Kiwi News and Views

Do we treat the government finances with the common sense that household’s manage theirs?

It is a commonly held view that we should treat the government as if it is a prudent household. We don’t when it comes to its debt. Currently the government says it wants to constrain its net debt to between 20 and 40 percent of annual GDP; that is, between about 67 and 133 percent of its annual revenue. But households borrow up to 450 percent of their annual before-tax income.

Households borrow at that rate to purchase houses. They look at the whole of their balance sheet including their assets as well as their liabilities. When did you see mention of government assets in a discussion on our debt policy? For the record, they sum to about 400 percent of government annual revenue although not all generate income or save spending. Net worth (which deducts all the liabilities) is about 133 percent of annual revenue.

Focussing solely on debt without looking at the balance sheet as a whole distorts public investment. Some examples:

Suppose a significant private business collapsed (as did Air New Zealand and Kiwi Rail) and the best rescue involved the government taking over the enterprise. Even if there was no equity to be purchased, the government may have to take over the failed business’s debt. ‘Sorry, minister, you can’t rescue the business because that would exceed the debt ceiling.’

Suppose we wanted to tackle the problems of our fresh-, storm- and waste-water which will require borrowing up to $20b in the next 30-odd years. The most cost-effective structure would be to leave the responsibilities for water with (large enough) regional authorities which borrowed their funds from a central government agency which borrowed the $20b (or whatever) offshore. ‘Sorry, Minister, you can’t do that because the central agency would appear on the government balance sheet which would then exceed its debt ceiling. So we will have to design a more inefficient and costly solution.’

‘Sorry, Minister, you can’t get around the debt ceiling constraint by using a public-private-partnership in which the private sector does the borrowing but the government services the debt.’ Other countries use this ghost public debt so they can, in effect, borrow more than their debt ceiling allows. But it is still a government liability and, because we use more rigorous accounting standards, it appears as such as in the Government’s Financial Statements and is included in overall debt. (Currently it amounts to $3.7b. It is backed by two state highways, three corrections facilities, and some education assets.)

On the other hand ‘Sorry, Minister, your focus on a debt target ignores any assets which may match it means that we are failing to provide sufficient infrastructure and maintenance to offset the depreciation of assets. Not just central government. Local government too. That is one reason our fresh-, storm- and waste-water systems are increasingly failing us.’

It’s Gilling’s law isn’t it? By prioritising the debt target we shape the game to ignore assets.

There are complications. A household’s borrowing is not simply constrained by its belief in its ability to service the debt. It is also constrained by the willingness of lenders to advance the funds. They are particularly concerned that they can recover their advances if things go belly up. (That is why they won’t advance you unlimited amounts to speculate on crypto-currencies, even if you think it is a sure thing.)

International lenders have got tangled up in countries which cannot meet their debt obligations. So they are cautious. Even so, New Zealand’s relative public debt level is well below the debt levels of many countries which are considered prudent borrowers.

There is a case we should be a little below that level. All prudent households (which are not facing too much hardship) hold a reserve they can use for an unexpected shock. It may be cash or an investment which can be readily liquidated; it may be an additional capacity to borrow. New Zealand has some of the former (the Reserve Bank has foreign exchange reserves) but low public debt makes it easier to borrow offshore in an emergency. New Zealand is probably more vulnerable than average to some shocks – earthquakes, volcanoes and tsunamis and the volatility of its terms of trade (but not militarily shocks so much) – so we need to maintain a lower debt level than what is normally accepted. (Another factor is the private banking debt, which may be pushed back onto the Reserve Bank in a financial crisis, but we have greatly reduced that exposure since 2008.) A margin for additional prudence does not explain all the difference in our lower debt target.

Observe too, that the above analysis has been in terms of debt levels offset by assets. It did not argue we can borrow for consumption. (It accepts a government may borrow or raid the reserves for short-term emergencies; any net asset reduction should be reversed reasonably quickly.)

Let me passionately state a moral perspective. Public borrowing is a cost to future generations. I do not think one generation should borrow unless it can justify its debt servicing to those yet-to-be-born, even if deciding what they will value when they are adults may be difficult. The decision is easy for investments which make a return; it is much harder where the borrowing funds activities which do not.

There are items which do not give a financial return but can be justified; conservation and heritage projects for instance. Future generations are likely to bless us if Aotearoa New Zealand is predator-free in 2050 (although the amount of borrowing the program generates is trivial).

Conversely, education is an investment but (largely) an investment in the individual who may migrate taking their education with them. I am committed to providing every New Zealander with a decent education (and healthcare) but it should be funded from current revenue.

The logic of this analysis is critical of the current government fiscal strategy, which amounts to borrowing for current consumption via income tax reductions. We are not in an emergency (and the government is not proposing to reverse the tax cuts when it gets through the current phase). We should support borrowing for projects which future generations would value, such as in conservation and infrastructure.

Once we ran the government as if it were a prudent household. Initially Keynesian management ran a surplus on current public spending which was invested in businesses and infrastructure; further funding was supplemented by borrowing. Today we are not as prudent. Borrowing to fund consumption is likely to be unfair, inefficient and detrimental to future generations.

If we are to have a target, perhaps something like the following: over a medium term, public current spending including transfers should not exceed public revenue. In the medium term, public borrowing should only be for public investment.

Budget tensions are becoming evident within the Coalition Government.

Winston Peters made numerous political points in his speech to the NZF annual conference. But the attack on his own government’s fiscal policies raised issues of substance.

     ‘Today in the Sunday Star Times, journalist and former advisor to the Labour Government, Vernon Small, refers to the ‘present government facing a fiscal hole’ of $5.6 billion. He’s right of course, but he’s wrong when he said that last year politicians were warned of that. Only one political party in the 2023 [election] campaigned to alert New Zealanders as to how bad things were. New Zealand First pointed out where optimistic predictions of others were false – such as the ‘House Buyers Tax’, and taxing on overseas online gambling.’

Small’s column has an interest even had Peters not referred to it. It was sufficiently confident to suggest he was relying upon a reasonably informed source. That does not mean Small’s estimate of the fiscal hole was correct. There has been a lower estimate of $3.6b, in contrast to a promised saving from expenditure reductions of $1.5b. I don’t think includes the promised tax cuts. The numbers are all over the place and probably do not add up. Small and Peters gloom was broadly confirmed by Minister of Finance Nicola Willis in her recent Budget Policy Statement.

Whatever, Peters seemed to be attacking the fiscal stance of his National and Act colleagues or perhaps even disclosing an internal Cabinet debate. What was the political purpose? Peters must have realised it would both embarrass his coalition partners and add to the instability of the coalition.

I do not know how advanced the internal Cabinet debate about the 31 May Budget is. However, it is usual at this stage in the process that the external task is to manage public perceptions – as Willis has been doing. I cannot recall an earlier New Zealand budget where the usual tensions have appeared so explicitly in public so soon.

