When Bill Clinton first ran for President of the United States, back in 1992, his campaign chief James Carville coined the now immortal phrase “it’s the economy stupid” to focus his team on what that year’s election was all about.

Over thirty years earlier, Stanford University economist Anthony Downs had postulated the theory that because they do not understand all the nuances of economic policy, voters judge governments at election time on how much they intervene in the domestic economy and what impact that has. He argued that public opinion about economic management was shaped like the traditional bell-curve, with a small group of voters having extreme views at either end of the spectrum, and the bulk of voters holding more moderate opinions in the middle. In turn, this meant mainstream political parties shaped their economic policies in a more centrist way to maximise their political support.

Downs’ theories and Carville’s bluntly stated pragmatism are relevant to New Zealand’s current economic position, just three months before the General Election.

The government’s management of the economy will be centre stage during the coming election campaign. And the public’s assessment of that will determine who leads the next government. The picture looks gloomy at present. The annual increase in consumer prices is the steepest in thirty years, mortgage interest rates are going up more rapidly than at any point since the 1980s, unemployment is projected to rise steadily over the next year, and economic growth levels look likely to remain relatively flat.

But the worse may be yet to come. The economy is already technically in recession, although it is possible that may not last too long. Elsewhere, the prospects are not so promising. The agriculture sector has been hit hard by the adverse weather events earlier in the year and weaker demand than usual in some markets. For differing reasons, the manufacturing and construction sectors are in decline as economic activity slows. The return of tourists has boosted the retail and transport sectors, but the service sector is starting to slow again, after a strong post-Covid19 recovery. The removal of the 25 cents a litre fuel price subsidy on 1 July will have an adverse effect right across the economy, as the queues at petrol stations this week and near panic buying in some places shows.

The government’s response, consistent with Downs’ theory, has been to boost its spending and influence in the areas of most concern – social services, education, and health. This was especially so in the early days of the post pandemic recovery and enjoyed public support at the time. But that has waned as time has gone on, and the government has started to acknowledge its pit of resources is not bottomless. However, right now, the challenge for all political parties is to work out where the new economic political equilibrium lies.

There are increasing questions about the quality, purpose, and priority of some of the government’s post pandemic spending, and whether it is becoming too involved in day-to-day economic activity and therefore distorting the market. However, there is no apparent enthusiasm for a complete change of direction and a return to the much more open market economy that prevailed before 2017. Although the Greens and Te Pati Māori shout at one end of the spectrum for more, rather than less, intervention, and ACT calls at the other end for complete government withdrawal, both Labour and National seek more centrist positions, more aligned with where they perceive the bulk of public opinion to be today. At the same time, neither appear clear where the new equilibrium should lie, and how they might achieve that.

Labour and National know full well that Carville’s mantra will influence many voters’ decisions at election time. The mini scandals that have engulfed Labour of late will have some influence, but for most voters the key factors will be whether they feel better or worse off economically than three years ago, and which parties they see as likely to improve their situation over the next three years.

Right now, confidence levels are very low, which does not augur well for the government’s electoral prospects. The Roy Morgan confidence survey last month reported an “extremely low level” of consumer confidence, although there were modest expectations inflation may fall during the next year. An Auckland Business Chamber survey in May reported nearly 55% of respondents expecting the economy to decline further over the next year.

The government’s problem is that it appears to have played all its cards – to minimal effect. The removal of the fuel price subsidy from the weekend marks the end of the last of the major Covid19 support measures. Subsequent steps – like the removal of the $5 prescription charge, or the extension of twenty hours free early childhood education, assuming all the problems with it are overcome – do not take effect until after the election. The new public transport subsidies for students and children, due to start from the beginning of July, have struck implementation problems in some larger cities, meaning its roll-out will be uneven.

In contrast, National has yet to play any significant economic cards. This may be because it is still finalising its position, or because it knows, in concert with ACT, full well what it intends to do, but does not want to scare the horses by revealing too much, too soon.

The one thing all the parties and the voters seem to agree on is “it’s (still) the economy stupid”. But beyond that, voters are still waiting to be convinced which party is more likely to be best for them.

