Green Party co-leaders Chlöe Swarbrick and Marama Davidson. Photo / Mark Mitchell
James Shaw’s fate was sealed months before he entered Government.
In March 2017, Shaw, and Labour’s Grant Robertson, both finance spokespeople, published the Budget Responsibility Rules: five relatively plain commitments to keep tax, spending and borrowing levels roughly in line with historic norms, and just slightly above where National had them.
Budget Responsibility is another name for fiscal responsibility, a term that has a long and anguished history in New Zealand.
Few rhetorical weapons delight the right quite like the cudgel of “fiscal responsibility.” Progressives the world over have learned not to test the limits of Tory appetite for alleging the Left’s fiscal strategy is nothing more than a merry march down the road to serfdom.
For Shaw, the 2017 tactic worked - until it rather dramatically didn’t.
Shaw and Robertson stopped the fiscal responsibility dog from barking in 2017, neutralising one of National’s most powerful political attacks. There was a fiscal controversy that election, but it was over whether Labour’s plan added up (the verdict from most economists was that it did), not whether Labour and the Greens were inherently irresponsible spenders.
But the BRRs, as they came to be known, set in motion a series of events that saw Shaw briefly ousted from the party’s co-leadership in 2022.
Part of the Green Party saw the rules as a “straitjacket”, blocking the Ardern Government from implementing radical change. It prompted the creation and elevation of internal party networks like the GreenLeft that attempted to destabilise the party and eventually (temporarily) brought Shaw down.
Fiscal responsibility in New Zealand isn’t a vibe - it’s a set of rules that sit in the Public Finance Act. For this reason, what we think of as fiscal responsibility is often incorrectly blamed on the Public Finance Act, a landmark law passed by the Fourth Labour Government.
The truth is even more circuitous, and, if you’re a member of the Greens or Labour, sinister.
The fiscal responsibility section of the Public Finance Act was a separate piece of legislation, The Fiscal Responsibility Act, dreamed up by Ruth Richardson, the bête noire of the New Zealand left. Labour’s Michael Cullen repealed that law, but stuffed the unchanged fiscal responsibility provisions into the Public Finance Act, where they parasitically live on.
The Greens drew the starkest line possible under that legacy this month, publishing a polemical new fiscal strategy. Pointedly, the press release accompanying the statement proudly declared the “fiscal straitjacket” to be “junk”.
The Greens’ 2017 BRRs were conservative enough to sit comfortably within the fiscal responsibility parts of the Public Finance Act.
The Greens’ 2025 strategy does not - and would test those rules to their limit. When future political science students argue over which iteration of the Greens was the most radical, this is the document that is likely to settle the argument in favour of the current lot.
Opposition parties regularly publish fiscal plans, which is Terrace speak for “alternative Budget”, but these are essentially exercises in arithmetic, testing whether the amount of money a party is willing to tax is sufficient for the amount of spending it wishes to undertake.
Fiscal strategies are more rare and are usually given a slightly more telegenic name, like the “Budget Responsibility Rules”. One of the reasons parties don’t bother much is that a Government’s fiscal strategy is constrained by Richardson’s fiscal responsibility provisions in the Public Finance Act (not constrained enough, National and Act might argue).
A new government can change them, but not too much.
The Greens have blown that wide open, attacking not just the existing rules, but the logic on which they are based.
An example: the Greens go after the logic of semi-perpetual surpluses, the only fiscal rule that is more or less explicitly proscribed in the Public Finance Act, with 25G(1)(b) saying that over the long term, revenue must exceed expenses.
The Greens plan to eventually run a surplus, but their fiscal strategy notes that they don’t really have to, saying that stabilising debt levels “can be achieved even with persistent budget deficits, as long as the economy grows at a sufficiently high rate”.
That is a truly radical statement as far as fiscal strategies since the 1990s are concerned, and would certainly sit outside the legislated definition of fiscal responsibility.
The economics behind it are not untrue, however - Treasury modelling from 2022 proves it.
