Thomas Coughlan: National has forgotten the economy, it needs to remember

OPINION:

One of the more popular speakers at the National Party conference this year wasn’t an MP or the leader – it was independent economist Cameron Bagrie.

Bagrie gave a brief presentation on the economic outlook then joined a panel with National’s twin finance spokesmen Andrew Bayly and Michael Woodhouse. Bagrie took the majority of questions – one of which was a joke that he should take over from Peter Goodfellow as party president.

National is a party that’s proud of its reputation for fiscal and economic management. It’s something its members think the party is good at and should campaign on, hence their enthusiasm for Bagrie.

The economy is also something the party has been conspicuously quiet about of late, which is unusual given it’s, well, the National Party.

National has scored some hits. Last year, Bayly managed to beat the drum enough over the Reserve Bank’s role in the housing crisis for the Government to eventually intervene, likewise Bayly and the wider party did a good job scrutinising some of the fanciful numbers attached to the Government’s job-creation schemes earlier this year.

Unhelpfully for National, nimble Act was out in front on both stories.

National hasn’t really had much success with the economy since then. As an opposition party, it must both make the case for why Labour isn’t running the economy properly and then make the case for why they’d do it better.

So far, National hasn’t made strong arguments in for either.

This is partly National’s fault, and partly the fault of the international macroeconomic environment.

Centre-right parties around the world are adjusting – sometimes with great pain – to the new low interest rate environment.

The case made by these parties (as well as Robertson, here) is that low interest rates mean it’s a good time to borrow and build. The British Conservatives have adjusted from David Cameron and George Osbourne’s deficit-focused austerity to Boris Johnson’s debt-fuelled nationbuilding spree.

Likewise Australia’s Liberals, after pursuing a strategy of aggressive deficit reduction to get “back to black”, have seemingly abandoned that to pursue an infrastructure programme that will vastly increase debt levels.

Canada’s Conservatives are caught somewhere in the middle, promising a return to a balanced budget within a decade, but without serious cuts.

The ideological question for National is that structurally low interest rates no longer help centre-right parties make the case for a smaller state like they did even a decade ago, when ratings agencies panicked that financial crisis-induced deficits would torpedo government finances.

This helped right-leaning governments around the world argue not only that deficit and debt reduction was something they should do, it was something they had to do.

This time is different.Around the world, ratings agencies look at deficit spending far greater than Labour’s rather modest efforts and shrug their shoulders. Voters might too – it’s hard to argue for public service cuts when not even the ratings agencies care anymore.

National has to choose between pursuing a small-state economic agenda, but finding another way to argue for it – or go the way of the Tories and Australian Liberals and become a party of Tory nation builders, debt be damned.

There are non-economic ways of making the case for a small state. Former leader Bill English made a persuasive argument that some social services were often better when not delivered by the state. For the moment though, that’s not an argument the party is making.

One area that needs attention – an area Bagrie probed in his speech at the conference – is what happens to the economic recovery when the Government turns off the economic stimulus.

Recent comments from ANZ chief economist Sharon Zollner have highlighted the fact that much of last year’s economic recovery was borne on the back of a grossly unsustainable housing boom.

What’s the engine of demand in our economy when the Government slows spending and the house price increases stall? No one really knows. It’s a question the Greens are keenly probing in Parliament, arguing the Government should spend more so the Reserve Bank could take its foot off the housing market accelerator.

National could – and should – be in that debate too, arguing for some kind of small-state plan to return to more normal economic circumstances, but it isn’t.

The party is picking itself up – Woodhouse has led a strong attack on the Government’s decision to fund a number of projects from the Covid-19 fund which have a rather tenuous connection to Covid-19.

It’s a decent attack line – the Government has serious questions to answer about the quality of spend from the Covid fund. However, Woodhouse is somewhat undermined by the fact that National itself promised to raid the very same fund for roads and tax cuts.

Taking on Finance Minister Grant Robertson is an unenviable task. He can reasonably claim to be one of if not the strongest minister in Cabinet, but while it is hard to fault the way he managed the economy through the pandemic, the economy is still encumbered by low wages, poor productivity and high house prices.

It’s a story National should start to tell.

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