 

 

There are strong echoes of the Clark Labour government’s “Closing the Gaps” programme in the system now being used by Auckland surgeons to prioritise patients on ethnicity, geographic location and equity grounds.

“Closing the Gaps” sought to assist socio-economically disadvantaged Māori and Pasifika through specially targeted programmes. Labour had campaigned on this at the 1999 election and started to implement the policy in its first Budget in 2000. Labour’s aim was to combat the systemic racism it saw at the time by confronting socio-economic disparities directly and promoting greater opportunities for Māori and Pasifika.

Although “Closing the Gaps” was popular with Māori, it was dogged from the outset by strident political opposition, culminating in Don Brash’s infamous Orewa Rotary Club speech in early 2004, where he argued for one standard of citizenship for all. The government had stopped referring to “Closing the Gaps” from mid-2000, talking instead about “reducing inequalities”. Nevertheless, it was so stung by the Orewa speech, and the positive response it attracted, that it established an audit of all government programmes to ensure they were being administered on the basis of need, rather than ethnicity. 

Between 1999 and 2004 Labour’s language deliberately changed from an overt, aggressive emphasis on “Closing the Gaps” with Māori and Pasifika to one of meeting needs and reducing inequalities. But the underlying emphasis on improving the socio-economic status of Māori and Pasifika was retained, as they remained the groups where need was the greatest.

Overall, there were material gains by Māori and Pasifika during the entire nine-year term of the Clark government. But Labour stopped acknowledging these after the Orewa speech. Ironically, this gave rise to a sense that Labour was actually neglecting the interests of Māori and Pasifika, reinforced by the foreshore and seabed controversy later in 2004, which was the catalyst for the formation of the original Māori Party.

The same focus on reducing inequality lies behind the ethnicity priority approach Auckland surgeons began following earlier this year to improve Māori and Pasifika access to surgical services. With statistics showing Māori currently have less access to specialist health services because of factors like geographic location, and seven years’ less life expectancy than non-Māori, there is a strong logic supporting the approach being taken in Auckland.

However, the political reaction has been no different from “Closing the Gaps” twenty years ago. The National and ACT Parties have decried the policy as separatist, saying that access to health services should not be determined by need not ethnicity, and that they will overturn it if they form the next government. Prime Minister Hipkins, reminiscent of Helen Clark after the Orewa speech, while defending the policy intent, has sought assurances from his Health Minister that “we are not replacing one form of discrimination with another”. Sounding more doctor than politician, as is her wont, her initial response has been that there are sound clinical reasons for the ethnicity focused approach. But in the meantime, plans to roll-out the initiative across the rest of the country have been put on indefinite hold.     

Already, as with “Closing the Gaps”, the focus of the government’s narrative is shifting from the process, to its intended outcomes. Just as “reducing inequalities” over twenty years ago was promoted by the Clark government as more palatable than “Closing the Gaps”, the early signs are that this government will shift its focus to “reducing disparities”, rather than talking too much about the mechanism by which it intends to achieve this.

But rather than retreat into its shell, and pretend the policy is not happening any more, the way Labour did after 2004, the current government needs to be more activist in explaining why it considers the ethnicity factor to be so important. After all, the evidence that Māori and Pasifika have worse health outcomes than everyone else, is overwhelming. Labour should feel on solid ground in focusing its approach on expanding health access to Māori and Pasifika to improve their life expectancy and overall quality of life, but without implying that this will come at the expense of the needs of others.

But if it decides to ignore the current policy debate, in the hope the controversy surrounding it will evaporate over time, it will run the strong risk, as happened in 2004, of being seen to be doing nothing, handing Te Pati Māori once more a strong weapon to beat it around the head with, but this time only four months before the election.

Given the way things are going right now though, in the words of American baseball great and legendary Malapropist, Yogi Berra, “it looks like déjà vu all over again.”

 

Prime Minister Chris Hipkins' office found out on a Friday evening that Minister Michael Wood had yet to sell his shares in Auckland Airport despite warnings over two years he needed to do so. But it took them until the Sunday evening to advise the Prime Minister of this and the likely political row once the news became public.

