Kiwi News and Views

Whether Britain leaving the European Union was right or wrong, good or bad is for the Brits to decide. But there are lessons about international trade to be learned from Brexit, especially as it is very unusual for an economy to break so completely from its major training partner.

In Econ101 we are taught Ricardo’s theory of comparative advantage. In summary it says that specialisation makes economic sense; that it is a good idea for you (or a country) to do what you do best and trade the surplus for something you want from someone else who (or other country which) does it comparatively better. An economist then spends the rest of her or his life exploring the caveats and subtleties of the theory when it applies to the real world. It’s not logically wrong – it’s just that the real world is more complex.

For example, there are transaction costs in trade. I wrote a book, Globalisation and the Wealth of Nations, which explored the consequences of the costs of distance – transport, inventory, information … Standard trade theory was not a lot of help. It is a static account of the economy and when we measure the allocative gains from trade we get a small percentage increase. (Which, not incidentally, is why is was so hard to find the promised gains from Rogernomics.)

Yet the evidence points to economies thriving with international trade (although not necessarily everyone in each country). In the end I concluded that the growth came not just from the specialisation but was reinforced by economies of scale and economies of agglomeration, and by competition which stimulates innovation and competitive advantage.

This conclusion is orthodox. The book’s twist was to highlight the costs of distance. Think of them analytically as a natural tariff. As these barriers to trade decline, economic growth is stimulated. (The same happens between regions within a country.) The distance costs have fallen dramatically over the last two centuries and driven globalisation – increasing interconnection between economies. (Since they wont fall as much in the future, we are likely to see some slowing down – even stagnation – of the globalisation of the markets for goods. However, service trade is likely to continue to grow as information technology transfers becomes more efficient.)

So it is no surprise that the British economy has suffered from the rise in the barriers which resulted from the withdrawal from the European Union. The UK government’s Office of Budget Responsibility calculated that Brexit is costing 4 percent of GDP over the long term – that adds about three years of stagnation to the British economy. That is probably an underestimate because the dynamic effects are almost certainly greater. (Both investment and skilled labour have moved to the continent to avoid the barriers.)

Many of the barriers come from the fact that the two regimes no longer have the same regulations. The difference has resulted in increased documentation and phytosanitary requirements (measures to eliminate the spread of diseases transferred through livestock, plants and such like). Part of the point of the withdrawal, as far as the Brits were concerned, was to allow them to pursue their own regulatory regime because, it was argued, Brussels was too intrusive. (Some of the alleged rules, like how bent bananas could be, were very funny and entirely fictitious.)

The move to common regulation was the result of the 1992 Maastricht Agreement which aimed to convert the European Community (as it was then) of a multitude of markets into the single market of today’s European Union. (Just as we do not have different regulations between the North and South Islands.) There is a sense that the Brexit vote was a rejection of the transformation of the EC (which they joined in 1973) to the EU which they left in 2020. (I am not discussing here how badly the withdrawal was handled.)

What surprised me was how onerous and complex the regulatory barriers have been – how damaging they have been to trade and economic growth. It has not just been the queues of lorries awaiting documentation clearance at ports like Dover – vivid illustrations that they are. The delays have resulted in some British producers of fresh products where time is critical – like fish and flowers –giving up exporting to the EU altogether.

Sometimes the amount of documentation – pages and pages of it – has been extraordinary. I don’t think the EU is being bloody minded, although Brussels can be clumsy. Perhaps over time they will simplify their requirements and so will the Brits. Which means that there will be increasing regulatory alignment, which Brexit was trying break away from.

There is a lesson here which the Brits may yet learn. While one may yearn for sovereign independence, whatever the de jure situation once there is an international relationship – in trade as well as a host of other areas like human rights and defence – de facto sovereignty is compromised.

The problem of these regulatory barriers arising from misalignment and documentation apply elsewhere in world trade; an exporter to multiple markets may have to meet quite differing requirements. There have been attempts to reduce the barriers, but multilateral efforts have been half-hearted. Free trade agreements increasingly pay attention to them.

There cannot be total regulatory alignment. Our negotiating partners know that our bottom lines include the provision that Te Tiriti o Waitangi is sacrosanct; it protects the Māori broadcasting regime from international investors.

One place where we can do better is moving the trade documentation onto an electronic basis. I do not know just how much that will facilitate our exporters and trade generally. But the lessons from Brexit suggest that it will, probably more than one thinks.

Were I a Brit, I’d favour measures which reduced these transaction costs even if the resulting regulatory alignment reduced the country’s economic sovereignty.

Footnote: A new area of regulatory alignment is likely to be about carbon emissions. The EU is already moving towards requiring those who export products to it from the ‘heavy’ industries – such as aluminium, cement, chemicals and steel – to meet the EU’s domestic carbon emission standards.

They have not yet begun addressing farm emissions of methane and nitrous oxide. But they will. Our farm sector needs to be preparing for that. Rather than the government imposing an emissions regime, it might tell them:

 ‘Over to you. If you don’t get on with developing your own strategy you will be one day be excluded from some of your valuable export markets. The government’s advice is to get onto it as fast as you can. Biological change takes time. Inconvenient regulatory can change a lot faster. The government will give you all the reasonable support you require.’

If you don’t understand how things work you make foolish mistakes. To explain how the government got into its cancer drugs muddle, we need to explain first how New Zealand’s pharmaceutical purchasing system works.

There is a parallel between Pharmac and the Reserve Bank of New Zealand. The Government sets the monetary policy framework with its legislation and the Policy Target Agreement (PTA) between the Governor and the Minister of Finance (plus some other minor matters, but they are all in public). The Bank then implements the monetary policy, independently of the Government. Which is a good thing, given how complicated the monetary system is together with the tendency of politicians, and others, to want to interfere for short-term purposes. (In the previous framework, Prime Minister Rob Muldoon would literally ring the Governor directing him to alter the monetary settings for political purposes, such as impending by-election.)

Similarly, Pharmac implements the Government’s purchasing of pharmaceuticals within a statutory framework. It includes the prior institution, Medsafe, which determines whether a drug is safe, although that says nothing about its effectiveness. That Medsafe decides a drug is safe does not automatically mean the pharmaceutical is available free on the public health; if it is not, it can be used in New Zealand but must be privately purchased.

The equivalent of the PTA is that each year Parliament votes a sum which Pharmac uses for its total pharmaceutical expenditure. Like everything else to do with the public health, there is never enough. So Pharmac tries to purchase drugs as cheaply as possible. Where a drug is off-patent and there is competitive supply, it seeks the cheapest high-quality supplier. An individual tablet may cost only cents (like paracetamol before the retail markup).

