Thursday, 19 April 2018

"Clarkism" Still Driving The Labour Party.

The Sincerest Form Of Flattery: That “Clarkism” continues to be the driver of Labour policy is now impossible to either ignore or hide. Why else would Jacinda Ardern's finance minister (and Michael Cullen protégé) Grant Robertson have deliberately hamstrung the incoming progressive government with his absurd, unnecessary and politically indefensible “Budget Responsibility Rules”?

WHEN THEIR FRIENDS aren’t listening, the people at the top of this government are referred to bitterly as the “Clarkites”. Specifically, we’re talking about the former staffers of Helen Clark: Jacinda Ardern, Grant Robertson and Chris Hipkins. More generally, however, the term is used to describe that fraction of the Labour caucus unwilling or unable to fault the economic and social management of Clark and her Finance Minister, Michael Cullen. That significant figures from the Clark Era: Mike Munro, Heather Simpson, Cullen himself; continue to play major, albeit behind-the-scenes, roles in the Ardern-led government, only reinforces the potency of the “Clarkite” epithet.

Those Labour Party members unencumbered by stardust-speckled spectacles are beginning to comprehend that chronic government underspending goes back a lot further than Bill English and Steven Joyce. Finance Minister Cullen was a master at finding ways of diverting public revenues away from Labour’s traditional spending priorities: health, education, housing and welfare.

Not only did Clark’s finance minister set up the so-called “Cullen Fund” in response to the non-problem of “unaffordable” superannuation; but he also made sure that KiwiSaver (and the state’s contribution to its participants’ accounts) was managed by private-sector investors. Cullen also refused to return the Accident Compensation Corporation to its original status as a pay-as-you-go scheme – thereby diverting billions of dollars into the seemingly never-ending process of fully-funding it.

Funds that could have been used to upgrade the state housing stock; rebuild the capacity and efficiency of the nation’s railways; create a world-beating public transport system in Auckland and expand dramatically the country’s decrepit mental health services were, instead, piled-up in Scrooge McCullen’s money-bins.

There was method to the Finance Minister’s penny-pinching, however.

The more a government does for its citizens, the more they ask it to do. If their demands are met, then the resulting increase in state spending can all-too-easily boil-over into a full-blown fiscal crisis – necessitating savage reductions in government expenditure and unpopular tax increases.

Of course, these latter measures are only deemed necessary by politicians who regard government deficits as sinful, and who refuse to take full advantage of the state’s monetary fecundity. For these benighted souls, among whom Clark’s finance minister must be counted, the rule remains: “jam tomorrow and jam yesterday – but never jam today.”

For Clark, the trick was to keep public expectations subdued by “under-promising and over-delivering”. For her strategy to succeed, however, it was necessary for Cullen to present the government’s books as being healthy – but not too healthy.

A modest government surplus could be passed-off as evidence of prudent economic management. Too big a discrepancy between what the government collected and what it spent, however, and the voters would expect the surplus funds to be invested in improved public services and/or returned to them in the form of tax cuts. Cullen’s knack for making his surpluses disappear wasn’t just fiscally impressive – it was politically essential.

In 2009, with the Global Financial Crisis in full swing, the incoming National Government suspended “contributions” to the Cullen Fund. Why? So that billions of freed-up dollars could be spent on keeping the economy’s head above water. Labour was highly critical of this decision: perhaps because it demonstrated exactly how much the Clark-Cullen Government had prevented itself from spending for the best part of a decade.

That “Clarkism” continues to be the driver of Labour policy is now impossible to either ignore or hide. Why else would Robertson, Cullen’s protégé, have deliberately hamstrung the incoming progressive government with his absurd, unnecessary and politically indefensible “Budget Responsibility Rules”?

Earlier this week, the Prime Minister acknowledged that she and her colleagues were aware that the previous government’s underspending was massive – they just didn’t realise how massive. And yet, not even this pre-election awareness of the nation’s need was enough to make them dispense with the Budget Responsibility Rules. Nor were they persuaded of the necessity of abandoning their “No New Taxes Before 2020” pledge.