 

National Leader Christopher Luxon decided to order a Tesla car as the self-drive car he was entitled to as Leader of the Opposition. His office apparently had misgivings, given Luxon's earlier criticisms of the government's subsidy scheme for electric vehicles, including Teslas. Following their intervention, Luxon changed his mind and cancelled the order. 

 

In the previous term, allegations of sexual harassment by a Labour staffer were held back by her office from the then Prime Minister on the grounds that keeping her in the dark would protect her from any suggestion she knew about the allegations and had not acted. By the time she became involved, it looked as though she had been covering for staffer concerned.

 

In all these cases the damage had been done by the time the leader became aware of the circumstances, and they were on the political defensive as a result while the issue played out in the public arena.

 

Each of these incidents raises questions about the role and performance of the respective leaders’ offices at the time. The leader’s office – be it the office of the Prime Minister or the Leader of the Opposition – and their senior staff within, play a critical, often backroom, role in our system. They provide not only the administrative support that the Prime Minister and the Leader of the Opposition require to do their jobs, but more importantly are often the leader’s political eyes and ears on a day-to-day basis.

 

A good leader’s office will keep its leader closely informed about what is going on around Parliament – the gossip as well as the reality – with the aim of ensuring the leader is not caught out or taken by surprise. Leaders need to know quickly and early what situations are developing so that they can deal with them. The worst thing any Prime Minister or Leader of the Opposition wants is to be caught on the back foot having to defend a situation that may not be of their making, but to which they will be expected to respond.

 

The leader’s office should also be co-ordinating the implementation of the party’s political and Parliamentary strategy. This is especially so for the Prime Minister’s office, and the chief of staff in particular, who ought to be co-ordinating the activities of all Ministers’ offices to ensure they are working towards achieving the government’s objectives. Former chiefs of staff (like Jim Bolger’s Rob Eaddy, Helen Clark’s Heather Simpson, and Sir John Key’s Wayne Eagelson) were particularly adept in this role and were extremely influential members of those governments as a result. (Indeed, Heather Simpson was such a pervasive figure she became widely known as H2 to Helen Clark’s H1!)

 

It is hard to imagine the situations Hipkins and Luxon have faced recently occurring under any of those former chiefs of staff, which begs the question of what is going on within leaders’ offices at present.

 

Sources suggest that during Ardern’s time as Prime Minister, her leader’s office pulled back from actively co-ordinating and overseeing the operation of Ministers’ offices, preferring to leave that role to individual Ministers, under the overall guidance of the Cabinet. That loose arrangement for managing the day-to-day activities of the government seems to be continuing under Hipkins, which may lie at the heart of the government’s delivery problems. While it may have been a genuine but naïve attempt to keep Ministers, rather than officials, at the forefront of implementing government policy, it has not worked in practice and has left the Prime Minister isolated from many day-to-day aspects of government. That means small brush fires often become bigger scrub fires before the Prime Minister gets to hear about them, as was the case with the Wood situation.

 

A large part of this is due to inexperience on the part of both Ministers and staffers about their respective roles and how they should interact. Beyond that, there seems to be a general unwillingness to accept or even invite relevant external advice about this, which implies an insecurity and lack of trust about advice generally.

 

Politicians often like to believe they know best. This can sometimes translate into an unwariness or downright unwillingness to trust staff and the advice they give, because, unlike the politicians, they have not been elected by the public. While correct, it overlooks the point that whatever they may think, politicians cannot do everything by themselves. They need the support of professional staff to achieve their political goals, and to present them with the wider picture when their own views become myopic, or out of touch.

 

Hipkins has been forced to learn all this the hard way, as his increasingly testy response last week to questions about Wood showed. Luxon has so far tried to laugh off the Tesla incident, but will no doubt learn from it regarding the role of his office, in Opposition or in government for the future.

 

The way both offices left their leaders exposed should be timely reminders that their role is to ensure their leaders are always kept in the loop to avoid trouble, rather than advising them only when the damage, however big or small, has been done, and a mop-up job is required.

