This is a re-post of an article originally published on pundit.co.nz. It is here with permission.
Philosophers have hitherto only interpreted the world in various ways; the point is to change it.
Implicit in the title of the Michael Cullen’s memoir Labour Saving is his greatest policy achievement of improving the savings of the economy, as well as his saving the Labour Party from neoliberalism. But first, recall some of his other policy successes.
Although he was chief whip outside cabinet in 1984 to 1987, he had been Opposition spokesperson on the environment and was involved in the separation of the environmental agencies the Department of Conservation and the Ministry for the Environment from the muddle in the bureaucracy, thereby giving the environment an independent status in public policy.
As Minister for Social Welfare in 1987 to 1990, when he was not resisting Rogernomics he supervised a number of innovations including the Children, Young Persons and their Families Act. This eventually led to Oranga Tamariki. So we still have not got it right but if we ever do the 1989 act will be seen as a key development.
He took over the portfolio for Treaty Negotiations in 2007, already under the heavy burden of the finance portfolio, being the Leader of the House and more, and he acted on behalf of treaty claimants after he retired from parliament. He says this was one of his most rewarding experiences.
Most politicians would be proud of this list of achievements but he will be remembered even more as Minister of Finance. There is a lot of bitsy policy in the job but as the memoir title implies a key success was the building up the capital of New Zealand.
It began before he became the Minister. In 1993 he led Labour in the interparty joint negotiations with National which raised, in a series of steps, the age of entitlement to New Zealand Superannuation from 60 to 65. When the Old Aged Pension Act was introduced in 1898, 60 may have seemed a realistic age (its age of entitlement was 65) or again when the Social Security Act was enacted in 1938 (again the universal entitlement was at 65). But it was a combination of nostalgia and electoral calculation (i.e. bribery) which had Muldoon setting the universal age at 60 in his 1976 changes.
People are living longer (and healthier in old age). Suppose we lived to an average age of 100; would it make sense to provide a guaranteed minimum income for 35 or 40 years? One acknowledges the support for a universal minimum income but the advocates are silent on how it should be paid for, especially if it is at the level of New Zealand Superannuation. A similar funding challenge applies to retirement support. As the recent Treasury Long Term Fiscal Projections indicate it is becoming increasingly expensive.
Both Labour and National in opposition advocated raising the age of entitlement to 67; they are less enthusiastic in government. My preference would be to set the age in relation to life expectation. It is going to go up some day (unless a pandemic or the like shortens life expectations) and the young deserve to have a clear indication of when it does, instead of having it raised unexpectedly when it is too late for them to plan for it. (For an elaboration see here.)
Cullen resisted raising the age any further; I take it that he thought it is a third rail which politicians should not touch. (Recall how the Rogernomes thoughtlessly slapped a surcharge on high income New Zealand Superannuitants without thinking about the politics. It was abandoned in 1997 but the memory of the political disruption makes changing retirement entitlements difficult.)
Instead, Cullen introduced the New Zealand Superannuation (Cullen) Fund in which the government channels some of its savings to be invested to, so it is said, provide for the future rising cost of retirement. It does not actually work that way – the story is too long to detail here – but it allows the government to invest in New Zealand business, promoting growth of the economy.
That has not been the only such investment. Cullen pragmatically renationalised Air New Zealand and Kiwirail, after private business failed them, and agreed to the establishment of government-owned Kiwibank.
His general fiscal stance was conservative and he reduced the debt to GDP ratio to about 8 percent, which proved prudent, giving the Key-English Government much room to move during the Global Financial Crisis. There is a sense in which Cullen saved us from the severe Austerianism which bedevilled many other economies – although, no doubt he would acknowledge Bill English’s contribution.
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As Minister of Finance, Cullen made some minor improvements to taxation on private savings although more could be done. His big contribution was Kiwisaver. It has a long history.
When he entered Parliament in 1969, Roger Douglas was a social democrat and was impressed by the contributory investment funds for retirement in social democracies in Europe. It was he who drove the 1974 New Zealand Superannuation Scheme which Rob Muldoon abolished in 1976. By the time Douglas became Minister of Finance he had become neoliberal, such changes that were done to private retirement provision raised the taxation on them and discouraged saving. Afterwards he wrote his 1993 Unfinished Business which essentially proposed privatising public retirement provision.
When New Zealand First joined National in government in 1996, they proposed a second-tier contributory superannuation scheme. I confess I was asked to design it. I based the proposal on the 1974 New Zealand Superannuation Scheme (although rather than a single government fund, there were to be multiple privately managed funds among which investors would choose).
When Winston Peters asked the Treasury to design a scheme, they ignored this social democrat (1974) approach and designed one based on the neoliberal-Douglas (1993) proposal. (I don’t know how they got to this.) It went to a referendum in 1997 and was rejected by over 92 percent of the voters. (Cullen’s memoir notes that this undermined Peter’s political credibility and was a major contributor to his losing power in 1998.)
In 2005, Cullen as Minister of Finance, introduced Kiwisaver, which is very like the 1996 NZF proposal (and hence based on Douglas’ 1974 proposal).
One feature, not in the 1996 scheme, was government subsidies. At the time, Labour was running a large fiscal surplus and the usual suspects were demanding income tax cuts. They were not practical because the economy was booming and the extra injection of demand from the higher private incomes would have spiralled the economy into inflation or a balance of payments blowout or, most likely, both. So Cullen gave ‘tax cuts’ but they were deposited in the Kiwisaver accounts and could not be spent before retirement or other such circumstances.
