Yesterday’s victory of “democratic socialist” Zohran Mamdani in the race for the New York mayoralty is fuelling debate among progressives around the world about the way forward.

And this has significant implications and lessons for the political left in New Zealand, casting the Labour and Green parties as too tired and bland for the Zeitgeist of public discontent with the status quo.

Mamdani’s startling victory in the financial capital of the world symbolises a broader shift in global politics.

His triumph, alongside the rise of similar left populists abroad, sends an unmistakable message: voters are hungry for politicians who take the side of ordinary people over corporations, and who offer bold solutions to the cost-of-living crises squeezing families worldwide.

The Mamdani phenomenon follows on from some other interesting radical left politicians doing well at the moment, including the new leader of the Green Party in the UK, Zach Polanski. These politicians seem to be doing better by appealing to the Zeitgeist of anger with inequality and oversized corporate power that characterises Western democracies everywhere.

Such politicians and activists are channelling the tone of other recent radicals like Bernie Sanders and Jeremy Corbyn, who both embraced a leftwing populism concerned with working class citizens.

Here in New Zealand, however, the contrast is stark, where the political forces of the left are very timid by comparison. The Labour and Green parties remain stuck in the past and unwilling to catch up with the anti-Establishment radicalism, that focuses on broken economic systems.

However, locally some commentators are pushing for the political left to learn lessons from the likes of Mamdani and Polanski.

Simon Wilson: Focus on class, not identity politics
Leftwing columnist Simon Wilson wrote yesterday in The New Zealand Herald that “Labour and the Greens can learn from Mamdani”, pointing out that although the New Zealand left has become overly associated with identity politics, the successful way forward is “class politics”.

Wilson says: “Instead of allowing his opponents to define him as an “identitarian lefty” — and they really have tried — Mamdani is all about the working class.”

In policy and campaign terms, Wilson says Mamdani has been successful by getting away from liberal/moderate issues:

“His main platform is simple. He wants to reduce the cost of living for ordinary working people. And instead of wringing his hands about it, he has a plan to make it happen. It includes childcare reform, a significant rise in the minimum wage, a rent freeze, more affordable housing, free public transport and price-controlled city-owned supermarkets. Oh, and comprehensive public-safety reform and higher taxes on the wealthy.”

Wilson also suggests that the political left in NZ should be focused on the enemy of crony capitalism (also the theme of my ongoing series about oversized corporate power): “It might be corporates, determined to prevent meaningful reform of oligopolistic sectors of the economy, such as banking, supermarkets and energy.”

Such an approach, Wilson suggests dovetails with a type of “democratic socialism” that should be embraced here. As another example of this, Wilson says, is the new leader of the Green Party in the UK, Zach Polanski.

Donna Miles: Kiwi politicians need to push back against corporate capture

On Monday, columnist Donna Miles also wrote in The Press that Zack Polanski and Zohran Mamdani are showing the way for the global left to push back against corporate power. She explains the problem of how corporate power now swamps New Zealand politics, in a similar way to what Mamdani and Polanski are fighting:

“New Zealand faces a parallel plague of vested interests eroding faith in democracy. The revolving door between politics and lobbying creates unfair access, allowing former officials to trade insider knowledge for influence.”

Miles explains the recent success of the new environmental populist leader in the UK:

“The second politician you should know about is Zack Polanski, the gay Jewish leader of the UK Green Party who is of Eastern European descent. Elected last month with a landslide 85 percent of the vote from party members, Polanski’s bold policies on wealth taxes, free childcare, green jobs, and social justice have triggered an immediate ‘Polanski surge’, with membership reaching 126,000, making it the third-largest political party in the UK.”

New Zealand’s timid political left
Leftwing thinkers in New Zealand are viewing the rise of these bold leftwing populists with envy. Why can’t New Zealand’s left tap into the Zeitgeist that Mamdani and Polanski are successfully surfing? Why can’t they concentrate on the “broken economic system” that Mamdani put at the centre of his widely successful campaign?

For example, Steven Cowan has blogged to say “Mamdani’s election victory will be a rebuke for NZ’s timid politics”. He argues that Mamdani’s victory shows “that voters are not allergic to bold politics”, and he laments that the parties of the left here are worried about coming across as too radical.

Chris Trotter suggests that there is a new shift towards class politics occurring around the world, which the New Zealand left are missing out on, saying “Poor old Labour doubles-down on identity politics, just as democratic-socialism comes back into fashion.”

Trotter points out that Labour managed to alienate all their democratic socialists many years ago, and their absence meant that a “new left” took over the party:

“To rise in the Labour Party of the 21st century, what one needed was a proven track record in the new milieu of ‘identity politics’. Race, gender and sexuality now counted for much, much, more than class. One’s stance on te Tiriti, abortion, pay equity and LGBTQI+ rights, mattered a great deal more than who should own the railways. Roger Douglas had slammed the door to ‘socialism’ – and nailed it shut.”

Trotter holds out some hope that the Greens might still avoid being pigeonholed in identity politics:

“The crowning irony may well turn out to be the Greens’ sudden lurch into the democratic socialist ‘space’. Chloë Swarbrick makes an unlikely Rosa Luxemburg, but, who knows, in the current political climate-change, ditching the keffiyeh for the red flag may turn out to be the winning move.”

