Week in Review

What another 1989-style rewrite would look like

A generation of baby-boomer leaders revolted at Robert Muldoon's conservatism and rewrote the nation's software in 1989. So what should Gen X/Y/Zers do if they win power in the next decade? Bernard Hickey argues they should give the Infrastructure and Climate Change Commissions Reserve Bank-like independence and tools to target housing affordability and carbon zero by 2050.

It struck me listening to all the commentary about former Prime Minister Mike Moore that he was part of an extraordinary generation of leaders that completely changed New Zealand in the decade after they deposed Robert Muldoon (born 1921) from his elected dictatorship in 1984.

With David Lange (born 1942), Roger Douglas (born 1937) and Michael Bassett (born 1938), Moore (born 1949) was part of the now famous 'fish and chip brigade' of young Labour MPs that that drove the reforms from 1984 to 1990. The famous photo shows them in cahoots in 1980 as relatively junior Opposition MPs after Lange's first failed attempt to roll then-Labour Leader Bill Rowling (born 1927), who was also from the generation born before World War Two and shaped by the conservatism of the 1950s and 1960s. Rowling opposed homosexual law reform.

The likes of Geoffrey Palmer (born 1942), David Caygill (born 1948) and Richard Prebble (born 1948) may not have been in the photo, but were just as involved in rewriting the laws to float the currency, give the Reserve Bank independence (1989), reform the civil service via the State Sector Act (1988) and Public Finance Act (1989), enact the Local Government Reforms of 1989, and begin state asset sales. They also began the process of creating the Resource Management Act.

All of these core pieces of societal software were either passed or started operating in 1989, and largely still exist. 1989 was year zero in many ways for modern New Zealand. It was also the year tax laws were changed to (accidentally) discourage long term pension investment in businesses and encourage housing investment. (See more in my 2017 piece on Newsroom)

It was a cross-party effort

Young National MPs Ruth Richardson (born 1950), Jenny Shipley (born 1952) and the likes of Simon Upton (born 1958) then picked up the baton and ran with it until voters reacted so badly they almost turfed out National in 1993 (ironically to a Moore-led Labour Party that then kicked him out shortly after the election). National's young guns were able to slash and toughen the social safety net, bring in the Fiscal Responsibility Act (1994) and enact the RMA (1991). That 1993 election was also the moment, accidentally, when this new software of the nation was mostly frozen in place by the change to a MMP voting system. It made the Muldoon or Lange-Douglas style elected dictatorships and quick and massive reforms very difficult after it was first used in the 1996 election.

Essentially, the move to MMP was a political response to New Zealand's constitutional flaws of not having institutional checks and balances in the form of an upper house, strong local Government and a Supreme Court with power.

Voters never wanted another massive swing in policies or a massively-powerful Prime Minister ever again. 

But the irony and tragedy was that the act of bringing in MMP froze in place the very policies they objected to. The proof is that policy change since then has been incremental at best and the cornerstones of the 1989 rewrite (the RBNZ Act, the State Sector Act, the Public Finance Act, the RMA and the Fiscal Responsibility Act) are still largely or completely in place.

That young brigade of politicians born after World War Two and reaching their 30s and 40s in the 1980s had a window of opportunity before MMP when a strong Prime Minister and Finance Minister (one and the same person in the case of Muldoon) could rewrite the laws, thanks in part to a massive youth-driven backlash to the post-war generation of leaders that included Holyoake (born 1904), Muldoon and Rowling. Mostly, it was an anti-Muldoonism backlash.

For much of the last 30 years, the phrases 'Muldoonism' and 'Think Big' were shorthand insults that described what should never be repeated. It was a shorthand to say Government should be much smaller, taxes much lower, public debt low-to-non-existent, beneficiaries more subservient, state investment much lower, and the economy and society much freer and diverse.

These were the shibboleths of the 1989 generation of leaders and their legislation, and they're largely still in place today in the assumptions underpinning how the bureaucracies, universities, local government, opinion leaders and both major political parties operate. The recent 'debate' over Labour's net debt target range of 15-25 percent is the proof of it, so much so that Finance Minister Grant Robertson and Prime Minister Jacinda Ardern believed the promise was necessary as a core electoral hygiene measure to convince a majority of voters a Labour-led Government could govern responsibly. It still is. Robertson has said Labour will probably keep the 15-25 percent as a core target for a second term.

Where's the next generation?

So where is today's 'Fish and Chip brigade' as that baby-boomer generation retires and passes on? And what should (or could) they do with that power?

It's not unthinkable that a new generation of voters could put in place a younger set of leaders able to rewrite the nation's software again, in reaction to the clear failures of the leaders of the last 30 years on housing affordability, wealth inequality and climate change.

It's more difficult under MMP, but still possible. A quick look at the demographics of the voting age population shows Generations X,Y and Z will overwhelm the baby boomers in the decade from 2023 to 2033 as some of the boomers die and the surprisingly young population of subsequent mini baby booms over the last 20 years ripple through the voting figures.

This Electoral Commission chart shows the potential number of voters and the number of enrolled voters by age cohort. If those generations aged 18 to 39 now were able to enrol and vote at the same rates as those aged over 50 then they should be able to control the Government in the late 2020s.

So what would alt-control-delete look like?

The leaders of the current Labour-led coalition supported by The Greens would say they are doing that 'rewrite' now with the creation of the Zero Carbon Act and proposed amendments to the Reserve Bank Act, the State Sector Act, the Public Finance Act and the Resource Management Act.

