Prepared For The Worst: Were the Budget responsibility Rules (BRR) sufficiently elastic to accommodate the Labour-NZF-Green government’s expenditure needs, then they might be tolerable. Unfortunately, the BRR are anything but elastic. Indeed, they are as rigid and inflexible as Procrustes’s legendary bed. Already, Labour promises are being lopped-off to satisfy Finance Minister Grant Robertson’s fixation for strict fiscal measurement.
THERE IS NO valid reason to doubt the sincerity of Grant Robertson’s intentions. That’s the problem. In politics there is nothing more dangerous than a man of integrity who has become wedded indissolubly to an unwise policy. In this case, the unwise policy to which our Minister of Finance has repeatedly committed himself is keeping his government within the fiscal parameters of the so-called Budget Responsibility Rules (BRR).
Were these rules sufficiently elastic to accommodate the Labour-NZF-Green government’s expenditure needs, then they might be tolerable. Unfortunately, the BRR are anything but elastic. Indeed, they are as rigid and inflexible as Procrustes’s legendary bed. Already, Labour promises are being lopped-off to satisfy Robertson’s fixation for strict fiscal measurement.
Robertson and his fixations are, however, very far from being unusual among Labour finance ministers. In fact, it would probably be more accurate to say that the propensity of social-democratic finance ministers to make a fetish of economic orthodoxy constitutes the historical rule, rather than the exception.
There are still New Zealanders who remember the notorious 1958 “Black Budget” of Labour finance minister, Arnold Nordmeyer.
Inheriting a worsening balance-of-payments crisis from the outgoing National Party government, Nordmeyer was tasked with furnishing the revenue required to keep Labour’s spending promises. This he did by imposing swingeing fiscal imposts on “the working-man’s pleasures” – alcohol and tobacco – and the middle-classes’ conspicuous consumption goods – cars and petrol. The voters were not at all impressed and punished the Labour Government by unceremoniously hurling it from office in the election of 1960.
Twelve years later, it was Labour finance minister Bill Rowling’s turn to become the victim of his own economic orthodoxy.
In 1973, the United States’ decision to resupply the hard-pressed Israeli armed forces at a critical moment during the Yom Kippur War provoked an Arab oil embargo on the West and a quadrupling of oil prices. Rather than tell the New Zealand people that the economic game had undergone a profound change – in the face of which the theories of John Maynard Keynes offered scant assistance – Rowling attempted to borrow his way through the deepening fiscal crisis of the state.
As the public debt climbed higher and higher, the Opposition leader, Rob Muldoon (along with his alarming collection of economic charts) toured the country preaching doom and disaster. That Labour government was also a three-year wonder.
In 1984 it was Labour finance minister Roger Douglas’s turn to impale his party on a point of principle. Unwilling to tax and (allegedly) unable to borrow, Douglas and his Cabinet colleagues declared that there was simply “no alternative” to throwing away the social-democratic playbook altogether and embracing the free-market dogma of Margaret Thatcher and Ronald Reagan.
Sick and tired of seeing Muldoon run their country “like a Polish shipyard”, New Zealanders went hog-wild on Douglas’s “greed is good” Kool-Aid. It was only in the cold-morning light that followed the 1987 share market crash that Kiwis registered the damage the hard-partying free marketeers had inflicted on their country. The Labour Party was but one (and by no means the most grievous) casualty of the Rogernomics era.
Nine years later, Labour finance minister Michael Cullen surveyed the fragile New Zealand economy and decided that if nobody moved, then nobody would get hurt. Like Scrooge McDuck, Cullen piled-up riches in the state’s money-bins, convinced that, in the light of all that had gone before (he was, after all, an economic historian) it made more sense to save than to spend. Labour’s days of nation-building were over. If ‘capitalism’ and ‘crisis’ are political synonyms, then ‘rainy days’ are inevitable. Best be ready.
Which brings us back to Cullen’s political protegee, Robertson, in whose mind the words ‘Neoliberalism’ and ‘Keynesianism’ appear equally capable of triggering fear and panic.
A fundamentally decent man, Robertson finds himself torn between two contradictory objectives. Like his boss, Jacinda Ardern, he is determined to empower a government of transformational kindness but, like his patron and predecessor, is fearful of the fiscal consequences of political compassion.
Accordingly, Robertson continues to preach the grim gospel of “fiscal sustainability”. The Labour-NZF-Green government, he says, must be able to “respond effectively to any shocks – natural or economic.”
Except that a finance minister determined to save for such rainy days is unlikely to facilitate a government of transformational kindness – even when the sun is shining.
This essay was originally published in The Otago Daily Times and The Greymouth Star of Friday, 4 May 2018.