The five factors that make this a budget like no other

Budget 2021: The first MMP budget of a party governing with an absolute majority will reveal the ultimate character of the sixth Labour government, writes Duncan Greive.

Last October capped an extraordinary year with a result MMP was in part designed to guard against: an absolute majority for a single party. It brought joyous scenes for Labour at their Auckland election night function at the Town Hall, an energy so intense it even withstood a poem from Kelvin Davis featuring the mortal line “Apologies if it gets annoying but 10 minutes is a long time”.

The night was charged because the result was the stuff of implausible political dreams. But it brings with it an unprecedented burden: the collective expectations of a vast collection of voters and interest groups, all scrutinising a budget that will finally reveal what a government with so few constraints looks like. 

Since the introduction of MMP, coalition and compromise have been the only constants. Even the dominant John Key-era National government could never get its beloved RMA reform across the line, owing to opposition from the Māori Party and Peter Dunne. There are no handbrakes and few excuses in 2021, so this moment brings a map of the modern Labour soul and a far truer sense of what the party really believes than we have ever seen before. 

Here are five reasons why this is a budget like no other.

1. With absolute power comes great expectations

This budget will bring with it the answer to the most tantalising question in politics: what would you do if nothing was holding you back? Beyond any speech, any party manifesto, what has until now always been unknowable has always been what was traded away for coalition or confidence and supply among the minor parties of government. For the first time in a quarter century we have a budget in which a single party decides how the government’s billions will be spent.

This felt like a big deal at the time, but it seems to have faded since into the more conventional narrative of government and its juggling. Which is understandable, given decades of muscle memory. But it really needs underlining that New Zealand has a unicameral system of government and very concentrated and centralised power (with more by the day – see: the end of DHBs). 

What that means for us as constituents is that if a particular policy is advanced slowly or not at all, or one group’s interests prioritised over another, then that is a deliberate act. There is none of the opacity of coalition politics to hide behind. To put it as simply as possible, today we find out what Labour really, really wants to do. And thus, what it doesn’t, too.

2. The old National Party is a more potent opposition than the current National Party

It will also reveal just how powerful the lingering hold of Key and English is. Their commitment to low debt and fiscal restraint was so popular that Labour and the Greens essentially adopted it themselves as part of their budget responsibility rules in 2017. Further evidence arrived in the form of Jacinda Ardern’s “not on my watch” comments on capital gains tax. 

This ensured the National of that era to some extent governed even after its leaders had retired from politics – that even when out of power its philosophies on taxation and spending remained the orthodoxy. 

Couple that with the political gift of the current flailing and rudderless National opposition and it adds up to an opportunity few in Labour will have ever imagined. Not only do they have absolute power, but there is no coherent philosophy (Collins’ post-He Puapua “separatist” agenda doesn’t count, having been roundly rejected by voters already) critiquing it. 

3. Money has never been cheaper (but you have to want to spend it)

Thirty years ago, when the government borrowed a billion dollars, it had to pay around $100m a year in interest on that debt. The equivalent figure today is more like $15m. This is an extraordinary change in what people in finance call the “cost of money”, part of a consistent trend over the past 10 years which has seen rates low and sinking all over the world.

Functionally, it means that the government can borrow around seven times as much money, out as far as 30 years for repayment, and pay the same interest bill. For a country with chronic issues with its housing, transport and social infrastructure, this is an extraordinary gift – it allows New Zealand to solve its biggest problems without particularly constraining its day-to-day walking around money. (The notion that we need to keep debt low for the proverbial rainy day has been comprehensively disproved by the Covid-19 pandemic – mainly because most of our key trading partners entered it with far higher debt, took a far larger hit, and still mostly have low borrowing costs).

Australia knows this. Its government went on a spending spree last week, announcing an eye-popping AU$75bn stimulus package to try and create 250,000 new jobs. They can confidently do this largely because money is so cheap. The point being if the arch conservatives in Scott Morrison’s government are happy spending like radical leftists, then surely Labour should be too?

