In Danger Of Over-promising

Policies formed in Opposition can bite a new government.

Listener: 9 July, 2011.

Keywords: Political Economy & History;

Jim Anderton once said that a bad day in Government was better than a year in Opposition. But decisions made in parliamentary opposition may end up as many bad days in government, for that is where election promises are formulated.

During the 1928 election, Joseph Ward, leading the Liberal Opposition, promised to borrow a huge £70 million. What exactly he meant is unclear, for even his biographer could not sort it out – he seems to have misread his speech notes. In any case, he did not know that New Zealand was already in deep borrowing difficulties and that the Reform Government had apparently secretly promised the London market to stop borrowing for a while. Ward became Prime Minister; New Zealand collapsed into the Great Depression, and we could not borrow our way out. Remember, it’s lenders who determine borrowing, not those who wish to take out the loan.

Labour’s Walter Nash famously asked during the 1957 election campaign, “Do you want your £100?” In government he discovered the external economy was sharply deteriorating and his Government imposed the 1958 Black Budget. The austerity was nothing to do with the tax handout; the National Government made a similarly expensive offer (it was about switching over to PAYE). But this is forgotten, and the harshness was blamed on Labour’s promise, even though the Budget measures were an economic success, for unemployment hardly rose.

Rob Muldoon joined Ward and Nash when in the 1975 election he promised to introduce a universal and generous state pension for the elderly. He miscalculated the cost – it was 10 times more expensive – paying for it from the fiscal drag (income tax creep) of the double-digit inflation that dominated his early years as PM. The result? National came second in total votes in the 1978 and 1981 elections (but won more seats by the quirk of first-past-the-post voting.

The present National Government developed its promises for the 2008 election under the misapprehension that the world and New Zealand economies were still booming. America had gone into recession in 2006; New Zealand followed in 2007. The 2008 election was fought oblivious of the global financial crisis. It was one of the strangest political experiences I have had; like watching the West Wing in flames as the parties fought over who would throw the most logs on the fire.

I await the memoirs of Key Government ministers explaining with regret – or defending –  unfortunate decisions they subsequently made as they tried to keep to policies designed for a boom while we were in long recession.

Today the Government’s post-election promises tip-toe around some issues. They must realise that the 2012 Budget is likely to be much tougher than the 2011 Budget said it would be – not to mention that some of its projections, such as spending cuts, are aspirations that will prove difficult to implement.

It is reasonable to assume the Act Party election manifesto will contain the recommendations of the 2025 task force that its new leader headed. They are policies similar to those associated with the Rogernomics recession. There was no recognition in its reports on the global financial crisis or the consequential global long recession that has followed. Nor did it address the stagnation of the economy during the Rogernomics recession. It took almost eight years to March 1994 for per capita GDP to get above the level it had been in September 1986. This was when we fell seriously behind Australia, which kept up with the rest of the world. Maybe those policies will work the opposite way this time – maybe not. The task force story is like selling scenic postcards outside a building that could collapse in the next earthquake.

I have no idea what will be in Labour’s election manifesto. So far its public statements fail to mention we face severe limitations on what we can borrow. They are not as bad as they were in 1928 – or 1938 or 1984. But they could be, with the wrong policies (or bad luck). Labour may be having a tough time; I hope it doesn’t make it worse for itself when it does get into government.