After the formation of the Alliance, the NewLabour Party’s (NLP) speed in policy moderation increased substantially. This was largely a result of two processes: first, the pressure applied by the other Alliance partners for the NLP to drop its own more radical policies, and second, the NLP’s desire to keep the coalition together, which inevitably meant compromising on its own policies. Furthermore, involvement in the Alliance now gave the Anderton group in the NLP more power and influence through uniting with their more conservative allies in the other Alliance parties against the NLP leftwing. [Read more below]
Disputes over taxation
An example of the Alliance partners pressuring the NLP to moderate occurred when the NLP put out their own third and last annual alternative budget in 1992. (After this point, the NLP put their name to the annual Alliance alternative budget.) This NLP alternative budget preceded a shift to the right in the Alliance. According to Chris Trotter, who was by this point a commentator on the NLP rather than a participant in the party:
The document’s proposed 40% top tax rate was actually much less progressive than the 55% proposed in the first alternative budget in 1990, let alone Rob Muldoon’s top rate of 66%. It has also cut the proposed land tax on property with an unimproving value of $1 million from 4.5% in 1990 to 3.09%.... But it also proposes a new tax every time you cash a cheque or take money out of the bank, to raise $1.7 billion a year. NLP leader Jim Anderton claims the tax would fall mostly on rich money-shufflers. But companies might also pass the tax on in higher prices, making it potentially almost as regressive as GST (Trotter, 1992a: p.11).
The financial transactions tax that the NLP adopted was borrowed from the Democrats who had pushed this policy for some time. Within the NLP, the idea was first suggested in 1991 during which time the NLP leadership was encouraging a relationship between the Democrats and NLP, and therefore the adoption of the tax was possibly in aid of this relationship.
However, the adoption of a financial transaction tax was also a good strategy for the Anderton group, enabling them to balance their alternative budget. Essentially, the NLP’s 1990 promise to phase out GST over five years was superseded by the Alliance policy to replace GST with a financial transaction tax, in proportion to the revenue gained through this new tax. The Anderton group had never been in favour of the complete abolition of GST, for the simple reason that it was not feasible to recover the lost revenue from the major established mechanisms of taxation: personal and company tax. However, because the NLP-left demanded the complete abolition of the tax, the establishment of a financial transactions tax was a useful replacement for the unpopular GST.
Also, while the company tax rate in the NLP’s 1990 manifesto was originally to be increased to 48%, the Alliance’s 1993 election manifesto indicated an increase to only 40%. The NLP’s highest tax bracket would pay a marginal rate of 52%, compared to the Alliance’s current 49%. The NLP’s land tax was also no part of the Alliance’s economic policy.
Despite the rightward modifications to the NLP budget, Mana Motuhake leader Matt Rata was still critical of the political impracticalities of the high taxation in the budget, and ‘Green Speaker Judy Whatley attacked a $35 million coal project for the West Coast in the capital works plan, and said the “environmental and social impact” of the land tax would be too high’ (Trotter, 1992a: p.11). Trotter, made the correct prediction that, ‘It is a fair bet that neither land tax nor West Coast coal mining will appear in the Joint Manifesto which will replace the Alternative Budget next year’ (Trotter, 1992a: p.11).
Although the formation of the Alliance’s economic policy had already been pre-empted by the by-election in Tamaki, the organisation sought in 1992 to develop its policies fully. Bruce Jesson reported that
the taxation and economic policy were based on the NLP’s alternative budget, although with heavy modifications. The NLP, for instance, wanted a land tax, which was hotly objected to by some NLP members, and was knocked out in the discussions by the other Alliance parties. Nevertheless an assets tax is an essential element of a fair tax system, and would have helped shift the burden from income tax (Jesson, 1992e: p.12).
Privatisation and nationalisation
The Alliance’s approach to the privatised state owned assets was indicative of the shifting nature of economic policy. The NLP had always been strongly opposed to the privatisation process — after all, this was the catalyst for the NLP’s emergence. The NLP’s early policy on the issue indicated clearly that an NLP government would buy back Telecom and the former state forests, as well as ‘most of the state assets that have been sold off’ (NLP, 1990b: p.67), and $400 million was set aside in the 1991 Alternative budget for this purpose. (According to Steven Cowan: ‘At that time the debate was between those advocating the repurchase of state assets and the NewLabour left wing which advocated nationalisation without any financial compensation’ (Cowan, 1994: p.3).) However, the Alliance decided that assets like Telecom would not be re-nationalised. Similarly, the Alliance policy on local body assets pledged that they would oppose any further sales, but this was later modified to indicate that they would retain ‘strategic’ local body assets.
The backtracking on nationalisation reflected a move away from an emphasis on anti-free-market policy. A number of other changes from NLP to Alliance policy were evident. The Alliance also no longer agreed with the NLP’s belief in running budget deficits or restructuring the government’s overseas debts. Instead the party intended to run government budget surpluses, with that surplus being used to repay overseas debt. Many other economic-related policies of the NLP were not adopted by the Alliance. For example, the NLP planned to phase in a 35-hour week, legislate for the establishment of workers councils in all enterprises employing more than 50 workers, with the right of those with over 250 members to appoint worker directors to the company’s board, and so forth.
An indication of the Alliance’s shift to the right in economic policy was found in its attempt to lower public expectations about what an Alliance government could achieve. For instance, Anderton was now talking about creating full employment ‘within twelve years’ and saying, ‘I’d love to say we can return to full employment, but I’ve looked at it every which way and I don’t think it can be done’ (quoted in Hyde, 1994: p.84). Furthermore, ‘Anyone who said they knew all about how to fix unemployment is either a fool or a liar. If it’s so simple, why hasn’t it been fixed?’ (quoted in Hubbard, 1993: p.19). This contrasted with Anderton’s previous polemics against an unbalanced economic policy. The NLP promised in 1990 that it would create 60,000 jobs per year. That was reduced to the statement by the Alliance that they ‘will immediately increase the number of jobs available’ (Alliance, 1993: p.6).
Although Jim Anderton was crucial in brokering the shift to the right inside the NLP and Alliance, by the mid-1990s the economic policies of the Alliance were possibly further to the right than even he was likely to be comfortable with.
Discontent with moderation
Subsequently there was some internal NLP discontent at the moderation that had occurred in both NLP and Alliance economic policy. As Jesson reported: ‘At the NLP conference [of 1992], for instance, there was criticism from the floor of the modest employment goals of NLP and Alliance policy’ (Jesson, 1992e: p.12). This was modified even further for the next by-election, with Jesson commenting that ‘Overall, the policy produced for the Wellington by-election is a fairly conventional document, not too far from where the Labour Party was before Roger [Douglas]’ (Jesson, 1992e: p.12).
Commenting on the Alliance’s modifications to the NLP economic policy, Steven Cowan suggested that,
the Alliance leadership is gradually moving the Alliance from any plan to rebuild the discredited and unsustainable fortress economy. But the Alliance hasn’t suddenly woken up to the deficiencies of national Keynesianism and rediscovered socialism, rather the Anderton team are attempting to present themselves to the financial markets as ‘moderate’ and ‘sensible’. To that effect, Jim Anderton has indicated that the Alliance would only modify the market a ‘little’ (Cowan, 1994: p.3).
Next blog post: The Alliance’s orientation to the economic system
