Robert MacCulloch: Is National's Economic "Strategy" Already Unravelling?

When Tony Blair's New Labour government came to power in 1997, he pulled off a remarkable string of three election victories. The "trick" of this achievement stemmed from Blair's promotion of, in particular, the financial services industry in London, and his support for light-touch regulation. The entire UK economy was lifted. Tax revenues soared from that industry, even as bankers paid themselves huge bonuses. They loved Blair. So how did he placate the left of his party?

Blair poured those tax revenues into "rebuilding" the National Health System, which was his main election promise. He won support from both right and left, at least for a time. The way Blair made it happen, though, was on the back of a booming economy, and that one industry in particular.

Meanwhile in NZ in 2023, our economy has barely been growing this past year. In GDP per capita terms, we're currently in recession. Total GDP is rising only on the back of soaring immigration. Without a Blair-style boom, how can National pay for the required investments in health-care, education and infrastructure? It can't. What large industry can National rely upon to engineer a boom? It is far from obvious.

The way out would have been for National to propose an entirely new approach to welfare, such as moving to a savings-based Singapore-style model, for example. But the party has no intention whatsoever of doing anything that could remotely be labelled as "radical" .. which means it can not appeal to any significant potential efficiency gains that will help ensure our welfare system can do more for the same level of existing funding.

This National government could well unravel.

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.