In order for Pharmac to fund a medicine, it needs:

– to identify a clear health benefit for New Zealanders;

– a deal with a medicine supplier;

– enough money in the budget to fund it this year and in future years;

– and to have consult on the proposal with everyone who as an interest.

Once these align, Pharmac can work quickly to fund the medicine.

Most of the drugs which Pharmac funds are off-patent. However, most of its expenditure is on drugs which are on-patent and supplied by a single Big Pharma (although sometimes there may be close alternatives). They are very expensive because of the patent monopoly. It is there to provide Big Pharma with the incentive to develop new drugs. (A common figure mentioned for the cost of development of a drug is a billion dollars, but there is a lot of variation, and many potential drugs prove ineffective which may mean the development costs are wasted.) That means there is a big margin between the cost of producing the drug and the price that the Big Pharma thinks is justified by its investment.

The margin varies by country. For instance, HIV-Aids medication is supplied cheaply to poor Africa. I do not discuss the issue further; it is quite complicated. What is relevant here is that the margin means that Pharmac has the opportunity to beat the price down from the top rate the Big Pharma charges (typically to the USA).

Big Pharma loathes the arrangement. (What if every country in the world followed this practice; it is unique to New Zealand?) They have even tried to abolish Pharmac in trade deals we have negotiated (particularly with the US). New Zealand has been staunch because the effect could be close to doubling the cost of the public pharmaceutical budget.

Those negotiations can be fraught given that they are between a monopsonist (single-purchaser) Pharmac and a monopolist (single supplier) Big Pharma. For obvious reasons they are commercially secret. Or rather, I thought it would be obvious; I presumed that was the reason that there was no explicit provision for the costs of additional drugs in the May budget. At the extreme, if it was stated $1m had been set aside to purchase drug X, you don’t have to be very smart to work out what Big Pharma would do. (In their turn, Big Pharma don’t want any other country to know what prices they are charging New Zealand.)

However, the negotiations aside, the great problem Pharmac faces is which drugs to fund, given its limited budget. Some drugs are going to miss out.

I shan’t go through the full evaluation procedure but an economist might summarise it as Pharmac trying to get as much bang as it can for each buck – the economist’s ‘bang’ is usually measured in years of quality life. (For other considerations see here.) For instance, suppose Pharmac had to choose between spending the same amount on a cardiac medication which extended life for ten years and some cancer medication which extended life for ten months, most of us would think the choice is a no brainer.

Not everyone, because those suffering the cancer would still demand that their drug be funded. Very often they blame Pharmac, which is unfair because Pharmac is limited by the funds made available to it – to its ‘PTA’ target.

Gee, it has taken a lot of explanation to get to the most recent controversy – and I have left bits out. It is clear though that many who get involved in the pharmaceutical disputes have not understood even the above simplification.

Opposition politicians easily get swayed by public demands for a particular drug, making promises which in government are difficult to keep at the simplified level of their thinking. Hence the current fiasco.

After much political muddling (and, one suspects, a lot of hard administrative work) the government has announced it would give Pharmac extra funding of $604 million over the next four years to cover ‘up to 54’ new medicines including 26 cancer treatments. That includes all the 13 cancer drugs National promised during its election campaign, or replacements that are ‘as good or better’. Observe that the announcement gives Pharmac room to negotiate rather than be an easy walkover by Big Pharma. Moreover, it allows Pharmac to fund other drugs which it judges are as effective at improving quality of life of sufferers.

The funding comes out of the contingency operating allowance the budget provides for new policies and unexpected changes. That is exactly what the reserve is for, although I, among others including the Treasury, have expressed concern that the amount provided in the budget is too small. (here) It is now smaller.

The Labour Opposition joined the chorus pointing out the Coalition Government was failing to keep its election promises. Curiously, during the election campaign Labour failed to get across that the Ardern-Hipkins Labour Government had markedly increased Pharmac funding by more than 70 percent (excluding that for Covid), while Pharmac funding under the Key-English Government was near stagnant. The National-led Government’s recent policy announcement represents a major break from the earlier National Government.

Hopefully, that means it has come to grips with how Pharmac works and is committed to make it work, leaving Pharmac to make the technical decisions. There is always the fear that the Big Pharma will prevail and that Pharmac will be neutered, to the taxpayers’ cost.

The other concern is that it seems likely that we could get a better bang for our health buck by spending additional funds on reducing some of the intolerable waiting lists in the public health system. However, there are no ‘Big Pharma’ to stoke public indignation. And the contingency operating allowance is getting smaller.

Evaluating the impact of social policies will be very difficult but the government does not seem to be doing much real evaluation.

A couple of terms that have recently become fashionable are ‘cost-benefit analysis’ (CBA) and ‘social-investment analysis’ (SIA), typically proposed by people who have never done either. They sound good but have their limitations. Providing their limitations, are understood they can assist making better decisions. Too often they are ignored, and the resulting analysis has little value, merely reinforcing the conclusion that the decision-maker who commissioned the analysis was going to make anyway.

CBAs entered public policy in the 1960s evaluating the return on irrigation projects. (Locals, including their MPs, were very keen on the projects because they involved large government subsidies.) By the early 1970s they were being used by the National Roads Board to rank spending on roads. A decade later they had a central role in the Major Projects (‘Think Big’) debate. They were then necessary because the projects depended upon government subsidies and other kinds of public support.

The debate was traumatic; economists even lost their cool. Part of the problem was that we had to develop the analytic frame as we went along. (The only New Zealand manual we had was for irrigation projects – I am not making this up.) We economists made mistakes but any economic advice was usually overruled by the politicians who went ahead with even some known ‘dogs’. (Roger Douglas admitted he made wrong decisions – against advice – over New Zealand Steel.)

The policy conclusion was that government shouldn’t subsidise businesses, which explains many of the more sensible changes under Rogernomics. Unfortunately, politicians remain keen on incentives for political reasons and sometimes government involvement is unavoidable – like the broadband rollout and the current debate on the inter-island ferry service.

Moreover, the government is also involved in many decisions which are not strictly business ones. The social area exists as a public policy issue because it cannot be commercialised.

CBA/SIA has been most extensively used in the health sector. But note that once again the politicians have tried to overrule careful analysis, as when they announce they will fund particular pharmaceuticals. (The economic issue is whether the same funds could be spent more effectively – with better health outcomes – on other treatments; we don’t know unless careful analysis is done.) The application of these techniques in the health area is fraught with difficulties. I know, having worked on a number of evaluations in numerous areas and having been a member of an international working party which developed a manual on how to apply the techniques to the analysis of substance use and abuse (published by WHO).

