Labour's obsession with avoiding one trap is leading it fair square into another

Every political party has its Achilles’ heel, its perceived weakness, a stereotype that attaches to it fairly or unfairly and which it must always work against in the public’s mind. In truth, it’s the same for any organisation and is why everyone from companies to nation states are so concerned about their culture and brand values these days.

It can be as simple as National always being seen as pro-business, but is more problematic when it’s also seen as uncaring of people at the bottom of society’s heap. The Greens now finally in power are super conscious of the long-running idea that they can’t be trusted with the levers of power because, well, they’ll try to knit our defence policy, print money out of hemp or something.

One of the monkeys that Labour has long carried on its back is its ‘tax and spend’ reputation. It’s an attack line that National trots out religiously each election, which is sometimes true and often not. The gut reaction/learnt behaviour of a lot of swinging voters is that Labour spends more and is less worthy of its trust when it comes to economic management and balancing the books.

Jacinda Ardern and Grant Robertson are hyper-aware of this and it’s why they talk so much about this government being “fiscally discipline” and why they set themselves Budget Responsibility Rules, such as cutting core Crown debt to 20 percent of GDP (which it hit three years early) or keeping core Crown spending at around 30 percent of GDP.

Their political antenna is so attuned to the lessons of the Lange and Clark years that they are have bound their own hands lest they scare the those centrist voters ahead of next year’s election.

Oh, they say they’re not so hide-bound and point to this year’s Budget, when they increased their planned spend from $2.4b to $3.8b. The Finance Minister was on Morning Report this week pointing to $10b worth of capital spending under way and $17b planned for transport alone over the next four years.

He was doing that because the Reserve Bank last week cut interest rates a surprising 50 basis points to a record low one percent. The old rule for a reserve bank is to set rates at where they think they will need to be in 18 months, so the sudden cut was as close as you get to central bankers cursing loudly and asking where the tornado shelter is.

That OCR cut is a way of trying to stimulate the economy sooner rather than later, which puts more pressure on the government to follow suit using its dollars. The pleas are now even coming from the ‘big end of town’. The banks, big builders and the like are not singing the usual ‘small government’ song, but are demanding spending.

If you want to get your head around the economics of this, check out Bernard Hickey’s analysis here on Newsroom. He points to a cut in capital spending over the five years to 2023 and “flat budget operational allowances in 2021 and 2022”.

I’d add in this fascinating table. The question is ‘just how conservative is this government being when it comes to spending?’. The answer is that our debt to GDP level is one of the lowest in the world; 11th in the world according to this. What are some comparable countries doing? Denmark’s ratio is at 35 percent; Australia’s is at 41 percent; Germany’s is 55 percent; Israel is 61 percent; Ireland 64 percent; Britain 85 percent… you get the picture. Cutting to 20 percent means we are an outlier, while the price of borrowing to build all that infrastructure is a little over one percent. How will history look back on this caution, I wonder?

The point of this blog, however, is meant to be a political one. And it’s this: While Labour has been so careful not to fall into one negative stereotype, it seems to have forgotten one of its others. It seems to be unwittingly walking into some political quicksand of its own making.

Because the flipside of its reputation as poor economic managers is its reputation for an obsession with social issues, sometimes dismissed as identity politics. Labour governments are often dismissed economically because they get a reputation for focusing on those social issues that help craft our identity as a nation. From state housing to nuclear-free to civil unions, Labour-led governments are linked in voters’ minds with our society, not our economy.

This has seen them blamed in the past of social engineering; the Clark years ended in confusion of shower heads, lightbulbs and Helengrad.

Strangely, Ardern and Robertson seem to have forgotten that part of the history lesson. Having been cautious of issues such as drug reform in the past for political reasons, they now face their first term in office being defined by a referendum on cannabis reform, a euthanasia bill, and now abortion reform.

Where they are putting runs on the board, it’s with issues such as mental health, “well-being” and climate change. Even this government’s crisis is a social rather than fiscal one. John Key got the GFC, Ardern got Christchurch.

Don’t get me wrong, these issues all matter. But the determination to be prudent is starting to make their first term look defined by social issues while being asleep at the wheel when it comes to the economy. Housing - arguably their top policy target - has been a bust thus far and they head into election year with not much of a story to tell about economics and infrastructure. Where is action on the banks? On helping councils fix their pipes? On the big rail and roading projects? On something that breaks the incremental mould?

Where this government has been doing some economic work, New Zealand First is ensuring it gets the bulk of the headlines.

Ironically, Labour’s fear of fulfilling one stereotype is leading them towards fulfilling one that provides just the same political risks. Avoiding one trap, but falling into another.

They don’t have time to waste; Labour needs to start talking about the economy and showing it can lead on the fiscal front. That means spending some money and changing the conversation or it risks being seen not as prudent economic managers, but negligent ones more concerned about the feel-good factor than people’s hip pockets.