The popular test of the success or failure of Grant Robertson’s fifth Budget will be its impact on the soaring cost of living. 

In today’s climate little else matters. Because governments come and governments go – about every six to seven years on average since 1945 – getting too focused on their long-term fiscal aspirations is often pointless, especially so at a time when middle-income households and below are far more worried about just continuing to make ends meet. The main mission of this Budget, therefore, had to be addressing that concern. 

In that regard, Robertson has taken a huge gamble in the Budget – predicating his moves on Treasury forecasts about inflation and wage growth. According to Treasury, wages will outpace inflation from the start of next year, although they do add the caveat to their forecasts that inflation could be around for a little longer. On that basis, the usually cautious Robertson has gambled that his household assistance packages can come to an end by then. Yet over the years Treasury’s forecasts have invariably been overly optimistic, which creates a massive political risk for Robertson.   

As predicted in my Stuff column before the Budget, both the 25c a litre suspension in the fuel excise tax, and the 50% subsidy on public transport fare have been extended, but only for two months. Once they expire, a special $350 cost-of-living payment will be made in three equal tranches (equivalent to about $27 a week) to around 2.1 million people earning under $70,000 a year, but not those receiving the Winter Energy Payment. 

However, when the fuel and public transport subsidies and the cost-of-living payment end in November. rising costs will then be set to quickly gobble up any of the gains made by households in that time, since inflation is unlikely to have fallen significantly by then. If Treasury’s predictions are correct, Robertson might just have done enough to bridge the gap until wages get ahead of inflation again, but even that is highly dubious. However, if Treasury has got it wrong, then not only will Robertson’s gamble have failed, and households face a bleak Christmas, but the government will pay the price politically at the election next year. 

As foreshadowed, the Budget’s commitments on health are bold – a record $13.2 billion new expenditure over the next 4 years. Much of this is structural and will not be immediately visible to the public – $550 million to clear District Health Board deficits; $168 million over four years to establish the Māori Health Authority, for example. But there are two areas where the additional spending will be visible and welcome – the extension of the low-income earner subsidy for Dental care from $300 to $1,000 per person, and the $191 million boost to PHARMAC over two years to fund more new medicines. 

However, the trade-offs beyond the immediate support measures in the health funding announcements (the increased Dental subsidy and more funding for PHARMAC) and the longer-term, structural, and operational changes the Budget outlined are unlikely to impact upon enough people to offset rising costs of living through into next year. Having previously ruled out tax cuts and increases to family support payments like Working for Families, Robertson has effectively backed the government into an unwelcome corner. It is not clear what cards he has left to play. 

At the same time, he has, however, set out the challenge to National and ACT to indicate what areas of spending they would cut if in office, but unfortunately for him he has set some easy targets for them. For example, for about the same amount as he is allocating over two years for the merger of Radio New Zealand and Television New Zealand, he could have extended the public transport subsidy and the fuel excise suspension for almost four months, rather than two, which would have provided more immediate relief for stressed households. 

In his Budget speech Robertson acknowledged that “the here and now matters but so too does tomorrow.” The burning question now arising will be whether Robertson has got the balance right and done enough to reset Labour’s political compass for the next election. The immediate answer is no – his gamble on inflation starting to go away by November and currently struggling households apparently to get by without more government help after then seems overly optimistic and doomed to fail. 

Nevertheless, the government deserves credit for its commitments to improving and upgrading the public health system and its announcements earlier this week about meeting its climate change obligations. But the comparatively modest (though fiscally expensive) moves to help New Zealand households through the cost-of-living crisis seem likely to push those achievements into the background. Politically the Budget will not have kick-started the government’s flagging fortunes, but nor will it have sealed its fate either. 

That will come in November when Robertson’s lolly-jar finally runs dry.

 

 

     

 

 

Words matter, especially when uttered by politicians. History is littered with examples of careless or injudicious words uttered by politicians coming back to haunt them, often at the most awkward of times. 

During the 1987 election campaign, when electoral reform was a hot issue, Prime Minister David Lange promised to have a referendum on the electoral system if his government was re-elected. The pledge certainly delighted electoral reformers, but stunned his colleagues, because Labour’s election policy promised no such thing. Because of internal divisions on this, like so many other issues at the time, Labour MPs were to spend the next three years fudging and avoiding the Prime Minister’s commitment, with the referendum eventually being held during the term of the National Government which followed. 