That a manual is necessary was evident from a strange debate over the last published social cost of alcohol study which paid no attention to the issues the working party sweated over and did not understand them; neither did its critics.

The government has announced it now intends to apply Social Investment Analysis in areas such as education, justice and social services. It has even set up the Social Investment Agency to lead its use.

The idea began under the Key-English Government and was implemented under the Ardern-Hipkins Government as the Social Wellbeing Agency. For all the fanfare, sentiments, promises and expenditure, there have been few results to show SIA’s effectiveness.

Instructively, there is no published manual of how to do an SIA. The unwillingness to learn from past experiences or other disciplines is illustrated by the various contributors to Social Investment: A New Zealand Policy Experiment. So bereft were they of practical experience one is reminded of the joke that a consultant is someone who knows 69 ways to make love but has never kissed a girl.

Will the experiment be successful? The experience is that its success, if any, will be limited and hardly at all if there is no manual. There will be a host of undiscussed problems about how to construct the framework.

For instance, a key point in these analyses is what is the perspective of the study? How is success going to be judged? In the health sector we tell the story of the ‘exploding cigarette’, which is highly addictive, generating lots of tax revenue, but kills the person on the day they retire so the state does not have the subsequent health and retirement costs. From the fiscal perspective an ideal policy, except it has left out all consideration of the person’s welfare.

Before you say ignoring people’s welfare is absurd, the feedback I hear is that the government’s SIA focuses on the fiscal savings to the government. So the perspective is the taxpayer, with the rich benefiting more than the poor. I hope it is not true, for in every health evaluation with which I have been involved, the suggested treatment involved net public outlays in the long run because it was trying to benefit the sick.

I’ve given but one example of the minefields we found when developing the WHO report. They’ll all be there in an SIA ,and probably some more. Often there has been a shortage of quantitative evidence in the health evaluation projects with which I have been involved; sometimes that evidence is key to the assessment.

A major issue is, as the term ‘investment’ indicates, that the evaluation has a strong time element. (No, I am not going to go over the time-discount rate issue again – I think we got it wrong forty years ago, and we are still getting it wrong.) Rather, analysis requires evidence about policy impacts decades later. For instance, good nutrition for pregnant women affects the health of their grandchildren. (The mechanism seems to be that the health of the child in utero is affected, and in the case of a girl child, that will affect her children.) Most of that sort of evidence is not available for social service issues. (The health sector is much better provided with the required evidence than social services will be, but even then it is frequently lacking.)

The temptation is for the advocate – or the consultant advising the advocate – is to make up any missing numbers. Sometimes the policy conclusion hinges on their magnitude; you will not be surprised that there is an optimistic bias in their creativity. That bias will feed the politicians.

CBAs and SIAs only informed decisions. They are rarely decisive. The Coalition Government agreement said it will make decisions that are ‘principled – making decisions based on sound public policy principles, including problem definition, rigorous cost benefit analysis and economic efficiency.’ That was almost certainly written by someone who has never done a CBA.

In practice the government seems to be oblivious to the principle. most evidently in the justice area such three-month boot camps. The impression I get – I am not expert in the area – is that the evidence says they won’t work. Did the politician commission any SIA – let alone a rigorous one – before they directed the policy to be instigated? (Will they direct there be follow-up evaluations?) How many of the current government’s policies proposals have been made with the promised rigour? It would be useful if at each policy announcement a journalist asked to see the ‘rigorous cost-benefit analysis’.

SIAs could make a significant contribution to social policy if they got us to focus of the evidence to inform it. (In the health sector it is called ‘evidenced based medicine’.) I am not optimistic; it involves a massive change in the way we make public policy.

 Worst. Presidential. Debate Ever. President Joe Biden and former President have just squared off in the first presidential debate of the 2024 campaign and the rest of the world has watched in slack-jawed horror as democracy’s once “shining city on the hill” hit a new low.

The hyperbole in that introduction may go too far, but I’ve used it to match the tone of what was a remarkable – and remarkably bad – debate. If you want to see how the middle of American politics has broken and the language of extremes and outrage now holds sway, this was a startling piece of evidence. Throughout the night, both candidates reached for ridiculous claims and insults, struggling to answer questions coherently or offer any hope and vision to US voters. Trump was by far the worst offender, engaging claims that went beyond the now all too common cynical spin of modern politics into lies and fantasy; but Biden let himself down as well.

If you believe Trump’s wild and childish claims, military veterans are dying in the streets while illegal immigrants live it up in luxury hotels; military leaders “like me more”; he will end Russia’s invasion of Ukraine between election day and inauguration day, should he win; there was “no terror at all during my administration”; Biden will increase taxes “four times” over; America’s exit of Afghanistan was the country’s “most embarrassing moment” ever; and when he was president America had the cleanest water ever.

Trump’s arguments were one fantasy after another.

Biden, while much more restrained, also threw out whoppers, such as the claim Trump would “get rid of social security” and he’d done “more for veterans than any president in American history”. More of a concern, Biden started sentences he couldn’t finished, lost his train of thought, and looked every one of his 84 years. He shared his concern that Trump’s plan to introduce news tariffs would increase the price of “food, um, and all the things that are important”. At least twice he simply stopped mid-sentence, unable to find the next words. This is a president who has done his country a remarkable service seeing off the worst strongman, anti-democratic tendencies of Trump and his cronies, but we are already seeing reports that tonight’s performance has set off serious discussions amongst his party as to whether he can convince US voters he has four good years left in him.

I can’t help but think back to the eloquence and deep political cut and counter-thrust of debates under presidents such as Obama, Bush Sr, Clinton and others. Even Reagan in his failing later years didn’t struggle with truth and coherence like these two.

If you want to read the fevered temperature of American politics right now, you only have to have seen the minutes spent by the candidates arguing over each other’s golf game. There were whole chunks of the debate when the candidates returned time and again to not only golf swings, but who history will regard as the worst president, who is the worst felon (with Trump falsely suggesting Biden could be charged with crimes whenever he leaves the White House) and who is the biggest loser. Did anyone in previous presidential debates ever imagine a candidate for president – a convicted felon no less – saying “I didn’t have sex with a porn star”? And his opponent saying to him he had “the morals of an alley cat”. That happened today.

Make no mistake, I don’t want to give the impression of any false equivalency. A dishonest president is worse than a tired one. While much of the initial coverage will focus on Biden’s incoherent performance, we should not overlook or accept as normal Trump’s wildly dishonest effort. His lies – and his ego – were as far and wide as America’s great plains. He also meandered off topic and at times looked utterly unhinged.

