Whether by design or simply instinct after a half-century in politics, Winston Peters is teaching Christopher Luxon who’s boss.
Some of Peters’ antics are about his party’s survival and his own.
Whenever Peters has taken a senior role before – Treasurer for Jim Bolger and Foreign Ministerfor Helen Clark and Dame Jacinda Ardern – NZ First has crashed below 5 per cent at the next election, twice thrown out of Parliament altogether.
Peters’ personality and circumstances beyond his control meant he never achieved his potential to be a centrist or left-leaning National Party Prime Minister in the mould of Sir Keith Holyoake or Sir Robert Muldoon.
Sir John Key acted out the former, while Luxon is doing well impersonating the latter with his fast-track consenting legislation.
Instead, Peters has done profitable business for 30 years pitching his services to the dispossessed, from bewildered octogenarians in the 1990s to deranged anti-vaxxers and anti-globalisation conspiracy theorists today.
We may sneer, but these people are the difference between NZ First staying comfortably above 5 per cent or crashing out of Parliament again.
They need regular doses of NZ First rhetoric to stay loyal, particularly since, as a minister, Peters isn’t one of them but an old-fashioned conservative.
In office, Peters has always proven a careful custodian of the status quo, flavoured with some prejudice towards restoring the world he grew up in.
That includes loyalty to our traditional Five-Eyes allies, while respecting the economic achievements of more authoritarian regimes in Asia. It means standing with ordinary Kiwis on the average wage rather than the big end of town.
NZ First has long believed that too many senior figures in the New Zealand National Party are too close to the Chinese Communist Party.
Likewise, it thinks National is too influenced by white-shoe-wearing wide-boy property developers wanting to build McMansions and rabbit-hutch apartments for hordes of immigrants, who have convinced Luxon the population needs to double as quickly as possible – something only possible with mass immigration given a birthrate now down to 1.61 births per woman.
Despite his rhetoric, Peters is also broadly orthodox on economic policy. As Treasurer, he ran two surpluses, while trying unsuccessfully to shift household investment away from residential property towards equity markets with his compulsory superannuation savings proposal.
NZ First supporters opposed to globalism and UN agencies won’t want to hear it, but Peters has always had respect for the International Monetary Fund’s annual reports on New Zealand economic policy, going back to the very first one when he was Treasurer in 1997.
Back then, the IMF reported that New Zealand was on the right track, as it was, and Peters agreed.
A quarter-century later, a succession of ever-more unambitious, lazy and eventually fiscally vandalous governments have the IMF saying the opposite.
New Zealand, it reports, now has a structural fiscal deficit. While it says monetary policy is “appropriately tight” it warns fiscal policy is looser than in most other advanced economies. That means inflation – which remains higher than in similar countries – is now the fault of the Beehive not the Reserve Bank.
The IMF warns that Luxon’s planned $18 billion tax cut programme (including landlord tax breaks), scheduled to hit the economy in less than 15 weeks, is targeted at those most likely to spend the lot, which means it would be maximally inflationary.
That would delay cuts to interest rates or force the Reserve Bank to increase them again.
Luxon tries to argue that he isn’t actually proposing tax cuts. Actually, he says, they are tax relief, threshold adjustments or fixing anomalies. But he could call them bojangles if he wanted and the macro economy still wouldn’t know the difference. They would fuel inflation just the same.
The IMF says that, if more inflation is to be avoided, “it is important to calibrate the funding, timing, and the parameters of tax relief to be fiscally neutral”.
It could have gone further. If Nicola Willis really has found $18b in spending cuts, new taxes and higher government charges, then using it all to pay back debt would see inflation and interest rates fall immediately.
Finance Minister Nicola Willis. Photo / Mark Mitchell
But no one, including NZ First, believes she has. NZ First strategists say they have pulled back the fiscal curtains since the election but haven’t found too much that surprised them. Their discoveries shouldn’t have surprised National either, since it warned before the election that things were much worse than reported.
To a certain degree, they were right. Yesterday’s GDP data showed New Zealand is not just suffering the recession Labour denied but from stagflation – the near-terminal 1970s disease where falling incomes and living standards are combined with high inflation.
The only good news, perhaps, is that, unlike the late 1970s and 1980s, unemployment remains relatively stable. But that argues even more strongly against any proposal for fiscal loosening.
It should go without saying that fuelling inflation in 15 weeks’ time by loosening fiscal policy, when inflation and interest rates will still be high, and with the Government already running a structural fiscal deficit, would be economic lunacy that not even Muldoon, David Caygill or Grant Robertson would have considered ahead of their 1984, 1990 and 2023 nadirs.
Willis promised to resign if the tax cuts don’t go ahead on July 1. It should be the other way around. She should resign if Luxon continues to insist they do.
At the very least, based on the IMF’s warnings, NZ First ministers will want to see a spreadsheet of spending cuts over the next four years, that adds to $18b, and with each year’s spending cuts being at least as much as the cost of Luxon’s tax cuts.
They will need to be assured that every one of these cuts is locked in and won’t quickly be reversed in the face of adverse publicity, like the Beehive’s immediate u-turn this week when cuts to disability support services and equipment were revealed.
Otherwise, no former Treasurer or any other orthodox economic decision-maker could possibly agree to Luxon’s reckless and ill-advised tax cuts, at least until next year when inflation and interest rates will hopefully be back under control.
It really is up to the Prime Minister. If Luxon won’t face fiscal reality, then he risks Peters deciding to spend another week arguing with the media and fuelling the story of just what he meant when he talked about Nazis at the weekend, making Luxon look weak and ineffectual.
Matthew Hooton has more than 30 years’ experience in political and corporate communications and strategy for clients in Australasia, Asia, Europe and North America, including the National and Act parties and the mayor of Auckland.
