The Unrepentant Reformer: What Does Michael Cullen Think Of Rogernomics Now?

Listener: 17 July 2004.

Keywords: Political Economy & History;

Only two ministers opposed the Labour Cabinet’s proposal for a flat income tax in December 1987. A month later, one, Prime Minister David Lange unilaterally canned the proposal because it would make the poor worse off. The other was Michael Cullen, then Minister of Social Welfare, now Minister of Finance.

The 1988 package that flattened the income tax system made the poor worse off, too, as it was funded by eliminating tax exemptions, by raising GST and – when National came to office in 1990 and found a gaping fiscal deficit – by savage benefit and other spending cuts. For, despite the promises, the tax cuts did not stimulate economic growth. They were followed by six years of falling per capita GDP, the longest postwar recession (longer than the Depression, though not as deep).

I do not attribute the recession to the tax cuts – it was due to economic mismanagement. Tax cuts, including those advocated today, have negligible impact on the long-term economic growth rate. The 1988 ones just shifted income from the bottom 80 percent of the population to the top 10 percent.

What, today, does Cullen think of the economic regime we call Rogernomics? In a recent paper, he said, “The remarkable thing in retrospect is that while much of the change was necessary, it was … mishandled so the reforms produced smaller benefits and higher costs than could have been reasonably anticipated.”

So Cullen is an unrepentant reformer. But unlike his Labour colleagues who dominated the 1980s, he is not an extremist, and is more sensitive to the population’s “conservatism” (his word). This tension remains deep within New Zealand politics. Aside from the extremists, who don’t seem to have learnt from their past failures, we find a populace who either resist those (non-extreme) reforms that Cullen supported, or whose support is tinged with incomprehension – an understandable outcome from their overselling by the Rogernomes.

Nostalgia for a bygone era is understandable, especially if the benefits of subsequent positive changes are overlooked and any new detriments emphasised. Rob Muldoon, Prime Minister from 1975 to 1984, was especially nostalgic, although he also understood that political and economic change would undermine the power on which his authority was based. Sadly, the man who had been moderately progressive when he was Minister of Finance from 1967 to 1972 became a very reluctant reformer in his later term. Although massive changes occurring to New Zealand’s external environment and society were pressuring the domestic economy, he resisted reform, ignoring the changes and suppressing the pressures.

Economic management is like a boat being driven down a narrow strait by winds and tides over which it has little control. Muldoon all but sucked us into the conservatism of Charybdis’s whirlpool, going round and round getting nowhere, Roger Douglas (and later Ruth Richardson) almost smashed us on Scylla’s rocks. (Have you noticed that the economic rhetoric is always predicting calmer seas. One is reminded of the woman who sued for divorce from her economist husband on the grounds of non-consummation. “He would stand naked at the end of the bed promising that things would get better, but nothing else happened.”)

Labour came to power in 1984 with an agenda to make up the reform deficit of the previous decade in three and a bit years. But the heroic radicalism led to policy extremism, although exactly how it got captured by the rich has still to be explained. Some of the extreme policies have been reversed since 1999. The government has created Kiwi Bank, bought back much of Air New Zealand and the rail track, and struggled with the deregulatory mess that occurred with the privatisation of telecommunications and electricity supply. The tax system and social welfare have become more progressive. There is a commitment to public supply (and, usually, public funding) of education, health services and accident compensation. Employment relations have been placed on a co-operative rather than competitive (class-based) basis. And so on. Some of these changes are a result of the failures of extreme, ill-thought-through policies: others reflect Labour returning to its traditional values.

From the perspective of Muldoon, Cullen appears to be a Rogernome. From the perspective of those who saw the need for reform while Muldoon dithered, but who were not pro-rich extremists, Cullen is an anti-Rogernome. (Like any good Minister of Finance, Cullen is also a fiscal conservative, most reluctant to spend money the government hasn’t got or has already spent elsewhere.)

It must have been lonely for the new Minister of Social Welfare back in 1987. As he watched the Labour government disintegrate, first internally and then publicly, did he imagine that one day he would be in charge of keeping a new Labour government together, while keeping the economy on a reforming course as other pressures assail it?