OPINION
Labour MPs made the right call in leaving defeated outgoing Prime Minister Chris Hipkins as their leader and formalising his de facto deputy Carmel Sepuloni in her role.
They know there’s an outside chance of a new election by the middle of next year. Better to have an experienced team ready to fight it if required – and Hipkins has made clear from election night that he has heard the message from voters, accepts their verdict and will adjust policy accordingly, and that the floor belongs to Christopher Luxon.
Labour still holds the option of rolling Hipkins and Sepuloni next spring, the usual season for that delightful business. Leaving the leadership unchanged for now also keeps the focus on Luxon’s difficulties in forming a credible Government with Act and NZ First – or is it now the other way around?
Luxon faces three risks in the weeks ahead as Nicola Willis, Shane Jones and David Seymour try to write their Budget, due on May 18.
The first two risks are Act and NZ First themselves.
NZ First wasn’t impressed with Seymour’s boasts this week that National and Act were close to inking a deal.
Even before last Friday’s predictable final results, it would have been bold if National and Act were hoping to present NZ First with a fait accompli. With Winston Peters now clearly having the power to collapse the whole shebang, NZ First has a chance to teach Seymour and Luxon who’s boss.
Any agreement between National and Act is not worth the paper it isn’t yet written on. From NZ First’s perspective, Act has absolutely no options. It thinks it’s for National and NZ First to agree terms to which Act must then say yea and nay. Serious negotiations only begin after National and NZ First have something on paper to give to Act.
Negotiators say that’s unlikely this weekend.
Big-picture differences remain across fiscal, foreign, defence and resource management policy, as well as on a range of seemingly minor technical regulatory issues that are very important to NZ First.
Fiscal policy remains the biggest problem.
Just one example is that Act and NZ First have both promised to increase spending on defence to 2 per cent of GDP by 2030, the Nato guideline Australia has already met.
The Australians and Americans see this as a test of whether we are still part of their defence network, or moving to neutrality.
The problem is that, according to Act, keeping that promise would require, over just the next four years, $7.5 billion in extra capital expenditure, almost double what is budgeted, plus $4.35b more in operational spending.
Act and National are also committed to military interoperability with Australia, requiring decisions soon about replacing the Navy’s offshore patrol vessels and retiring Anzac frigates, and at what cost.
The US and Chinese embassies in Wellington are watching these decisions carefully, to see whether Luxon will maintain Labour’s tilt to Australia, Nato, Japan and South Korea, or take Sir John Key’s advice and tilt back to China.
Most likely, National will tell Act and NZ First they’re dreaming. Act may even have to drop its promise to increase real investment in education, and NZ First most of its extra spending demands.
All three parties can’t afford to do worse than the extraordinarily ambitious fiscal track left to them by the outgoing Government in Treasury’s Pre-election Economic and Fiscal Update (Prefu) in September.
But compromise goes three ways. In line with every serious financial analyst and economist, Act and NZ First are highly sceptical of National’s controversial tax plan.
They share concerns that the numbers don’t add up, and it would fuel inflation and higher interest rates.
Both are making clear to National that if they must give up most of their spending and other promises, National must concede on tax.
For Act, this is driven exclusively by the basic fiscal responsibility that its patron saints Sir Roger Douglas and Ruth Richardson tried to embed in New Zealand politics.
NZ First’s objections go deeper, with National’s plan to allow Chinese and other foreign buyers back into the residential property market completely at odds with its most fundamental policy position since 1993, and thus out of the question.
NZ First negotiators certainly weren’t impressed this week when their National interlocutors angrily told them in that case, NZ First would have to find the extra revenue to fund National’s tax cuts. NZ First says that just isn’t its problem.
Despite this, NZ First insists it be given something like the $3b Provincial Growth Fund that it won from Labour in 2017, but with the money coming with less red tape and bureaucratic meddling.
It’s impossible to see how Act could agree and maintain its voters’ support.
But even if Luxon hopes to find a way to placate Act over free dosh for NZ First, his third risk is National’s new back bench.
To the credit of Luxon, party president Sylvia Wood and her board, National has attracted a reasonable bunch of new MPs since they took the top jobs. Compared with the current below-average mid-bench, some of the new backbenchers have genuine talent, experience, brains and connections.
Some, including Northland’s Grant McCallum, Upper Harbour’s Cameron Brewer, Maungakiekie’s Greg Fleming, Hamilton West’s Tama Potaka, Rangitīkei’s Suze Redmayne, Nelson’s Blair Cameron and Ilam’s Hamish Campbell, even entered politics because they believe in and want to do a few things – unfashionable as that now is.
Propping up a three-way coalition of chaos that risks being bitterly divided, fiscally reckless, lax on national security, unable to deliver meaningful change except to the names of Government departments, administratively dodgy or even corrupt is not what they are in politics for.
Luxon has a lot of work ahead this weekend if he wants to avoid such a Government – and he’ll find it only gets worse when it comes to putting together a Budget.
Of course, somehow, the Wellington bureaucracy could help his Government limp on, especially if National finds employment law means it can’t sack as many of them as it hopes, or as quickly. The bureaucracy will be even more happy to help if Luxon’s Government can’t agree to much more than presiding and enjoying the perks.
But it wouldn’t take many MPs in Act, NZ First or National to call time if it becomes a fiasco.
Labour isn’t wrong to spend the next eight months waiting and seeing what happens across the aisle. A weak and unstable Government lies ahead, with some chance of lasting just a single term, or even less.
Matthew Hooton has over 30 years’ experience in political and corporate communications and strategy for clients in Australasia, Asia, Europe and North America, including the National and Act parties and the mayor of Auckland.
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