4. The end of the fear of inflation and debt

Underpinning all this is an emerging global consensus that fiscal restraint is not fit for purpose in the 2020s. It only existed in the first place because the median voter lived through periods of high inflation, and thus absorbed it as the scariest phenomenon in politics – a mysterious and untameable force that unseated governments. It was an era that reached its apex at around the time Don Brash became the hottest celebrity central banker in the world by pioneering inflation targeting in 1989. 

As the world has awoken to the idea that low interest rates appear structural, and bedded in for years, if not decades, the fear of debt has been replaced by a desire to take advantage of it. From the gargantuan scale of Biden’s US$2tn green energy and infrastructure plan to the spate of local startups sold for heady figures, all the way down to record demand for boats in New Zealand, evidence is everywhere that global comfort with debt has enormously increased.

Debt’s true weight becomes clear when interest rates start to rise, which is a function of perceived risk of failing to pay it back and real (or very plausibly imagined) inflation. New Zealand’s very low levels of debt mean we’re seen as having almost no chance of defaulting on our payments. Inflation, talk of which was everywhere a few months ago, has stubbornly failed to materialise. In any case, given that the government can lock in incredibly low interest rates out to 30 years, a bout of inflation would only serve to shrink that debt further.

It all adds up to a major and seemingly lasting shift in the global economic orthodoxy. 

5. Covid-19 and climate change

Normal service was already on the way out at the end of 2019. The long, stable “end of history” period in the West was radically destabilised by the challenge of climate change, the twin shocks of Brexit and Trump, an increasing discomfort with structural inequality and the steady ratcheting up of trade-driven tensions between China and the US. Then the pandemic arrived.

David Lange’s fourth Labour government came to power in a similar moment of political permission resets. New Zealand was on the verge of post-Think Big debt default, nukes were everywhere, Bastion Point and the 1981 Springbok tour had given a sense of a refusal to accept that the way things were was the way they would always be. Lange’s government took full advantage of that moment, making a series of incredibly audacious legislative moves, many of which still shape our lives today. 

That era’s political response was in large part deregulatory, whereas this mood is in part about designing smarter regulations which deal with challenges like that of big tech and decarbonisation. Labour is still haunted by how scorched earth that era became, and how callously indifferent government seemed to the human impact of its reforms. 

There is a similar mood now as in 1984, locally and globally. This can be seen in the scale of activist movements like the climate strikes, Black Lives Matter and Protect Ihūmatāo. Inequality, particularly that which shows your life outcomes are highly predictable by your race, has never been so scrutinised. Jacinda Ardern has called climate change “my generation’s nuclear free moment”, and tied her brand to fixing the layered tragedy of child poverty. 

It all ladders up into a series of permissions to be bold with a budget, the likes of which have not been present for generations.

What do people really want?

All you have to do, in government, is give the people what they want. That’s a heavy load at any time, and, as detailed above, they want more than usual at the moment. Add in an infrastructure deficit, a skills shortage and an enormous and catastrophic housing crisis which officials admit sees us short anywhere from 28,000 to as many as 200,000 homes, and a generation growing up in motel rooms.

In an admission that it has been better at announcing policy than executing it, the government recently debuted an “implementation unit”, aka the ministry of delivery. It’s a somewhat bleak comment on this moment that despite all the varied reasons to be bold detailed above, the one thing which might hold the government back is confidence in the public service to turn its visions into realities.

Still, there can’t be many excuses less politically palatable for Labour than not believing in the government’s ability to execute powerful and transformative change. If it can’t be bold and address issues with this much rope, it might be time to pack up the tent. 

Today finance minister Grant Robertson will look us dead in the eye and tell us how Labour plans to spend the government’s money. He will do it with the political opportunity of a lifetime at his back, and a generational set of challenges, too. 

It’s a situation no party has seen before, and might never be seen again. No pressure.


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