The rest of the sane world has watched this debate in horror. Because it was a disaster for democracy. We have seen how far it has fallen in the country that claims to be democracy’s greatest champion. We are appalled and scared by what we have seen. That a second Trump presidency would be disastrous for the world is beyond doubt; that the Democrats have the ability to prevent it (something I have until today been very confident of) is now in doubt. This campaign hasn’t even really begun yet. But it is already one like no other, one that raises very real fears for the state of the United States.

Mainstreaming need not be inherently anti-Māori. It will be if it is done badly because it will be anti-those-in need, and proportionally more of them are Māori.

That the Coalition Government says it will deliver public services on the basis of need rather than, say, race deserves consideration, even though many will jump unthinkingly to the conclusion that it is anti-Māori. Such mainstreaming does not cover many issues dear to Māori, such as the promotion of te reo and Māori culture, the status and relevance of Te Tiriti o Waitangi, their role in the governance of the country and remediation of past wrongs. Discussion of these needs to take place, but not in this column, which is a reflection on the policy of mainstreaming.

Not that reflection is common in the dialogue about Māori issues. Statistics New Zealand reported that 19.6 percent of the population counted in the 2023 Population Census said they were of Māori descent. The proportion has increased over time, which is not surprising given that ‘intermarriage’ is common. (The quotation marks are to indicate that the parents are not always married.) Additionally, people learn about forgotten ancestors.

The census does not ask how many of us have European, Asian or Pasifika ancestors. (Its question is for the purpose of calculating Māori seats.) I suspect that if we could work it out, there would be many more New Zealanders with more European ancestors five generations back than with Māori ones.

It was also widely reported that 17.8 percent were of Māori ethnicity, so not all those of Māori descent describe themselves as of Māori ethnicity. Less prominence was given to the 67.8% who said they were of European (or Pakeha) ethnicity or the 17.1% who said they were of Asian ethnicity, 7.1% Pasifika and the 3.0% who said something else. Yes, they add up to more than 100% because people have multiple ethnicities. The cross-tabulations are yet to be published but they are likely to show that over half of those reporting Māori ethnicity also tick European ethnicity.

There is a tendency to report ethnicity on a prioritisation basis. First is all those who say they are Māori including those who tick other categories, then there are those who tick Pasifika but not Māori, as well as the other categories, then Asian on a similar basis, and then only European if they do not tick any other ethnic category as well. The practice can be very misleading. For instance, a high proportion of prisoners are Māori, but some of them – we do not know how many – will have ticked other ethnic categories. (The good news is that the proportion of young Māori who are imprisoned is falling. See here and here.)

All the evidence is that ethnic Māori are a very diverse lot. I add to it, by reporting how they list-voted in the 2020 election. [1] Just over half of Māori descent choose to vote in general rather than Māori electoral seats. They are included in these figures which like all survey results are subject to sampling error):

2020 List voting by Māori.

 (Percent Share of Total)

Labour

63.8

Green

7.7

National

7.5

Te Parti  Māori

6.8

NZF

5.4

ACT

4.0

Other

4.8

We are not surprised that almost two-thirds of Māori voted for Labour (half the country did), but the rankings of the parties below them are intriguing. The Greens were second; National was above TPM. Altogether, around a fifth of Māori voters voted on the right.

(The 2023 electoral data are not available yet and will report different proportions. I had a very rough shot at estimating the numbers. Labour’s share may have collapsed by a third – most, probably, went to TPM who came second behind them. National may have won more votes than the Greens. ACT’s share may have gone down. I’ll let you know when the 2023 data becomes available.)

The voting data confirms all the other evidence. Māori political views are diverse. Yes, there may be less variation within the group than in the population as a whole, but anyone who says they speak on behalf of all Māori is deceiving themselves, while almost all generalisations about all Māori are wrong unless there are caveats (an exception is that Māori are diverse).

That does not mean there are no tendencies. One is that on almost every socio-economic indicator the Māori population averages worse than the non-Māori population. (That is also true for Pasifika.)

That difference is cited to justify targeting public social services to Māori. The logic is not obvious. For instance, Māori are more likely to be poor than non-Māori. But there are more non-Māori who are poor. Poverty measures which target Māori may support Māori who are not poor (there are more of them than those who are poor) and fail to address the non-Māori poor who are worse off than the average poor Māori.

There is the logic of the Coalition Government’s mainstreaming policies. They have much in their favour but there are caveats. The biggest is whether the government policies will actually address the need rather than just offer pious promises.

or example, the Coalition Government mainstreamed Māori healthcare by abolishing the Māori Health Authority, Te Aka Whai Ora. The public disliked the institution; there was little enthusiasm for it even among Labour Party voters. Perhaps it was a lightning rod for the dislike of the health sector redisorganisation, which abolished the local DHBs replacing them with the centralised Health New Zealand. But the Coalition Government seems to have no idea what it was going to do instead.

Simple mainstreaming does not work if one group in the community is sufficiently different to require different delivery. For instance, those living in rural areas may have difficulty accessing the services that urban dwellers do. What if some Māori feel intimidated by what they see as Pakeha-dominated institutions? That may not be just a Māori problem; it may be that all those with low educational attainment find our medical institutions overwhelming. The Māori middle class may approach a hospital with the same confidence as Pakeha middle class do.

One sort of argument is that Māori poverty arises from different causes. There is a trope that Māori poverty is the result of ‘colonialism’. Whenever I have followed the argument, I have foundered on what ‘colonialism’ means and how it works its way through to lower incomes. I find the term is rarely defined and its meaning can shift from article to article, chapter to chapter, page to page, even sentence to sentence.

I am not unsympathetic to the notion of colonialism as a way of explaining the history of the first peoples. Unquestionably, they were disturbed by the later arrivals. But we need to be clearer.

For instance, the Musket Wars were very disruptive – almost certainly causing poverty to some – to Māoridom, but there were few Europeans in the country at the time. As the name of the wars indicates, the intruders were the guns. Was that colonial?

The New Zealand Wars led to land confiscations – there were fewer than we remember, but it was the best quality land. However, I attribute more damage to the 1865 Native Lands Act and its successors which aimed to individualise land ownership. Not only did they forcibly reduce Māori possession of land, which was the basis of traditional Māori social organisation, but they led to conflict among and within hapu and iwi, which further undermined Māori social organisations. The individualisation would have happened anyway, but it would have been less destructive if it had been at pace determined by Māori.

