Luxon’s Leap: New Zealand after Ardern

Dr Oliver Hartwich
Quadrant Magazine
2 April, 2024

“All political lives, unless they are cut off in midstream at a happy juncture, end in failure, because that is the nature of politics and of human affairs.” At least according to Enoch Powell, and Powell certainly knew what he was writing about.

Former New Zealand Prime Minister Dame Jacinda Ardern may be a rare exception. Suddenly departing at the start of 2023, albeit amid plunging popularity ratings, she handed over the reins to senior minister Chris Hipkins while preparing her move to greener pastures at Harvard.

It was a wise decision because, ten months later, New Zealanders turned against Labour. Labour was swept from office in a landslide, and the National Party’s leader Christopher Luxon became Prime Minister.

New Zealand’s change of government was one of the most dramatic in its history, not least because of the scale of the swing. Compared to three years earlier, Labour lost nearly half its vote and seats in 2023.

Admittedly, the previous 2020 election was unusual because it coincided with the first wave of Covid (and the second wave of ‘Jacindamania’).

In any event, something dramatic must have occurred for a government to lose that much support in such a short period of time. Indeed, Ardern was only spared an end in failure because of her decision to quit early.

New Zealand was not as lucky as Ardern. The tumultuous six years of Labour resulted in a country where all aspects of the economy, public life, and society are in crisis. This is the backdrop against which the Government of Christopher Luxon has begun its work.

Thus, taking a step back to see what Ardern/Hipkins left behind will help us understand just how big a task New Zealand’s new Prime Minister faces.

Ardern was an accidental Prime Minister. Her predecessor as party leader, Andrew Little, threw in the towel when Labour polled in the low 20s just a couple of months before the 2017 election.

Labour had not expected to win that election. Hence, it was ill–prepared when it did, propelled by a media frenzy around its new, fresh leader. But it had no policies, few ideas, and only a handful of cabinet–ready MPs.

Over the ensuing six years, Labour then had to learn to govern and develop policy ideas while, at the same time, being confronted with a series of crises: a major terrorist attack, a volcanic eruption, the Covid pandemic, and finally the Ukraine war, too. It would have been a challenging time for a good, experienced government. It was too challenging for a government still learning the ropes.

The one thing Ardern’s government had in spades was the Prime Minister’s charisma and marketing skills. Her government was also not short of good intentions.

However, after six years in office, New Zealanders realised the vast discrepancy between lofty promises and socio–economic outcomes, accompanied by substantial increases in public spending.

This is the situation Luxon’s government found: the kitty is empty, yet severe challenges abound – in every area of policy.

The new government cannot throw money at problems, as incoming governments often do (and as Ardern did). New Zealand’s government spending is already high, and in its high–inflation environment, more public spending would be unwise.

Luxon will thus have to focus his reform efforts on policies that should not cost much while still being effective. He also must to do so in an unusual three–party coalition, which includes the libertarian ACT party and Winston Peters’ rather populist New Zealand First.

The stakes could not be higher and the obstacles greater. But Luxon, coming from a high–flying business background, is one who likes a challenge.

As a former C–suite executive at Unilever’s North American branches and then at Air New Zealand, Luxon knows what turnaround jobs require. He will need all that business acumen in his new job.

New Zealand’s public service is like a poorly managed company that fails to produce decent results and has forgotten what good looks like. It is not as if New Zealand’s governments had not spent enough over the years. It is rather that they had done so senselessly, without regard for outcomes.

Luxon wasted no time to get to work. In his government’s 100–day plan, practically all of Jacinda Ardern’s hallmark policies were scrapped.

High–profile initiatives like the Auckland light–rail and the Lake Onslow pumped–hydro scheme were axed. The Reserve Bank’s employment mandate was gone quickly, as was Ardern’s re–regulation of the labour market and subsidy schemes for electric vehicles.

Luxon’s government also abolished the highly controversial Three Waters programme, which would have put the nation’s water infrastructure under co–governance with Māori. It also abolished the Māori Health Authority, uniting health services for all residents in one organisation.

Luxon’s clean–up exercise was so comprehensive, practically nothing of the previous government’s agenda is still in place.

With the 100–day plan implemented, the focus for the coming months and years is now shifting onto reforms across the board.

Education is a good example. The new government wants to arrest New Zealand’s slide into mediocrity and propel the nation’s education system back to the heights it once occupied.

There is a crisis in New Zealand’s educational system, manifested by serious literacy and numeracy deficiencies. It is entirely self–inflicted due to wrong priorities in schools.

Over the past three decades, the school system has been undergoing a transition away from traditional academic rigour. This was replaced by a focus on well–being, creativity and so–called 21st century skills. The situation was exacerbated by plummeting attendance rates with an alarming rise in students deemed chronically absent.

To effectively tackle the education crisis, Luxon’s government has embarked on a comprehensive overhaul of the education system. This starts with a renewed focus on core academic disciplines and rigorous standards of literacy and numeracy.

The introduction of direct, standardised testing in these areas is also on the cards. It will not only assess the current capabilities of students, but also set a benchmark for future educational achievements.

Crucially, a deep and knowledge–rich curriculum is essential. A ministerial advisory group, chaired by my colleague Dr Michael Johnston, has set out to write it. It could deliver the most significant education reform New Zealand has had in this century.

The new government is not just implementing bold reforms in education. Housing is another area, and again, reform is much needed.

In New Zealand, houses are grossly unaffordable, putting a damper on home ownership dreams.

The underlying problem has always been a housing market suffocated by rigid planning laws, which limit land supply, and a lack of fiscal incentives for councils to approve new projects.

As part of The New Zealand Initiative, Luxon has visited Switzerland and Denmark. These visits have informed his response to the housing issue, and the concept runs under the name ‘localism’.

Localism means councils are not just encouraged but also financially motivated to support development. This should transform them into proactive agents of growth. In the future, they will be able to increase their revenue by facilitating new development.

Housing Minister Chris Bishop’s work to overhaul New Zealand’s archaic planning laws complements this vision. By streamlining the process for new developments, Bishop’s reforms aim to dismantle the bureaucratic barriers that have historically stalled progress.

Together, these planning reforms and localism have the potential to turn the housing market around.

But as Ardern’s legacy is dismantled and new policies are introduced, the elephant in the room remains unaddressed: fiscal consolidation.

Navigating New Zealand’s fiscal landscape presents a formidable challenge in the years ahead. Following a period of restraint, where core government expenses fell to 27.3% of GDP by 2018, the trajectory shifted with Ardern’s 2019 “Wellbeing Budget”. However, even Ardern planned to keep it below 30% of GDP.

Covid then helped propel spending to a projected 33.4% of GDP this year, with only a gradual reduction to 31.4% by 2028 anticipated – and thus still much higher than it was before the pandemic. It shows just how much work there is to do bring spending back to a reasonable level.

As the Luxon administration faces these realities, it will test its resolve and strategic acumen. To pass it, he will have to do two things: First, he must balance the books in a technical sense. That means government spending will need to be cut back as a proportion of GDP.

But second, and perhaps more critically, Luxon’s government must also bring back more discipline and evaluation to government spending.

Fiscal sustainability requires hard choices and unpopular decisions. However, the alternative – continuing with the status quo – poses an even greater threat to economic stability and societal wellbeing.

As a self-confessed avid reader of political biographies and memoirs, Christopher Luxon will now work towards his own legacy. Ultimately, that legacy will be defined by his government’s ability to lay the foundations for a prosperous, resilient and fiscally responsible New Zealand.

If he does that, he will be another exception to Enoch Powell’s rule of politics.

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