The banking sector looks to review fraud rules, armed police respond to West Auckland house fire and a bumper events season has Auckland stadiums stoked. Video / NZ Herald
Opinion by Matthew Hooton
Matthew Hooton has more than 30 years’ experience in political and corporate strategy, including the National and Act parties.
Nevertheless, Luxon would easily be re-elected were an election held today.
National is rated more competent than Labour on all top five issues worrying voters. It beats Labour even on health, education and employment, where the red team is usually stronger.
Voters haven’t warmed to Luxon but most clearly blame Labour for the unfolding fiscal catastrophe.
Ignoring that Sir John Key and Bill English ran eight consecutive cash deficits, Luxon and Finance Minister Nicola Willis blame Labour’s six years for the mess.
NZ First leader Winston Peters says it took just three. In fact, Grant Robertson wrecked the Government’s books in just two years, in 2022 and 2023, after Covid was behind us.
No one can explain why Labour kept borrowing even after Covid, spending over $30 billion more in 2023 than during the lockdowns.
Labour attacks Luxon for allegedly running the country like a company, which he denies. National counters that Labour ran the country like a students’ association. If that’s the choice, median voters prefer the former.
Despite reconsidering wealth taxes, Chris Hipkins remains convinced his best bet is sitting back and letting National fail.
Utterly trapped in its Wellington bubble, Labour ludicrously describes making a few thousand policy analysts redundant “austerity”, claiming it will cause economic contraction and undermine government services.
Yet it also says Luxon and Willis’ tax cuts will fuel inflation, keep interest rates high, delay a return to growth and see unemployment continuing to rise.
Labour can’t have it both ways. More reputable centre-right economists warn the second scenario is more likely.
But if the recession lingers through 2024, voters will experience the inevitable reversion to the mean in 2025 and 2026 more strongly.
Luxon and Willis won’t have done much to deserve credit for the election-year boom, but that won’t stop them claiming it.
Lo and behold, that school smartphone ban has delivered an economic miracle!
Meanwhile, median voters will have enjoyed their extra $20 a week tax cut, the minimum pollsters suggest meets Willis’ new “meaningful” test which has replaced National’s innumerate pre-election promises.
If this sounds bleak, that’s because it is.
Already, we have run 13 cash deficits over the last 15 years.
To hide it, successive governments have increasingly labelled new spending capex rather than opex, gaming the fiscal-responsibility rules to make the operating balance before gains and losses (OBEGAL) look better.
Treasury pushes back against the practice, but usually in vain.
When Willis ever achieves surplus, now not expected until 2028/9, New Zealand will have run a cash deficit for 18 of the previous 20 years. Even under the OBEGAL measure, there will have been just five surpluses in 20 years, two under Labour.
Luxon and Willis promised to address Robertson’s wreckage seriously.
Instead, despite some trimming in Wellington, Willis will most likely spend more in 2024/25 than Robertson budgeted for 2023/24.
Forgetting that when English took office, debt and debt servicing costs had reached zero, Willis promises to mimic English’s “slow and steady” approach to addressing the unfolding catastrophe.
At best, she seems set to repeat his record of a surplus or two before voters give Labour another crack.
By then, annual debt servicing costs will have passed $15 billion. Worse, Labour would take office just as the permanent fiscal deficits forecast by Treasury lock in from 2030, fuelled by the costs of an ageing population and ever-improving health technology.
Argentina's debt tripled from 20 per cent of GDP to over 60 per cent from 1975 to 1985, prompting a major debt crisis after lenders lost confidence. Photo / Thomas Bywater
Without greater urgency, NZ is doomed to a downhill spiral from 2030, similar to Argentina’s collapse from one of the richest countries in the world to basket case in the 20th century.
As recently as the 1930s, the average Argentinian was better off than most people in Europe, North America or Australasia. Sophisticated Parisians aimed to be “aussi riche qu’un Argentin” – as rich as an Argentinian.
Confident that once a rich country always a rich country, Argentina failed in the following decades to respond to changing trading conditions and improve productivity. After World War II, like NZ in 2008, Argentina had almost no debt, so began borrowing to hide its declining competitiveness.
Initially modest, its debt tripled from 20 per cent of GDP to over 60 per cent from 1975 to 1985, prompting a major debt crisis after lenders lost confidence.
Argentina never properly recovered, with governments from left and right unwilling to accept that Argentina was no longer first world.
Argentina’s fiscal deficit nearly came under control in the 1990s and there were some surpluses in the 2000s, but it never escaped the debt it had built up.
With no room to respond to new shocks like Covid, it has already defaulted on its debts three times this century.
With no way out, it has no choice to impose brutal austerity. Inflation has soared with households’ purchasing power collapsing by up to 14 per cent a month. Sufficient daily calories are out of the reach of increasing numbers, with nearly half the population living in poverty.
Most New Zealanders, like Argentinians in the 1960s, will reject the risk of a similar fate in the 2030s as hyperbole.
But Key and English could be sanguine about borrowing through the 2010s off a zero base. Even Jacinda Ardern and Robertson had fiscal space in 2020.
With annual debt servicing costs already three times the police budget and soon to exceed that spent on the entire school and early childhood systems, Luxon and Willis have no more room to be sanguine than their Argentinian counterparts in the 1960s.
If they insist on following Key and English’s “slow and steady” approach, their legacy will be an economic crisis in the 2030s similar to Argentina’s in the 1980s, with no prospect of returning to first-world living standards.
In the 1930s and 1980s, after centre-right parties wouldn’t deal with changing circumstances, Labour stepped up to do what the times demanded.
This time, though, if Luxon and Willis won’t step up, then Labour has no Michael Joseph Savage or David Lange and certainly no Walter Nash or Roger Douglas.
Luxon and Willis are our last chance. Hopefully, after the Budget on May 30, I owe them an apology.
Disclosure: 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.