The Māori economy largely thrived before 1870s. It began spluttering not only because of the loss of land, but because most Māori were living on land which was unsuitable for sheep, when wool and (later) frozen meat were the economic drivers of New Zealand. John Gould’s observation of different average incomes by iwi is explained by observing that higher-income Kai Tahu benefited from the sheep boom because the South Island soils were not compromised. The slogan that colonisation caused poverty implies there was less colonisation in the south.

For the next hundred years, most Māori struggled in rural areas with poorer public services in areas as wide ranging as education and health and infrastructure. They were very badly prepared for their urban migration which accelerated after 1950, having rural rather than urban skills and lacking capital resources. Their poverty became apparent.

Whether the account in the last few paragraphs can be summarised as ‘colonisation’, I leave others to develop. They identify key elements as to why many Māori are poorer today. The story is elaborated in my Not In Narrow Seas and some of my other writings. (e.g. here and here.) It concludes that the Māori poor lack educational, occupational and social skills, as do the non-Māori poor. A colonisation explanation explains poverty for only a quarter of the population – a little more if it is extended to Pasifika. It is neither a comprehensive account of why poverty exists in Aotearoa New Zealand nor does it provide a diagnosis for its treatment.

We cannot rule out that mainstreaming is a viable policy for supplying public services, providing it is culturally and socially sensitive. It need not be inherently anti-Māori, but it will be if it is done badly without commitment, because it will be anti-those-in-need, and proportionally more of them are Māori.

[1] The results are based upon data specially by Jack Vowles. It comes from the 2020 survey of the New Zealand Election Study research program. The surveyed numbers are small – just over 1000 – and subject to error – about as large as the standard political opinion poll. Thankyou, Jack.

What does Budget 2024 tell us about the current government? Muddle on?

Coalition governments are not new. About 50 percent of the time since the first MMP election, there has been a minority government, usually with allied parties holding ministerial portfolios outside cabinets. For 10 percent of the time there was a majority government and for the remaining 40 percent it has been a coalition government. Even a coalition of three parties is not entirely new. The last term of the Clark-Cullen Government involved three – even four – parties although there were only two in the cabinet with the others holding portfolios outside.

Even so, the Luxon-led one of three parties in the same cabinet is unusual (although every government is unusual). It involves three parties, two of which – ACT and NZF – are strongly ideologically opposed. Winston Peters, from the centre-right of the National Party has explicitly said he wants to stop neoliberalism; David Seymour, on the Party’s extreme neoliberal right, has been only a little more diplomatic about NZF.

Others will write of the resulting political tensions, but as someone who writes about the government’s economic and other policies, I have to take into consideration ideological positions.

While the differences are evident in the way the parties are handling their individual portfolio, the annual budget is a whole-of-government operation which has practical consequences and is not just ethereal aspirations.

So I was hoping that Budget 2024 might shed some light on the political tensions between the wing parties and also those within the National caucus, which contains economics predilections of both the centre right and the neoliberal kind.

To my surprise, the tensions were not that evident in budget. Both ACT and NZF had big expenditure outlays and both seem to have agreed on the government spending cuts but preferably not in the portfolios they hold (although who knows what one day may be leaked to the parliamentary gossips). Both supported mild tax cuts – and some tax hikes – and an increase in government borrowing. Neither seem to have vetoed the other’s ambitions (ACT did want a different tax regime from National’s, but the Minister of Finance pointed out the proposal was impractical given the budget financing constraints.)

There are economic policy commonalities. All three parties are committed to spending big on law and order. The impression is they are all less committed to environmental protection and addressing climate change. (I don’t think they are predominately deniers; climate change mitigation is just low among their priorities.)

They are also agreed on ‘mainstreaming’ policy towards Māori socio-economic disability. To summarise, they are not denying there are serious health and poverty problems among many Māori. But they recognise there is similar distress among non-Māori and there are, numerically but not proportionally, more non-Māori suffering it. (A caveat is that the Pasifika proportions are similar to Māori ones.)

Mainstreaming targets all the distress irrespective of ethnicity rather than prioritising Māori and paying less attention to non-Māori. It is a strategy which deserves exploring but that requires more space than is available in this column.

I do not know where these inequality and poverty issues rank in the Coalition priority list. One journalist flummoxed the poverty issue during the budget lockdown by pointing out to the Minister of Finance that the (rather thin) child poverty report predicted there would be no reductions in child poverty in the next few years. (We are drifting further and further away from the targets set in the aspirational 2018 Child Poverty Reduction Act.) The Minister replied that the budget was increasing the incomes of families further up the distribution. The journalist – perhaps because he did not know enough – did not follow up with the obvious point that if incomes were rising in the middle but not at the bottom then inequality was increasing. Was that the government’s intentions? We have no idea how the Minister might have responded. Perhaps she would have smilingly flannelled.

We are left wondering what the Coalition Government’s strategy towards inequality will be. Neoliberal thinking does not focus on it. The centre-right gives it some significance – hence the interest in social investment (that is another column too). Inequality did not figure strongly in the Key-English Government’s thinking, although it did give additional support to families. However, by indexing social security benefits to prices and not to wages or general incomes – a policy which has just been reinstated – income inequality grew a little during its time. My guess is that this government will be much the same; certainly, it will pursue the reduction of child poverty even less vigorously than the Ardern-Hipkins Government did.

The big difference between the economic stances of the two flank parties is illustrated by the $1.2b set aside over three years for Shane Jones’s Regional Infrastructure Fund, while David Seymour has $47m over four years for his Ministry of Regulation. (In contrast, National got $5m for one year to establish a National Infrastructure Agency.)

Each was a part of a coalition agreement but they reflect quite different visions of how to run the economy. The NZF initiative comes from the highly interventionist approach which dominated economic policy in the first four decades after the Second World War. The ACT approach is an extension of the anti-interventionist approach which Roger Douglas and Ruth Richardson instigated and which has dominated economic policy in a milder form since.

I am not sure how the two approaches will be reconciled and I suspect that neither Chris Luxon nor Nicola Willis know either. Seymour will not have a lot of firepower against Jones until he has an operational ministry advising him. Perhaps the first great political conflict will be resolving the detailed powers in the Fast Track Approvals Bill, which currently gives considerable power to ministers in the great interventionist policy tradition.

Deeper, there may be a commonality in that both parties are prioritising GDP growth and profit (which is a signal for it) over wellbeing and sustainability. (This is a pro-business coalition.) Whether that reflects the majority of the public I cannot say, nor whether the strategy will be successful in the long run.

In the short run we are seeing the Coalition Government announcing much new policy as on-the-hoof response to political pressures and its mistakes. It is a muddle-on strategy, isn’t it? Much like Budget 2024. Promises were made in opposition. Some were quickly implemented in the first hundred days, not always mindful of the long-term implications. Those implications are beginning to shape the Coalition Government, rather than it leading the shaping.

