Pressure? It’s only just begun
The issues facing Labour are of its own making
The most pathetic element of Clare Curran’s resignation was her claim to be the victim of relentless and intolerable pressure by critics unfairly amplifying her mistakes.
In fact, until now, no one in the Ardern Government has been placed under much external pressure at all.
Large sections of the media remain in love with the Prime Minister, some operating as full-time cheerleaders.
With the exception of Paul Goldsmith marking Shane Jones, the Opposition is yet to hit its stride.
In its first year, the Government has had the luxury of allocating a big chunk of the strong fiscal outlook it inherited and the extra tax from reversing National’s income threshold adjustments.
No new Prime Minister has had an easier ride than Jacinda Ardern.
John Key was elected in the midst of the global financial crisis, Helen Clark in the wake of the Asian economic crisis, Jim Bolger during a domestic fiscal crisis, David Lange during a New Zealand currency crisis and Robert Muldoon after the 1973 oil shock.
The problems besieging Ardern’s Government are entirely the result of Labour’s own economic naivety and political incompetence, and she and Finance Minister Grant Robertson are singularly unprepared to confront the difficult choices ahead.
The overarching issue is that the big spend-up is over.
According to the New Zealand Institute of Economic Research (NZIER), the downgrades in growth and revenue forecasts mean the Government can no longer meet its Budget Responsibility Rules (BRRs) to reduce debt to 20 per cent of GDP by 2021-22.
The NZIER also points to emerging risks of even softer growth and politically driven public sector pay rises for teachers and police. A slowing economy leaves Grant Robertson and Jacinda Ardern with four choices — all unpalatable.
This gives Ardern and Robertson four broad options, none of them palatable.
The first is to abandon the BRRs but, against all reason, Ardern and Robertson have been adamant they won’t do that, so that any u-turn would destroy their remaining economic credibility.
Ardern and Robertson are cheating their own rules by having Crown entities load up with debt, but their ability to borrow is limited.
The second option is increasing tax, but Ardern and Robertson have also ruled that out this side of the election, except for measures like the new regional fuel tax which is driving up petrol prices to records.
The third option is to cut already
announced future spending but that would be difficult politically and illadvised economically in the face of declining growth.
The fourth option is to simply hope the Government gets lucky with growth turning out higher than forecast. This may be Ardern and Robertson’s best strategy under the circumstances they have created for themselves.
These fiscal debates will occur as Ardern and Robertson also confront extraordinarily difficult decisions as the 100-plus working groups report, starting with the Tax Working Group (TWG) on a capital gains tax (CGT).
Ardern and Robertson’s attempt to pass the buck on the CGT appears to have failed.
The TWG is understood to have refused to make a clear recommendation on the issue, believing it should be a political call. It is also believed to have advised that any CGT must be on everything, except the family home, and include even capital gains on KiwiSaver accounts.
No doubt the TWG would have
included the family home had Ardern and Robertson not forbidden it from doing so.
The problem is that any CGT that taxed capital gains on KiwiSaver and other retirement savings, but not those on owner-occupied houses, would be economically vandalous, reversing decades of efforts to get New Zealanders to invest in equities rather than property.
If this is beyond Ardern and Robertson’s comprehension, it is fully understood by Winston Peters and Jones. On this and other issues, they have no intention of going down with Ardern and Robertson. The survival of NZ First for another 25 years is far more important to them than the survival of this one Government for three.
Insubordination by the junior coalition partner will continue.
If Ardern’s ministers really think the pressure on Curran was intolerable, it can’t be long before none of them are left.
No new Prime Minister has had an easier ride than Jacinda Ardern.
Matthew Hooton is managing director of PR and corporate affairs firm Exceltium