There are two views of Peters which might help provide an answer.

One might be called ‘Winston First’, which was the title of a 1995 book, by Martin Hames commissioned by those with a neoliberal disposition. It portrayed Peters as an unprincipled self-seeking politician who cynically sought popular support for his personal ends. This was to explain why Peters left the National Cabinet in 1992, when it was in its full neoliberal glory. (Peters is not the only politician to be so explained by ideologists who cannot understand why anyone would disagree with them.) That he is a politician without principles seeking only personal gain is a widely held view by those on his left as well as on his right. Peters has sometimes reinforced the perception with populist stances he has taken.

Why would Winston First have publicised the fiscal critique? Its logic might be that it would precipitate events which would result in him becoming full prime minister.

That seems unlikely. Suppose the Coalition Government collapsed. There would be an election. Perhaps NZF’s share of the votes might rise, but a stronger possibility is that it would get blamed for any collapse. That is hardly a path to WP4PM, especially as Peters appears to be currently cutting off the possibility of an NZF coalition with the parties on the political left.

(We can rule out the relevance of a scenario in which the left wins an early election, fails again, and NZF is triumphant in 2028. Peters would be 83, older than Biden is today.)

The alternative to Winston First portrait might be called WPPPP: Winston Peters – principled, populist, politician. Perhaps ‘politician’ is redundant. It is there to remind us that he is continually seeking a coalition of the voting public to support him and that sometimes that coalition involves some strange bedfellows.

‘Populist’ is there because Peters in style and belief naturally connects with a broader population with its scepticism of the political elites. In turn, the elites do not connect with him. He does not fit their models of a Māori boy from a poor rural background who should be a deferential conservative or angry lefty. Peters is an angry conservative.

That is where ‘principle’ comes in. Peters has some deep principles which are poorly recognised – those of a rural working-class New Zealand Tory. This is not a well discussed political group (nor its urban equivalent) even though it is more common than is recognised; a chunk of the working class regularly votes on the right.

It has a view that New Zealand is a land of opportunity. While it may be sympathetic to those in difficulty, it is coupled with a suspicion of state welfare because it may sap initiative. The view is critical of the Brahmins on the left, who are considered out of touch with the common people (and often excessively woke), and of Big Commerce on the right. It is strongly New Zealand nationalist.

This philosophy was expressed by Peters in his 1979 maiden speech with its belief in ‘free enterprise’ and encouraging hard work, and his description of coming from a poor family which thrived by working together.

Peters loathes neo-liberals. It is not just a question of ACT taking up potential support of the non-left who dislike National from NZF. In 1993 Peters left the National party – he had been a member for twenty years – because of its neoliberal policies. Peters said in his 2017 speech anointing Labour as the main party of the next government:

     ‘The truth is that after 32 years of the neoliberal experiment the character and the quality of our country has changed dramatically, and much of it for the worse. … Far too many New Zealanders have come to view today’s capitalism, not as their friend, but as their foe. And they are not all wrong. That is why we believe that capitalism must regain its responsible – its human – face.’

So he sees NZF restraining ACT and the neoliberals in National the the Coalition Government. (Despite ACT having more of the voter numbers than NZF, it has less power because a party on a political extreme has fewer options. Additionally, Peters is politically more experienced and probably politically smarter than the leaders of National or ACT. Counterbalancing is not a vain objective.)

It is not an exaggeration to see the fiscal debate that is going on within today’s Cabinet involves tensions between the extreme-right and centre-right. WPPPP’s conference speech was bringing them into the open in order to weaken the neoliberals.

A final point: Peters is indicating that he had an unhappy time in the Labour between 2017 and 2020 and he appears to be in difficulties with the current Coalition Government. The one other time he has been inside a coalition Cabinet was between 1996 and 1998. (He was outside Cabinet in the 2005-2008 Clark-Cullen Government.) In 1998 Peters fell out with Jenny Shipley, who is a neoliberal. Earlier he had got on well with Jim Bolger, who is also a rural working-class Tory (his family farm was not affluent) and who has also expressed doubts about neoliberalism.

Is she hinting that the Coalition Government will have to back down on key promises it made in Opposition?

The Minister of Finance, Nicola Willis, is telling an evolving story about her fiscal challenges. In Opposition she was confident that she could deliver her promised income tax cuts. Appointed minister, she reported the (Treasury) ‘books’ were in a worse state than she expected, although this seems to be more from her advisers not reading the Treasury’s Pre-election Forecast and Update carefully enough. It’s a good trope because it blames the outgoing government, but it’s hardly the analytic foundation to plan the 31 May budget.

More recently, she has been arguing that the economic outlook is tougher. The Treasury September 2023 PREFU, and just about everyone else, had forecast a stronger economy for 2024 than now looks likely.

We won’t have the detailed Treasury macroeconomic forecast until the end of May, but the Reserve Bank’s Monetary Policy Statement has one although, alas, not as detailed nor as structural as Treasury’s so that it is harder to analyse.

Even so, we can get some insight into the deterioration by comparing the RBNZ February 2024 forecast with the November 2023 one. It would appear that it is now expecting the economy to track about 1 percent lower than was expected three months earlier. The commentariat has just announced the economy was in recession in the last 6 months of 2023; a more detailed analysis suggests the economy has been stagnating since the middle of 2022. The forecasts do not expect the economy to really pick up before the end of this year. That means per capita output has been falling and will continue to fall through the year. Next year might be better – it might not.

The fall appears to be from lower than expected private consumption and possibly in exports – although the RBNZ now expects export prices to be better – and public expenditure (neither of which it reports). Business investment has hardly been changed.

You may not think these changes are large but lower GDP translates into lower tax revenues, compounding the fiscal problem Minister Willis faces. It appears that some of the Opposition’s estimates of the additional revenue from tax changes were markedly optimistic. Probably – we shall need to wait until May to find out – the gains from cutting some public expenditures, such as on investment projects and social security benefits, have been spent already (e.g. on reinstating for landlords the income tax deductability of interest rates).

In Opposition, the minister said her plans depended on cutting government spending in many areas by 6.5 percent and more, without being aware that previous Minister Robertson had already ordered 2 percent cuts. They are proving difficult to attain. The public sector is not being curmudgeonly. Rather, the government is reluctant to cut programs. Instead, it is requiring substantial productivity increases, which are much harder to get in service industries. (Another possibility is there will have to be cuts in the remuneration of public servants – they will not be compensated by the promised income tax cuts.)

Oppositions tend to be more optimistic, thinking the economy will grow faster under their benign influence. I do not think the prolongation of the current stagnation is anything to do with the new coalition government; business is not expected to revise its investment plans in either direction. On the other hand, there is no evidence the new government has caused the economy to grow faster (sustainably – it can always be boosted for a few quarters).