There was no less razzamatazz about the 2024 Budget than about earlier ones. Once again the underlying economic analysis got lost. It deserves more attention.

Just to remind you, the Budget Economic and Fiscal Update (BEFU), is the Treasury’s independent assessment and so can be analysed by other competent economists (although they may disagree with the underlying assumptions).

Moreover, the Treasury economists will be keen to get their forecasts right. Their changes between the September 2023 Pre-election Economic and Fiscal Update (PREFU) and the May 2024  BEFU are the consequence of new evidence, not a change of political leadership. If the new minister gives a direction – as Nicola Willis did over the debt target – the Treasury reports the change and provides sufficient information for the analyst to trace its effect. In summary, EFUs are not politicians’ documents, but professional economists’ ones.

I am going to compare the May 2024 BEFU with the September 2023 PREFU because the earlier forecast is what the National Opposition had when it made the political commitments that have shaped their economic policy decisions in government. (Treasury always provides detailed comparisons with its previous forecast; in this case the December 2023 Half Year EFU (HYEFU).)

As reported in an earlier column, there had been much bad economics news coming in. That is reflected in the revising of the economic forecasts. PREFU23 expected a stagnation in the economy from (June year) 2023 to the middle of 2025. The Treasury forecast in BEFU24 rolls that trend out another 18 odd months to end 2026. The politically alert will observe that that means the Coalition Government is expected to be in charge of a stagnating economy for its entire first term. (In my judgement this is not particularly the fault of this government nor of the previous one.)

Let me tell you a secret about economic forecasters. They sweat to get their forecasts of the next six or so quarters as right as they can. Further out, they relax a little and tend to be more optimistic than perhaps is warranted. We all do. Pressed, I think we’d say something like, ‘the forecasting fan is getting wide the further out we go. There are so many uncertainties. So don’t take the forecast precisely; it is there to help you think about the future’. I would add ‘yep probably we are too optimistic – that is the human condition’. The EFUs offer upside and downside alternative forecasts; I take more notice of the downsides.

BEFU24 nicely illustrates this with the discussion on its productivity assumptions. I remember looking at an earlier EFU and thinking the productivity growth assumptions seemed high. There has been hardly any growth for ten years, although the Covid era data jumps around a bit. BEFU23 assumed that productivity growth would return to the growing pre-2012 trend. I wondered what Treasury knew that I didn’t.

The productivity trend does not affect short-term forecasts too much but it matters increasingly further out. Since the BEFU23 forecast productivity has remained stagnant. In response BEFU24 has a productivity track more like the stagnation of the last decade. The one-page discussion is worth reading because it probably summarises a vigorous internal discussion. (Good on Treasury for having one.) The lowering of the productivity track adds to the gloomy prognosis.

A key purpose for Treasury forecasts is to get a good estimate of tax revenue which affects the size of the government deficit and the borrowing program. The poorer expected performance of the economy between PREFU23 and BEFU24 lowered expected tax revenue by about 3 percent or $16.6b in the four years from 2023/4 to 2026/7.

The Coalition Government’s tax changes reduced revenue by another $7.6b (net). The bulk of those reductions represented promises made in opposition when PREFU23 reflected the understanding of the economy. So the incoming government faced a far bigger challenge than it expected, especially as the new Minister of Finance promised to resign if she did not implement her promised income tax cuts.

She said that she would fund them without increased borrowing. Not true. PREFU23 forecast net debt at $190b in June 2027. The BEFU24 forecast is $205b. Some of the loss of revenue has been clawed back by cutting government spending, but the net debt is $15b higher.  It is arithmetically reasonable to say that the tax cuts are paid for from additional borrowing.

The Minister presented a table which purported to show that her tax cuts are not being funded by higher borrowing. For an accountant the tabulation is specious because it divides the financial transactions into separate accounts. It’s a bit like saying ‘I’ve paid for the overseas trip out of household income, but I’ve had to borrow to pay for the groceries’.

There amounts to a further accounting trick to keep the projected borrowing down. A private-sector forecaster will try to assess further future expenditure such as election promises not yet implemented (such as the expenditure on cancer drugs), spending to meet the unexpected (such as damage from natural catastrophes) and the effect of new and revised policy development (I would be making an allowance for the likelihood of some expenditure cuts becoming unstuck; I shan’t be surprised if they discover implementing their ‘social investment’ proposals proves very expensive in the short term).

The Treasury forecasts only future spending which has been agreed by cabinet. However, it includes a contingency ‘operating allowance’ for potential spending. It amounted to $9.75b for the three years to 2026/7 in PREFU23 but only $7.2b in BEFU24. That reduces the projected June 2027 debt level by over $2.5b.

Treasury is nervous about the projected operating allowance, warning that it will be difficult to keep within the allocated amount. The Minister’s response is that she will be making more spending cuts. They will add to the pain of the last round of cuts and while smaller will in some ways be harder, since the easier ones have been made.

In summary, the Coalition Government has already used up what first-term room it had in the economy. Its tax cuts amount to a free cup of coffee once a fortnight to a Superannuitant. Free beer will have to wait until after the 2026 election. The politics of BEFU24’s economic strategy belongs to the next column.

How to run a successful pressure group.

In 2013 a group of idealists, led by Jordan Williams and David Farrar, established the Taxpayers’ Union. To celebrate its first decade as surely New Zealand’s most successful political pressure group NZTU published The Mission: The Taxpayers Union at 10, ten short interviews (by David Cohen) of people associated with the group with a foreword by Bill English.

The NZTU describes its mission as:

‘seek[ing] lower taxes and value for money from every tax dollar.

            We promote sensible restraint of government expenditure by:

            Scrutinising government spending;

            Publicising government waste;

            Arguing for an end to corporate and union welfare; and

            Promoting an efficient tax system.’

It has had numerous successful campaigns. National cabinet minister Hekia Parata, knocked back a proposal from her officials saying, ‘I can’t approve this spending – what if the Taxpayers’ Union found out?’ Certainly the NZTU has identified many expenditure programs of both National and Labour Government which seemed wasteful (or worse).

Its reach has been even greater. There are alumni of the NZTU throughout the current government including New Zealand First cabinet minister Casey Costello, who was a chairperson and board member. (She was also a joint founder of Hobson’s Choice.) The son of the NZTU’s first chairperson is Chris Bishop, a senior cabinet minister. The prime minister’s office includes an economic adviser who previously worked for the NZTU. The list can go on. (It has interns, typically university students, who go into political activities elsewhere.)

