Three Waters, raising the retirement age and a capital gains tax could be the electoral nails in Chris Hipkins’ coffin – but they would provide some substantive additional lines to the epitaph of a government that has achieved less of its reform agenda than some supporters hoped

Analysis: With Jacinda Ardern’s departure comes the promise of a wedding. With Chris Hipkins’ nomination as Labour leader and prime minister, the least New Zealand can offer him is a brief honeymoon like those accorded to most new administrations.

This is not to suggest that anyone – Cabinet colleagues, opposition, media or social media – should go easy on his politics, or on his performance in the job.

Let me spell out my argument, but first, some context.

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I initially encountered Chris Hipkins when he tried to shut down my old school. (At least, that’s how I saw it at the time)

It was 1996. I was about five years out of Hutt Valley Memorial College; he was head boy at the struggling school. A change of leader hadn’t worked, a rebrand as Petone College hadn’t worked, the school’s roll had dropped to 230 and its results were collapsing further.

So the head boy went on the front page of the Hutt News to describe what was going wrong at the school, and what needed to be done to fix it.

The Hutt Valley Memorial College honours board, recording Chris Hipkins as head boy, was offloaded by the Hutt City Archives last month as surplus to requirements. It’s now hanging in the garage ceiling of another former head boy, Nik Zangouropoulos.

It was my view that he’d put the final nail in the coffin of the college, when I returned to write my own article about the school’s turmoil. Education Minister Wyatt Creech shut it down the following year. (This is not the funeral to which my headline refers – that comes later).

What I would now acknowledge is that Hipkins stuck around. While some (myself included) had left the school to continue their education at bigger schools like Hutt Valley High and Wellington College, which offered more subjects, Hipkins stayed to seek solutions.

I gave him no credit for that at the time. Today, I acknowledge that he is sticking around to lead the country into a cost-of-living crisis that seems very likely to cost Hipkins and Labour the election. It will be a thankless task.

The real test

Publicly accusing him of helping shut down Petone College is not an ambush. When he became an advisor in former education minister Trevor Mallard’s office, and I was a Parliamentary Press Gallery journalist, I challenged him about his role in the school’s closure; he defended himself.

When he arrived in London for his OE, we caught up a couple of times over a bottle or two of cheap Kiwi plonk. He eventually confided he was considering returning to New Zealand and seeking the Labour nomination to succeed Paul Swain in the Rimutaka electorate, as the Hutt Valley constituency was then known. I don’t recall what advice I offered the 28-year-old, if any, but I do recall what I thought. I thought he was too young, too raw, that he needed more experience. 

His subsequent political management as chief Labour whip then Leader of the House, and his handling of the big education, health and police portfolios, suggest I under-estimated both his grasp of policy, and his political nous. 

“The new prime minister’s first task, economically and in a business sense, is to try and gee up business confidence,”
– Simon Bridges, Auckland Business Chamber

The big test – and where my concerns about his lack of wider world experience may yet be proved right – is his ability to engage with the New Zealand community more widely. Yes, he can talk to teachers, he can talk to nurses and doctors, he can talk to those in Labour’s traditional support base. 

But can he also talk to farmers and builders and small-to-medium-sized business owners who’ve borrowed against their homes to start their companies, and now see interest rates soaring?

Already, in a letter to members ahead of Hipkins’ nomination, Federated Farmers president Andrew Hoggard has highlighted the entire lack of engagement with the agricultural sector by Hipkins and the other leadership contenders. He’d had nothing to do with the Food and Fibre Leaders Forum, the peak body for the agricultural sector, Hoggard says.

So too, Auckland Business Chamber chief executive Simon Bridges, a former leader of the opposition, has expressed disappointment that Grant Robertson ruled himself out of the leadership race. “The new prime minister’s first task, economically and in a business sense, is to try and gee up business confidence,” he told Newsroom. “I’m not suggesting that’s easy, but there are a bunch of relatively simple things they could do, including a reset on skills and immigration.”

It’s not yet clear what the builders think. Though one of them, Jeremy from Lower Hutt, tweets today: “I’ll say this about Hipkins. Years ago Parliamentary Services contracted me to renovate his electorate office. Chris insisted on doing all the destruction himself on the weekend and had his dad help out with the plastering. I was impressed with his duty to save taxpayer $$.”

And Hipkins was back at it this month – he set himself a “holiday” project to replace some broken roofing out the back of his electorate office. He ended up replacing the roofing and entirely repainting the back of the building in Labour red and grey. “I think there has been a little ‘scope creep’,” he laughed. “I’m not good at this whole downtime concept!’