The National Opposition’s optimism was evident in some of its estimates of tax revenue from others of its policies, with some revenue-raising initiatives even having to be abandoned. So the additional revenues side of their policies is looking weaker too.

There are claims (notably by Winston Peters) that the government faces a huge fiscal deficit if it implements its policy promises. I don’t know whether this is from access to inside information. I’ll wait until the Treasury bean-counters’ figures are revealed.

All this makes the promised income tax cuts difficult to finance without additional borrowing. Minister Willis has already announced she will be borrowing more, with the return to zero net borrowing delayed by one year.

It is all about squaring the circle, isn’t it? So easy to promise in the fantasy of opposition, so hard to attain when you are in the reality of government. It is not just that oppositions tend to be optimistic about themselves. They do not always have the technical capacity to analyse the deeper issues. (One National Opposition spokesperson on finance appeared to be innumerate – as the Labour government gleefully exploited.) We are likely to see similar challenges in the current Labour Opposition.

In opposition, Willis said she would resign if she does not deliver on her promised income tax cuts. Other politicians have made similar promises and reneged on them. That is not an easy course, requiring both courage and political skill. But ultimately it is better for the economy and the nation to live in the reality of government than the fantasy of opposition.

In government, Willis, while denying any fiscal shortfall of the size Peters claims, says she won’t guarantee the promised tax cuts will arrive in July until the policy has been discussed by Cabinet. Perhaps her shift on the state of the economy is preparing the public for moderating or delaying the cuts. If the fiscal situation is proving as difficult as one fears, I hope so.

You will find this columnist criticising the government when politics dominates economic commonsense and approving it when it makes good economic decisions. That does not mean I agree with the values which frame its decisions (any more than I did with previous governments).* In a sense I am like a Treasury official. They accept the political direction of their minister – even when they personally disagree with it – and do their best to design policies to implement their minister’s desires. But the desires are limited by reality; the hard numbers in their accounts and forecasts are a part of that limitation. I guess not a few officials are looking forward to the 31 May budget with apprehension. So should their Minister.

* For example, I am less enamoured with the incidence of the proposed income tax cuts. If they are intended to ease pressures on households from inflation, as the minister says, it might be better to target them more on households paying high mortgage interest rates. But there are not as many votes in such a strategy.

What seemed a booming success a couple of years ago has collapsed into fraud convictions.

I looked at the crash of FTX (short for ‘Futures Exchange’) in November 2022 to see whether it would impact on the financial system as a whole. Fortunately there was barely a ripple, probably because it was too small and most investors were not sufficiently integrated into the rest of the financial system to be borrowing from it to speculate on cryptocurrencies,

Subsequently its founder, Sam Bankman-Fried, was found guilty on seven charges of financial fraud. He comes up for sentencing later this month. My interest was compounded by Michael Lewis’s Going Infinite: The Rise and Fall of a New Tycoon. Lewis, who has a galaxy of impressive books including Liar’s Poker and The Big Short (which was made into a film), seemed quite taken in by SBF, as he is known. Even so, the book provides a valuable background to SBF’s career and FTX, although it was published before the revelations from the trial.

So what went wrong? FTX had some similarities to a bank. Depositing cryptocurrency with it made it easier to transact; its charges were low; it paid interest.

Banks pay interest out of the returns on loans, so what did FTX invest in? Accounts get a bit vague at this stage. At least some of the investments seem to have been in companies on the basis of capital gains. However, we know that there was a substantial commitment to an allied Hong Kong-based cryptocurrency trading firm – Alameda Research – which was given very favourable terms.

When this was discovered, and that there was around $US8b unaccounted for, the fall in confidence had customers trying to withdraw their holdings. It was like a run on a bank – FTX ran out of the wherewithal to pay them and it collapsed into ‘bankruptcy’. Revelations of fraud behaviour soon became apparent and led to SBF and some of his colleagues ending up in jail.

We really do not know just how big the FTX deficiency is; there are even claims it actually has sufficient funds. A run on a bank does not mean that the bank is broke. It may have the assets but cannot liquidate them fast enough to meet depositor withdrawals. Typically, the central bank steps in to support an approved bank – FTX was not.

We do know that the new CEO of FTX, John J. Ray III, who specialises in recovering funds from failed corporations, stated ‘[n]ever in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.’ He said there as ‘complete failure of corporate controls’; FTX’s companies had an ‘absence of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partners’ and ‘did not have appropriate corporate governance’; some ‘never had board meetings.’ SBF agreed in court there was no risk management team at FTX, and apologised for its lack.

Cor!

Rather than detailing further the way that FTX was run, or not run, or the fraud which happened, I ask why would anybody have deposited their assets with FTX? Here are some answers to the question with a common sense response.

Everyone else was doing it. And now they too wish they hadn’t.

It was a big company. It was then, but now?

It was paying good interest. How did you know it was not a Ponzi scheme?

It involved a new innovation. So they told you. Didn’t mean it would work.

SBF was ranked the 41st-richest American in 2022. But not in 2024.

SBF had a great reputation. How many cases do you know of people with great reputations who turned out to be frauds or failures? Read Michael Lewis and, admittedly with hindsight, come away concerned about SBF’s reputation. Alameda Research’s CEO (who was romantically involved with SBF) claimed that his hairstyle and clothes were part of a ‘well calculated’ image.

Why do you trust a conventional bank enough to place your savings in it? Yes, it has a reputation above that of FTX and SBF which is also backed by competent accounting and auditing and a risk management team. Moreover, it is regulated by an independent agency (in New Zealand, the Reserve Bank) which, not incidentally, has to make sure the supervision works because it may have to bail it out. That does not mean that you will never lose (some of) your cash – (see the Deposit Takers Act 2023) – but the probability is very low.

In contrast, SBF built a reputation as an advocate for greater regulatory oversight on the industry while, as Lewis reports, avoiding it. He told a reporter it was all ‘just PR’, adding ‘F**ck regulators; they make everything worse’ and they ‘don’t protect customers at all’.

The critical notion here is ‘trust’. In the distant past there were only person-to-person transactions; each knew the other and could trust them. As the market economy evolved, transactions became between those who were not so intimately known, and eventually with anonymous persons and those who were not even persons, such as corporations. To facilitate those transactions we have public regulation. Sorry about that SBF, you need them to provide a sustainable service.

A jury found SBF guilty on all seven charges. I am not in a position to judge him on criminal fraud but some of his statements and behaviours leave me with the view he was recklessly fraudulent in any practical sense of the notion.

It is not impossible that FTX will have sufficient assets to pay out depositors (but perhaps not the interest owed). However, as one Bloomberg commentator observed, ‘“We lucked into enough money to pay everyone back” is not a legal defence to fraud’ – or a moral one.