 

Chris Hipkins has demonstrated many skills since he became Prime Minister unexpectedly just over four months ago. However, successfully managing his Ministers has not been one of them.

So far, he has had to sack one Minister for repeated breaches of the Cabinet rules on conflict of interest; censure one for an inappropriate speech to Radio New Zealand; watch another be summoned before the Privileges Committee on a charge of contempt of Parliament (which may yet involve him as well); and, have one Minister walk out on him altogether to join another party. Now, he has had to stand down one of his closest lieutenants for failing to disclose a shareholding that he had previously acknowledged conflicted with his portfolio responsibilities and that he had promised to sell but had not yet done so.

Together, they contribute to a growing air of slackness about the Hipkins government and the way it operates. Usually, when these types of circumstance occur it is a sure sign of a government having run its course and being ripe for replacement at the next election. With just four months to go until that next election it is going to become increasingly difficult for Hipkins to fend off the taint now entrenching, even if there are no further damaging incidents to emerge.

The situation surrounding Wood is especially dumbfounding, as he was regarded as one of the government’s less risky pairs of hands. His excuse was the same one both Nash and Tinetti fell back on when their lapses were made public – namely, personal oversight for which they were deeply sorry. It all looked a little contrived.

That is especially so in Wood’s case. After all, he was warned a staggering 12 times by the Cabinet Office that he needed to dispose of his Auckland Airport shares. His explanation that the shares were in a trust, and he thought they had been disposed of, but had been too busy to confirm, is weak and defies belief.

The compounding factor here is his wife’s situation. She is also in public life as an Auckland City Councillor and is facing similar allegations of conflict of interest over shares. Her initial explanation for her failure to disclose was even more unbelievable than her husband’s – she claimed she did not know she was a beneficiary of the trust bearing her name that held the shares.

Now, how Wood and his wife manage their personal financial affairs is their business. However, their explanations so far for the potential conflicts of interest that have arisen are far from convincing. Taken together, they leave the suspicion that the full story may be yet to come, something that was exercising Hipkins’ mind when he stood Wood down from the Transport portfolio, pending further inquiries; and Wood selling his Auckland Airport shares.

But, National’s calls for Wood’s dismissal were premature, although more recent reports about decisions he made restricting expansion at North Shore Airport while still holding his Auckland Airport shares may change that. What has been revealed so far is a Minister basking in the reflection of being considered highly competent when he was anything but in the management of his personal affairs. Being caught out this way is certainly personally embarrassing. His hitherto perceived competence is clearly overstated but is not by itself a sufficient reason for his dismissal altogether. Clear evidence the North Shore decision was influenced by his Auckland Airport shareholding would change that.

In any case, the issue is now much bigger for Hipkins than the circumstances of Wood’s failure to get rid of some shares. Given the previous Ministerial crises of the last four months, Hipkins’ own credibility is firmly on the line. After all, he appointed each one of them, and has initially backed them, only to be let down as their wider stories have unfolded.

The fact he has seemed blindsided in each case where a Minister’s shortcomings have been revealed compounds his problems. Each case has raised its own questions about his management style and the performance of his own office. In Wood’s case, the Prime Minister’s Office was aware of the situation for some days before informing the Prime Minister. As Prime Minister he should be the first to know about such things, not the last.

Hipkins’ problem is that what momentum he has been able to establish has been slowed by these now regular Ministerial crises. He looks less and less a determined Prime Minister leading his country through a cost-of-living crisis than one trying desperately to plaster over cracks in a disintegrating government.

From the public perspective the precise details of each case are less relevant than the overall impression they create. Wood’s shares or Tinetti’s answers to questions in the House run second to the perception of incompetent Ministers ignoring the rules. Reversing that impression is now a far bigger challenge for Hipkins than correcting the failings of his errant Ministers.

But while a severe body-blow, the Wood affair is not yet terminal for the government. Wood needs to dispose of his Auckland Airport shares immediately and without fuss. Any further delay or obfuscation will make his position as a Minister untenable, which should be incentive enough for him to now act swiftly.