No sensible New Zealand economist believes Robertson’s self-denying ordinances to be either necessary or ethical. If opened, the bulging money-bins described above would remove the urgency (if not the argument) for raising taxes. So, why do the Clarkites refuse to be swayed?

The answer lies in their fear of losing control. If Labour credits the people with the answers, then how are they to be kept in its debt?

This essay was originally published in The Waikato Times, The Taranaki Daily News, The Timaru Herald, The Otago Daily Times and The Greymouth Star of Friday, 13 April 2018.

21 comments:

peter petterson said...

You are doing it again Chris - dividing the Labour party into left and right, the latter being the Clarkites.

pat said...

Cullen was and still is fiscally prudent, perhaps excessively so however his cause is not without reason as your article recognises....there is a balance to be achieved, particularly for a small trade deficit economy.

Ardern may be a 'Clarkist'...but I suspect even Clark herself would change some of her positions in the light of current evidence and regardless the PM is placing her own interpretation on any guidance that may be offered....and then maybe Im completely wrong, but the budget may shine some light.

Wayne Mapp said...

If we go by each parties record since the mid 1980's, National typically wants government spending around 30% of GDP, on the basis that any more crowds out private investment and private choices. Labour has been up to 35% go GDP, which was the case for a fair part of the Clark/Cullen era. this was done with a top tax rate was 39%, and there was no changes in tax thresholds for the whole 9 years. Fiscal drag had quite an impact in lifting the size of government. It took nearly 9 years of National to get down to 30% of GDP. So a significant difference between the two main parties. Though not enormous, 39% is not socialist nirvana.

Ardern and Robertson probably sit between the Clark/Cullen and the Key/English settings.

The only way back to the Clark/Cullen settings in a sustainable way is to increase taxes. though fiscal drag will take the government some way along the path.

So what is being argued for in this article is to increase taxes, just as Clark/Cullen did with the 39% top rate. CGT doesn't do it, Not predictable enough and in any event raises too little revenue.

Will Ardern/Robertson campaign on increasing taxes in 2020? It will be a big risk and only worth taking if they are very secure in their electoral position.

Jens Meder said...

And worse than that, Chris, because without Labour's "fiscal responsibility" promise, they nor the Greens would not be in government now, and might be out of it in 2020.

Polly. said...

Well said Chris Trotter.
Your article deservers Front page of every newspaper in the country.
Come on the Herald, lift your sales.

Anonymous said...

Clark is clearly pulling the strings behind the scenes, and now we have crony appointments, such as Clark comrade, Mike Munro. How corrupt is that. Sigh. Same old, except, unelected this time. So much for the much vaunted by Labour, 'generational change'. Utter hypocrisy! One term govt, this govt is hard left to the core. Watch the voters cane them next time.

Ron.

David Stone said...

They need to get beyond worshiping at the feet of Clark and Cullen. The were popular once but the electorate had more than enough of them. They just maintained Rogernomics and the voters were hoping for a move away. Trying to copy that duo now as second grade disciples isn't going to cut it. I get an uncomfortable feeling listening to Jacinda's announcements that she is trying to sound like Hellen . She should be herself and not try to emulate any-one.
D J S

Geoff Fischer said...
This comment has been removed by the author.
Patricia said...

May I recommend everybody listens, on YouTube, to either Bill Mitchell (Australians) or Stephanie Kelton (American) on how the monetary system actually works. It is a light bulb moment. They put the ‘ budget responsibility rules’ in very different light. I always think that those who talk of budget responsibility rules are like the dinasours of old who said washing hands before an operation was a nonsense! Understanding how the monetary system works is a pre requisite to any comment.

speiro said...

