Robert MacCulloch: Kiwi Secondary School Children are being taught misinformation about our economic history

Our new PM has been Education Minister the past five years. So what's his view on the "Labour in Power: Rogernomics, 1984 to 1988" part of the school textbook, Big World, Small Country: the 20th Century & NZ's Place In It? That book is being used in schools to teach National Certificate of Educational Achievement (NCEA) History. It states:

"Ironically it was the Labour government that, from 1935, introduced the major platforms of the welfare state; it would be another Labour government, 50 years later, which would begin dismantling them .. In line with the ideas of the "New Right", Douglas set out to remove much of the economic safety net that had been built up over the past 50 years".Those lines are incorrect. I challenge Hipkins to defend what's being taught to Kiwi school children about"New Right" policies from 1984-88. If I was a student reading the Right was on a mission to dismantle welfare, then I would not vote for the Right today. Is Hipkins happy to promote misinformation in schools to help him bank votes in Election 2023?

Why is the above quote misinformation? Let's do a fact check. In 1984 when Douglas became Minister of Finance, the NZ Treasury's Fiscal Time Series (1972-2022) reports Social Security & Welfare, Health and Education spending by the government totaled $7.5 billion. By 1988, it was $14.2 billion, almost doubling.

There was high inflation during 1984-88 due to the prior oil shocks so welfare may have been raised to keep up with prices. One way to control for that effect is to calculate how welfare spending changed as a fraction of nominal output. It rose from 20% to 22% of GDP, more than keeping up. However you look at it, the history book is wrong.

What did Douglas do and not do during his tenure as Finance Minister from 1984-88? He did not cut public health. He did not cut education spending, nor cut unemployment benefits. Douglas was known for designing ways to strengthen welfare, not dismantle it. Prior to 1984, he launched the NZ Super Scheme. Had it not been stopped by National, retired Kiwis wouldn't have to worry about their financial needs in retirement now, since it would be worth far more today than the Cullen Fund & Kiwi Saver combined.

Parts of Douglas' plan were (poorly) copied years later by a subsequent government in the form of Kiwi Saver, but he wanted everyone to hold such an account to avoid the situation we have today whereby the bottom 20% of earners don't have one, thereby exacerbating poverty.

Douglas' reforms were labelled "pro-market" due to the following features:

1. Reserve Bank independence with an inflation target
2. Floating the Kiwi dollar
3. Introducing Goods and Services Tax
4. Cutting the top rate of income tax
5. Privatization of State Owned Corporations
6. Elimination of Subsidies to Farmers
7. Deregulation, including the likes of import licenses

Dismantling the welfare state, or social safety net, that exists mainly to help low & middle earners was not part of it. To the contrary, it was richer types, like farm owners, for whom Douglas ended government support. He argued such subsidies gave them "privileges".

Since Labour's success at the polls relies on associated welfare cuts with "the right", expect Hipkins to stay silent on correcting these mistakes in the NCEA text book.

Sources:

https://www.treasury.govt.nz/publications/information-release/data-fiscal-time-series-historical-fiscal-indicators

Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.