Taking on corporate capture: Could Chlöe Swarbrick ditch the keffiyeh for the red flag?
The rise of figures like Mamdani and Polanski is not occurring in a vacuum. It reflects growing public recognition of a problem I’ve been documenting in this column for weeks: the systematic capture of democratic politics by corporate interests.

As I’ve detailed in my ongoing series on New Zealand’s broken political economy, our democracy has been hollowed out by lobbying firms, political donations, and the revolving door between government and industry. From agricultural emissions policy to energy market reforms, we see the same pattern: vested interests using their wealth and access to shape policy in their favour, while the public interest is systematically ignored.

Throughout the campaign, Mamdani made it clear who the enemies of progress were. He railed against corporate landlords, Wall Street banks, and monopolistic companies profiteering off essential goods. New York’s economy, he argued, was full of broken markets that enriched a wealthy few at the expense of everyone else – and it was time to take them on.

By naming and shaming the elites (and proudly embracing the “socialist” label), Mamdani gave voice to a public anger that had long been simmering.

Mamdani’s win is part of a broader pattern. Across the world, leftwing populists are gaining ground by focusing relentlessly on material issues and openly targeting the corporate elites blocking progress. Rather than moderating their economic demands, these leaders channel public anger toward the billionaire class and monopolistic corporations.

And they back it up with concrete proposals to improve ordinary people’s lives. This approach is proving far more popular than the cautious centrism that dominated recent decades.

It turns out that a “bread-and-butter” socialist agenda of making essentials affordable, and forcing the ultra-rich to pay their fair share, resonates deeply in an age of rampant inequality. Policies once dismissed as too radical are now vote-winners.

Freeze rents? Tax windfall profits? Use the state to break up corporate monopolies and provide free basic services? These ideas excite voters weary of struggling to make ends meet while CEOs and shareholders prosper.

We’ve seen this new left populism surge in many places. In the United States, for example, Bernie Sanders’ campaigns and Alexandria Ocasio-Cortez’s outspoken advocacy popularised these themes, and recently Chicago elected a progressive mayor on a pledge to tax the rich for the public good.

In Latin America, a string of socialist leaders, from Chile’s Gabriel Boric to Colombia’s Gustavo Petro, have swept to power promising to rein in corporate excess and uplift the masses. The common denominator is clear: voters respond to politicians who offer a clear break from the pro-corporate consensus and speak to their real economic grievances.

Here in New Zealand, the Labour Party and its ally the Greens should have been the vehicle for bold change. But instead they’ve both largely stayed the course. When Labour took office in 2017, there were high hopes for a transformational government. Yet Jacinda Ardern and her successors ultimately shied away from any fundamental challenge to the economic status quo.

They tinkered around the edges of problems, unwilling to upset the powerful or depart from orthodoxy.

Even when Labour admitted certain markets were broken, for instance acknowledging the supermarket duopoly that was overcharging Kiwis for food, it refused to take decisive action. A Commerce Commission inquiry into supermarkets resulted in gentle recommendations and a voluntary code of conduct, but no real crackdown on the grocery giants’ excess profits.

The government balked at imposing windfall taxes on the booming banks or power companies. Its much-vaunted KiwiBuild housing scheme collapsed far short of targets, and it never embarked on a serious state house building program. Time and again, opportunities for bold intervention were passed up. It often seemed Labour was more afraid of annoying corporate interests than of disappointing its own voters.

In the end, the Labour-led government managed a broken economic system rather than transforming it. And during a mounting cost-of-living crisis, “managing” wasn’t enough. By 2023, many traditional Labour supporters felt little had changed for them — and they were right. The party had kept the seat warm, but it hadn’t delivered the economic justice it once promised.

Time to catch up with the Zeitgeist
The contrast between New Zealand’s left and the new wave of international left triumphs could not be more stark. Overseas, the left is rediscovering its purpose as the champion of the many against the few, of public good over private greed.

At home, our left has spent recent years timidly managing a broken status quo. If there is one lesson from Zohran Mamdani’s New York victory — and from the broader resurgence of socialist politics abroad — it’s that boldness can be a virtue for parties that claim to represent ordinary people.

To catch up with the Zeitgeist, New Zealand’s Labour and Green parties will need to break out of their cautious mindset and actually fight for transformative change. That means making our next political battles about the “big guys” – the profiteering banks, the supermarket duopoly, the housing speculators – and about delivering tangible gains to the public.

It means having the courage to propose taxing wealth, curbing corporate excess, and rebuilding a fairer economy, even if it upsets a few CEOs or lobbyists. In short, it means offering a clear alternative to “broken markets” and business-as-usual.

The winds of political change are blowing in a populist-left direction globally. It’s high time New Zealand’s left caught that wind. If Labour and the Greens cannot find the nerve to ride the new wave of public enthusiasm for economic justice, they risk being left behind by history.

In an age of crises and inequality, timidity is a recipe for oblivion. Boldness, on the other hand, just might revive the left’s fortunes.

Dr Bruce Edwards is a political commentator and analyst. He is director of the Integrity Institute, a campaigning and research organisation dedicated to strengthening New Zealand democratic institutions through transparency, accountability, and robust policy reform.

