There are some powerful lessons for New Zealand from the debt debacle in America.
The so-called Tea Party Republicans, by threatening to cause the United States to default on its debt, have turned a regular vote on the debt limit into a weapon of mass destruction.
The raising of the debt limit is just a routine vote to allow the US Administration to pay for programmes that Congress has approved. The level was raised 18 times under President Reagan. What is different this time is that the Republican Party, which controls only one branch of the legislature, decided to use the threat of default to force the Senate and the President to adopt Tea Party policies.
The threat worked because the Democrats believed that the Republicans were willing to “burn the house down”, but the spectacle of the government of the largest economy on Earth standing on the brink of a default – and having no credible way of solving its fiscal problems in the longer term – convinced Standard and Poor’s that the US is no longer a AAA rated borrower.
So this couldn’t happen here? I’m not so sure. MMP means we too have a system where the voters can create a deeply divided legislature. No political party has received 50 percent of the vote since MMP began in 1996. Indeed, the last time the National Party got more than 50 percent of the popular vote was in 1951; and the last time the Labour Party got more than 50 percent was in 1946! And of course, both of those elections were held under First Past the Post. Under MMP, the larger parties almost inevitably require support from third parties to form a government.
Third parties have been tempted to exercise power beyond their mandate. Winston Peters has twice played this tail-twisting-the-dog game. There was no way he had a mandate to demand to be Treasurer in 1996, nor Foreign Minister in 2005 – especially when he claimed before that election that he had no interest in the baubles of office!
The electorate has heavily punished third parties for this over-reaching. Whether the lessons have been learnt is doubtful. Green co-leader Russell Norman is saying he wants to be Finance Minister in a future Labour/Green Government. The electorate’s fear of a capital gains tax is increased because the Greens have stated they will push for the rate to be up to 39 percent.
Mr Hone Harawira split his party because he believes that the Maori Party should demand more policy concessions. It is worrying that his electorate, by re-electing him, has endorsed his hard line approach. Should his Mana Party be successful at the general election, they could hold a future Labour/Green Government to ransom.
The left keeps claiming ACT will hold National to ransom. My reply is “Where is the evidence?” ACT has stuck strictly to its coalition agreement with National. One of my first actions on being elected Leader of ACT was to meet with the Prime Minister to assure him there would be no change in that agreement.
The Tea Party Republicans are right that the US debt is out of control but that does not entitle Congress to threaten to force a default on US debt that would have had a devastating effect on the world economy.
We in ACT have always said that the stability of the country is of paramount importance. In a move the commentators appear not to have understood, ACT and National have decided to take this a stage further this election. ACT has decided to announce before the election that ACT will give Confidence and Supply to a National Government under John Key.
Third parties usually indicate before the election whom they are likely to support in coalition talks. But to the best of my knowledge, only ACT has pledged to give Confidence and Supply to another party ahead of the election.
Of course we will still hold talks over the government’s programme. ACT will be pushing hard for lower taxes, less red tape, reduced government spending, school choice, welfare reform, one law for all, safer communities, and an end to the ETS.
Every election the economy slows. It is not just business that is reluctant to invest until they know who the government will be but consumers too are often reluctant to buy items like washing machines until they know who the government will be. With all the turbulence in the world economy, we just can not afford that uncertainty this year.
The polling all year has said John Banks is going to win Epsom. Perhaps ACT would be stronger if we won Epsom with no accommodation with the National Party. But an accommodation in Epsom and a pledge by ACT to seek only the list vote in other electorates strengthens the centre right and creates certainty.
It is better to provide voters with a sure way to elect a stable government by coming to an open agreement with National in Epsom even if it slightly weakens ACT’s ability to drive a hard bargain in post-election talks.
We have a duty to the country to ensure stability. The Tea Party Republicans are giving us a demonstration of what not to do. I think the Republicans are right: US debt is too high and there is an urgent need to get that debt under control, but this does not justify playing chicken with the world’s largest economy.
ACT is right that our government can not keep on borrowing $300 million a week. Government spending must come down. We need lower taxes to encourage investment, growth and jobs. But our task is to win our case at the ballot box not through post-election blackmail.
As Governor of the Reserve Bank, I was always very aware of the importance of stability. The economy needs confidence. In the last few weeks, businesses all over America have put away their cheque books as events in Washington have made people scared to invest, to hire and to buy. The damage to the American economy from the debt debacle may turn out to cost the government more in lost revenue than the spending savings the Republicans achieved.
It is a lesson to all political parties of what not to do.
Right now, providing confidence may be the most important thing ACT can do.
Copyright © 2024 Don Brash.