National’s Jim Bolger caused a similar problem over superannuation in 1990 with his categorical “no ifs, no buts, Labour’s surcharge will go” promise. While Labour’s unpopular superannuation surcharge was repealed in 1991, National’s replacement was even harsher. And who will ever forget American Presidential candidate George Bush senior’s 1988 promise “read my lips, no new taxes” which was quickly overturned once he became President. Words matter, and voters not only remember what was said, but take unkindly to later attempts to redefine both the words and the context in which they were uttered. 

When she rejected the Tax Working Group’s recommendation for a capital gains tax in 2019 Prime Minister Jacinda Ardern was honest and unambiguous. “We have been unable to build a mandate for a capital gains tax. While I have believed in a CGT, it’s clear many New Zealanders do not. That is why I am also ruling out a capital gains tax under my leadership in the future.” To her credit, she has stuck to that position subsequently meaning that, given National’s historic opposition to capital gains taxes, the issue is off the political agenda until at least the next Labour-led government after Ardern. 

While the Prime Minister’s honesty on the capital gains issue was refreshing and did not attempt to quibble with words the way some of her predecessors did to justify policy u-turns, the same does not necessarily go for her position on wealth taxes. At first glance, her initial response was similar to her stance on capital gains taxes. 

When asked about a wealth tax in a television debate during the 2020 election campaign, the Prime Minister said unequivocally "I have made my position and the Labour Party position absolutely clear. We have ruled it out. This is not up for discussion. It's not in play. There is no need for the hypothetical. It won't happen" and "I won't allow it to happen while I am Prime Minister." 

As with capital gains, that should have been the end of the matter. The Prime Minister had made her call, and like their predecessors in 1987, her colleagues had to live with that decision.

Indeed, the issue only reared its head again because of an awkward response from the Prime Minister to media questions about whether Labour would introduce a wealth tax in the light of work being done by the Minister of Revenue to ensure wealthy New Zealanders pay their fair share of taxes. Rather than bat the question away by referring back to her absolute 2020 comments, the Prime Minister curiously and clumsily answered by saying that the question was hypothetical because Labour had yet to develop its tax policy for the next election.

After nearly every commentator concluded this less than clear response meant Labour was clearly looking at a wealth tax if re-elected in 2023, the Prime Minister sought some days later to clarify her remarks, saying “I have no intention of introducing a wealth tax here in this term and we are doing no further work on it. Of course, we have always said our policy is not to introduce that and that is our position, nothing has changed.”

Rather than resolve the issue, the Prime Minister’s ruling out of a wealth tax for this term of Parliament only fuelled speculation. Whereas previously Ardern had ruled out a wealth while she was Prime Minister, now she was doing so only up until the next election, strongly implying that plans are afoot for something along these lines if Labour is re-elected.

Media commentary earlier this week suggesting that because the Prime Minister’s 2020 comments were a “blunder” she should not be held to account for them was not only utterly patronising but also evoked eerie memories of Lange’s 1987 comments. Worse, it suggested a new low standard of accountability is being set where it is not what a Prime Minister says that matters, but rather what they meant to say, or worse, what the media thinks they should have said, that counts.

It is unlikely this is what the Prime Minister intended. Having fluffed her initial response a couple of weeks ago, she was more than likely just trying to recover the situation. But if she really wanted to kill the wealth tax issue she should have taken a leaf out of her capital gains and 2020 wealth tax debate books and said simply “there will not be a wealth tax while I am Prime Minister.”

After all, words still matter, and as Churchill famously said, “the short words are the best and the old words best of all.” The Prime Minister should remember that, and that in the absence of simple and clear words people will often draw all manner of unwelcome conclusions.

There is still time for the Prime Minister to uphold her 2020 promise. However, the more she fudges doing so, the more people will become convinced there is a covert post-election agenda. For a government now swaying dangerously close to the ropes, that is amongst the last things it would want. But short, still unuttered, words could yet resolve that.

 

In many ways, the essential story of New Zealand over the last hundred years or so has been our search for security. Whether it be security from want, or unemployment, homelessness, or cultural alienation, it has always been a constant theme which has occupied the minds of successive governments over the years. 

The search for security in the aftermath of the Great Depression inspired the first Labour Government’s comprehensive social security scheme of 1938, which, through many subsequent changes and modifications, has remained a cornerstone of our society ever since. In the more affluent times of the early 1950s, the focus shifted more to community security, with the bizarre 1954 Mazengarb Report linking declining traditional moral standards and teenage delinquency. The then National Government found the report so compelling (in other words, politically helpful) that it mailed a copy of it to every household in the country on the eve of that year’s General Election. 

