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Insights 36: 29 September 2023
Newsroom: Dr Eric Crampton on failure to stop meth production
 
Podcast: Dr Oliver Hartwich talks to Dr Bryce Wilkinson about our latest research note
 
New Research Note: The Deficit Diaries - Dr Bryce Wilkinson and Dr Oliver Hartwich

The politics of unrealistic promises
Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz
Political campaigns often hinge on promises, and the art of selling a vision for the future is a crucial skill for any politician.

But what happens when that vision strays deep into the realm of fantasy?

The line separating hope and deception can be perilously thin, and Labour provides a case study of how unrealistic promises can come back to haunt a government.

That said, there is a danger for all parties – left, right and centre – to promise more than they could ever realistically deliver. So especially in the context of this year’s election and a possible change of government, we should learn a lesson about what went wrong last time.

In 2017, Labour campaigned on grandiose ideals but also pledged fiscal restraint.

Voters, perhaps tired of the status quo or charmed by the charisma of the party’s leadership, chose to believe.

Labour’s campaign was highly aspirational. From abolishing child poverty to making rivers swimmable, from the ‘nuclear-free moment’ of tackling climate change to building Auckland light rail, and from making housing affordable to bringing tertiary education to more students: there was no shortage of lofty pledges and promises.

But Labour wanted to achieve all these goals on a shoestring budget. In the end, however, it increased spending substantially while failing, mostly, on delivery.

Covid does not explain this failure. As we show in our new paper, Labour’s costly lack of delivery was well-established before Covid and continued as Covid abated.

Future historians may conclude that the Sixth Labour Government collapsed under the weight of its own contradictions.

There was no coherent plan. There was no realism behind their ‘Let’s do this’ rhetoric of ambition.

The damage this Government has created is wide-ranging. Not least is the frustration and cynicism it has created around democracy.

When a party’s pledges are shown to be based more on fantasy than on achievable goals, not only does the party lose credibility, but it also sows seeds of doubt in the political system itself. And that trust, once lost, is hard to regain.

Labour’s conundrum should serve as a cautionary tale for politicians everywhere – National included. It might be tempting to win votes through grandiose plans, but the costs of over-promising and under-delivering can be dire.

New Zealand deserved better last time, and it deserves better now.

Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative. He co-authored ‘The Deficit Diaries: Six years of red’ with Dr Bryce Wilkinson, available here.

Of deficits and debt
Dr Bryce Wilkinson | Senior Fellow | bryce.wilkinson@nzinitiative.org.nz
How big is the fiscal deficit problem and how long will it take for our governments to turn it around?

Do not be fooled by rosy scenarios of painless correction. They typically rest on two assumptions: 1) an implausible degree of future spending constraint and 2) continuing positive national income growth to lift tax revenues.

Adopt those two assumptions and you have Treasury’s pre-election forecasts. Fiscal deficits turn into a minimal surplus in 2026-27.

But there is little joy even in this. The forecast surpluses remain modest, not exceeding even $1 billion in any year before 2034-35.

That means the public debt will still be high when the next unexpected economic shock occurs, be it higher global oil prices, an earthquake, a volcano or an epidemic.

Treasury forecasts that net Core Crown debt on the longest-standing measure will not drop below 40% of GDP until 2026-27 and will still be above 30% of GDP in 2027. That is bad. The Public Finance Act requires governments to restore debt to a prudent level after some event has passed that caused heavy borrowing. Before Covid-19, Treasury’s advice was that a prudent level, using this measure, would be no more than 20% of GDP.

I would expect it to advise the next incoming government that less than 20% of GDP on the same measure would be prudent. Public debt ratios in the US, EU and other countries are now much higher. This increases global financial risks.

The essence of the fiscal problem is this. Labour’s Fiscal Plan for the 2017 general election aimed to increase government spending in the five years to June 2022 by $11.7 billion. In the event, Covid arrived and increased it by $77 billion. (That represents over $38,000 of extra debt per household.)

But the more crippling fiscal problem is that Labour intends to continue to spend at the emergency-power level. That is the taxing problem.

When Labour took office in 2017, Treasury was forecasting core Crown operating spending for 2017-18 would be 28.6% of GDP, and falling because of large forecast fiscal surpluses.

If only.

Will the next incoming government continue the current “spend-up-big, borrow-and-hope” fiscal strategy or will it decisively move to achieve a more prudent level for the public debt?

National needs to make its position clear. Hopefully its pending fiscal plan will not merely tinker with the problem.

Ending the Scourge of Nutmeg
Dr James Kierstead | Research Fellow | james.kierstead@nzinitiative.org.nz
At the Initiative, we have consistently stood up for the rights of random bureaucrats to stop people making harmless choices in their everyday lives.

That’s why we were strong supporters of John Key’s decision to ban pseudoephedrine from pharmacies.

It just made sense. After all, most people who go into pharmacies are drug hounds just waiting for that stray poppy seed that might provide an opening into the Trainspotters lifestyle. Why risk it? After all, everyone knows they’ve found a cure for the common cold.

It’s also worth remembering how easily drug addicts and crime bosses are discouraged. If they can’t find an important ingredient for their drug of choice at the local dairy, they tend to throw their hands up and take up lawn bowls instead. This is why New Zealand has been free of meth since 2011 (Please check this. -Ed.)

In line with this excellent policy, we would like to extend Key’s thinking to other substances of concern, substances that will inevitably (considering what your average Kelburn householder is like) immediately be used to make hard drugs on an industrial scale.
  • Most urgently, we need to crush poppy seeds (in the metaphorical sense). In 2019, an Aro Valley dairy lost its liquor licence for selling a suspicious number of these tiny kernels of darkness. We need to go further. In the United Arab Emirates, people have been jailed for proffering poppy seeds. Failing to impose similarly tough sanctions here is tantamount to shooting up our youth.
     
  • Nutmeg is also not to be sniffed at. It may add a touch of Christmas to your pumpkin latte, but do not be deceived. You are literally only a few teaspoons away from perdition. Sprinkle wisely, or better still, do not sprinkle at all because it’s banned. New Zealand must lead the world on getting tough on powdered spices.
     
  • Finally, we really have no choice but to ban Coca-Cola. Yes, because of capitalism; also, yes, because of the caffeine and sugar (Dr Shane Reti’s openness to a sugar tax hardly goes far enough), but mainly because Coca-Cola used to contain cocaine, and even if it doesn’t now, that cheerily alliterative name still opens a (literally) high road to a collapsed septum.

Readers may snort. But the world is full of dangers, and ordinary Kiwis can hardly be trusted to take tiny risks into account, any more than they can be trusted not to take enough tiny seeds to catapult themselves to Shangri-La.

 
On The Record
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