Future Fund flop: Labour struggles to sell first major election policy - Matthew Hooton

THE FACTS

• Labour’s Future Fund launch would start with $200 million and include $20 billion in state-owned shares.
• The party plans more major policy announcements before Christmas, focusing on rebuilding finances and tackling the cost of living.
• The crucial tax policy is pencilled in for the coming weeks.

The launch of Labour’s first big election policy, its Future Fund, turned out to be a bit of a flop.

After 17 years of Sir John Key’s promised step-change and Business Growth Agenda, Dame Jacinda Ardern’s Kiwibuild and other fantasy projects, and Christopher Luxon’s non-existent economic growth plan, New Zealanders are heartily sick of slogans and brochures dressed up as policy.

The worst part for Labour is that it was more a PR failure than a policy one. The Future Fund contains the kernel of a good idea and was welcomed by Infrastructure New Zealand as being on the right track.

New Zealand can’t borrow its way out of its seemingly permanent decline. Nor is there some magic productivity booster hidden in a bottom drawer in the Treasury that officials and ministers have somehow overlooked.

To maintain living standards at least somewhat commensurate with Australia, the US, Canada, Singapore, South Korea, Taiwan, the UK and EU and Arabian Gulf countries, New Zealand’s only remaining strategy is to stop borrowing and start saving and investing, as Sir Roger Douglas, Ruth Richardson, Sir William Birch, Winston Peters and especially Sir Michael Cullen all argued before the era of big borrowing resumed.

Labour finance spokeswoman Barbara Edmonds can’t really be criticised for suggesting the fund would start with just $200 million of taxpayers’ seed money. The amount is admittedly pitiful, being less than the cost of an unneeded but politically motivated medical school or the $500m that Finance Minister Nicola Willis naively suggests will allow Kiwibank to start competing more aggressively with ANZ, ASB, BNZ and Westpac.

But, after the fiscal ruin and other economic failures of the Key, Ardern and Luxon Governments, New Zealand is like 20-somethings taking their first real jobs, having borrowed much more than they should have through the student loan scheme, and able to put only an initial $20 into their KiwiSaver accounts.

Like them, New Zealand as a whole must again start from scratch. While Edmonds will have no more available cash than Willis, her fund must start with something, and confessing that $200m is as much as she has spare is at least honest.

The more important part is to put the Government’s estimated $20 billion of shares in its state-owned enterprises (SOEs) and mixed-ownership model companies (MOMs) into the fund, enabling them to be professionally managed by the investment bankers at the Superannuation Fund rather than held by under-educated, inexperienced and often cynical ministers.

For ideological reasons, Labour will forbid any of these shares from being sold but, over time, more active management and capital recycling would be inevitable. Moreover, if some shares in an SOE or MOM are to be divested under a future National-led Government, it then makes much more sense for decisions to be made on commercial grounds by the Superannuation Fund’s experts, rather than ministers desperately seeking extra cash for election goodies.

In declining to provide details about how the fund would work, Edmonds and Labour leader Chris Hipkins cited commercial sensitivity, but it’s difficult to see how anything said by an opposition party with less than a third of the vote a year from an election could move markets. Edmonds and Hipkins would have been more credible to claim political sensitivity, with the Labour left still paranoid about any potential change to how shares in SOEs and MOMs are held.

Labour leader Chris Hipkins and finance spokeswoman Barbara Edmonds tour Auckland start-up space GridAKL ahead of their economic announcement on Monday. Photo / Anna Heath

Edmonds promises more work on the policy so it is ready to go on “day one”. Hopefully, she is true to her word and it would be established within weeks of her being sworn in.

What’s more, if Labour ends up forming a Government with NZ First rather than the unreliable and now unravelling Te Pāti Māori (TPM), as some in the party prefer, it would be much better for taxpayers to put the $3b more that Shane Jones might demand for another Provincial Growth Fund into the Future Fund rather than let him allocate it from his office.

Hipkins denies it was intentional, but it also wouldn’t hurt in coalition negotiations for both parties to have a similar policy with the same name, disagreeing only over its initial size. The Future Fund idea was investigated by the last Labour-NZ First Government before Covid, and successive Governments since the 1990s have also looked into it, but have been loath to give up direct control.

However badly it landed, the Future Fund policy announcement was the first in a series of at least three major policies Labour strategists plan before Christmas so that voters don’t head into summer thinking it has no ideas to start the slow rebuilding of the nation’s finances and economy.

Until now, Labour has followed a deliberate strategy of not distracting from the Government’s failure to meet economic expectations. As one strategist puts it, “never get between the Government and a problem”. But Labour now accepts it is time to put more substance around Hipkins and the party as a whole.

The crucial tax policy, pencilled in for the coming weeks, is the biggest test, and Labour will have to be clear where the money would go. That can’t just be more social spending or handouts, which would risk fuelling inflation. Labour needs to keep its newly established lead over National as the party best to tackle the cost-of-living crisis, still by far voters’ number one concern.

At least some of the money from what is expected to be an extension of current capital gains taxes must be directed to deficit reduction, especially in the outyears.

Prime Minister Christopher Luxon (L) and Labour leader Chris Hipkins. Photo / RNZ

Opinion polls are unanimous that there is a crisis of confidence about New Zealand’s prospects and its political leaders, with the net approval ratings for both Hipkins and Luxon derisory. Hipkins remains a nose above zero. If Luxon remains as subterranean as he is now, National risks complete collapse during an election campaign, shedding all but the 20% bedrock support that Sir Bill English held onto in 2002 to NZ First, Act, perhaps an unexpected micro-party and even Labour.

Expect Hipkins to argue that the best way to keep both Act and TPM out of government is for National voters to tick Labour.

Yet the election will be won – and deservedly so – by the main party that can demonstrate it offers more than slogans, brochures and funny Instagram and TikTok posts.

Luxon clearly can’t offer national leadership, and it remains to be seen whether Chris Bishop or Erica Stanford will be given the opportunity to prove they can.

Hipkins has so far chosen not to show leadership, and his first effort on Monday fell flat. He and Edmonds will need to do much better when they roll out their tax and other major pre-Christmas policies if they want to be the ones to fill the Luxon and Willis vacuum.

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