What’s unsaid in the document is how difficult it makes life for Labour.
Unlike the BRRs of last decade, the 2025 fiscal strategy does not neutralise attacks on the larger coalition partner. Quite the opposite, it provides ammunition for the very attacks Shaw and Robertson sought to avoid. The biggest victim of the plan might not be Nicola Wills, but Chris Hipkins.
That’s not to say Labour outright detests the plan.
While leader Hipkins has called the plan “unrealistic and a “huge spend-up” some of Labour’s pointier heads wonder whether the country (and by extension the party’s) fixation on surpluses is a vice of a more demographically benign age.
The Greens are right, you can run small operating deficits and reduce the debt ratio - just as long as the economy is growing faster than the nominal growth in a country’s debt.
They’re not alone in looking for a more progressive approach to public money.
In a column in the Herald earlier this year, Toby Moore, who worked in Grant Robertson’s office during Labour’s second term and now sits on Labour’s policy council, made the case for a more liberal approach to debt.
Moore criticised the advice the last Government received from Treasury on an appropriate debt ceiling (they opted for 50%) saying Treasury’s “modelling included extremely conservative assumptions – even by the standards of a generally conservative institution”.
Unlike in 2017, the inspiration for the Greens’ attack on the debt ceiling might have gone the other way, from Labour to Green.
The inspiration seems more than mere coincidence.
In the Herald, Moore compared the 40% of GDP debt buffer as “equivalent to experiencing two simultaneous Covid 19-scale crises – or more than 23 Cyclone Gabrielles”.
Page 10 of the Greens’ fiscal plan seized Moore’s means of comparison without attribution, writing: “The 40% [of GDP] buffer is sufficient to cover approximately two Covid 19-size shocks occurring simultaneously, or more than 23 simultaneous Cyclone Gabrielles”.
If that comparison has been made elsewhere, it’s very difficult to find.
That is not the only point of similarity.
Labour actually agreed with the Greens’ scepticism of eternal large surpluses. In 2022, when Labour reset the Government’s fiscal strategy after the pandemic, it calculated that you could run deficits of 1.35% and still reduce the overall debt pile.
Labour, however, committed the Government to running “small” surpluses over the long term by building in a 0.5% and 1.5% of GDP buffer to pay for contributions to the super fund and any shocks.
What splendid irony that Labour’s fiscal conservatism was accidentally inherited from the Greens in 2017, while the Greens’ fiscal progressivism owes a lot to the work of Labour in 2022.
Think how far the political landscape has shifted.
One of Labour and the Greens’ 2017 rules is to keep spending at about 30% of GDP.
This blew out during the pandemic and has been slow to come down. That 30% spending target is still a fiscal goal - but it’s a fiscal goal of the current Government. A Treasury paper, published this week in the Herald shows just how hard the Government will have to work to keep to it.
The right looks on this with glee. The coalition’s mood seems to defy pessimistic polls, partly because they think the positioning of the parties on the left in favour of more borrowing and higher tax will make them particularly easy to beat.
There are good policy reasons to be cautious. Large external borrowings mean Treasury and many economists think sustainable debt levels for New Zealand are far lower than what might be sustainable in other countries.
Higher borrowing tends to translate to higher interest rates, which punishes the homeowners who often make or break election campaigns - particularly when memories of high interest rates are still fresh in voters’ minds.
The right aren’t the only ones feeling confident.
The name Zohran Mamdani is on the lips of every progressive politician in New Zealand and around the world. Get used to hearing it.
He’s a democratic socialist who is very likely to become mayor of New York City thanks to an innovative, modern grassroots campaign. He shocked the Democratic establishment in New York and represents a promising test case for a new, less apologetic progressive politics, not dissimilar to the Greens’.
Mamdani might chart the path to a brave new politics in the United States and NZ, but if Labour and Green strategists really are keen to throw off the mistakes of 2017, they shouldn’t forget people said the same thing about Jeremy Corbyn.
Luxon's international meetings included French President Macron and EU President von der Leyen.