SBF said he believed in ‘effective altruism’, which advocates choosing careers based on the amount of good that is expected to be achieved by one’s donations to worthy charities. While SBF made some claims which appeared to undermine such ethics, it is certainly true he gave a lot of money to worthy causes (and not so worthy ones, including political parties). He also gave some to friends, including his parents. I am not judging the philosophy here; one bad example does not disprove an ethical theory – as Christians will explain. But SBF’s career says something about the reality of human behaviour.

The Government says it will give localities more control over healthcare decisions. But how?

New Zealand’s political reflex is that any problem can be resolved by further centralisation. Students will be officially banned from having cell phones at school from Term 2. The decision could have been left to individual schools. Each knows a lot more about local circumstances than the Minister of Education does (or I do). But the New Zealand way is a central directive.

On the other hand, sometimes centralisation is needed. Historically, there has been an ongoing process of consolidation of secondary healthcare. Hence cottage hospitals scattered throughout the country being slowly turned into a nationwide hospital system. Even so, there is a hierarchy among the hospitals. Today a person with a serious heart condition in Nelson – which has as good a provincial hospital as there is – is likely to be flown to Wellington.

Medicine has become more specialised and is evolving rapidly. That suggests that hospital care needs to be built on advanced medical centres attached to a base hospital. At best there is sufficient scale in New Zealand for only five centres offering the specialised levels of care which provincial hospitals are unable to provide: Dunedin, Christchurch, Wellington, Hamilton and Auckland.

Sometimes a single agency makes sense. As much as the Big Pharma are attracted to weak local purchasing, a single Pharmac works for us. Both the interdependence of tertiary and provincial hospitals and the mobility of New Zealanders means the IT configurations among health regions need to be able to talk to each other; currently they can’t.

Even so, the form of centralisation of the system in Health NZ (HNZ) did not seem to make much sense. The most widely used justification for the redisorganisation was the ‘post-code lottery’ – the access to treatment varying by region. The response has been typical of so much policy in New Zealand. A correlation was treated as causation and policy proceeded on the basis that if we abolish regional governance there will be no post-code lottery. No attempt was made to explain the disparity, although it does not take a lot of imagination to think of explanations for the differences which would not lead to a centralisation policy.

Nor does the current centralisation policy remember that while the health redisorganisation of the early 1990s was focused on competition and privatisation, there was also a concern that some areas suffered from a lack of attention from the central hospital. A positive reason for separating Middlemore Hospital from the rest of the Auckland hospital system was that South Aucklanders’ health had been neglected.

The real reasons for policy changes are often different from the stated reasons. A possible reason was that the Ministry of Health was judged to be failing and it was thought better to set up a new agency rather than redisorganise the Ministry. Possibly the shift to national pay-and-condition scales was a consideration in favour of centralisation. The redisorganisation of the early 1990s left industrial relations in the hands of individual CHEs/DHBs. Over time, that decentralisation has been replaced by a system of national awards.

One factor, surely, was that the population-based funding model was failing. It was first introduced in the early 1980s and was, at the time, a progressive attempt to move away from a rigid funding system based on historic proportions. There were later refinements but the formula appears never to have been properly adjusted for the cross-border flows of patients referred by  provincials to tertiary centres, nor for differences in population density and concentration nor for economies of scale.

Crucially, to be equitable the funding formula required that each DHB had a capital structure which generated a similar level of productivity together with the assumption that the shocks each DHB experienced were small. Both assumptions were wrong as vividly illustrated when the Canterbury DHB faced the aftermath of the Canterbury earthquakes and the Mosque Massacres. The new system is not bound by the old funding formula and may be able to refine it, although it may end up making ad hoc decisions responding to perceived short-term pressures.

The latest redisorganisation does not really address these concerns. Rather, HNZ has been charged with designing the new system. One advantage it has is that it is gaining hands-on experience, unlike most top-down organisations charged with redisorganisation. But the pressures of dealing with the minutiae of that experience may divert its attention from the overall picture. Without external pressure it is unlikely to unwind if it discovers it is overcentralised.

But is HNZ hands on enough? It has a hierarchical structure which means that, as is common among generic managers, the leadership does not connect well with the knowledgeable below. HNZ need not listen to the hospitals it runs. The new organisational structure adds at least one further managerial layer into the system.

In an RNZ interview that got overlooked in the rows over scrapping the Māori Health Authority and the existing smoking reduction policies, the new Minister of Health, Shane Reti, says he is shifting more health decision-making back to the regions. ‘There are some parts that need to be owned by the centre, absolutely, but we need to be very careful because what has happened here is we’ve lost local accountability. We’ve lost local decision making and it’s all owned by the centre.’ He stopped short of saying district health boards would be reintroduced but said IT systems and key services like radiotherapy machines were examples of what should remain centrally managed.

What the minister has in mind is unclear. Giving the local health deliverers more autonomy may sound an excellent idea but how are they to be held to account? The Minister appears to have ruled out elected boards (last introduced by the Clark Labour Government and revoked by the Hipkins Labour Government). I am not particularly sympathetic to such boards, having had friends elected to them who felt they had little influence; those with greatest integrity chose not to stand again.

Nor do I have much sympathy for the fashion of introducing targets. We have had a lot of experience with them in economics summarised in Goodhart’s Law that when one specific goal is set, people will tend to pursue that objective regardless of the consequences. An example was that when emergency departments were given a target time for processing admissions, cases were left in ambulances outside, only being admitted when the target time could be achieved. Never forget Gilling’s Law: ‘the way you score the game shapes the way it is played’.

(The government’s announced five targets are hardly inspiring. Only one addresses primary care and that – ‘95 percent of children to be fully immunised at 24 months of age’ – while worthy, ignores the numerous recommended vaccinations for adults and older children, not to mention a multitude of general practice issues.)

Ian Powell’s sober assessment of targets concludes more sympathetically towards the previous Labour Government’s indicator approach than the Key-English one of hard targets.

The problem arises because a health system, like an economy, has multiple objectives which cannot be reduced to a single number in the way a business has a profit concern. (Even that gets corrupted by financial chicanery.) Simplifying the multitude to a single measure – as with the focus on changes in real GDP – is simple, foolish and distorting.

It is unreasonable to expect a new government to have fully formed its views its first hundred days – being in government and doing things is so much harder than being in opposition and criticising. It would be good if this one decides to pursue a culture change in which local generic managers focus on supporting those who deliver health care to individuals. That is a long way from a philosophy of centralisation.

Not so much from a lack of nominal income but from rising mortgage interest rates

The just released Statistics New Zealand (SNZ) estimates child poverty for the year ending June 2023 show the proportions of children on nine different poverty measures are higher than they were in the June 2022 ending year. SNZ warns that the increases are not large enough to outweigh the sampling error but here I accept the conclusion as meaningful and discuss why.

(Each indicator in 2023 is below the 2018 measure, when the SNZ first began measuring. Even so, the data is not on track to hit the child poverty reduction targets set out in the 2018 Child Poverty Reduction Act.)