In contrast to 'anonymous' I don't see any evidence of this government being 'left', 'left leaning' or 'hard core left' at all. My understanding of a 'left' government is one that intervenes (through budgets & regulation) where necessary in order to create as fair and level a playing field as possible for all citizens. And it ensures that those who need help through social services, get help when they need it as those social services are adequately resourced.
Wayne thinks it'll be a big risk for this government to campaign on raising taxes prior to the next election. I think it'll be a major risk if they don't. From memory labour dropped about 8-9points in the polls during the week leading up to the election (they were comfortably ahead of national 1 week out and 4-5points behind after election night). The only major thing I remember them doing in that week was confirming that they'd make no changes to tax during their first term - at that point it was clear that the illusion of change that Jacinda had started to create was just that - an illusion, and Labour were not the party of change that an increasingly large portion of society need and want.
Very few people would consider Australia or Britain as 'socialist' or 'progressive' yet both these countries have top tax rates of 45% on income over approx $150-200k. As the major economic beneficiaries of the free market over the past 30odd yrs have been the top 10% of income earners then at the very least a new top tax rate needs to be introduced like in Britain & Aus - I can't see this hurting labour at election time. As Wayne points out CGT doesnt raise much initially, but a decent CGT removes incentives for NZ's 'addiction' to property investment which contributes bugger all to the economy. By removing this incentive, and incentivizing investment in small businesses (which dominate the NZ environment),that pay tax, create jobs and contribute to the economy, then wealth is created that can be invested into social services.
Sadly there's no sign that labour will front foot tax to create a fairer tax system in order to generate income for social investment. As such there's nothing 'left' about them, and as Chris highlights, this is a tragic consequence of holding onto the 'Rogernomics' that was sustained by Clark&Cullen. But as the average labour MP owns almost as many 'investment' properties as national MP's and they're all well ensconced in the top 10% of income earners - then why would they push to change the system that serves them so well? Unless of course public service actually is a key driver for them, especially servicing the needs of those at the bottom of the heap

Anonymous said...

The CBO has predicted that the US will spend more servicing its debt than it will funding its military by 2023. You should be really careful about endorsing MMT.

This isn't up to your usual standards.

https://www.bloomberg.com/news/articles/2018-04-11/cbo-warns-lawmakers-interest-spending-to-outpace-military-by-23

https://www.stuff.co.nz/business/industries/72105340/Stopped-contributions-cost-NZ-Super-Fund-billions

Shirley Knuckey said...

This continuing to please the Right gets tiresome Chris. It would be great if you helped our sleepy electorate to believe that Taxing is About Care. (Go Shammabeul!) Nats last year did a top job in painting Tax Is Evil. Sadly Labour had Hobsons'Choice. Lefty-ism has no scope at this juncture to be other than 'moderate'. Consigning to Opposition pernmanently is a strange aim for an avowed Lefty to maintain Chris.

Guerilla Surgeon said...

I agree with Shirley about taxation. The right is great at thinking up slogans like "tax-and-spend." If only labour could convince people that its "tax and invest". Actually, I think most people are convinced already, but as usual the empty vessels.........

Jens Meder said...

Yes Guerilla Surgeon - I think "tax and invest (save)" into our NZ Super Fund might be a politically attractive proposition, because the NZ Super Fund is national (retirement) wealth ownership creative, and can participate even in financing non-marketable nor cash profits earning infrastructure.

Repayment of infrastructure debt (with interest) to our own NZ Super delivery cash flow - and not only to foreign savers or our own "moneybag" bond holders - will contribute to keeping our NZ Super entitlement sustainable from age 65.

David Stone said...

Jens
What does the Superfund do with your savings? Think about it. The savings are put , forcibly, by law, into the hands of professional investors to speculate on the share markets and bond markets of the world. If these markets are inflating they appear to make a profit, When these markets slide or collapse they make a loss. They are used to speculate with not "invest" in the sense of building hydro electric facilities , or wharf facilities, or airports, or solar generating plants. They might by shares in companies that do but they don't invest directly. The same money extracted from the population as an honest tax instead of a tax we are forced to pay to some anonymous capitalist speculation fund, could be used by government for a clearly thought out project that the country needs. Then it would qualify for the term "investment". Speculation does not .
D J S

Patricia said...