I leave the last word with Michael Cullen himself:
I have been very much a fiscal conservative. In normal times, fiscal profligacy is, at base, an act of selfishness at the expense of future generations. It is the same attitude that has seen us pollute rivers, overfish our seas, use up non-renewable resources, plunder our forests and generally behave without thought for our own grandchildren or their grandchildren. Once, perhaps, there was an excuse of ignorance; but that excuse is no longer available to us. Even as we address crises such as the Covid-19 pandemic we need to remind ourselves there is a future beyond this we have to be aware of. As my future has probably shrunk to something not so very long I have become even more conscious of those who come after.
Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.
18 Comments
Pull the other one! NZ went into the GFC with incredibly low government debt and did not have anything like the recession other countries did, all thanks to his surpluses. If you think the government should effectively borrow so people can have "private savings" (which in NZ = property) I think you're mad.
Big tick for Kiwisaver, and supporting Jim Anderton's Kiwibank. But wasn't Cullen instrumental in Working for Families? Happy to be corrected but now entrenched state welfare for workers which will be near impossible to remove. Also had the lovely quote of 'rich pricks' when describing Don Brash, whilst he himself would be in the top 1%. Irony.
There are a lot more young adults around today, the potential support base for future retirees, because it Working For Families made it financially viable for middle class parents to choose to have children or to have more children.
If this policy hadn't been enacted then we would be more like Italy where centuries old villages are being deserted due to lack of inhabitants.
Working For Families was necessary to replace some of the lost wage growth caused by the austerity policies of the NZ govts of the 1980's and 1990's.
It seems to me that there was a need to encourage those who were considering having children by providing a financial incentive. So the govt is taking from all taxpayers and giving to a subset of likely child producing taxpayers. A tax cut would not have had the same impact of assisting with the costs of childcare especially if most of the tax cut went to the highest income earners.
It is obvious that worldwide more highly educated young couples are having fewer children due in large part to increased costs of childcare, education, housing in much of the world coupled with gloom about the future of the world and the later start of relationships in this cohort, added to increased choices and expectations for female high income earners. By the time they get to a stage when they are prepared to start having children it is often too late.
This was a good policy to mitigate the impact of some of the disincentives to having children. It's a shame that a successful policy cannot be recognised when the good results are right in front of people.
New Zealand has had a small success where countries like Germany, France, Italy, Korea, Japan and China are struggling to slow this trend.
The neoliberal policy of returning more tax to higher earners and compensating for this by increasing consumer and user pays taxes for everyone has meant that the tax burden falls on the user who is often younger and earning less.
There is a de facto subsidy for low income single parents having children in New Zealand so Working for Families provided an incentive for middle income couples to have children.
If New Zealand is to move products and exports up the value chain we need the educated and skilled future adults to be able to do so.
Biden in the US has seen the sense of childcare subsidies for the middle class and in the next two decades the US will see the benefits of his policy.
Didn't Cullen once respond to claims that Kiwis could pay less tax, earn more money and get cheaper houses in Australia that they should just move there?
I'm not sure how to evaluate Cullen's legacy. On the one hand he got NZ's debt down to what would prove to be a beneficially low level. But that was done at the expense of things like infrastructure and proper population growth support. Post-GFC it may well have been called 'austerity' but it's hard to look back on these things a decade later and remain unbiased by the events that followed.
Keith - we had an interesting situation during the Cullen era - Kiwis leaving to Australia being replaced by migrants primarily moving to the urban centres. On paper we were about even from memory, but the distribution of the population ended up changing a lot. And save for a couple of big-ticket items like rail electrification, there wasn't much in the pot until it became apparent the 2008 election was going to be a close-run thing.
What a bald faced re write of history. Cullen did not leave debt to GDP at 8%.
- from the 2008 Treasury Report. The self proclaimed fiscal conservative who left in the books in such a state gross debt was forecast to blow out to $71 billion - without any earthquakes.
"Gross debt is forecast to increase by $40.3 billion in nominal terms and as a
percentage of GDP by 15.6% over the forecast period. By the end of the forecast
period in the June 2013 year, gross debt is expected to be $71 .6 billion or 33.1% of
GDP."
http://www.treasury.govt.nz/budget/forecasts/eff2008/eff08.pdf
"National had barely got its feet under the Cabinet table before the Treasury further revised its forecasts and projected deficits of $6 billion-plus.
So much for “careful management”. Labour is relying on short memories to rewrite history, however. It won’t fool everybody. But in the heat of an election campaign, it is easy to spout fiction and difficult to establish fact."
http://m.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=1076…
The NZ Government had just posted a $12 billion surplus and crowed how good they were. Australia had just given a tax cut to it's people, and our government was being asked why they could not do that here. The cost of the same tax cut would have cost $2.5 billion. Michael Cullen come onto the MSM and stated to award the same tax cuts in NZ they would have to cut education and health spending to pay for it.
I hiccuped at this and wondered how a $12 billion surplus minus $2.5 billion resulting in a $10.5 billion surplus would still require a cut to education and health spending. Michael Cullen to me will always be an arrogant liar to the people of NZ. His famous "Rich Pricks" outburst demonstrated the level of his arrogance and hypocrisy. But then some historians, of which field Cullen had his doctorate in, take great delight in rewriting history.
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