Some readers may find the next few paragraphs a bit tediously data (and definition) driven. If you trust the analysis – you shouldn’t without checking it – you might skip to the next italicised paragraph – eight paragraphs down – which provides a conclusion.

Average annual household equivalised disposable income (before housing costs) rose 7.0 percent between June 2022 and June 2023. The Consumer Price Index (CPI) rose 6.8 percent. Seems households are fractionally ahead?

I am now share with you a secret. The CPI does not reflect all the outgoings of households. Very importantly, it omits mortgage interest outlays. (There is a complicated story why it is omitted.)

Now mortgage interest rates rose sharply during the period. For instance, floating rates on new mortgages increased from 5.0% p.a. for the year ending June 2022 to 7.5% p.a. for the year end June 2023. According to SNZ, all household mortgage interest payments jumped 50 percent.

SNZ also produces a Housing Living Cost Price Index which includes mortgage interest payments, but it is rarely reported. According to the measure, between June year ending 2022 and June 2023 household prices rose 7.7 percent, almost 1 percentage point higher than the CPI rise. It is also greater than the 7.0 percent rise in incomes. The rise in poverty is now less surprising.

The interpretation of the household equivalised disposable income figure of a 7.0 percent rise in incomes assumes that mortgage interest payments are spread evenly through the income distribution. SNZ estimates that there are an extra 12,000 children in poverty between the two years. (This uses a poverty line based on 50 percent of median (equivalised) household incomes.)

But households with children are more likely to have mortgages, so they are likely to be hit more heavily by the rise in interest rates. SNZ also provides an estimate of the change in all household incomes if housing costs (including mortgage interest) are deducted. It showed an increase in disposable income after housing costs of 4.4 percent, well below the 7.0 percent increase of incomes before housing costs and the various price index increases. When SNZ allows for this, it estimates that there were an additional 36,000 children in poverty – the increase is as common sense would predict.

Working with a large data base sometimes results in conclusions inconsistent with common sense. Usually that is because one has made a mistake or an oversight. This column simplifies how tricky the analysis can be. I did a lot of cross-checking. I have put some of the results in an appendix.

SNZ also provides another estimate of poverty, based on asking households whether they are having to make serious cuts in their spending. On their preferred measure they think ‘hardship poverty’ among children rose 23,000, from 10.5 percent of all children to 12.5 percent. Different poverty line, different level, but a similar increase in the poverty rate.

The above analysis, and the appendix, shows that the rise in child poverty was not so much weakness in income growth. Rather the evidence points to rising mortgage interest payments.

We know why interest rates have risen. The Reserve Bank has been increasing them to restrain the economy in order to reduce inflationary pressures. (World interest rates rose in the same period for similar reasons.) I do not want here to get into the intricacies of this macroeconomic-monetary policy, but to draw attention to the way it impacts on the income distribution (as most policy changes do).

It is ironic that among the people most impacted by the policy are the most defenceless and innocent – children. John Kenneth Galbraith once said that the unemployed were employed fighting inflation; so, apparently, are children.

If you raised the issue with the Reserve Bank, I would expect it to say something like while it is aware of distributional issues, its legislation charges them with restraining inflation but has no mention of doing so fairly or taking the concerns of the weak into consideration. That, the Bank would probably say, is the responsibility of Treasury and fiscal policy; in any case it has no policy instruments to directly modify the income distribution..

We sort of recognised this when both National and Labour campaigned on raising Working for Family (WFF) payments. Note that WFF does not target families paying mortgages. It is hard to think of a viable fiscal instrument that would. WFF is intended to benefit many families with children, so a hike is likely to reduce child poverty to some extent. We shan’t know until February 2026 (and there may be other factors that will increase it).

What surprised me when I did the above analysis is that the evidence is that, until June 2023 anyway, there is not a special case that households need income tax relief. There are always demands for cuts, of course, and National campaigned on income tax cuts. It is quite likely that they had not looked at the evidence – who does? Their promise to cut income tax may be based on the ideological desire to reduce the scope of the state and increase the size of the private sector – an honourable political ideology (although not particularly mine). Thus their decision to stop indexing benefits to rising average wages, returning to indexing by the CPI, even though it will increase child poverty.

My guess as to what is currently going on in tax policy is that state sector spending is proving much harder to cut than promised and the economy seems to be deteriorating more than expected. That is going to make it much harder to deliver the promised income tax cuts within the coalition government’s promised public debt target.

If the public debt track is higher, it will be paid for in the future by today’s children. If the Reserve Bank decides that requires a higher interest rate track, it will be paid for by today’s children. If we get the macroeconomic stance wrong and unemployment rises, the income cuts will be paid for by today’s children – in part anyway. Funny, isn’t it, how often the frontline payees are the weak and innocent?

There are two appendices. One reports on the data I used in the above analysis; the second is some notes on disability and poverty.

Appendix I: Changes Between the June 2022 and the June 2023 Year

Consumer Price Index: up 6.8 percent.

Housing Living Cost Price Index: up 7.7 percent.

Household (Equivalised) Disposable Income: up 7.0 percent.

Household (Equivalised) Disposable Income after deducting housing costs: up 4.4 percent.

Ordinary-time hourly wages: up 7.3 percent.

The minimum wage up 10.8 percent (but not everyone on the minimum wage has children).

The net social security benefit for sole parent support: up 8.1 percent, and the family tax credit up by 11.4 percent (these are but representative of benefits generally).

The unemployment rate went up from 3.25 percent to 3.43 percent (or about 13,500 souls). (Some research I did many years ago suggested that incomes at the bottom of the distribution were very sensitive to unemployment, but my study focused on far bigger changes than have occurred recently.)

Appendix II: Disability and Poverty

According to the SNZ data, the proportion of children with a disability living below the poverty line (defined as 50 percent of median equivalised disposable household income) is much the same as the proportion for non-disabled children. (They are reported as about 1 percentage point higher over the last four years). However, on the measure of severe material hardship the proportion of disabled children in poverty is about two-and a half times that for the non-disabled children (5.7 percentage points).

This is no surprise. Disability generates additional expenses. We make no adjustment for this in the poverty-income measures.

We knew this when the poverty measurement paradigm was developed five decades ago. But we have hardly progressed our thinking since. Over the five decades we have never taken serious research on poverty seriously – it just has not been a research priority. The weak missing out again?

The Sorry Story of Earthquake-Prone Buildings.

The Treasury requires that when new or amended legislation is proposed, a Regulatory Impact Statement (RIS) be provided – ‘a high-level summary of the problem being addressed, the options and their associated costs and benefits, the consultation undertaken, and the proposed arrangements for implementation and review’.