Article by AsiaPacificReport.nz

In Question Time in Parliament, yesterday, Finance Minister Nicola Willis was asked a question about the extent of the cost of government debt-servicing. The answer, in short, was ‘a lot’; and she mentioned that the cost had been assessed on an interest-only basis.

The ensuing round of supplementary questions never got to establish the contribution of the Reserve Bank’s high interest monetary policy (since late 2021) to the increased cost of government debt-servicing.

(We should note that New Zealand has one of the lowest government debt profiles of any advanced-nation economy. I also note that, when discussing the Air Force’s Boeing 757 crisis, Judith Collins noted that New Zealand has an aspiration to be a high-income country, before ‘correcting’ herself to say that New Zealand is a high-income country. New Zealand’s problem is the rate of interest, not the extent of government debt.)

We need to note that the first thing this 2023 coalition government did (in December) was to tighten the Reserve Bank’s ‘anti-inflation’ mandate. So, there can be little doubt that present ‘high interest rates’ represent core government policy, and not simply an independent monetary policy which the government has to contend with.

Raising Costs to Reduce the Cost of Living ?!?

‘Raising costs to reduce costs’ is monetary policy orthodoxy, with the context of reducing the cost of living being to have a lower cost of living than would otherwise be the case.

Interest rates represent the ‘cost of capital’, just as wages represent the ‘cost of labour’. Raising the cost of capital to suppress a ‘cost-of-living crisis’ is as counterintuitive as it would be to order an increase in wages to suppress the said ‘cost-of-living’ crisis.

(I would like to note here Chris Trotter’s 29 Feb piece The Clue Is In The Name. Trotter notes that, in 1936 when the National Party was formed, it should really have been called The Capital Party. Labour and Capital were the juxtaposing parties in the economic class war. It would be in the nature of the Capital Party to call for increases in the price of capital, just as it would be in the nature of the Labour Party to call for increases in the price of labour. But the Capital Party in 1936 would not have regarded higher capital costs as a means to reduce the cost of living.)

How does the National Party get away with its policy to jack-up the cost of capital as a cost-cutting measure? (In a free-market economy, interest rates should be set by the market, not by the authorities.)

Why does anyone think that raising interest rates does not aggravate a Cost-of-Living crisis?

Stupidity might be one answer. This National government certainly acknowledges that the high cost of capital aggravates its cost-of-living crisis; so why not apply that reasoning to the country as a whole, especially mortgagors and small businesses?

But the answer to the question goes back to the 1980s. It was only the Social Credit Party then that called out the National and Labour governments for allowing (or actively using) high and rising interest rates to aggravate CPI inflation. And Social Credit was laughed off the stage.

The argument against Social Credit’s assertion then was that interest payments were a comparatively trivial part of a nation’s business costs. Indeed the system of national accounts understates interest costs. In the national accounts, interest is only treated as a cost inasmuch as bank interest margins represent the trading profits of banks. What the system of national accounts covers-up is that interest acts as a transfer mechanism from poor to rich, from small businesses to large businesses; while interest is a cost to some, it is a benefit to others. A ratchetting-up of interest rates this decade represents a massive increase in the scale of poor-to-rich transfers.

The position of the 1980s’ monetarists was that interest rates were a demand-management mechanism, and not a cost of business. The monetarist position was later enhanced by the ‘rational expectations’ theory; the idea that once there was a CPI inflation in place, economic ‘actors’ would expect an accelerating process of inflation to ensue unless drastic deflationary policies were quickly implemented. Indeed, monetary policy as has been pursued by Reserve Banks since the 1990s (and the RBNZ since the late 1980s) has been a shock demand-management tool that in practice has been at best ineffective in achieving its stated goals – from the late 1980s, CPI inflation was coming down anyway – though powerful in achieving its unstated redistributive goals.

Easy monetary policy – sustained low interest rates and quantitative easing – neither produced inflation in the 2010s nor in the late 1930s, as the monetarists expected it would.

In my own teaching of macroeconomics at Unitec, I had little choice but to teach the monetarist and rational expectations’ theories which presented monetary policy only as a demand-management tool. But I did encourage my students to take a critical view of the textbook and other material they consumed. And I always rewarded them in essay-marking if they commented on the possibility that rising interest costs were a part of the inflation-problem rather than the unquestioned solution to a cost-of-living crisis.

Full Circle

The new government has re-invented the Social Credit position from the 1980s. But government people are not joining the dots. National continues to believe that raising the cost-of-living is the best (if not the only) way of lowering the cost of living. And (intellectually lazy) Labour is not contesting Capital on this point.

————-

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

Greenpeace has welcomed the Greens for being the first party to announce a household solar policy for Aotearoa New Zealand’s election in October, but says the party’s stance in post-election negotiations will make all the difference to addressing the climate crisis.

The Green Party announced its Clean Energy Payment policy today which would see homeowners receive up to $6000 in grants and up to $30,000 in zero interest loans to help install insulation, heat pumps and household solar.

The Greens have also pledged to make low-carbon upgrades tax deductible for landlords so that renters can benefit.

