Politics : Political Hangovers Are Different

Most hangovers are unpleasant, even if the genesis was fun. But in government some hangovers can be just what the doctor ordered.
The government over the next three years will have to deal with the hangover from the nation’s debt binge. Its options will be limited by the need to restore the balance sheets of households and the economy as whole.
Go back nine years. New Zealand was coming off the back of tough deregulation of the economy which had been socially damaging and put government services in straitjacket but which also doubled productivity growth.
That bequeathed to Michael Cullen an economy ready to roll. He happened also into period of strong international economic growth, in part debt-fuelled by the United States.
The Labour-led governments were able to crow about strong economic growth under their stewardship and at the same time pour money into social services. Cullen had most enviable fiscal problem: whopping budget surpluses.
The government over the next few years will have the opposite problem, thanks in part to Cullen’s eventual capitulation to temptation in 2005 to spend up large to squeeze back into office in that year’s election.
The result, now the debt binge has ended, is that he has served out this year amidst rapidly worsening fiscal numbers. That is, he collected bit of the fiscal hangover he has incubated.
Cullen inherited another hangover: serious infrastructure deficit. That came about because it is always easier in tough times, as the early and late 1990s were, to cut or defer capital spending and because in the reverence for markets that dominated policy in the 1990s, there was an expectation, especially for electricity, that market disciplines would deliver what was needed when it was needed.
The infrastructure deficit got worse initially in the 2000s because the Treasury underestimated economic growth (and so demand for roads and electricity) and anyway Labour prioritised more health, education and social spending plus new hospitals and schools. Then from 2005 Cullen began to spend massively.
He has had almost zero credit for the road building in Auckland and the burst of new electricity generation, still less for the hospitals, schools – and prisons. It will be future governments which claim the credit, an example of how political hangovers can be pleasant.
Those prisons reflect another paradox of the past nine years. The law and order laws Labour-led governments passed were the toughest in decades. Yet perceptions of softness on law and order infused the election campaign.
Actually crime as whole has fallen in recent years. Violent crime numbers went on rising because domestic violence was brought into the open, made priority and reported far more.
Domestic violence numbers will flatten sometime and then overall violence numbers might well go down: another possible pleasant hangover.
Take the 30 percent wage gap between New Zealand and Australia, supposedly the fault of Cullen not giving tax cuts and failing to drive up productivity growth.
Actually, the gap opened in the 1990s when Australia pursued high-wage path with strong unions and New Zealand low-wage path in highly deregulated labour market.
It was National hangover, not Labour one. If anything, the wage gap has closed bit this decade.
And comparisons of personal tax cuts in Australia and the lack of them here until October overlook the plethora of Australian charges few wage earners can avoid. Registering car there is multiples of the cost here, for example. Going to doctor costs more and so on. Then there is Working for Families.
Take capital. New Zealand’s capital markets are notoriously thin so foreigners own and control large chunks of our economy.
If KiwiSaver had started in the 1990s, there would be more capital, the house bubble and consumer debt might not have got quite so big and there might not need to be such big adjustment.
The positive spinoff for capital markets from KiwiSaver, if there is to be one, is for governments six or nine years hence.
But will voters notice? Probably not. That is what complicates political hang­overs. Except when government is exceptionally unpopular, as in 1935 or 1990, or exceptionally popular, as in 1938, the real impact of policy change is usually too slow and too far below the radar for voters to register it.
The good – and bad, to misquote Shakespeare – is oft interred with government’s bones.

Colin James is New Zealand’s leading political commentator and NZ Management’s regular political columnist.

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