In its hurry to get back to the 2017 policy framework within 100 days, the new Luxon-led government announced it would not require RISs for its legislation. Perhaps the flouting of requirements could be justified if they were repealing recently passed legislation and could use the old RISs. But equally it could be argued that when it wants to, the Government ignores the whole exercise and that the RISs are only fig leaves to give the impression of quality decision making.

To see how ineffective RISs can be, look at their record on the 2016 Building (Earthquake-prone Buildings) Amendment Bill, which changed the way earthquake-prone buildings are identified and managed under the Building Act 2004. Up to 20,000 buildings may have to be retro-engineered or demolished as a consequence. The problem is particularly intense in Wellington, our most earthquake-vulnerable city, where there are almost 600 buildings on the city’s Earthquake-prone Building register.

As required when preparing legislation, the Ministry of Building, Innovation and Employment (MoBIE) produced an RIS. (Here) It is a fairly straightforward RIS until one gets to its cost and benefit analysis. CBAs are really no more than collecting together what is known about the economics of a project, in a systematic framework, typically using data from other disciplines (such as engineering). (We do not know when an earthquake will occur, so the analysis uses risk assessments provided by geologists.)

CBAs can be tricky. (Sorry folks, if this is quite demanding.) This CBA compared the cost of doing nothing to strengthen the building, against strengthening it to a seismic standard related to the New Building Standard (NBS). Here is my account based upon my reading of what the NBS rating means; where I have no expertise, I’ve had it checked out by qualified engineers.

The percent NBS rating is a measure of a building’s potential seismic performance when compared to the seismic performance of a similar new building constructed under current standards and codes. In Wellington, new buildings are designed and constructed to reliably withstand earthquake shaking with a return period of one in 500 years. A seismic rating of 34% NBS means the building should perform similarly to a 100% NBS-rated building at about a third of the level of shaking; buildings with a 34% NBS rating should withstand a one-in-41-year earthquake with a similar level of reliability. (Smaller earthquakes occur much more often than larger ones.)

The New Zealand Society for Earthquake Engineering considers buildings with a rating above 67% NBS, which can withstand a one-in-200-year earthquake, to be acceptable in terms of seismic risk. Buildings with an NBS rating below 34% are deemed to be ‘earthquake prone’ and are usually required to be demolished or strengthened.

To simplify, a 34% NBS-rated building is thought to have 10 times the risk of a human fatality of a similar new building. However, before the below 34 percenters rush out to live in a tent on the back lawn, they should observe the probability of a fatality is low.

The CBA concluded that if there was no further strengthening, the likelihood was that there would be up to 8.1 New Zealand deaths a year from earthquakes (they would tend to be clumped in particular years of big earthquakes). But if high-risk buildings were upgraded to the 34% NBS standard, there would be only 5.8 deaths in an average year. (If they were all upgraded to 100% NBS, there would be 2.4 deaths; the reason the death ratio is 2-3 times and not 10 is because many buildings are already above the 34% NBS standard.)

The figures are trivial compared to say, the annual deaths from the road toll (about 350) or cancer (about 9,500). But every life is precious, so we should try to reduce all deaths, providing the resources used cannot be better deployed somewhere else.

The CBA uses the Net Present Value (NPV) method to calculate the cost of the upgrading. It involves some heroic assumptions. The NPV calculated to upgrade all buildings to 34% NBS in 15 years was $1,717 billion. That number is not transparent so I simplify it to paying out $216m per year in construction costs for each of the 15 years.* That spending would reduce deaths annually by 2.3 (8.1-5.8). We would be spending approximately $10m strengthening buildings to avoid one death.

That is a much higher outlay than we spend in the health and transport sector to avoid deaths. We could save many more lives by spending the $216m in those sectors than on earthquake strengthening. So we are wasting money in the strengthening which could be used to save lives elsewhere.

Unfortunately, the CBA is not a very easy read, but I have yet to meet an economist who has looked at the RIS and was not outraged that legislation went ahead given its Cost-Benefit-Analysis. Economic considerations are not decisive but they should surely be taken into account, especially as the RIS alerted that there were expensive consequences.

I do not have the record of how MoBIE or the Cabinet Ministers discussed the CBA but I can tell you about Parliament. The bill got referred to a select committee, which received accompanying papers from the ministry, including the RIS as Appendix 2. Following submissions, the bill was reported back and then went through the various stages of debate until it became law.

None of the select committee members mention the RIS, nor did the minister (Nic Smith). Only one MP, ACT’s David Seymour, did. He was the sole MP to vote against the bill becoming law, primarily because of issues related to the CBA. Except for him, the CBA was wasted on Parliament.

If the MPs could ignore the costs, owners of earthquake-prone buildings could not. Many residents of affected apartment buildings are not able to afford the cost of strengthening to 34% NBS or higher and will lose their homes. Those that do strengthen have to suffer severe disruption during the construction work and are also likely to be out of pocket finding alternative accommodation (in one case I know of, for a year). Such costs were not included in the CBA.

Moreover, an earthquake-prone designation reduces the value of the building for sale. Even an engineer who understood the meaning of the NBS would be reluctant to purchase one because a subsequent sale is likely to be compromised. The Wellington apartment market is in chaos.

To round the policy story off – alas not for those owning earthquake buildings – it was intended to review the NBS in 2022. However, the review was delayed until 2027, but the incoming minister is bringing the review forward. Any revision is unlikely to resolve the difficulties that owners of earthquake-prone buildings face. These are not solely engineering matters but also involve economics and regulation and a bit more gumption from Parliament.

* I simplified by ignoring that the strengthening will also save lives in earthquakes occurring after 15 years. (I used a 10% p.a. discount rate.)

Public policy towards tobacco consumption remains politically sensitive.

In 1983, a young researcher was told by a medium-level Treasury official that Treasury policy was to abandon excise duties on tobacco. The senior Treasury economist that I consulted, famed for his commonsense, snorted ‘we need the money’. He explained that no-excise-duty was the ambition of a couple of very ideological Treasury officials – later we would call them ‘Rogernomes’ or ‘neoliberals’ – who objected to state intervention.

I recount this incident to remind you that tobacco policy has an ideological dimension as well as being affected by lobbying from the commercial tobacco interests, which are not particularly ideological but pursue their self-interest. A ‘Socialists for Ciggies’ lobby would be generously funded too. (One may suspect the funding of favourable lobby groups tobacco interests is because they do not want New Zealand successes to set an international example.)

Understanding the ideological dimension explains why some not very impressive arguments are trotted out to justify reducing tobacco excise. It is common for an ideological justification to be clothed in practical garb. Understanding the commercial lobbying explains why alcohol excise is not also under review. The liquor interests cannot be spending enough on the right-wing lobby groups.