The Greens’ Zero Carbon Homes upgrade is planned to:

• scale up solar on Kainga Ora homes to 30,000 more households in the next three years,
• expand Warmer Kiwi Homes to cover more zero carbon upgrades such as replacing gas heaters, and
• fund Community Energy providers and by Māori, for Māori approaches.

Grants could be used to cover 25 percent of the cost of things like better insulation; replacing fossil-fuel appliances, like gas heaters, with clean alternatives, like heat pumps; and to purchase rooftop solar power, reports NZ News.

The funding would come from revenue from the Emissions Trading Scheme, through the Climate Emergency Response Fund.

Green Party co-leader James Shaw said while people struggled with energy challenges, the planet was heating “at frightening speed”.

A ‘clear answer’
“There is a clear answer staring us in the face: warm homes powered by clean, cheap, low-carbon energy, supplied straight from our roofs,” Shaw said.

“The Clean Power Payment is as close to a perfect investment as you can get: slashing soaring bills for families, slashing emissions, and creating thousands of good jobs,” he said.

“Most people want action on the climate crisis and action on the cost of living.”

Greenpeace Aotearoa spokesperson Amanda Larsson said: “Greenpeace has for years been calling on political leaders to commit to solarising New Zealand as a way to replace climate-polluting fossil fuels and give regular people more control over their energy.”

More than 30,000 people have signed a Greenpeace petition calling for government investment in household solar.

“We are pleased to see the Greens take up the gauntlet with this policy announcement. It’s common sense and something that many New Zealanders say they want.

“But, to date, New Zealand has really lagged behind our peers when it comes to helping households make their own clean power from the sun.”

Parties ‘need to be ready’
Larsson said the climate crisis was here, and that political parties should be ready for this year’s election to be a climate election as New Zealanders demanded political climate leadership.

“People across Aotearoa have borne the brunt of the climate crisis this year, from Cyclone Gabrielle in the north, to severe drought in the south.

“We are all watching in real time as climate disasters unfold around the world, whether it’s extreme heat and severe floods to the horrendous fires currently happening in Hawai’i.”

Larsson also says that, when it comes to climate change, it’s important to remember that it’s not all about renewables.

“Here in New Zealand, we have too many cars and too many cows. Intensive dairy is New Zealand’s most polluting sector, closely followed by road transport.

“Any political party that is serious about climate change also needs to come to the table with ambitious policies to regulate big dairy and divert road spending towards more rail, public transport, walking and cycling.”

Larsson added that the Green Party’s’ ability to address climate pollution if in government would ultimately come down to what they choose to prioritise in any post-election negotiations.

Article by AsiaPacificReport.nz

Incoming Prime Minister Chris Hipkins of Aotearoa New Zealand has signalled tackling the “inflation pandemic” will be a top priority for his cabinet’s slimmed-down work programme.

Hipkins and new Deputy Prime Minister Carmel Sepuloni — the first with a Pasifika heritage — will take the reins on Wednesday, following Jacinda Ardern’s sudden announcement last week she was quitting after a challenging five years in the top role.

It was perhaps the cleanest transfer of power in the Labour Party’s recent history, and a far cry from the post-Helen Clark, pre-Ardern years of infighting and headline-grabbing leadership tussles.

“Jacinda Ardern and I are both absolutely committed to providing strong and stable leadership to New Zealand,” Hipkins told RNZ’s Morning Report today.

“I think that’s what they’ve seen from the Labour government over the past five-and-a-half years, and that’s what they’re going to continue to see.”

While in 2020 Ardern led the party to the most comprehensive victory of any in the MMP era and still leads polls for the most-preferred prime minister, those same polls suggest Labour is on track to lose the election later this year.

With polls also showing the cost of living and inflation are far more important to voters than the likes of Three Waters reform and merging state-owned media entities, Hipkins said it was time to “run the ruler” over the government’s work programme.

Need to focus
“We need to focus in on some of those bread-and-butter issues that New Zealanders are certainly focused on at the moment, including issues like the cost of living, the effects of the ongoing global inflation pandemic that we’re experiencing at the moment.

“We just have to make sure that we’re putting our resources into the things that are going to make the biggest difference and that are the most important.”

Asked if tackling inflation could come in the form of “tax relief” or toning down the Labour government’s rapid increases to the minimum wage, Hipkins said he would not make up policy “on the fly”, but would be careful to make “sure that the policy settings that the government has aren’t going to make the inflationary problem worse”.

But he hinted those on the lowest incomes wouldn’t be a target for reining in inflation, which — as he noted with the phrase “inflation pandemic” — is a global problem.

“People on the lowest incomes often feel the pinch from higher inflation more than most because they don’t have a lot of extra disposable income to meet those additional costs.”

As for public servants, many he said were in pay discussions at present so he could not comment.

Another global issue New Zealand has not been immune to is the worker shortage. Hipkins said he would not “simply rely on immigration as being the only answer” to that particular problem.

“They want more skilled workers, but they also want to know that their sons and daughters, and their classmates and so on, are also going to find productive, gainful employment… I don’t think it’s and either-or…

“We’ve got thousands of young New Zealanders at the moment who aren’t doing anything. We’re going to have to have a bigger focus on making sure we activate that potential labour force, which at the moment isn’t there.”