However, although that would resolve Wood’s immediate situation, it will not remove the stain on his reputation, or more importantly, the taint now engulfing the whole government. The more Hipkins is forced to defend the lax conduct of Ministers who do not seem to know the rules of their jobs, the more he will be dragged down with them.

The last thing Hipkins will want is to spend the next four months fighting off allegations of incompetent Ministers who follow the rules only when it suits. However, as things stand, that is looking more and more likely.

Not a good position from which to fight an election campaign.

 

When it was first unveiled, the government’s extension in this year’s Budget of 20 hours free early childhood education to 2-year-olds from next March was hailed as a masterstroke. The Minister of Finance said it would save qualifying households $133 a week, no mean sum during a cost-of-living crisis, as well as benefitting significant numbers of children. At an estimated cost of $1.2 billion over four years, it seemed a well-targeted investment that would pay both a social and a political dividend.

However, it was not long before the gloss started slipping off the policy. Bold as it seemed, it would benefit only 44,000 families – just 2.3% of the total number of just over 1.9 million families in New Zealand. And then came the reaction of the early childhood education sector, pointing out that the extension could lead to fee increases for any extra hours beyond the initial 20 free hours, and increased child-to-teacher ratios leading to a lower quality of care. Others argued that while the intent of the policy was laudable, the current funding and delivery models were not fit for purpose to implement it. There was even a suggestion that some private providers might be forced to close altogether.

All lamented that it was a pity there had been no consultation with the sector about how things would work in practice before the Budget announcement had been made. In response, the newly appointed Associate Minister of Education generally agreed with the concerns being expressed and offered the accurate but inadequate response that it had not been possible to have full consultation beforehand because of the traditional secrecy that surrounds the development of the Budget.

Almost the same thing had happened last year when the Budget announced a one-off payment of $350 in three tranches to around 1.4 million eligible families to ameliorate the impact of the then developing cost-of-living crisis. The roll-out of that programme was chaotic with many examples of dead people, others who had not lived in New Zealand for years or were otherwise ineligible, receiving the payment. A novel policy idea, drawing on similar programmes introduced overseas, was treated with ridicule because of the apparently sloppy way it was being implemented.

However, it soon became clear that none of this should have been a surprise to the government. Official papers showed that Inland Revenue, the agency charged with implementing the payment scheme, had been warning the government for some time that it had been given insufficient time to gear up its systems and that implementation problems were inevitable.

It would not have been unreasonable to have assumed that chastened by this experience the government would have made doubly sure that the implementation of a policy like 20 hours free early childhood education to 2-year-olds was, as former Minister of Finance, Sir William Birch was prone to say “tidy”, but apparently not.

Now questions are being raised about the government’s recent announcement of a $140 million subsidy to New Zealand Steel to reduce its carbon emissions. New Zealand Steel is planning to buy an electric furnace that can remove up to 800,000 tonnes of carbon dioxide a year. This bold announcement, which was not part of the Budget process and therefore not subject to the same level of secrecy during its development, was hailed by Ministers as “not only be good for the climate, but also a win for minimising waste, retaining jobs, and improving New Zealand’s economic resilience”.

But the details of how these objectives will be achieved remain vague, with the government still to make significant decisions. Some have questioned how this investment sits alongside the more than 2.1 million free credits New Zealand Steel has separately been allocated under the Emissions Trading Scheme. Others want to know whether the government’s involvement is a one-off case, or whether it signals a return to more activist intervention in business. If that is the intention, then what steps is the government proposing to ensure transparency?

While the Climate Change Minister says Treasury is “on board” with the government’s subsidy to New Zealand Steel, the full details of its advice are not yet known. Normally, all the advice available to Ministers when preparing the Budget is released publicly about now, but it is not clear whether, since it was not formally part of the Budget, and for commercial sensitivity reasons, what, if any, information will be released about the New Zealand Steel deal.

The picture that emerges from each of these examples is of initially oversold government policy initiatives that fall short over time of the bold claims made for them.

So, against this backdrop, and with the memory of the failed Kiwibuild programme still fresh, is it now any wonder the Opposition has concluded the housing intensification agreement reached with government in 2021 is impossible to implement?