Tobacco excise duties are still Treasury policy; it still needs the money. But there is a sound economic justification for excise duties on tobacco. Smoking damages smokers’ health, compromising heart and lungs and triggering cancers. The tobacco excise contributes to the cost of health service treatments. (The revenue actually exceeds annual costs. However, if everyone stopped smoking tomorrow, they would experience some health gains immediately, but would still have higher treatment costs for some decades. So the duty is covering future costs, just as taxing carbon emissions is intended to offset global warming which lasts centuries.)

The priority of revenue collecting is demonstrated by the fact that currently the level of excise duty is indexed to general consumer prices. As prices rise, so does the tax (although there are some in the current government who would like to end this practice). The indexation arose because it was such a hassle for Treasury to get the Minister of Finance to raise the excise rate; now it is automatic. The small incremental changes probably don’t have a lot of effect on smoking, whereas holding off the increases and then having a big increase encourages more smokers to give up.

Another economic dimension has been the smoke-free legislation. Once smokers had the right to pollute others’ airspace, which many non-smokers found offensive. The realisation that passive smokers could also suffer health damage led to a law change which removed the right for a smoker to infringe the airspace of others. The health damage from passive smoking is quite small compared to that from active smoking, but it provided the political lever to introduce the smoke-free legislation.

Over the years the amount of smoking has decreased. In 2011 the government set a target of only 5 percent of smokers in the population by 2025. That seemed ambitious at the time but it looks as though the target will be attained.

The big difference may be the introduction of vaping which enables the tobacco addict to switch access to a nicotine source which appears to be less harmful, because there is less poison in the inhaling. We cannot be sure how less harmful it is. It took decades to track how much tobacco damaged health and we have insufficient data to be sure of vaping’s long-run effects. (The medical advice is that addicted smokers should switch to vaping, but non-smokers should not take it up.)

The neoliberal’s ideological case is that they object to the state interfering in individual lives, especially when it tries to change behaviour. If people want to smoke, they are entitled to make that decision without state interference. I am not unsympathetic to that general principle, especially if the smokers are paying for their health (and other social) costs and they are not infringing others’ airspace.

The economics discipline is framed by the importance of individual choice. But how addiction fits into the economists’ approach is unclear. Most smokers are addicted to nicotine; many wish they could give up smoking, but they can’t. It is easy to say ‘don’t get addicted’ but it happens with other things we consume. (Kate Shepherd famously remarked that ladies of her time were addicted to cups of tea.)

The economics approach to personal decision making began before psychology as a science was founded. Behavioural economics draws upon modern psychology, but I have yet to see how it incorporates addiction. (Some of the neoliberal arguments are just plain silly. A famous one was that being unable to give up an addiction was akin to saying you wanted to get married but could not find anyone to marry.)

I am uneasy that the (handful of) tobacco companies profit from getting people addicted to their product despite it being harmful. That position is not based on deep economic theory but on the commonsense of a senior Treasury official. In particular it suggests we should target behaviour which results in addiction.

We are not going to stop teenagers trying out a fag, especially if their elders say ‘don’t’. Daily smoking is already low among teenagers, Hopefully they will completely stop by their early twenties. That should be an aim of public policy.

This approach suggests we should not get too agitated about the (diminishing proportion of) older adult smokers. They are paying for the costs of their health care (although sometimes, say for heart conditions, they will not be treated unless they give up smoking because the treatment is not very effective). They are not polluting our airspace. We may be sorry for them; we should give them as much assistance to give up smoking as we can. But they know the risks.

I expect the previous paragraph will cause outrage among some of my colleagues in the health profession. Theirs is a different ideology committed to saving every life they can. Their view is smokers are killing themselves; they should not. It is an approach I respect – it involves a commitment to preserving life well beyond what the advocates are paid. But we all do risky things, like skydiving and jay walking, aware there are dangers.

Indeed, we may be facing a dispute within the anti-tobacco lobby about what to do once the target of five percent smokers is attained. One side will want to reduce the target further; the other will be more relaxed about adult smokers, focusing the effort on limiting adolescent smoking. Meanwhile the neoliberal lobby, backed by the commercial tobacco interests, seems to be in office and perhaps in power. We may be facing a major political wrangle, but a three-sided one.

Interpreting the agreement made at Waitangi as a social contract is a way to move forward on treaty issues.

(This column follows ‘Our Understandings Of Te Tiriti Has Evolved Organically’.)

Te Tiriti is in the form of a social contract of the sort that political theorists have discussed since the seventeenth century to explain how countries should be governed. Philosopher David Hume pointed out that no country had a tangible one on which it was founded. Sixty-four years after his death, New Zealand upended his objection.

Te Tiriti looks like a social contract. It has a prologue, three articles and an epilogue. The articles are at its core. In an early draft, the third article was actually in the prologue, with a ring around it and arrow pointing to a position as the third article.

The third article is the ‘rights’ clause. A good translation of the Māori text is ‘In return for the cession of the sovereignty to the Queen of England the people of New Zealand will be protected by the Queen of England and the rights and privileges of British subjects will be granted to them.’

In standard political theory such an (inalienable) rights clause precedes the next two clauses, exactly where it was originally placed.

The first two clauses are constructed in the form of a contractual exchange. The first says that the signatories accept that the governance (kāwanatanga) of New Zealand will be the responsibility of the English sovereign and her successors, while the second says that, in return, the government will respect and protect the signatories’ rangatiratanga, including their properties and other treasures. This is exactly the way a social contract is constructed.

There is an argument as to whether the Tiriti is a covenant or whether it is about property rights. If it is a social contract, it encompasses both – and more.

‘Rangatiratanga’ may have had a more Iwi/tribal* meaning to some of the original signatories. But that notion seems to have subsequently evolved into everyone having the status of a rangatira – of having the sovereignty of the individual over her- or himself – which is the way a modern social contract would interpret it.

While Te Tiriti was between the English Crown and Rangatira Māori, today it must be taken to involve all of us, whether we have some Māori descent or none. That is the logic of the third article.

Some confused thinking equates the English Crown with the English people. They are quite distinct. Technically the English people were not involved with Te Tiriti (except some were advisers). Describing some New Zealanders as ‘tangata tiriti’ seems to be a misunderstanding of what historically went on.

The text refers to the recent arrivals as ‘Pakeha’. which is how I describe my ethnicity – honouring Te Tiriti. (I do not describe myself as ‘European’ because of its race overtones.)

Te Tiriti does not set up a partnership between the Crown and Māori (Iwi). That was not the interpretation of the Court of Appeal. (The Court said both parties must act in good faith akin to that of a partnership.) If Te Tiriti was a social contract, the Crown would be more like a trustee than a partner.

Hobson’s London instructions give no hint that he was to negotiate a social contract. He discussed the Colonial Office directions with Governor Gipps when he was in Sydney before sailing to Waitangi. Gipps tried to get some Māori visiting Sydney to sign a deal. (They turned it down.) The Gipps’ (unsigned) treaty is not in the form of a social contract suggesting it was not a consideration in the Gipps-Hobson discussions.

