in Labour’s history, the 40-year anniversary of the election of the fourth Labour government”.

He said: “We will remember with pride the early steps that government took to stamp our proudly Nuclear Free mark on our foreign policy, the work of that government to advance human rights, including homosexual law reform, and to bring conservation and environmental issues much more to the fore. But we will also look back with much more mixed feelings on the economic reforms of that and subsequent governments, and the four decades of growing inequality and societal decay that has followed.”

If there has been societal decay “it sure as hell didn’t happen because of that”, is Douglas’s response. If there had been a political failure, he said, it was the halting of radical deregulatory reform after his and Ruth Richardson’s efforts.

New Zealand reaped a harvest in terms of increased productivity in the mid-90s, he said. “That was the period where New Zealand started to prosper. The reason we went backwards after that was there was no change after 1991-1992. We got the benefits during the mid 1990s – we were actually ahead of Australia on productivity, the only time in 60 years that that had occurred.” 

As for the pace and scale of the reforms, “you know, it just had to be done”, he said. “Otherwise, the number of job losses would have been even greater. In the end, we were broke. And it’s going to happen right now.” 

Douglas remains convinced the reforms he drove – and those of Ruth Richardson that followed him – were the right course of action. His only regret: “We just didn’t go far enough.”