Act leader David Seymour and New Zealand First leader Winston Peters shake hands as they sign their new Government deal. Photo / Mark Mitchell
Act leader David Seymour and New Zealand First leader Winston Peters shake hands as they sign their new Government deal. Photo / Mark Mitchell
Opinion by Liam Dann
Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
Congratulations to new Prime Minister Christopher Luxon. After all the speculation and concern, he has done a remarkable job of getting his two petulant minor party partners on the same page.
The final coalition agreement is so comprehensive and detailed that it almost papers over the deep ideological divisionthat remains a major structural flaw in the whole arrangement.
Let’s come back to that, although (spoiler alert) the problem is an economic one.
If there was any doubt Luxon’s immediate challenge for the past few weeks has been about managing egos, the weird and slightly embarrassing solution to the Deputy Prime Minister issue resolves that.
Luxon has handled it the way a parent might deal with two children determined that they’ll sit in the front passenger seat on a ride to the mall with Dad.
With the wisdom of Solomon, he has proposed splitting the role.
In the biblical version of the King Solomon story, it was a dispute over a baby. The threat to chop the infant in half succeeded in revealing the real mother as the one who was prepared to concede, thereby saving the baby’s life.
In this political case, neither really cared deeply enough to do that.
And fair enough. It is largely a symbolic role, although you’d think on that basis the pragmatic approach would have been for one party to concede in order to gain a more meaningful policy win.
But while Deputy Prime Minister might have been the last comical sticking point in the deal, it was a sideshow, which won’t have bothered National.
The real issue for Luxon and National is highlighted by the party’s concession on the foreign property buyers tax.
Ironically, specific policy itself probably wasn’t hard to concede. National was already under fire from economists on the right and left who didn’t believe it stacked up from a fiscal point of view.
It should be a relief to Luxon and Finance Minister Nicola Willis that they will now never have to prove their numbers worked. They obviously didn’t.
Instead, they can lean on the vagaries of MMP to look harder at other areas of government spending to cut.
A tighter fiscal rein might even accelerate the (already) easing pace of inflation and interest rates - albeit at a risk of higher unemployment and lower economic growth.
The problem is that the concession reveals a fundamental ideological difference in economic policy - one that will prevent Luxon from pursuing his grand vision for New Zealand’s future.
Through the campaign, National talked up plans to supercharge the economy by reopening New Zealand to the world and encouraging more foreign direct investment.
The reopening of residential property to foreign buyers was the most specific example.
But when quizzed on how he’d boost productivity and wages, fund big infrastructure projects and generally create more wealth, Luxon has leaned heavily on references to the Irish model ... or Singapore or Finland or Denmark or Switzerland.
Singapore is one of the buzzing economic centres Prime Minister Christopher Luxon has cited as an inspiring example. Photo / Unsplash
“I have studied small advanced economies probably for the last 25 years,” he told me in an interview.
These models typically involve low corporate tax, openness to foreign investment and public-private infrastructure projects.
When tested on how he might fund big infrastructure projects without adding new taxes or massively cutting spending, Luxon has hinted at a willingness to embrace these kinds of investment structures.
“There’s a lot of pension funds, there’s a lot of sovereign wealth funds that want to invest in infrastructure for long-term investment returns,” he told TVNZ’s Breakfast in August.
He has even made comments suggesting he’d be open to Chinese investment money.
That’s not happening while Peters holds the balance of power.
NZ First’s core supporters (the ones that stick with it through election cycles) represent the last 3 or 4 per cent of Kiwis who think the country was a good place to be as a closed shop under Robert Muldoon.
Act, on the other hand, was literally founded on the belief those economic policies that pre-date 1984 should be consigned to the dustbin of history.
National and Labour Governments both tend to pick and mix their policy from either side of the mainstream economic menu.
But while clinging to some degree of command-and-control economic management, National generally sits closer to Act on issues like tax and foreign investment.
To some extent, that Peters “handbrake” effect will be a relief to Labour and the left.
But it will be an ongoing annoyance to those who wanted to see National and Act deliver a steroid hit to New Zealand’s economic growth.
There’ll be no public float of Kiwibank, no sell-down of Air New Zealand or any other mixed-model state asset sales.
Their fiscally cautious supporters will have to relax about Crown debt as we continue to rely on foreign borrowing to fund key infrastructure.
Luxon and Seymour will have to put the bolder goals for economic transformation on hold for three years.
They’ll concentrate on consolidation of the post-pandemic economy which - despite the campaign hyperbole - is still muddling along okay and looks to be rebalancing itself as monetary policy does its job.
Inflation is falling fast - offering an easy win for the new Government next year.
Westpac actually cut some of its mortgage rates last week. It was a small but symbolic shift.
The three parties are also broadly aligned on a bunch of cultural issues, including getting tough on crime and beneficiaries, getting back to basics on education and dismantling co-governance through health and infrastructure management.
David Seymour can battle the bureaucracy and look to deliver the business sector some short-term regulatory relief.
All of those things offer plenty to keep the parties busy for a year or two. If we’re lucky, the coalition might even stick - until the next election cycle, at least.
Meanwhile though, MMP ensures the kind of fundamental economic transformation Luxon spoke of on the campaign trail remains a pipe dream.