The likelihood is that the conceptual notion of a social contract came from James Busby (who mentioned social contract theory in one of his letters) and possibly Henry Williams (who would have certainly known about the theological equivalents – covenants). So there was at Waitangi local input from Busby and Williams which was more sensitive to Māori interests. Te Tiriti is not simply what the Colonial Office envisaged. 

The origins of social contract theories go back to the covenants in the Bible. Here we start with seventeenth-century England, a time of great civil unrest and turmoil. Thomas Hobbes argued then that absent of any political order there would be ‘[n]o arts; no letters; no society; and which is worst of all, in continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short.’ He posited the need for a central authority (a ‘Leviathan’).

But, he said, that ‘[t]he obligation of subjects to the sovereign is understood to last as long, and no longer, than the power lasteth by which he is able to protect them’. A few decades later John Locke made the point even more strongly that if the Leviathan failed to look after the interests of its subjects it could be replaced, as had just happened to James II

If a social contract is breached, the signatories have the right to withdraw the authority of the sovereign. This is not to say that they need chop off the king’s head but it does raise the question of how to keep the sovereign authority on track. (The MMP referendum replaced the existing frontrunner ‘monarchy’.)

Evolving here is the notion of a social contract for which the population, concerned by civil turbulence, appoint a sovereign but on the condition that their interests are protected. Which is exactly what Te Tiriti did.

It would be anachronistic to argue that the Māori signatories knew the European political debate but, shortly after, Māori described the agreement as a ‘covenant’, which is a part of the theological origins of social contract theory. So it is not implausible that such notions may have underpinned at least some of the Māori signatories’ thinking; and certainly they have done so in the thinking of many of their descendants.

Te Tiriti being a social contract does not undermine most of the things we do today in its name.

    – The treaty settlements are still remedies to the Crown’s breaches of the second article;

    – The Māori language remains a taonga of the second article (as ruled by the courts) and the Crown is obliged to foster it;

    – Under a liberal social contract, the Crown should practise subsidiarity and devolve as much autonomy as possible to individuals, and to the voluntary groupings which include Māori ones;

    – The Crown should be concerned with social inequality including inequality of opportunity,  not least to promote social cohesion (reduce turbulence), and should be concerned to reduce social deprivation, especially where it applies to identifiable social groups such as Māori.

While Te Tiriti as a social contract is a coherent interpretation of the facts, and seems likely to have been the interpretation of at least one person involved in the events of the day, that does not mean it is a social contract today. That is for us to decide. How can we?

I do not think there is any point in the government declaring Te Tiriti is a social contract – especially the bit about if it does badly, you may ‘behead’ it (although that is the import of the Electoral Act 1993). Rather it is about how each of us thinks about Te Tiriti, like the paradigm shift from ‘Te Treaty is a Fraud’ to ‘Honour Te Tiriti’.

Hopefully an increasing number of people will treat Te Tiriti as a social contract and describe it that way in their public dialogue. Not everyone will agree and there will be differences of interpretation – as there are among philosophers. (Many subsequent philosophers – including David Hume, Jean-Jacques Rousseau and John Rawls – have contributed to the theory.) But we could evolve our thinking towards a consensus which does not just say Te Tiriti is the foundation document of the nation, but treats it as such; which does not just honour Te Tiriti, but does so in a contemporary, historically consistent, practical and intelligible way.

* I capitalise iwi to indicate when I am referring to tribes rather than people.

History is a living thing. The past not only tells us of where we’ve come from, it walks with us today and pushes us down certain paths to the future. It is an active, persistent, demanding presence; a stone in our shoe, a beam of light shining over our shoulders.

Yet as we confront another Waitangi Day full of debate, there are many eager to get out their chisels and carve our history into stone.

We seem to have fallen into a place of either/or when it comes to te Tiriti o Waitangi. Either it is a promise of partnership or a declaration of duties. Either we are ‘tiriti-centric’ or we are dishonouring the treaty. Either we respect cultural rights or universal human rights. Either it is article two or article three. Either it is everything or it is nothing.

My question this Waitangi Day is whether there is still a place to say it is both a founding document of this country upon which our status as a nation rests and a flawed, human effort designed with the issues of 1840 in mind; three short articles that to be relevant to succeeding generations will need to remain a living document open to debate.

Some today – on all sides of the argument – seem to want to say ‘this is what it is and nothing else’. To speak for the signers as if they were there. To leave no room for doubt or compromise. That is a risky way to look at history.

The United States has fallen into this certainty trap, casting its constitution not as an effort to make rules for a government in a certain place and time, but as something sacred and non-negotiable. Something inviolate and holy.

Look at the debate of the right to bear arms in the second amendment. Rather than being seen as a response to an issue from the 1700s it has become for some akin to the word of God.

The result is increasingly polarisation. Why would we wish such certainty on our country? Insisting that we define the treaty and its principles once and for all could lead many places, but it ensures one thing. That the debate on te tiriti becomes a zero-sum game that each side will feel it must win, or lose its voice forever. We are making the stakes too high.

As tempting as it is to want to resolve a debate once and for all, and in politics to get a win for your side that might outlive you, the risk is ongoing bitterness and division, the very thing everyone insists they are trying to avoid.

New Zealand has a fluid and patchwork constitution. That creates its own problems, but it does allow us to adapt and evolve alongside our understanding of our past. And our present. And our future.

This is not to say there aren’t facts and certainties in history. There are. But our understanding of that history and what we do with those facts is always evolving and up for debate. Which is a good thing. Because there’s no more a single correct view of history than there was a single correct view amongst the people gathered at Waitangi in the early days of February in 1840.

If you want to understand the chaotic uncertainty swirling around that day, you only have to read the missionaries’ quotes of the rangatira present or the ‘on one hand-on the other hand’ instructions William Hobson had from Lord Normanby, Britian’s Secretary of State for War and Colonies.

Their concerns and motivations were many. People on both sides wanted to see Maori protected from the worst of a wider world that was about to change them forever. International trade and travel had been a part of life – especially in the north – for a couple of generations, but mass settlement was about to be something new. Maori sailors wanted protection on international ships. There were worries about the criminals coming across from Australia, navigation rights for Maori ships and traders, the impact of the French here and in Europe. Britain fretted about its empire in China, India and Afghanistan, and the rise of Russia. Maori were dealing with the traumatic impact of the Musket Wars, the Crown was wrestling with the potentially traumatic impact of thousands of its people arriving in a land beyond its sway.

So many threads. So many reasons to sign or not sign a treaty. So reductive to think we can boil it all down into a few lines, slogans or principles 184 years later.

The stone of history cannot be just shaken from our shoe. We have to learn to live with it by learning more about our past, listening more intently to each other and accepting that all our arguments are only part of a complex picture. We have to live with our history, not decide or judge it. Put down our chisels. Only then can we learn from it and from each other.