Mike Blackburn, from the big building supplies group CBS Co-op, tells me there’s nothing in his immediate portfolios to suggest he knows anything about building and infrastructure and the construction costs and housing crisis. “It will certainly be interesting to see how the Government’s agenda changes over the next few months.”

The borderline case for a honeymoon

Interesting, indeed. Jacinda Ardern had promised to return from the summer break with a list of which reforms would proceed this year, and which would be dropped or put on the back-burner. Instead, she quit, sparking unfounded speculation from more conservative quarters that she’d been unable to win the backing of senior ministers to drop some of the Government’s more contentious reforms.

There is little to suggest Hipkins, one of the most senior members of Ardern’s kitchen cabinet, would be inclined to change direction significantly, but he too must navigate between ministers and caucus factions with different hopes and aspirations and communities of interest. More on that shortly, but first, that honeymoon.

“It’s all starting to look like stagflation on steroids. There is no sign inflation is abating in any meaningful way.”
– Stephen Toplis, BNZ

Hipkins has been pivotal in the Government’s response to each of the issues identified by opposition parties this week as definitive for the election: the cost-of-living crisis, income levels, law and order, and better public health and education.

No doubt in consultation with her kitchen cabinet, Ardern has named October 14 as election day – that’s less than nine months away. So to what extent can New Zealand afford to sit back and give Hipkins a honeymoon?

I have two arguments (and I won’t lie to you, they’re fairly marginal arguments) in favour of giving him a couple of weeks to draw up his plans and lay ’em out.

1. Calm response to extreme economic vulnerability

The latest indicators are, frankly, alarming. The NZIER Quarterly Survey of Business Opinion, published this week, showed confidence at its lowest since the survey began more than 50 years ago. Profits were “collapsing”, hiring intentions were down, but cost pressures for businesses remained extremely elevated.

“Stagflation on steroids,” was the assessment of BNZ economists – and that will be confirmed in the coming week with CPI inflation data for the final quarter of 2022 expected to confirm the record good and services price rises already reported at the nation’s supermarket checkouts.

The Reserve Bank is expected to keep raising base interest rates to at least 5.5 percent, an attempt to cure inflation that some worry is worse than the illness. That will further slow the supply of new housing, shutting down a short-lived construction boom.

“We only hope the new prime minister Chris Hipkins takes the time to come and see us. That’s important because the Government needs to understand the crisis the building industry is in.”
– Carl Taylor, CBS Co-op

The only thing other than government subsidies and Reserve Bank stimulus that kept New Zealand’s economy afloat through the pandemic was private investment in infrastructure – and that’s now collapsed to the point that Blackburn thinks there’s little any government can do. “Unfortunately the economic impact is set in motion and will take time to work through,” he tells me. “Most are predicting that it will be relatively short and not too severe, but expect to see new building consent numbers come back by around 10 percent this year.”

This is a grim trajectory also being traced by Europe, North America and Australia – though there are some respects in which New Zealand fiscal and monetary policy decision-makers have arguably worsened this plunge for our economy, with excessive poorly-targeted Covid stimulus packages, and the extremely uncertain manner in which the border has slowly been reopened to returning New Zealanders, migrant workers and tourists.

To about the same (limited) extent that the Government has contributed to the country’s economic woes, it can also help fix them. That means the new Hipkins administration, with Robertson likely at his side as Minister of Finance, working quickly and intensively to set a tough new balance that manages the cost-of-living crisis.

In particular, that requires taking the unappetising step of working to slow wage growth in the public and private sector, lest it cause a wage-price spiral.

And it means taking a little time to reassure the global markets that the Government won’t go on an election year spending spree funded from the unnecessary and illusory tax windfalls of an inflationary economy.

Entertaining as it might be to the more hardline critics of this Government, New Zealanders can’t afford a short-term Liz Truss-style administration. That’s what happens when an incoming leader acts too hastily, without sufficient information and advice.

Truss dropped the ball badly, spooked the markets, and was forced to resign in just six weeks – but destabilising the shaky UK economy for longer.

Her successor Rishi Sunak, by contrast, insisted on taking a little more time (three weeks) to draw up his economic rescue plan. Britain gave him that time – call it a honeymoon, of sorts – and he has been able to put the UK economy on a slightly better footing.

2. Circuit-breaker for polarised discourse

Those who still insist on spending their time on social media platforms like Twitter will know the emergence of terms like “Labour-stan” and “National-stan” to deride the most absolutist, fundamentalist supporters of the political parties.

