Act in particular should be ashamed.
Ironically, the good news is that the Luxon Government will also extract more from taxpayers next year than any previous New Zealand regime.
That means Willis isn’t even a medallist when it comes to sheer fiscal recklessness by New Zealand finance ministers.
In that dubious contest, Sir Bill English wins gold, borrowing 9.7% of GDP under Willis’ new ObegalX deficit measure in 2011, with Grant Robertson winning silver for his 6.6% in 2020.
Despite the murkiness of the national accounts in 1984, Sir Robert Muldoon almost certainly wins bronze for that year’s effort.
Willis must be content with fourth.
On the other hand, according to a measure from the International Monetary Fund (IMF), the Luxon Government may indeed lead the world.
The IMF’s “cyclically-adjusted general government primary deficit” measure excludes the cost of debt servicing, thus separating out the effect of previous governments’ recklessness, and fluctuations through the current business cycle.
What‘s left highlights the effect of just the current government‘s fiscal stance, for which New Zealand ranks worst in the developed world, at 3.7% of GDP. Yet Hipkins laughably calls this austerity.
Assuming voters are okay with this particular notoriety, New Zealand maintains its reputation of wanting European levels of social welfare while being willing to pay only American rates of tax.
Soon after this month’s Budget, Treasury will release its latest long-term fiscal update, as it has done regularly since 2006.
As with every update through those two decades, this year’s will again show that New Zealand will enter a permanent debt spiral from around 2030, which will quickly take us to debt of 100% of GDP and then to 150% by 2050 and then 200% a decade later, assuming the bond markets would allow it.
When receiving these regular warnings since 2006, successive finance ministers have simply shrugged, saying no government would ever allow the catastrophe to happen, while maintaining exactly the policies that will.
That makes Willis largely a victim of her predecessors’ irresponsibility and now of Donald Trump’s trade war, which has already caused the US economy to shrink by 0.3% in the March quarter, even before “Liberation Day”.
The world’s biggest economy is now probably in recession.
Growth forecasts are also being rapidly revised down in the world’s second-largest economy, the European Union, and in China, India and Japan, the third, fourth and fifth.
New Zealand growth and tax revenues will be lower than expected, and welfare costs higher.
While these latest problems can’t be blamed on English, Robertson or Willis, she and future ministers must add them to the list of factors accelerating New Zealand’s economic, fiscal and social unravelling.
Ideally, Willis and her successors would try to reverse that decline, but the scale of the fast-arriving fiscal meltdown makes the magnitude of the required policy response almost impossible politically.
Not even reversing Luxon’s $15b of tax cuts, for example, would make much difference.
Nor would doubling or tripling Willis’ much-needed cuts to the Wellington bureaucracy, or even abolishing most of it altogether.
The crisis is such that radical structural change on the scale led by the Labour Party in the 1930s and 1980s is now required, but today’s political system is unable to deliver it.
Nothing demonstrates the problem more clearly than Hipkins’ rhetoric this week.
Given median voters’ unwillingness to confront reality, it makes some sense politically for Labour to clutch its pearls whenever Willis moves money from one government programme to another.
According to Hipkins, Willis is guilty of “savage cuts to public services”.
But if Hipkins really intends to restore funding to programmes and Wellington bureaucracies from which Willis has shifted money to others, that alone means any new Government he leads would spend much more than hers.
If Hipkins plans bigger increases to health, education, defence and law and order than Willis will announce on May 22, he will have to admit that spending under a new Labour Government would be much higher than it would reach if the current coalition remains in power.
That‘s Hipkins’ prerogative and provides a democratic choice. Generally, Labour-led Governments are expected to spend more than National-led ones might have.
But, despite all Willis’ reprioritisations that Hipkins attacks, even the current Government‘s overall fiscal strategy lacks credibility.
There’s not much doubt that even National could be forced by ratings agencies and the bond markets to raise taxes later this decade. For Labour, the credibility gap is exponentially worse.
While slamming Luxon’s tax cuts as unaffordable, Hipkins hasn’t yet promised to reverse them. Nor has he identified any major new sources of revenue.
Labour now seems very unlikely to promise a wealth or property tax, which might raise significant new revenue, in favour of a capital gains tax (CGT), which wouldn’t.
If Labour’s CGT excluded the family home, it would be more distortionary than the status quo.
In any case, Labour says it doesn’t want property prices to rise much beyond inflation. Indeed, one reason it gives for a CGT is that it would put downward pressure on property prices.
Nobody at all thinks a CGT would deliver any material revenue in the years immediately after being implemented, and few believe that it would raise very much even in the medium or longer terms.
There’s also no word from Labour about other ideas to bridge the fiscal gap, such as a financial transactions tax, death taxes, stamp duties or even Trump-like tariffs.
Presumably, a new Hipkins Government wouldn’t raise GST or company tax, which is already too high compared with most of the developed world.
Increasing income tax rates on the middle class is presumably also out of the question. For all its symbolic value, a new top tax rate on people earning over $200,000 a year wouldn’t raise any material revenue.
Much of Hipkins’ critique of the Luxon Government‘s fiscal policy is dead right. His problem is that everything he says about the current Government applies tenfold to the one the polls suggest he could end up leading in 18 months.