‘Take a breath’
Asked if the Ardern-led government had moved too fast on social issues, Hipkins said while “worthy and valuable, we can’t always progress them all at the same time” and it was time to “take a breath”.

But he would not say which programmes might be scaled back or scrapped, having yet to meet with his new Cabinet.

Opponents of the Three Waters reforms however are likely to be disappointed – Hipkins saying that will still go ahead.

“Some of the rates increases people could see without further reform in this are could be … thousands of dollars a year extra on their rates if we don’t do something to address this issue. I’m not going to walk away from that.

“But I will run the ruler over what we’re currently proposing to make sure that we’re focused in on the right issues.”

A few articles published over the weekend suggested Hipkins’ political views were to the right of Ardern. On having that put to him, Hipkins said labels like that “don’t mean a lot”.

“I’m a Labour politician. I believe in the role of government to support New Zealanders, to make sure that they have opportunity . . .

“I absolutely believe in the values the Labour Party was founded on, which is that we are here for people who are working hard to get ahead and create a better life for themselves and their families.”

This article is republished under a community partnership agreement with RNZ. 

Article by AsiaPacificReport.nz

Fiji Prime Minister Sitiveni Rabuka has already started work to achieve the People’s Alliance-led coalition 100-day plan outlined in its manifesto.

He recognises that things such as cost of living, water and electricity outages are existing issues that can be solved after a thorough review and consultative process.

In its manifesto, the party had stated it would consult on price control on basic and zero-rated VAT food items.

During an interview with The Fiji Times, he also voiced plans to grow the economy to a level whereby the revenue and expenditure could “harmonise continuously”.

“We cannot immediately effect reductions because the revenue forecast has been done in the last budget,” he said.

“At the moment, we do not see any signs of any sudden increase in our revenue so we do not want to suddenly increase some of the expenditures and we’ll probably run out this budget according to the forecast, and then bring in those measures that we would like to achieve [with] the budget target for the full budget year.

“But that’ll be after the 100 days. Those that can be done within the 100 days, we’ll have to do.”

Rabuka said he had already met with the permanent secretary of the Prime Minister’s Office and expected an informal Cabinet sitting on Thursday where they would be briefed on the country’s economic situation.

Shayal Devi is a Fiji Times journalist. Republished with permission.

Article by AsiaPacificReport.nz

Thousands of New Zealand tertiary union members will go on strike at eight universities tomorrow over a cost of living pay demand.

The Tertiary Education Union (TEU) said its members were walking off the job for part of the day at the eight universities in the country.

Union members at Auckland University of Technology initially planned to refuse to enter students’ marks from October 6 to 21, the union said.

However, after the AUT management warned that striking staff would face suspension and loss of pay for two weeks, TEU withdrew the action so that staff would join the Thursday strike instead, a later union statement said today.

The TEU, which has 7000 members, is demanding an 8 percent pay rise needed to keep up with the cost of living.

Each university was negotiating its own collective agreements with the union, but the agreements expired at about the same time enabling a co-ordinated industrial action.

The action announced includes full stoppage between 1pm and 5pm at University of Auckland, University of Waikato and AUT; from 12pm to 4.30pm at Victoria University of Wellington and for shorter periods at three other universities.

There will be rallies at each university and marches and pickets at Waikato and Massey universities.

On its website, the University of Auckland stated it had explained to the unions that it had made an offer that was fair and reasonable and rewarded staff, while retaining fiscal responsibility.

“The university has made a best offer of a 5 percent and 4 percent general revision offer over two years, subject to certain conditions,” the statement said.

This article is republished under a community partnership agreement with RNZ.

Article by AsiaPacificReport.nz

More than two million New Zealanders will get a one-off $350 sweetener as part of the Budget’s centrepiece $1 billion cost-of-living relief package.

The temporary short-term support is counterbalanced by a record $11.1 billion for the health system as the government scraps district health boards (DHBs) and replaces them with a central agency.

“Our economy has come through the covid-19 shock better than almost anywhere else in the world,” Prime Minister Jacinda Ardern said in a statement. She is in covid isolation.

“But as the pandemic subsides, other challenges both long-term and more immediate, have come to the fore. This Budget responds to those challenges.”

Ongoing uncertainty over inflation, covid-19 and the Russian invasion of Ukraine continue to cast a pall over the economy until at least the end of the year.

A large $19 billion deficit is expected this year, returning to surplus in 2025.

Treasury is forecasting house prices to ease and unemployment to drop as low as 3 percent.

Cost-of-living sweetener
New Zealanders aged 18 and over will be eligible for the $350 payment unless they earn more than $70,000 a year or already receive the Winter Energy Payment.

The sum will be paid in three instalments over August, September and October, working out at roughly $27 a week.

The temporary payment is estimated to cost $814 million — funded out of the remaining money in the covid-19 war-chest which is now being wound up.

NZ Finance Minister Grant Robertson delivers Budget 2022. Video: RNZ News

The support comes with a two-month extension to the fuel tax reduction and half-price public transport given the current high fuel prices.

New Zealanders who have a community services card will continue to get half-price public transport permanently from mid-September.

“While we know the current storm will pass, it’s important we do what we can to take the hard edges off it now,” Ardern said.