By New Zealand standards it is a big pressure-group organisation. Williams described the NZTU as having ‘18 on the union’s payroll’. It must be an expensive operation. You will recall that during the month-or-so 2020 Covid lockdown the NZTU accepted a $60,000-plus wage subsidy from the government because donations had fallen off. It explained that ‘we have stated on the record that we would never accept taxpayer funding’. They reversed their position, because they believed ‘the welfare of our employees to be a more pressing immediate concern than ideological purity’. Good that staff wellbeing was more important than ideological purity – the approach of pragmatic social democracy. (The grant was repaid so it became in effect an interest-free loan, which the NZTU does not approve of either.)

It says the major source of its funding is from members’ donations, claiming 200,000 members which may be more than the membership of all the political parties together. (National last had 200,000 members in 1980; the trade union movement has about 400,000 members.) The annual subscription is $25 but it receives larger donations. (The book mentions a $15,000 one.) The NZTU claims corporate donations are tiny but is a bit fuzzy about contra-deals where business interests provide free services – such as the expenses of going to an overseas conference where NZTU and the business interests align.

Economics has an elaborate theory of taxation which seems to have passed it by. For instance, its position to reduce tobacco excise is crude. (Why is it not more vigorous over alcohol excise?) There is an economic case based on a particular ethical framework that it is too high – you may not agree with it – but there is no hint the NZTU is aware of the case. Admittedly, its simple message has more impact in the public arena. As a general rule its public relations have been impressive.

In contrast, the (neoliberal) New Zealand Initiative has much more economic firepower (although you may not agree with how it is applied). There is not much in the book about the two organisations’ relationship, except a mention of NZI as a corporate-funded equivalent. In contrast, the NZTU is open about having formed the Free Speech Union which has an office next door.

Where does it sit on the political spectrum? Clearly it is on the right and there are hints of an alignment with National, although it feels free to criticise National Governments – Bill English winces when he relates some of the complaints when he was a minister.

My initial response on reading the book was that it was presenting itself on the pragmatic political centre-right. However, on the four-member board there is Ruth Richardson, John Boscawen a former ACT deputy leader, and Chris Milne, a former ACT Party Parliamentary Chief of Staff. The NZTU does not appear to produce reports – it campaigns. But the podcasts in its ‘taxpayer talk’ are dominated by neoliberals. I leave you to judge to what extent the pressure group is a front for ACT and its ideology.

Whatever, it is a very successful pressure group and its message dominates public policy. The recent Labour Government was unwilling to challenge it by introducing new taxes, even if they were popular in the party. On the other hand that government appears to have presided over much wasteful expenditure, not least indicated by most government departments having found it relatively easy to make major spending cuts. Seeking out that waste has been a key element in giving the NZTU so much public authority.

The NZTU’s low-taxation logic leads to advocating a minimalist welfare state, thereby rejecting the welfare state conceived by the First Labour Government. Not surprisingly, it objected strongly to Labour’s proposed unemployment insurance scheme, development of which was withdrawn because of public pressure.

In contrast, the equivalent pressure groups on the left are hardly effective. In terms of the public debate, it’s a no contest. The Helen Clark Foundation seems uninterested in economic policy. (Perhaps there should also be a Michael Cullen Foundation.) There is a Fabian Society which provides lectures but has no paid secretariat. As far as I know, neither has codified their rather woolly objectives into a program as concrete as the NZTU’s. (There is a bit of economic firepower at the NZCTU.)

The level of taxation determines the balance between the public and private sectors. The NZTU favours a smaller public one and a larger private one. That is a policy choice. I’m not sure that it is the majority of the public’s choice. The NZTU may have won policy minds but has it won the public’s hearts?

This column eschews instant commentary. The next one will discuss the 2024 budget.

What you see is what you get. Mostly.

For all the coalition haggling, culture wars and “let me be clear” obfuscation we’ve seen in the first six months of this government, National has delivered a very National budget. It’s not so much the axe being swung in this budget as the pendulum – the centre-right is back in charge and is getting on with its core business – shrinking the size of government.

National has – as promised – knelt before its one true god – tax cuts. By changing tax thresholds, National has reduced personal income tax of the first time since 2010. A whopping $14.7 billion is going into tax cuts over four years, almost exactly the $14.6b Nicola Willis said it would cost during the Election 2023 campaign. The main change of tack we’ve known about since the coalition agreements were signed; a foreign buyers’ tax isn’t being introduced to help pay for the cuts. It was always a mythology anyway. Instead, cuts have been made – “savings” and “reprioritisations” if you prefer the government’s language – to deliver on National’s promise. And will borrow more.

Willis promised an operating allowance of $3.2b, lower than Labour’s promised $3.5b. She delivered it, relishing the fact it’s the lowest in real terms since 2017. She noted that in 2023 Labour’s operating allowance had reached $4.8b. For this government, size matters. The smaller the better.

What little new money there is, goes to health (more security, maintaining hospitals), education (more buildings) and law and order (more police, more pay), although most of that will do little more than maintain the status quo.

There are no surprises and little sleight of hand here. (We’ll get to that bits there are later). The good news for democracy is that New Zealanders will wake up the morning after Budget day to knowledge they will get almost exactly what they expected when they woke up the morning after Election day; which is the agenda the majority of New Zealanders voted for.

The political question is, now that National’s laser-like focus on tax has been delivered, will voters like what they’ve got? And what they’ve given up to get it. And what’s not on the list. Sometimes, the promise that’s delivered is not the promise that delights.

The harsh reality for the government is that voters have already psychologically banked their tax cut, well before they bank the actual cash. There will be little excitement – or poll movement – for a National government delivering tax cuts. It’s like summer sun or winter rain – just to be expected.

What’s likely to be more front of mind for many is that the government’s way of easing the cost of living pressure comes at the expense of other ways of easing the cost of living pressure. The subsidised bus fares, increases to benefits by indexing payments to wages rather than inflation, plans to increase the smoking age and ban smoking for future generations, free prescriptions, first year fees-free for students (moving to final year free), the clean car discount and so on.

Today, you can toss in cuts to the Human Rights Commission, NZ Symphony Orchestra, and the Warmer Kiwi Homes scheme. They’re all trimmed to pay for your holy tax cut.

What’s missing? How about plans to help GPs whose funding formulas mean many are barely hanging on? More state houses? Given that last year’s PREFU said any economic growth will largely be based on immigration growth and we already have an infrastructure deficit estimated at more than $200b, how about a serious commitment to infrastructure spending? The two big items in this year’s infrastructure budget are more roads and a new prison. Is that enough to prepare us for a rapidly changing climate, ageing population and record numbers of new New Zealanders?