From the 1960s, the focus shifted to the gangs, with successive governments trying to play a strong law and order card to their political advantage, while the gangs flourished and strengthened their links to organised crime. Since the Māori renaissance began in the 1970s, there has been far greater emphasis on the security of Māori and righting injustices and historic wrongs of colonial settlement times from the nineteenth century. More recently, especially in the wake of the Christchurch Mosque attacks and other similar, though far less horrific situations, has come a new focus on security from extremism. And, of course, we have just gone through the last two years of seeking security from the pandemic and all the changes that has forced upon us. 

Throughout these years, governments have been at the forefront of attempted solutions to these various threats to security. Some of the solutions have worked, most have not. In 1951, the Holland National Government brought back capital punishment to curb what it saw as the rising murder rate – miniscule by today’s standards – only for the next National Government under Holyoake to abolish it a decade later. In the early 1970s Norman Kirk promised to “take the bikes off the bikies” and “knock inflation for six” to protect communities and living standards. However, the bikies kept their bikes, and inflation rose three-fold during the term of the 1972-75 Labour Government. 

Nearly fifty years later, after all the social and economic changes of the 1980s and 1990s, and the broad continuity of policy under governments of both the left and the right in that time, the basic issues of economic and community security remain. While the strength of feeling waxes and wanes, the constant is that the greater the level of insecurity perceived in the community, the greater the level of political risk to the government. 

At present, a combination of factors is elevating concerns about security to a much higher level than in recent years. The explosion in the cost of living and rising mortgage interest rates currently hitting households hard is perhaps the most obvious. It owes much to the global spike in inflation caused by the economic upheavals of the pandemic. 

For the public, however, such explanations are just mere excuses which do not help their struggle at all. Their reactions are more visceral – they know what the problem is (they are experiencing it, after all) and they expect the government to resolve it – now. Arguably, the current government’s moves to suspend fuel excise tax and temporarily subsidise public transport costs by 50% are significant steps to lowering household costs. But more significant, and more telling politically, is this week’s opinion poll showing that 78% of voters (including 60% of Labour supporters) do not think the government is doing enough to curb the rising cost of living. 

A similar story is likely to emerge with the spate of ram raids on shops now occurring mainly in Auckland but elsewhere as well. Concern has already been expressed at the very young age of some of the alleged offenders, and links are being made between that and school non-attendance rates of up to 40% in some areas in the wake of the pandemic. The government’s promised response of a multimillion-dollar package over the next four years, to be announced in the Budget, looks good for the future but will do nothing immediately. So, the ram raids look likely to continue and the frustration and anger of affected shopkeepers and local communities will rise accordingly. 

It might be argued that expecting immediate solutions is unrealistic. That is undoubtedly so, but voters still expect governments to provide immediate solutions, even to the most intractable of problems, and show them little tolerance when they fail to do so. 

Aside from the specific impacts of the rising cost of living and the spate of ram raids and other robberies, serious enough for any government facing an election in eighteen months’ time, the added problem is that they are occurring against the backdrop of the pandemic. Whatever else it has done the pandemic has introduced new and unprecedented levels of uncertainty and anxiety into the community, which are exacerbating the more traditional economic and community safety anxieties now being experienced. 

The government’s problem (not initially of its own making, although it will bear the consequences) is that the uncertainty of the last two years has created a sense of community impatience and fatigue. People are simply tired and frustrated by everything that has happened and now just want resolution – as soon as possible. Explanations no longer seem reasonable – they just appear like more excuses. The phenomenon is not unique to New Zealand – the French who re-elected President Emmanuel Macron by a comfortable margin one week, were out on the streets a week later protesting at his policies.  

Sadly, we are moving into a time where the appeal of simplistic solutions and slogans looks set to increase. As we have seen this week, even the discredited snake-oil merchants of our past sense a new opportunity to peddle their loathsome ideas once more. Opinion polls already showing the government on the cusp of losing office will add to the pressures and risks it will face over the next year or so. On the one hand, it will want to show voters it both understands their plight and is in control of the situation, but, on the other hand, it will be increasingly wary of alienating its falling support further. It faces a difficult balancing act. 

However, New Zealand’s ongoing search for security transcends the life of any government. Change occurs when people have had enough of the status quo, not because of the ideological flavour on offer. Labour’s overwhelming task today is far less about achieving its own dreams and aspirations than it is about persuading people it is upholding their living standards and keeping their communities safe. 

It looks set to become increasingly difficult to achieve.