Wednesday, 18 February 2015

Let's talk about debt, baby

Chris Hipkins asks:
Did you know the National government have quadrupled the level of govt debt that was forecast when they took office in 2008?
Nope, because it's not true. This is a familiar theme. Last year Chris claimed the government had run up a debt "bigger than Muldoon". That statement was only true if you ignore the debt to GDP ratio and just look at how big the number is. Which no actual economist would do.

This time he seems to have mixed up forecasts from 2008 and 2014. This is how things looked at the 2008 PREFU before Labour was voted out of office (Gross Sovereign Issued Debt):

The Government's Gross Debt to GDP was forecast to hit 35% of GDP by 2013, around NZ$51 billion.


The actual result (from PREFU 2014) for 2013 was $77.9 billion gross debt, and gross debt to GDP percentage slightly above 26%. But certainly not quadruple what Treasury forecast.

UPDATE: sorry, wrong comparison in the initial post.

Saturday, 7 February 2015

Waitangi at 175

Another Waitangi Day has been and gone. Only this one was a special date - 175 years since the signing of the Treaty. That it was relatively low-key to me is a tragedy for our country. When I took a look at official state commemorations, the Ministry of Culture and Heritage has a fairly low-key website for its Waitangi Day Fund with a familiar logo from the 1990s. Northland's local paper, The Northern Advocate, noted how low-key things were.

This contrasts with the festivals and fetes around the country. Jen and I went to the Ngāti Whātua o Ōrākei festival at Bastion Point, which is a terrific family event. The great thing is that such a festival would've been unthinkable in the 70s - Bastion Point was a protracted land occupation from the time that has now been settled, to the betterment not just of Ngāti Whātua but to Auckland's wider community.

Helen Clark's shunning of commemorations at Waitangi when she was Prime Minister didn't help. It's to John Key's credit that he has attended the commemorations at Waitangi since becoming Prime Minister. But to be fair to Helen Clark, she did inch things forward by awarding some Order of New Zealand honours on the day - something we should make permanent, abolishing the Queen's Birthday Honours.

Tuesday, 27 January 2015

Wages: Labour Cost Index vs Quarterly Employment Survey

Once again the opposition is claiming that half of all New Zealanders haven't had a pay rise in the past year, citing the Labour Cost Index. Statistics NZ are clear on this: the Labour Cost Index is one of the measurements of inflation (like the Consumer Price Index), it's an index of the increase in labour cost for a fixed input. This is the critical point. Statistics add:
By comparison, the average earnings measures from the Quarterly Employment Survey (QES) reflect not only changes in pay rates, but also compositional change (ie changes in the mix of labour from period to period).

What the LCI figures most likely show is that productivity increases are keeping pace with wage increases. That is a good thing because it means we're not just working harder, but making use of new technologies and work practices to get better outcomes. Which is exactly why when Labour were in office last, they used the QES, not the LCI, when it came to setting both paid parental leave rates and superannuation payment rates.

Sunday, 25 January 2015

Restoring our upper house - I

Gareth Morgan (of TradeMe and cat-ban fame) argues that New Zealand should restore its upper house as part of the Treaty Settlement process. Such a house would consist of 20 members, 10 appointed by Maori and 10 representatives appointed by the House of Representatives. The house would only have the ability to refer changes back to the house (which Gareth inaccurately calls "parliament"). For some time I've been thinking that New Zealand should restore its upper house - mainly as a way of resolving the perceived flaws in MMP, while retaining its benefits. I don't think Morgan's proposal is a good one, so I've come up with my own.

But first, a bit of background: the upper house is one of those curiosities of history that never went away. The "Legislative Council" was one of the original colonial organs created by Governor Hobson following the declaration of British sovereignty in May 1841 (even as the Treaty was still circulating about New Zealand for signing!). The Colony of New Zealand was directly-ruled a "Crown Colony", meaning political decisions were largely at the behest of the Colonial Office in London, with the Governor they appointed in New Zealand as all-powerful.

The Legislative Council was appointed by the Governor for the purpose of creating ordinances. Then with the passing of the New Zealand Constitution Act by Britain's parliament in 1852, the Legislative Council became the upper house, and the "General Assembly" (later House of Representatives) the lower house, elected solely by the Colony's British settlers.

The council itself remained an appointed body, and much dispute arose over appointments to it, which were for life. Gradually, the head of the colonial government - the Premier - won the right to appoint members of the council. But it wasn't until Premier John Ballance (who formed the Liberal Party, our first organised political party) demanded in 1891 that appointments be for a seven year-term. This change took an ironic twist when Richard Seddon, Ballance's successor, tried to outwit proponents of women's suffrage by appointing two anti-suffrage legislative councillors - the appointees rebelled and voted for suffrage in 1893.

Gradually the Legislative Council's powers were reduced by the Premier (Prime Minister from 1907) being able to appoint whoever they wanted to the body. As a result, the abolition of the council (and its replacement) became a hot topic from the late 1940s.