Jacinda Ardern (born 1980), Grant Robertson (born 1971) and James Shaw (born 1973) argued at the last election they would be the generation to transform New Zealand again. Instead, their coalition partner hewed to the conservative line and blocked reforms of the Capital Gains Tax and looks set to do the same RMA reform. New Zealand First leader Winston Peters (born 1945) also gutted the powers of the Climate Commission and has helped hoard the powers an Infrastructure Commission could use in the hands of Infrastructure Minister Shane Jones and the rest of the Cabinet.

But the political mathematics of MMP and the legacy of the boomer politicians still in charge of many of the instruments of power and the balance of power means the reforms are incremental at best. The Zero Carbon Act itself does not change a single setting in the policy apparatus that would reduce climate emissions. All it does is create a group of advisors who will then have to depend on the Government and Parliament to create new tools and twist the dials on those tools.

The Reserve Bank reforms enshrine its independence and, in theory, create a new full employment aim, but a close reading shows the employment aim is vague and ultimately only designed as an adjunct to the 1-3 percent inflation target: that remains primal. The Public Finance Act reforms are yet to be revealed in detail (see Grant Robertson's initial views here in my July 30 report from last year) but no one on either side of politics or within the bureaucracies are suggesting significant change. The proof of that is in Robertson's belief that the 15-25 percent debt target is paramount.

The State Sector Act reforms are also designed to reverse some of the silo-isation of the public service and improve the quality of advice, but little is changing. The creation of the Infrastructure Commission is a similar exercise to the Zero Carbon Act: the appearance of action and direction with few tools to actually use and the ultimate decision still resting in the hands of the cabinet controlled by the Prime Minister and in control of Parliament, as long as the minor parties agree to the reform.

The primacy of this median-voter-driven politics and a 'no surprises' culture that drives a risk-averse approach to ministerial advice and the operation of ministries is rock solid, on both sides of politics. Ministers still essentially get to choose ministerial heads of department and crown entity board members. Political advisors are spreading well beyond the Beehive, which is jam-packed full of party careerists. The State Services Commission may say otherwise, but the amount of nodding and winking going on is one (small) reason why Wellington is the windiest capitals in the world.

Big reforms ironed out of policy advice

Policy advice is limited to the political do-able options, rather that what would achieve the desired outcome in the long run. Fear that an options paper going to Cabinet with a 'radical' option might appear in the media and spook the median voter is enough to chill the advice going to ministers, particularly when ambitious advisers know that it is the ministers and their underlings who will eventually decide who gets the top jobs at the ministries and crown entities.

So what could the new generation do if was in control? One idea would be to copy the tactics of the 1989 generation by wresting control of the main levels of power away from politicians hugging the centre line.

The core issues are housing affordability and climate change.

So why don't the Infrastructure and Climate Change Commissions have Reserve Bank-like powers to target key societal variables that politicians and politics have proven unable to achieve? My understanding is the Greens proposed such a measure but were over-ruled by New Zealand First.

What a big rewrite would look like

New Zealand took the power to control the economy off politicians in 1989 when it gave the Reserve Bank independence and a target it was responsible for: the 1-3 percent inflation target.

They were responses to a collective view that New Zealand's post war leaders and governmental architecture put too high a priority on high taxes, big infrastructure, trade and economic controls and 'Big Government'.

The shocks of the 1984 constitutional crisis around the change of Government, the devaluation of the New Zealand dollar and near-bankruptcy of the Government led to the deregulation and refocus of the Government (of both colours) on debt reduction, low taxes, reducing and then containing the size of Government, and giving consumers and property owners more freedom to import, consume, borrow and block developments.

Alt. Control. Delete

A generation chose to radically rewrite the software of New Zealand, for better and for worse. It created a much more diverse, creative and collectively richer society, but one plagued with the worst housing affordability crisis in the world, much more wealth and income inequality than 1984 and a climate change challenge that has yet to be substantially addressed.

But did it work?

The focus on low taxes, skimpy investment in infrastructure, user-pays thinking and the primacy of the individual and the short term over the interests of the state and the long term has left us with hundreds of thousands of kids in poverty, a housing shortage estimated at up to 200,000 homes, an infrastructure deficit estimated at up to $300b and a climate emissions reduction task that is impossible with the current settings.

A carbon price just like an Official Cash Rate

Thirty-one years on, the country could have used the creation of the Climate Change Commission and the Infrastructure Commission to acknowledge these problems and take the long-term decisions out of the hands of politicians and the three-year electoral cycle.

That would have involved giving the commissions clear targets and control over tools to achieve those targets.

For example, the Infrastructure Commission could control the balance sheets of NZTA and Kāinga Ora in a way that allows them to borrow and build to achieve targets such as carbon zero by 2050 and housing costs of around 30 percent of disposable income for the bottom quintile of households under the age of 65.

A guide: Bryan Perry's Household Incomes report for 2019 found that more than 40 percent of bottom quintile households by income were spending more than 50 percent of their disposable income on housing costs. That is quadruple the levels from before 1989.

One target could be to return to those pre-1989 levels for housing costs as a percentage of disposable income.

And for the Climate Commission?

Another set of tools could be used by the Commissions working in tandem to hit zero carbon by 2050, including controlling a carbon price in the same way the Reserve Bank controls the Official Cash Rate, and controlling emissions standards and import regulations for petrol and diesel engine cars.

Get it early – This article was first published on Newsroom Pro and/or included in Bernard Hickey’s ‘8 Things’ morning email of the latest in-depth business and political analysis. Get it early by subscribing now or starting a 28-day free trial.

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