But the bitterest of political pills is National’s failure to meet its promise of $70m in Pharmac funding for 13 new cancer drugs. This is what New Zealanders will remember in a week’s time, when the numbers and spin have faded. The stories of Kiwis who will die because of a broken promise will be brutal.

Place that alongside the changes to smoking and benefit policies and the government has made it very easy for Opposition parties to argue it is the most vulnerable who are paying for these tax cuts. When the government has also chosen to stick with its near $3b boost to landlords with the return of interest deductibility on rental properties, National has delivered a fiscal plan that is exactly what it promised, but also exactly what Opposition parties will have hoped for. Labour and co gets to shake its head sadly over the next year and say, ‘we warned you. The poor subsidising the rich, how predictably National’.

What’s more, National has – in what will be the most discomfiting move for its MPs and party members and is the other dirty – committed to a $12b increase in borrowing over the next four years. Willis insists she’s not borrowing to pay for tax cuts, because that’s at odds with her promise to return the government to fiscal discipline. But the truth is that the government couldn’t afford the tax cuts delivered today without BOTH cuts and borrowing.  

So the bottom-line for Budget 2024 is that National (to ACT’s delight) has shrunk the government’s bottom-line. But here’s the real news from Budget 2024, and it’s all about Budget 2025 and 2026. After this year, the moderating influences of an election campaign fade into the rearview mirror. Prime Minister Christopher Luxon has called today’s budget a “careful budget”. But after this year, he’s not promising to be so careful. The shrinking government will continue to shrink over the rest of the term; down to what RNZ’s Business Editor Gyles Beckford called its “barest of bare bones”.

The government’s spending allowance for the next two years is a mere $2.4b a year. Half what Labour spent in 2023. And roughly half of that is already committed to health. The room for new spending, new programmes and ideas, or dealing with emergencies, is almost non-existent. This government is promising the status quo, but no more. What you see is what you’re going to keep getting. Or less.

And if you’re tempted to shrug and say Willis will spend more when the pressure comes on, remember how determinedly she has kept her promises this year. And hear her when she said of those $2.4b allowances, “we intend to stick to them”. Government cuts, she says, will be “business as usual”.

Willis is betting on a growing private sector to pick up the slack as the government withdraws. That just like the 2010s, house prices and immigration will be enough to satisfy voters as the government does less. The pendulum has swung, the era of the shrinking government is back and has only just begun.

The 2018 Social Security Act suggests that Labour may have retreated to the minimalist (neo-liberal) welfare state which has developed out of the Richardson-Shipley ‘redesign’.

One wonders what Michael Joseph Savage, Peter Fraser and Walter Nash would have thought of the Social Security Act passed by the Ardern Labour Government in 2018. Its principles were set out as

Every person performing or exercising a duty, function, or power under this Act must have regard to the following general principles:

(a) work in paid employment offers the best opportunity for people to achieve social and economic well-being:

(b) the priority for people of working age should be to find and retain work:

(c) people for whom work may not currently be an appropriate outcome should be assisted to prepare for work in the future and develop employment-focused skills:

(d) people for whom work is not appropriate should be supported in accordance with this Act.

This has a quite different focus from the act Labour passed in 1938 which began:

An act to provide for the payment of superannuation benefits and of other benefits designed to safeguard the people of New Zealand from disabilities arising from age, sickness, widowhood, orphanhood, unemployment, or other exceptional conditions; (I have omitted the provisions for healthcare).

There is a redirection in the purpose of the system described by the 2018 Act from safeguarding those with disability to prioritising paid work as the social norm.

Eighty years ago, statutes did not include general principles. The 1972 (McCarthy) Royal Commission on Social Security codified the principles of the existing social security system, the first of which was:

The community is responsible for giving dependent people a standard of living consistent with human dignity and approaching that enjoyed by the majority, irrespective of the cause of dependency. We believe, further, that the community responsibility should be discharged in a way which does not stifle personal initiative, nor unduly hinder anyone trying to preserve or even enhance living standards on retirement or during times of temporary disability.

I can find no such sentiment in the 2018 Act, which is in many ways a manual for those administering a very different system. (It is over five times as long as the 1938 Act which also covered retirement and health benefits.)

Admittedly things have changed since the 1972 Royal Commission, including higher evident unemployment and women are more likely to be in the paid workforce. (The changes are detailed in my Not in Narrow Seas, Chapter 39.) However, that is not a justification for abandoning the principles which Savage, Fraser and Nash would have applauded. Rather, the challenge was to apply those principles to the new circumstances.

Governments since the 1972 Royal Commission have largely abandoned the challenge. Indeed the Richardson-Shipley ‘redesign of the welfare state’ replaced the 1938 approach with a minimalist neoliberal one of an American-style welfare state instead of the more European social democratic approach which the Royal Commission accepted and where once New Zealand led the world as Lord Beveridge (of the British Beveridge Report – the foundation of their welfare state) once acknowledged. 

And so the prioritisation of work as the foundation of social security followed. It was the Clark-Cullen Labour Government which introduced the work focus into the Social Security Act in 2007. It was applied by Minister Paula Bennett under the Key-English National Government.  

The 2018 Act itself was enacted by a Labour Government (minister Carmel Sepoloni) in effect endorsing the 1990 redesign of the welfare state and abandoning the system which Labour was once so proud. Yes, the Ardern-Hipkins Government administered the system more generously and fiddled around at its edges but it adopted the underlying framework, just as in 1949 the first Holland-Holyoake National Government adopted the preceding Labour Government’s 1938 framework. (When the statute was being passed in 1938, Sid Holland had described it as ‘applied lunacy’ responding to Savage’s ‘applied Christianity’ – I suppose Christianity is out of fashion today.)

So the Arden-Hipkins Government and its advisers  accepted the neo-liberal framework. Was that by default because they had no alternative? One acknowledges that their proposed Social Unemployment Insurance scheme was a more European-style approach to welfare. Its critics included advisers to Labour’s social welfare minister and it was abandoned by the Hipkins ‘policy bonfire’ of February 2023. (My objection was that it was poorly articulated with the existing social security system; a proper articulation would have shifted the system away from the minimalist welfare state approach. I was told those implementing the scheme thought the challenge of the integration was too great.)

This is but one example of the reluctance of the Ardern-Hipkins Labour Government to challenge the neoliberal framework it inherited (although it did in some areas). Given that the 1938 Social Security Act is usually seen as one of the greatest achievements by any New Zealand Labour Government, the reluctance illustrates how far Labour has shifted in the eighty-odd years. Savage, Fraser, Nash and a host of their colleagues must be wondering what has gone on.