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.
Apt.Love it. It has become a cult. Little evidence but much faith.
A bit of a conundrum then, Robertson is damned if he does and damned if he doesn't. I would imagine there are a few politicians and commentators who are hoping Robertson gets tripped into the obvious honey trap. My bet he will eventually get a taste of the honey but just not this budget.
There are two aspects of the Budget Responsibility Rules. The first is the commitment to an ongoing annual surplus, and the second is the commitment to reducing debt levels.
I would have thought the first is pretty cast iron. It would look pretty unimpressive if the coalition's first budget was in deficit after 5 years of surpluses. No matter the spin for the need for increased current expenditure, it would be seen as a failure.
A slower track to reduce debt would be much easier to explain. But any expenditure would have to be capital expenditure such as new hospitals, new rail projects; major defence equipment, other capital projects, etc. However, even here there is a limit that quickly arises. Capital expenditure generates both capital charge and depreciation, and both have to be accounted for in current expenditure. Basically a billion dollars of capital expenditure will incur between $80 and $100 million current expenditure, depending on the rate of depreciation of the assets purchased or built.
I would expect that the coalition could spend up to an extra $3 billion capital expenditure in this years budget without seriously endangering the surplus. Of course the capital charge and the depreciation will be incurred in each succeeding budget, so over a three year period the limit for extra capital expenditure beyond what is already planned could not really exceed $5 billion.
You buy a lot with $5 billion. It is the equivalent to 4 to 5 new Dunedin hospitals. How about a new hospital to fully replace Middlemore for starters.
'Grant' , a clan chief who went off to the Caribbean to make his millions off the backs of slaves. 'Robertson', a clan chief ...Robertson, an American billionaire who bought Cape Kidnappers, with the politics of the Koch Brothers (like the man who bought Young Nick's Head here in Gisborne). Clan Donnachaidh, or Robertson, my clan.
Having some difficulty finding those 5 years of surpluses Wayne.....perhaps youre not talking about NZ?
Wayne, you are just rabbiting on. Start umderstandimg how the money system actually works and then add your politics. Listen to Bill Mitchell on YouTube. Once you understand then transparency is the result.
A masterly summary of where we are and how we got here.
Two delicious phrases stand out:
"In politics there is nothing more dangerous than a man of integrity who has become wedded indissolubly to an unwise policy."
"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."
You do seem to be on a roll. Keep it up!
If Grant R doesn't add a small spoonful of honey to the mix , this government will be damned for having excited expectations that it cannot get within a country mile of fulfilling.
Even more significantly,the decay we see all around us will proliferate and we will be on a collective hiding to nowhere.
And, perhaps even more significantly, the government would then need to keep on inventing special targeted taxes to cover specific projects, each one of which will hugely annoy some section of the population that sees itself as being victimised.
As the Right used to argue: TINA!
Perhaps Labour used up all its chutzpah when it enabled Roger and his Rockers to shake, rattle and roll us all till our teeth chattered and our eyes popped. Roger Douglas along with David Lange, Michael Basset, Richard Prebble and Mike Moore were duped [dubbed?] the "Fish and Chip Brigade"
(We are advised that the Rockers weren't so much at fault as was David Lange and his dominating speechwriter according to Michael Bassett.)
Colin James gives a broad and interesting overview of this time, the background to David Lange's reign and his comments on the economic policies of that time are pertinent.
Of course, there were other factors driving policy change. Market-based economic theory had made a powerful comeback and, coupled with new theories — agency theory, transaction theory, utilitarian libertarianism and moral hazard, the theory of public choice and so on — washed up here in the Treasury and elsewhere among younger economists. These ideas arrived at a time when policymakers had run out of regulatory options and the economy was in serious imbalance: more, or even different, regulation was not an option. A new type of globalisation — of information, people, capital and money, in part facilitated by technological changes in transport and information storage, processing and exchange — had started to seep through trade and regulatory barriers. Something had to give in economic policy and, because of that, to some extent in social policy as well — indeed, there had already been precursors of change in the pre-1984 government.
And the values revolution which had swept through our sorts of countries in the 1960s had generated an openness to policy change among many of the generation which grew to adulthood in that decade. The incoming cabinet in 1984, the main players of which were largely of that generation, and a younger generation of bureaucrats were ready to roll....
How could the government carry out its revolution in a parliamentary democracy which is supposed to have checks and balances and to subject governments to the popular will? In the 1920s and again in the 2000s such radical action would have stalled in the mixed Parliaments of those divided eras. But in 1984 checks and balances were minimal: New Zealanders had come to trust governments too much. The 1984-87 Parliament was in effect a pawn of a determined and radical executive. That Parliament was the high point — and last gasp — of the post-1935 parliamentary dictatorship, the winner-takes-all political culture.
Now Labour has decided to keep their heads below the parapet and skulk just when they need a volcanic charge of energy. I doubt that the Coalition have such care for personal safety.
We need a Blackadder to rise and though reluctant, do his duty to his country (or her duty if she can think like economist Ann Pettifor), and go over the top into No Man's Land. Labour and coalition, 'This is your mission should you choose to accept it.' No soft political pussies need apply.
What Grant Robertson understands is that the expectations created among voters by Labour's election platform were instrumental to its victory at the polls, but it will be neither necessary nor sufficient for Labour to deliver on those expectations in order to be re-elected in 2020. Once in office, a government needs to retain the confidence of the owners of capital and also it needs to be lucky enough to enjoy the benefits of a buoyant economy. This much will be readily apparent to most if not all members of the Labour caucus, which is why they are content for Robertson to follow his "fiscally responsible" policies.
I also suggest that other commenters might earn greater respect (and improve the general tone of discussions on Bowalley Road) if they were to follow Wayne Mapp's example and write reasoned, polite comments under their own names.
Oh dear children, just keep quiet until its your turn for the gruel. And be polite, and don't cry or you will get smacked. We don't have crying children here thank you.
'Own names', Geoff, is what the rich can afford, as per not paying politicians. Sometimes the course of the river needs to be changed. All the propertied around said river are agin. The tone here is pretty good compared to other places. Reason is for the people, and reality, and our descendant's future. Excuse the Oxford comma.
"What Grant Robertson understands is that the expectations created among voters by Labour's election platform were instrumental to its victory at the polls, but it will be neither necessary nor sufficient for Labour to deliver on those expectations in order to be re-elected in 2020."
An interesting comment, which has given me pause for thought. Many thanks.
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