By Terry McFadgen*
The Royal Commissioners who recommended that we adopt an MMP voting system nearly 40 years ago were inspired by a belief it would bring a wider range of opinions and personalities into Parliament, break the stranglehold that the two major parties held over policy, and help bring the country together.
What they did not foresee was that with the growth of populist politics, MMP would achieve very few of these goals as considerable policy influence was transferred to parties who could parlay very few votes into significant policy victories in coalition deals.
What they also failed to foresee was that MMP would encourage a more extremist stance from both main parties as they were forced to move further towards the extremities in order to shore up their centrist voter bases.
Labour’s alliance with Te Pati Māori and the Greens on co-governance, the He Puapua initiatives, and on oil and gas exploration, and the National Party’s policy concessions to ACT on tax, the Treaty, and “regulatory overload” are examples.
New Zealand is by no means alone in experiencing these forces. Consider the way Trump has dragged a somewhat reluctant Republican party to the right, or how the ERG group within the UK Tory party has forced Rishi Sunak to promote the sending of asylum seekers to Rwanda.
These moves away from the centre also impose high economic costs on the community as electorates whiplash between governments that have few key policies in common.
Consider the costs involved in our recent change of government. The new coalition has abandoned Three Waters, Auckland Light Rail, Get Wellington Moving, the purchase of new Cook Strait Ferries, and the reorganisation of Te Pukenga which was in progress. It has also disestablished the Māori Health Authority and the Productivity Commission, and abandoned health system centralisation.
Several minor ministries have been disestablished- others have been required to effect name changes and make significant reductions in personnel. And a new “Ministry for Regulation” has been created.
On a quick back of the envelope calculation, these costs total between $500m and $750m, depending on how some contractual issues are resolved.
This cost is enormous in the context of a current fiscal deficit that needs to be reduced by around $4-5b per annum to meet international good practice.
But the problems go way beyond short term transitions costs.
As readers will be aware, New Zealand faces some severe economic and social challenges.
We have house prices which exclude half the population from home ownership and an unsustainable external deficit of about $25b per annum which requires a big reduction in domestic demand, and a major increase in export earnings, to achieve better balance.
And then we have school absentee rates which guarantee a cohort of unemployable youngsters in the emerging era of advanced robotics and AI, an infrastructure deficit approaching $150b, some of which needs urgent funding, and the loss every year of roughly 20,000 of our most ambitious citizens to the country next door offering 30% higher wages.
To these core problems we now face additional funding demands from local bodies for water and land development, and additional funding requirements for health and defence.
Under a worst case scenario, New Zealand faces a severe devaluation to correct its external deficit, continuing high interest rates reflecting a deteriorating credit position, and a lot of social dissension over housing.
Whilst all of these issues can be resolved with effort, none can be resolved in a single three-year electoral term. The solutions require persistent effort over much longer periods, applying consistent policies. Look at Singapore to see what this can achieve.
What we badly need is a national consensus on key economic policies.
A new national consensus might include these elements:
Immigration- We need a consistent immigration policy to provide a stable platform for infrastructure planning and residential land release. The country also needs to have a conversation about the dangers to social cohesion of loose immigration policies. A target of around 40,000 new immigrants per annum feels right.
Housing- a cross-party housing policy would commit to providing affordable housing for the entire population based on significantly lower real house prices than we are seeing today. Ideally this would be achieved by having flat nominal prices coupled with modest inflation for a lengthy period.
Tax- Labour’s 2019 Tax Working Group pulled together the best tax brains in the country to make recommendations on tax policy. Those recommendations stand today and call for a Capital Gains Tax. In addition, we need to consider the merits of a low-level land tax, applied at least to unoccupied residential land.
Savings- New Zealand’s household savings are inadequate and are largely responsible for a cost of equity penalty relative to Australia which drives the on-going loss of many of our businesses to Australian acquirers. Over time, we need to revamp KiwiSaver benefits to match those in Australia
Infrastructure- many of the delayed infrastructure projects that blight our communities would benefit from private sector participation in ownership. We should also not baulk at introducing additional government debt funding as needed. Credit agencies will not respond adversely to the right investments.
You can develop your own list-but the key question is not the precise content of a policy consensus, but whether a consensus is even possible given the potential for minority parties to undermine it through noisy dissent aimed at attracting fringe voters.
I say its unlikely because the mainstream parties will run a mile, scared of losing votes to the extremists.
New Zealand thus faces a cruel dilemma: The need for policy consensus is urgent given the challenges ahead, but the political framework for that consensus is absent. The public need to speak more loudly on this issue.
Until, as a nation, we can reclaim the middle ground New Zealand’s future will remain at risk of a very uncomfortable economic and social adjustment. As the old saying goes, unless we hang together, we will hang, together.
*Terry McFadgen was a founding partner of Simpson Grierson, and subsequently undertook management roles in Australia and New Zealand including roles as CEO of Fletcher Building and, in Australia, AV Jennings the house builder. He also acted as an external monetary adviser to the RBNZ.
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