Brian Easton says the tensions between different approaches to the economy are surfacing as the election nears

This is a re-post of an article originally published on pundit.co.nz. It is here with permission.

As we head towards next year’s election, the tensions between the coalition partners are becoming increasingly evident. There are always these tensions, even before MMP when there were but two significant parties, but they were hidden within the caucuses. For instance, before the 1984 election, Labour’s caucus was torn between two economic strategies which were papered over for the election campaign. (After it, a handful of senior ministers seized power and pursued the one we call ‘Rogernomics’, leaving the modernising alternative – more like that which the Clark-Cullen Government pursued – stranded.)

Today’s tension is most public in the different economic strategies of the ACT wing of the Coalition Government and the NZF wing. ACT’s is unashamedly economically neoliberal, although perhaps the current caucus does not have the same technical command as earlier ones did.

The NZF economic framework seems to be close to that of the traditional National Party (and its predecessor). I’ll call it the ‘Holyoake’ approach, after the Keith Holyoake governments which, sometimes with another prime minister, ruled almost continuously between 1949 and 1972. It was also Muldoon’s approach but the difficulties he faced following the 1966 wool price shock and the resulting inflation gave his record a bad reputation. (The challenges from the shock would have made any mode of economic management difficult, particularly if the politics was concerned with winning the next election.)

The Holyoake approach was highly interventionist, although the interventions were not always well designed. (The first wage freeze was imposed by Holyoake and Jack Marshall.) It was nationalist and centralist with a bias towards private enterprise. It had more in common with Labour’s economic framework than the rhetoric proclaimed.

I was struck by this commonality when looking at total government spending as proportion of GDP between 1939 and 1990. There was a rising trend but with one exception, you cannot tell in which years there was a National Government in charge, in which Labour. The exception was transfers – social security benefits and the like. As far as economic analysis is concerned, transfers are negative (income) taxes so – not surprisingly – you can see a distributional difference between National and Labour; the former favouring those at the top, the other those at the bottom.

What was surprising was that total expenditure (excluding transfers) did not seem to differ by the politics of the government. Perhaps a finer investigation than the database allowed might have shown patterns of differences within the total, such as National relying more on outsourcing or it jigging the expenditure spending towards the rich while Labour directed it more to the poor. The rhetoric of Labour being spendthrifts and National being more frugal is not evident in that data.

Yet the common agreement was not in the rhetoric. In opposition Labour bewailed National Government cutbacks although in government it too tried to control its spending. In opposition National criticised Labour for profligacy; in government it spent every dollar it had available.

The pattern seems to have broken after 1990. The secular trend of public expenditure growing faster than GDP ceased, while the public expenditure of the centre-left governments seems to have grown perhaps two percentage points faster than it did under the centre-right governments. This is a preliminary finding, but it probably means that reality now more closely aligns with rhetoric.

That there was a break following Rogernomics and Ruthanasia is hardly surprising. It might be summarised that there was no longer a consensus to minimise unemployment because neoliberals say the government can’t, that the distribution of income should be relatively narrow because neoliberals say pursuing that goal damages economic performance, that the state does not have a major role in economic management because neoliberals say the state overly infringes liberty.

The disagreements occur within the main parties as well as between them. Let’s call National’s disagreement as being between ‘Old National’ and ‘New National’. Old National is the modernised successor of the Holyoake approach (think Bill English). New National is closer to neoliberalism.

There were some neoliberals in the pre-1984 National caucus (although we did not then use the term) but hardly in its government policies. Ruthanasia introduced them in 1990 to 1993. Today the neoliberalism of New National is much more prominent. Recently a survey asked National voters to choose between a National-ACT coalition government and a National-NZF one. The balance favoured the neoliberal option.

NZF pulls the National-led Government towards the centre, offsetting the pull from neoliberal ACT. Being in coalition – a sort of public caucus – means swallowing dead rats, as Winston Peters has said NZF had to over the Regulation Standards Act. David Seymour has been quieter about the dead rats ACT has swallowed.

Peters’ handling of the Cook-Strait ferries replacement has been very much in the Holyoake tradition. Shane Jones is today’s promoter of a state development strategy. We think of Muldoon (and Bill Birch) as its Think Big promoters, but the postwar tradition began with the pulp and paper plant at Kawerau in the Holland-Holyoake era. Later there would be the steel plan at Glenbrook and the aluminium smelter at Tiwai Point, both of which involved substantial government interventions. (All were generally supported by Labour.) 

While I am nearer the social democratic centre than most neoliberals, I am uncomfortable with NZF’s economic style. My preference is for restrained rational interventionism contrasting with its more reactive approach. Too often NZF goes down a popular and fashionable path without thinking through the implications and hoping that the rational analytics will eventually turn up. They don’t always and sometimes the implications turn out unpleasantly unexpected.

The populist approach is a centralist strategy which is integral to New Zealand’s governing culture. Even ACT directed who would provide school lunches.

Populist interventionism is not confined to NZF. National seems prone to it, especially with publicity which smooths over the reality – often accompanied by a hi-vis jacket. So is the Left. Once we relied on the public service to inject some rationality into the process of policy development; that is less true today.

We cannot know to what extent the economy will affect the 2026 election. The expansion of production might have begun (but there may be an international crisis). From some of the Minster of Finance’s signals the 2026 budget will be tight; it will not lack hi-vis jackets.

Of course, the economy may not have much electoral impact. There are populist issues, political ones (including party breakups), scandals and governing competence issues which may be more decisive. We can be certain, though, that the tensions about economic direction will continue after the election, and are likely to be exposed in the next coalition government too.

*Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.