In 1928, the United Party,
like the Greens today, was a minor party given no chance of winning.
Its leader, Sir Joseph Ward, planned to promise £7 million a year in borrowing to fund infrastructure, then a significant sum.
In his campaign opening, poor eyesight saw Ward misread his notes. He promised £70m instead, an astronomical figure for the time.
The crowd roared approval, so Ward repeated it.
The Reform Party, expected to win re-election, ridiculed Ward’s promise. But United won.
We are no smarter than our grandparents.
As anyone applying for a mortgage knows, it’s the lender, not the borrower, who decides how much can be borrowed.
Ward soon found that out. In three years, he managed to borrow just £5m.
I was a minister in the Government that inherited the financial wreckage after Sir Robert Muldoon’s reckless borrowing.
International lenders made it clear: they weren’t interested in lending to New Zealand. When existing loans matured, lenders wanted their money back, which was an impossibility.
If the Greens win in 2026, New Zealand’s credit rating would fall off a cliff.
They’d learn, as US President Donald Trump has, that it’s not Governments but bond markets that set interest rates. No lender is obliged to lend to us.
The 1984 crisis gave rise to a bipartisan, “never-again” compact. The Public Finance Act 1989 mandates the Government must reduce “total debt to prudent levels” and “on average, over a reasonable period of time, operating expenses do not exceed operating revenues”.
The Green Party wants to scrap that law so it can borrow up to 122% of GDP.
Criticism of the Greens would carry more weight if either Grant Robertson’s or Nicola Willis’ Budgets met the Public Finance Act’s requirements.
Treasury projects ongoing deficits. While National is borrowing less than Labour would have, this year the coalition Government is still borrowing and spending more than Labour.
On fiscal policy, it is only a difference in degree between Labour, National, and the Greens. All embrace borrow, spend and bust.
All ignore two critical issues: the size and cost of the bureaucracy.
Labour added around 16,000 civil servants at an annual cost of about $1.66b a year. The coalition has only trimmed around 2200 jobs.
History teaches us that when Governments take everything, economies collapse. China’s “Great Leap Forward” is but one example.
There’s a point at which the Government’s share of Gross Domestic Product (GDP) stifles growth.
National once claimed this point was 30% of GDP.
Research commissioned by the Inland Revenue Department suggests the figure is closer to 24%.
This year, core Crown expenses are forecast to be 32.9% of GDP but total government spending, including public entities, is estimated by the International Monetary Fund (IMF) to be 41.39% of GDP.
The size of government is why Christopher Luxon’s “growth agenda” will disappoint.
There’s another bipartisan law, the Public Service Act 2020, which states: “The remuneration of public service employees must be broadly equivalent to ... the private sector ... and fiscally responsible.”
That law is being ignored. Civil servants now earn, on average, $10 an hour more than private sector workers. Public sector wages are increasing faster than the private sector.
Historically, civil servants have earned less in return for a job for life.
Now, public sector unions are demanding Australian wages from a New Zealand economy – plus pay equity claims. It is not sustainable.
Politicians are pandering to the voting power of the public sector.
The Green Party claims “the rich can pay”. Its proposal: a 2.5% annual asset tax.
But compound interest makes 2.5% a very high rate. Over a generation, 20 years, 2.5% a year takes 40% of the asset. Over a lifetime, 70 years, just 17% of the original asset would remain.
Māori corporations now own around 40% of commercial forestry, nearly 50% of fishing quota, and about 30% of sheep and beef farms.
In 100 years, a 2.5% asset tax would transfer 92% of those assets to the Crown. One can predict a massive Treaty claim.
Exempting Māori authorities raises equity concerns. One reason the Māori economy is growing faster than the general economy is that Māori authorities pay 17.5% tax, compared with the company tax rate of 28%.
France scrapped its 1.5% wealth tax in 2017. Over 15 years, around 10,000 wealthy citizens emigrated, taking with them $69b.
In the UK, following Labour’s tax changes, 10,800 millionaires left in 2024.
Wealth taxes and reckless borrowing will make us poor. Governments following the law – the Public Finance Act and the Public Service Act – would let the private sector create prosperity.