The government will also rush through legislation under urgency over the next few days to crack down on supermarkets in an effort to reduce grocery bills.

The legislation will ban supermarkets from using restrictive covenants to prevent competitors from accessing land to open new stores.

Ministers flagged further announcements in response to the Commerce Commission’s recent report in the sector “in the coming days”.

Health service
The Budget contains “the largest investment ever in [the] health system” — $11.1 billion — as the government presses ahead with its plan to replace DHBs with a centralised health service.

An initial $1.8b annual investment this year will help clear DHBs’ debt, giving the replacement Health New Zealand service and Māori Health Authority a “clean start”.

Health Minister Andrew Little said the 20 DHBs had collectively run annual deficits in 12 of the 13 years since 2008.

“As Health NZ takes over the books from the 20 DHBs on 1 July, a funding boost is being provided so the national system can start with a clean slate.”

The Māori Health Authority will get $168m over four years to directly commission hauora Māori services.

New Zealand’s drug-buyer Pharmac will also get an extra $191m over the next two years – in what Little says is the medicine budget’s “biggest-ever increase”.

It brings total funding to $1.2 billion which is 43 percent higher than when Labour was elected in 2017.

“Pharmac has assured me it will use this funding to secure as many medicines on its list as it can, with a focus on better cancer treatments, to ensure as many New Zealanders as possible benefit from this biggest-ever increase to its medicines funding,” Little said.

More than $166 million has been put aside over four years for ambulance services, adding more than 60 vehicles to the road fleet and about 250 more paramedics and frontline staff. Another $90.7 million will go towards air ambulance services to replace ageing aircraft with modern helicopters.

The Budget increases dental grants for low-income families from $300 to $1000 in line with Labour’s 2020 campaign promise.

A new Ministry for Disabled People is also being established at a cost of $100 million.

Housing support
While the housing market is showing signs of slowing, the Budget includes more support for first home buyers with funding available for about 7000 more grants.

House price caps across regions have been increased to line up with lower quartile market values for new and existing properties.

It means some significant shifts — both Wellington’s cap and Queenstown’s jump from $650,000 to $925,000, and Tauranga’s jumps from $600,000 to $875,000.

The income caps remain the same but will be reviewed every six months along with the new house price caps.

A new $350 million housing fund has also been set up where not-for-profit developers can apply for grants to build affordable rental accommodation.

Education equity
Replacing school deciles is the single biggest area of new spending for education.

The Budget provides more than $80 million a year for the equity index which replaces deciles as the measure of disadvantage in schools.

Most of the money, $75 million a year, will go directly to schools, adding to the $150 million they currently receive through the decile-based system.

The budget increases school operations grants and tertiary and early childhood education subsidies by 2.75 percent.

There is also $266 million over four years to give early education teachers pay parity with school teachers.

In tertiary education, the Budget provides $56 million a year to pay for an expected increase in enrolments next year and in 2024.

There is also $40 million for modernising polytechnic facilities.

Māori health, wellbeing
More than half a billion dollars is being pumped into the Māori Health sector with $579.9 million going towards Māori health and wellbeing.

The Māori Health Authority, Te Mana Hauora, is set to be launched July 1 and will receive $188.1 million over four years for direct commissioning of services.

Some $20.1 million will go to support iwi-Māori partnership boards, and $30 million will be invested into Maori providers and health workers to provide support and sustain capital infrastructure.

Lack of workforce capability has been identified as a key factor in being able to bolster Te Mana Hauora — and $39 million will be used for Māori workforce training and development to support them within the new health system.

The $579.9 million invested in Māori health and wellbeing is on top of the $11.1 billion health allocation.

This article is republished under a community partnership agreement with RNZ.

Article by AsiaPacificReport.nz

The big new story in the news cycle – in New Zealand but not only in New Zealand – is the rising ‘cost of living’, which is usually conflated with ‘inflation’. These topics – together and separately – are, like Covid19, devolved to ‘social science’ (macroeconomist in this case) ‘experts’; within the policy-making apparatus and within the newsroom.

In fact, these topics – ‘cost of living’ and inflation, as policy topics – have never been dealt with scientifically; monetary and fiscal policies routinely applied are as unmodern as was bloodletting as a commonly prescribed cure in the pre-modern era of medical ‘science’; as in the era when, routinely, medical interventions on balanced caused more cost than benefit.

Just as we do not yet have anything like a consensus about the causes of and recovery from the Great Depression of the 1930s, we have nothing like a scientific consensus about the causes of and recovery from the Great Inflation of the 1970s. It’s mainly because most ‘experts’ take a textual (akin to religious) approach to these questions, and not a scientific approach.

Cost of Living

It is widely understood that a rise in the cost of living and inflation are the same thing, and that they are caused by wicked people ‘price-gouging’ or (as economists might say) ‘rent-taking’. Or that some foolish or wicked bankers have created too much money, allowing the greedy to gain at the expense of the regular ‘mums and dads’. (We may note that Jacinda Ardern spoke of a ‘wicked perfect storm’, before waving a policy wand in the form of waiving some petrol taxes. On Radio NZ [14 March], economist Eric Crampton, more scientific in his approach than most, tried to explain that these measures were little more than wand-waving, but he didn’t say what the host of The Panel wanted to hear.)