Anonymous, You need to read and listen to MMT a lot to understand how the monetary system actually works. It is fascinating. Once you understand you can add or subtract your politics.

sumsuch said...

I suppose it lies in all the policies that were rolled back in the first 2 years of the Clark Govt by the reaction of farmers and business. Jellyfish sting, the memory of which apparently lasts longer than the pains of childbirth.

sumsuch said...

'Pat', Helen Clark is now for dental subsidization, the last plank in Savage's health policy before his death. Radical, to Fraser's eyes anyway apparantly. I hate to look in the eyes of mechanics, dentists and lawyers.

Yes, 'no nu taxes' and budget responsibility were part of Labour's scaredy cat manifesto. National was the same in 08. You're desperate, so cover every angle. Hence also all the Clark people running things.

Ardern can communicate on a Woman's Weekly everyone's level. Surely there's someone who can talk on the level of their desires and needs. You would have had to have lead their lives, or lived it imaginatively, I suppose. The free market says it perfectly devises it.

Jens Meder said...

David Stone - buying a wide variety of widely spread marketable assets and bonds on the stock market is a safer way of investment and reserve wealth accumulation than any single "all eggs in one basket" investment, and it becomes seriously dangerous speculation only when done on a higher rate "on credit" than the capacity of covering the loss of it.

Are you not hopelessly out of touch with reality, if you don't see the NZ Super Fund as the same kind of retirement wealth accumulation as done by ordinary home owners or larger scale savers and investors ?

And the NZ Super Fund can be authorized to participate up to a point in financing NZ infrastructure and power plants construction, and/or even owning some of the latter.

In the latter case, it looks clearly more profitable to the national economy than having the money borrowed from overseas savers or even domestic "money bags", because governments usually just do not have enough spare funds annually to invest at the scale needed, and arguably the NZ Super Fund would be a more useful way of national capital accumulation than a mere "national development fund" with no function of partly pre-funding NZ Super.

David Stone said...

Jens Meder - I have been in the position of being required to pay into the accident compensation commission fund. It works the same way as NZ Super. I have no problem with contributing to looking after people who sustain accidents at work, it is an obvious social requirement for a civilised society, and not unreasonable that employers and self employed largely contribute.
If the monetary system were sensibly managed the fund so developed would hold it's value and could be held by societies' governing body to allocate as required. Alternatively it could be utilised by government both to oversee workplace standards as used to be the case, and educate, and beyond that invest in infrastructure generally instead of borrowing from outside sources for the same projects.
Instead of that the money is given to the captains of speculation to play with and a handsome cut they take. In 1987 they lost the whole f**king lot. Some companies recovered many never did and the fund "investment was lost forever, and had to start again by massively increasing the levies.
In normal times some companies do better than others for a while and some go down, there are relative winners and losers. But about every 20 or 30 years, so every generation's 'investment' will be caught, there is an across the board disaster like 1987, like 1930s like 2008, and it all gets wiped.
Savings that are imposed by Government law are taxes imposed, and requiring them to be placed in the hands of private speculators is very wrong. The government should utilise them as they do other taxes and provide security as needed out of this and other tax revenue. Individuals who have spare money to invest should suit themselves how they invest it. Lots of people lost their savings in such schemes in NZ, like Bridgecorp just before the general GFC. Remember?

D J S

Jens Meder said...

David Stone - It was governments that ended up having all our 7.5% special Michael Savage initiated Universal NZ Super Fund savings "invested" in consumption rather than in tangible assets - and Muldoon could truthfully say there are no other assets in the Universal Super Fund than just govt. debt. - and any pre-funding of NZ super was not achieved.

As far as I understand, all the crashes you are referring to happened because of excessive "investment" on credit for which there was no repayment capacity in the case of a loss.

People and businesses that owned their assets debt free did not suffer from those crashes, and potentially even profited from them when able to acquire assets at low prices.