Opposition leader, and later Prime Minister Sid Holland pushed for the council's abolition, and introduced a members bill to do just that - however, Holland didn't realise that New Zealand's Parliament didn't have the power to abolish the Legislative Council, because the sections of the New Zealand Constitution Act 1852 covering it were still "reserved", i.e. they could only be amended by the British parliament. In response, the Statute of Westminster Adoption Act was passed in 1947, alongside the less well known New Zealand Constitution Amendment (request and consent) Act. This Act, passed by both New Zealand and Great Britain's parliaments, allowed New Zealand to amend its Constitution Act in its entirety.

That's what Holland's government did after it was elected in 1949 - using his power as Prime Minister, Holland stacked the Legislative Council with the so-called members of the "suicide squad" who would vote in favour of committing just that. The rest is history. Throughout its history, and shortly after its abolition, there were mutterings of replacement of the upper house over the years with an elected body (something that also pre-dated its abolition - in fact it was only because of World War I that a proportionally elected council of 43 members never came about) but nothing further happened until the 1990s.

By then, New Zealand was in the thrall of electoral reform. The government of Robert Muldoon had survived two elections (1978 and 1981) despite not winning the popular vote, prompting the Lange Labour government, elected in 1984, to instigate a commission on reforming the electoral system. The poor state of New Zealand's economy and Muldoon's further economic mismanagement had unwittingly unleashed the reformist zeal of Labour's Roger Douglas and the "fish n' chip" brigade. Despite Douglas falling out with Lange in 1988 - and the subsequent battle for power between the two destroying the political careers of both men - the reforms were carried on when National was re-elected in a landslide in 1990.

Set against this background, electoral reform went from a minor curiosity pursued by Geoffrey Palmer to an imperative in the public's mind. The 1986 report of the Royal Commission on Electoral Reform was largely ignored by the public - but during the 1987 election Lange miss-spoke during a leaders debate and promised a referendum on electoral reform (we was only going to promise a referendum on a four-year term, which was defeated at the 1990 election) - a promise matched by his opponent and eventual successor as prime minister, Jim Bolger.

A two-stage process was proposed, the first referendum occurring in 1992, asking two questions -should the electoral system change, and what alternative system should it be. The result was emphatically for change (84%) and MMP topped the alternatives (64%). At the 1993 general election - when Bolger's government scraped back in with one seat - the public voted in favour of MMP (53%).

The classical explanation for why MMP won at the referendums is that the public saw its adoption as a protest against the changes both Labour and National governments had introduced (I remember graffiti in 1993 scrawled on the Wellington Motorway at the time "Punish National - Vote Labour. Punish Labour - Vote MMP!"). In my view there were deeper reasons in the public's mind for adopting MMP than simply to protest against the big parties.

The genesis for electoral reform was in the late 1970s, but not just because of two general elections coming down to the wire. The dominance of Robert Muldoon in New Zealand's political landscape played a very important role in the eventual victory of electoral reform, because his premiership emphasised the lack of constitutional restraint on the executive in New Zealand, and specifically the ability of a minority within an overall majority to direct policy.

Muldoon's absolute dominance was a product not just of his bullying personality but also his combination of the offices of Prime Minister and Minister of Finance. Winston Churchill combined the offices of Prime Minister and Minister of Defence during the second world war for much the same reasons; so he could absolutely control the war effort. As both Prime Minister and Minister of Finance, Muldoon could absolutely control the economy, and therefore almost every aspect of New Zealander's lives. In constitutional terms Muldoon was undoubtedly the most powerful chief executive of the New Zealand state ever.

The tone of his premiership was set right from the outset with a slap-down by the Court of Appeal in the famous case of Fitzgerald v Muldoon. Through the Economic Stabilisation Act 1948 (thankfully repealed in 1987), he could effectively control the economy by decree - something he did with a wage and price freeze, in an attempt to reign in out of control inflation. The tone was set and carried through right until the end of Muldoon's premiership - with a constitutional crisis following the 1984 general election where Muldoon at first refused to implement the incoming government's advice to devalue the New Zealand dollar (in the days when our exchange rate was fixed), again unwittingly fueling the fires of economic reform.

Muldoon's unbridled power was only undone when his own caucus made it clear they would replace him as leader if he did not acquiesce to the incoming government's requests (this was the second time Muldoon's hold of the premiership was threatened, the first being an attempt to remove him, after only 5 years in office, in 1980). The underlying problem remained - and was further emphasised by the infighting over economic policy the characterised the eventual demise of the fourth Labour government in 1990: claim and counter-claim that the reformists were in a minority, directing the majority.

And so, in 1992 and 1993 the public voted for a new electoral system that introduced more checks on executive power by fracturing the two-party system. In my view it was a sub-conscious expression of a need for greater checks on the executive's dominance of the legislature, something that had evaporated in 1951.

We can only speculate on how different things might have been if the Legislative Council had become an elective body. Certainly the reforms of 1984 onwards would not have gone as far, but then without a totally domineering Prime Minister in Muldoon (kept in check by an upper house) I'm not sure they would have had to.

In my next post I'll explain why I think restoring an upper house can provide these checks, and keep the diversity that MMP has introduced to New Zealand politics.