Truly, these are tough times for our nation’s leaders. In future, how on earth are they going to find the sort of money they’ve been happy to throw at landlords, tobacco companies, and wealthier New Zealanders ever since they got elected? On Defence, how are they going to find those extra billions to spend on US arms dealers? How can they ensure that David Seymour’s minions in his Regulations Ministry continue to get paid the wildly excessive salaries to which they have so speedily become accustomed?
The answer to all those questions is – of course – by (a) using Budget 2025 to cut even more deeply into essential public services and (b) by firing more public servants and (c) by holding down the wages of the survivors. All part of the right wing crusade to shrink the size of government to the fabled point where it can be drowned in the bath.
In the meantime, Finance Minister Nicole Wallis is crying poor very loudly, and very selectively. What’s the bet that when Budget 2025 gets unveiled in three weeks time, she will have magically found the money for a corporate tax cut?
Talking of those business tax cuts…the right’s eternal hope and belief is that tax cuts will unlock vast amounts of entrepreneurial energy, spark economic growth, stimulate spending, and eventually create a world of plenty in which tax revenues overall will rise. This gospel is the very definition of voodoo economics. The tax cuts path to prosperity was tried, failed, and went out of fashion back when Ronald Reagan was still in the White House. Regardless, New Zealand still seems to be hellbent on cutting its way to prosperity, whether that be via spending cuts and/or tax cuts. In that respect, the current weakness of the New Zealand economy really has been a self-inflicted death by a thousand cuts.
To that end, the Luxon government has had help in high places. The Reserve Bank stifled the economy for longer than necessary with high interest rates in order to curb inflation. Since then,Willis has deepened and prolonged that weakness by living in denial of the fact that in a small domestic economy like ours, state spending is the crucial driver of capital investment and economic growth. According to RNZ this morning, that role is about to be turned over to business, and to household spending.
If so, such expectations are doomed to fail. Reason being, Willis and her colleagues have also been pursuing a low wage economy and job insecurity. Inevitably, this job insecurity has put the frighteners on household spending. The bogey that Willis is invoking to justify her austerity drive is the alleged “need” to reduce borrowing. Huh? This warning is coming from the same person who borrowed $14 billion for her tax cuts?
In reality, New Zealand has an enviably low ratio of government debt to GDP compared to other developed countries, so increasing Crown debt would not necessarily be a problem – provided it was used for capital investment in say, the modern infrastructure we need to generate growth, and remain competitive, as a nation. Government debt only becomes a problem if you use it to finance the government’s day-to-day operations.
Alas though, that’s exactly what this government has done. As the economist Shamubeel Eaqub noted this morning, last year’s tax cuts were unwise and un-affordable, and were financed by borrowing. All up, it is pretty hard to escape the conclusion that Willis’ stewardship of the economy continues to be something of a train wreck. Her devotion to the politics of austerity has not only (pointlessly) eroded the quality of essential social services.
Along the way, she has also caused New Zealand to linger for longer in its Covid-related cost of living crisis than any other developed country. To the point where the Reserve Bank is reportedly under pressure to get the economy moving again by speeding up its cuts to interest rates.
Undaunted, Willis has signalled her intention in Budget 2025 to double down on her addiction to austerity. Only the chosen few (landlords, Big Tobacco, wealthier Kiwis, the government’s business cronies) are likely to be spared. To help get the economy off its sick bed, the government should be providing the stimulus that only it can afford to offer – but that’s something Willis rejects on principle. As Thomas Frank wrote some time ago, it’s no wonder that people who think government is bad are so bad at governing.
Footnote One: In Budget 2025, Willis has already flagged that operational spending is to be reduced by $1 billion to $1.3 billion, a figure that – as CTU economist Craig Renney has pointed out – will not be enough to meet the existing estimated need (circa $1.55 billion) in public health, let alone anything else.