The cost of living is a ‘real’ concept, whereas inflation is a ‘nominal’ (or ‘monetary’) concept.

The present rise in the cost of living arises from a number of real factors which cannot simply be waved away or waived. The most important of these real costs are the pandemic (and related restrictions imposed upon businesses and households), the war in Ukraine (and the related impact on world petrol, wheat and other prices), and climate change (causing droughts and floods).

Because these are real rather than monetary contributors to rising prices, ethical policy measures must be about finding fair ways to allocate the cost burden (such as universal benefits and higher taxes), and about creating more incentives to modify and reduce unsustainable economic demands. Examples of such behaviour-modification incentives would be incentives to travel less, and incentives to travel relatively more by public transport (a policy tick here) and through more sustainable transport modes (such as bicycles).

What is unethical is for one group of people to try to shift the entire burden onto other groups of people; eg people in other countries. We need to realise that all people in the world should bear some of the cost burden of the Ukraine war, while also understanding that the combatant countries will disproportionately bear that burden.

Inflation

This is essentially a nominal concept, often thought to be entirely a monetary concept. Thus, in principle, inflation can be suppressed or exported by monetary means. Inflation is more nuanced, however; and can be regarded, in part, as a real but secondary cost. Another example of a real but secondary cost is pain, which is a physiological symptom of some other cost (trauma), and may indeed be a part of a solution or cure to that trauma. Thus, a fever may be both an indication of infection (a real cost) and a part of the curative process. A pain in the arm after a vaccination is an indication that the vaccine is effectively working to prevent disease.

Pain is also a useful analogy to inflation, in that pain has many causes, and therefore many remedies. Choosing the correct remedy depends on a good scientific diagnosis of the cause of any particular pain. A rising cost of living is an economic pain, and inflation is part of the process of working through that pain.

A good example of a real cost is that of a huge boulder falling from a mountain into a lake below, causing a lot of direct damage to the lake and its ecosystem. (In macroeconomics, this would be called an ‘adverse supply shock’; like a war or a pandemic.)

In addition to the direct damage is the secondary ‘ripple effect’. As such the ripples (waves) represent both additional costs and energy diffusion benefits. The ripples may sink boats and/or flood the lakeshore. Nevertheless, we cannot easily imagine how it would serve any purpose to suppress those ripples; the ripples are a necessary part of how the lake-system returns to a new equilibrium. If we are patient, the ripples will eventually subside; albeit with some permanent ripple-damage to the lakeshore.

The only practical way to suppress the ripples – the ripples being the secondary effect of the initial adverse supply shock – is to generate counter-ripples. The problem is that the cost of generating counter-ripples may be greater than the cost of the ripples; and even if that cost is not greater, the cost-burden of the anti-ripple policy may be more inequitable than the cost-burden of the ripples. Even worse, anti-ripple policies in practice often aggravate the ripples before dispelling them.

We should also note that, following the ripple analogy, neoliberal monetary economists believe that, if unchecked, the ripples will never stop and may indeed accelerate over time. Hence, such economists believe that the ‘ripple-problem’ is much worse than it really is.

Using Deflation Policies to Fight Inflation

Again, we must start by reminding ourselves that inflation is typically a necessary part of the adjustment to a new reality, following a ‘cost of living’ shock; or indeed following a ‘perfect storm’ of cost-of-living shocks. So, the best policies are patience (keeping calm and carrying on), combined with other abovementioned incentives and income distribution measures that facilitate the adjustment process.

What policymakers normally do, instead, is to pursue deflationary policies as counter-inflationary policies. In particular, these are likely to be monetary policies – we expect the central bank (Reserve Bank) to raise interest rates as a one-size-fits-all panacea. In addition, there may be ‘fiscal policies’ – most likely reductions in government spending and reductions in social security payments; maybe, also, tax increases. (Together, these are known as ‘contractionary macroeconomic policies’.) These policies are attempts to reduce aggregate spending to match reductions in aggregate output. They work – inasmuch as they do work – by creating a recession in the ‘medium term’; by intentionally creating a cure worse than the disease. In the ‘short term’ these policies aggravate the ‘cost of living’ problem. Increasing interest rates (and increasing taxes) add to, rather than detract from, the cost burden.

The Rationale for Contractionary Policies

The first part of the rationale is that inflation is understood by macroeconomists as a problem of too much spending or too much money. That is, inflation arising from a real cost of living shock (let alone a ‘wicked perfect storm’) is considered to be an atypical form of inflation. Regardless of this, the conventional contractionary policy – like paracetamol as a cure for pain, or bloodletting as a cure for disease – is embarked upon as a ‘one size fits all’ or ‘one curative elixir solves all’ remedy.

The rationale is that, even if there is not too much money, then, nevertheless, reducing the quantity of money will still counter the problem.

While the argument for contractionary fiscal policy is similar to that for contractionary monetary policy, I will comment in coming paragraphs mainly about contractionary monetary policy. We should note, however, that the fiscal policy argument is one for a direct cut in total spending, and is an argument for reduced ‘demand for money’. And it’s a neoliberal argument, in that it assumes that, when money is scarce, it is better spent in the private sector than in the public sector.