Footnote Two: Until Willis and her mates took an axe to the tax reform work being done by the IRD, keep this in mind: The IRD’s analysis of 311 of the countries’ wealthiest families found they were paying an effective tax rate of only 9.4% – which was less than half the 20.2% rate being paid by the average New Zealander.
In direct response to that work, the then-Revenue Minister David Parker reportedly led the design of a wealth tax that would have required couples with more than $10 million in assets to pay an annual levy of 1.5 per cent. It was estimated that this tax would have raised $3.8 billion in revenue. This would have been enough to fund income tax cuts for almost everyone, including a zero tax rate on income below $10,000.
Too bad that Labour’s right wing faction led by Chris Hipkins torpedoed that proposal. Still, it remains the case that there is roughly $3 billion in revenue to fund a more socially equitable version of tax reform any time that Willis chooses to pursue it. Plus, instead of reinstating a $2.9 billion tax cut for landlords, think of the uses to which the public health system could have put that money.
Rather than embrace such options, Willis prefers to cry crocodile tears over the allegedly bare shelves in the government’s cupboard.
The antidote to Trump
Last Christmas seemed like such a great time to be leading a conservative party in opposition. Peter Dutton was sleepwalking to victory in Australia, and Pierre Poilievre and his Conservatives held a 25 point lead over a fading, failing three term Liberal government in Canada. At the time, both of those elections were being won and lost on the cost of living issues.
Then hey presto, the Liberals swapped out Justin Trudeau for Mark Carney,who had run Canada’s central bank during the GFC and also headed the Bank of England during Brexit. Good experience to have in a crisis. From stage right, Donald Trump then started picking tariff fights with his northern neighbour, disparaged its military, and threatened to turn Canada into America’s 51st state.
Angry Canadians (they’re nice, but can be scary in their wrath) chose Carney yesterday as the leader best equipped to combat Trump’s aggression. The Trump factor was so strong that supporters of the leftish New Democratic Party (NDP) deserted their party in droves and voted tactically for the central banker guy. The NDP vote collapsed from 24 seats to 8, and Liberal gains in the NDP stronghold in British Columbia (and also in Quebec) helped to offset its losses to the Conservatives in Ontario.
As the election suddenly turned into a two horse race, a similar collapse occurred in support for the separatist Bloc Quebecois which went down from 33 to 22 seats. Carney, it turned out, could speak French better than most people had expected.
You have to feel a bit sorry for Poilievre. He lost an election that had looked like a sure thing, and lost despite increasing his party’s seats in the Commons from 120 to 144. To top off his night of misery, Poilievre also lost his own electorate seat.
As counting resumes, the Liberals currently have 169 seats, three short of an absolute majority. As the leader of what will almost certainly be a minority government, Carney can probably rely on the Conservatives on defence, security and – perhaps – even on trade, while depending on a weakened NDP to pass his social legislation, and to help him survive any votes of no confidence. Even so, the shelf life of minority governments in Canada tends to be quite short, at around 2 ½ years. Next time around, Trump may not be enough to save the Liberals.
Footnote: As expected, the prairie provinces of Saskatchewan and oil-rich Alberta stayed (almost entirely) true to the Conservatives. Alberta governor Danielle Smith had cozied up to Trump and op ed columnists in the Calgary Herald once again suggested that Alberta could/should consider seceding from Canada, just as the province threatened to do when the Liberals won last time around.
In 2025 though, the ordinary Albertans who backed Poilievre may feel that leaving in a huff to become the de facto 51st state of the USA under King Donald, is not really such an attractive option.
Songs for Canada
From the early 1960s there are two late, great Canadian musicians – Ian Tyson and Sylvia Fricker – with their definitive version of “Un Canadien Errant.” This song about the pain of exile was written back in 1842, by the poet/novelist Antoine Gerin-Lajoie:
After his break-up with Fricker, Tyson went on to record any number of albums about cowboy life on the prairies. He became a big influence on modern Saskatchewan rancher/musicians like Colter Wall. Here’s Wall’s great live version of the old Elton Britt/Slim Whitman classic “Cowpoke:”