We should also note that, while the monetary policy argument is essentially a closed economy argument – ie a global rather than a national argument – governments are by definition agents of national polities rather than a global polity. (We may also note that big countries like USA and China more closely approximate a ‘closed economy’ than do little countries such as New Zealand.) Nevertheless the most pressing argument – as a political argument rather than a moral argument – is an open economy argument about countries’ exchange rates.

Argument One (the classical argument):

Higher interest rates discourage spending, and reduced spending leads to a recession. In a recession it is very difficult for businesses to raise prices, even if their costs rise. This is a closed-economy ‘global argument’; that rising global interest rates lead to global disinflation (reduced inflation rates) despite rising interest costs. Like ‘mask-wearing’ during covid times, the argument is that the benefit (disinflation) is greater than the higher interest costs faced by businesses and households.

The practical problem – especially in circumstances, like today, following a ‘supply-side’ ‘perfect storm’ – is that you get the worst of both worlds: inflation and recession. In pre-modern times, bloodletting would usually weaken rather than strengthen a sick person.

Argument Two (the open-economy argument):

Following one country’s central bank raising interest rates, ‘investor’ money will flow into that country from other countries. The exchange rate for that country appreciates, and the exchange rates for the other countries depreciate. When a country’s currency appreciates, prices in that country fall, or at least rise more slowly. Raising interest rates in one country exports inflationto other countries.

This is by its very nature an immoral policy. It is immoral to export a problem, knowingly.

And it’s self-defeating. Such interest-rate-raising monetary policies generate a ‘race to the bottom’ (indeed a wicked race to the bottom) because they oblige other countries to counter them with similar interest-raising policies. Otherwise, these other countries find themselves importing inflation in addition to the inflation they already have. (This is Turkey’s problem at present; it tried to reduce rather than raise interest rates, leading to a run on its currency.)

A variation of this argument applies to a world with fixed currency exchange rates. This is the argument as it applied in the years before World War 1, and in the late 1920s and early 1930s (the period of the classic gold standard). A ‘surplus’ country with rising gold reserves should cut its interest rates (to reverse that monetary inflow) while a ‘deficit’ country with falling gold reserves should raise interest rates (to reverse its monetary outflow). These were ‘the rules’. The latter (deficit) countries had no choice but to follow the rules; but the rules were in effect discretionary for the surplus countries. The result was global deflation; and recession or worse.

Argument Two; corollary (the pure monetary argument):

In the gold standard times it was understood that the global price level was regulated by the global gold supply. While the data generally did not conform with this proposition, it seemed too good a story to abandon. In many times – eg the seventeenth and nineteenth centuries – the extra gold was generally hoarded or banked rather than spent. So extra gold had no impact on inflation, and often was coincident with deflation.

Nevertheless, the argument was adapted to national currencies, especially at times – like today – of flexible (‘floating’) exchange rates. And the argument seemed to work, some of the time. If one country kept interest rates low and allowed its money supply to increase, then there would be a resulting and matching fall in its exchange rate. The rate of inflation would match the rate of currency depreciation. This sort of thing used to happen a lot in South America. It did not happen in Switzerland and Denmark, where negative interest rate policies have been in place since 2014. Most importantly, this exchange rate argument is about particular inflations in particular countries, and is not an argument that connects world inflation to falling interest rates or rising money supplies.

The Rational Expectations Argument (essentially a closed economy argument):

This is the argument that was pushed during the ‘monetarist’ decade; the 1980s.

The argument is based on the idea that if everyone believes that a policy will work, then the policy will work. So, if you – as a central banker – believe that other people (including other central bankers) believe that any policy (eg raising interest rates; or making a sacrifice to the gods) will lead to a desired outcome, then it will lead to that desired outcome. This is really, in essence, the same type of argument that justified human sacrifices by priestly authorities in ancient ‘civilisations’; such as the Aztecs of Mexico.

It has become a mantra in the world of central banking and neoliberal economics, that whenever inflation threatens, then central banks should raise interest rates; it works because enough people believe it will work. And a credible central bank will maintain that ‘tight money’ stance, no matter what economic pain ensures; because a central bank’s rigidity is what gives that central bank its credibility. When a central bank is being staunch, then workers will demand smaller wage increases because they believe inflation will be low. And businesses will avoid raising prices, because they believe that their competitors – themselves believing that inflation will be low – will not raise their prices.

Summary

‘Inflation’ and a ‘rising cost of living’ are not the same thing. But both lead to authoritative impulses to raise interest rates and to restrain government spending. In reality, the application of deflation to counter inflation leads to both inflation and deflation in the short term, and to recessions (or worse) in the medium to long term.

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

Recent stories about ‘Cost of Living’ and ‘Inflation’ in New Zealand:

Inflation Nation: Why the cost of living is rising and what we can do about it, NZ Herald, 13 March 2022

Liam Dann: Inflation is now Jacinda Ardern’s biggest problem, NZ Herald, 13 March 2022

‘A wicked, perfect storm’: Govt slashes petrol taxes to tackle soaring prices, Otago Daily Times, 14 March 2022

Inflation Nation: Building supplies, housing, rents – pick the odd one out, NZ Herald, 16 March 2022