“Stan” was first used by rapper Eminem in 2000 to describe a man pushed to the edge when his idol wouldn’t answer his fan mail. Now it’s applied in politics.

I have a sufficiently long memory to recall the abuse heaped on previous leaders like Helen Clark, Don Brash and John Key by the zealots from the other side of politics. Previous criticism was of “political correctness”; now it’s of “woke culture”. Neither is a term that carries any useful meaning beyond name-calling.

But I do concede that political discourse has gone far beyond robust criticism this past year. I believe the anti-mandate protests helped mobilise a wide range of critics of the Government – among them, some who opposed Three Waters reforms, MIQ restrictions, the ute tax, methane emissions pricing, red tape on small business, and much more.

This enabled those on the so-called progressive side of the political spectrum to dismiss the legitimate and considered concerns of those critics out-of-hand, instead replying with their own abusive labels.

And to be blunt, each side is blind to its own excesses. That is why Jacinda Ardern’s supporters see only the patronising, sometimes threatening vitriol directed at her and her colleagues; Christopher Luxon and David Seymour’s supporters see only the abusive attempts to gag them from speaking freely.

We need to stop for a cup of tea, as Hipkins’ predecessor David Lange famously declared in 1988. Take a breath.

“I think it’s about time we had a ginger at the top.”
– Chris Hipkins, prime minister designate

For the next two or three weeks, log out of the nz-politics channels on social media, go to the beach, and talk about the upcoming FIFA Women’s World Cup rather than the upcoming election at our barbecues.

This isn’t so much to go easy on the politicians; it’s to go easy on ourselves. The flying epithets and threats are harming our community cohesion even more than they are hurting our leaders. We all saw that among our own friends and whānau last year, as the debate around vaccination and mandates tore apart relationships in a way we haven’t seen since the Springbok Tour of 1981.

When we do return from our self-enforced break, as we must, we should self-regulate. Politicians and pundits alike, there is little legitimate reason to bring an opponent’s gender, race, heritage, family, health or appearance into the discourse. I saw one media outlet use the announcement of Ardern’s resignation to critique her fashion choices; I’m yet to see anyone critique Chris Hipkins’ choice of shirt for today’s media stand-up. 

That said, and as the parent of a wonderful, volatile redhead, I quietly note without comment Hipkins’ smiling answer to a question this afternoon about his hair colour. “I think it’s about time we had a ginger at the top,” he said.

Time for a cuppa?

Of course, when Lange said it was time for a cup of tea, it ended up being more than a pause. It was chance to refine and retarget the Rogernomics freemarket reforms, and stop such perceived excesses as a flat income tax.

Similarly, Chris Hipkins must now make the decision that Jacinda Ardern deferred. Which in its programme of reforms will it continue, and which will it drop?

When Labour took the Treasury benches in 2017, it was with an ambitious programme that suggests it hoped and expected to be a three-term, nine-year government.

But Winston Peters applied a handbrake, and Covid grabbed the steering wheel and swerved the Government off the road. Essentially, Labour lost its first four years – but failed until too late to recognise that it needed to dramatically trim back its work plan.

Labour has lost its first four years, and its anticipated final four years. It turns out, the hasty law-making of 2022 may have been its only real chance to progress its agenda.

By proceeding last year with too many projects, at too great haste, it began making unforced errors. Government agencies’ regulatory impact assessments of new Parliamentary bills now regularly include the caveat that they haven’t had time to measure key impacts, before the bill is introduced.

These unforced errors, in turn, undermined the Government’s credibility. It had already lost its first term to Covid; increasingly the polls showed it would lose its anticipated third term, as well. 

Now, with Ardern’s resignation, any hope of using this year to progress the reform programme has been dashed. Labour has lost its first four years, and its anticipated final four years. It turns out, the hasty law-making of 2022 may have been its only real chance to progress its agenda.

There are question marks over several major projects – most notably its $3.5 billion income insurance scheme, the TVNZ/RNZ merger, meeting the country’s commitments to the United Nations on co-governance, and Three Waters.

It seems increasingly unlikely that the Government can progress any of the first three this year. That leaves only Three Waters, which has displaced vaccine mandates as the primary touchstone of discontent with government.

The decision for Hipkins and his new ministerial team is whether it pushes forward with Three Waters in the belief that fixing the country’s broken drinking water infrastructure is the act of a government willing to act responsibly for future generations – or whether it defers the plan in the desperate hope of buying itself another three years in office to resume its reform agenda.

The Taxpayers’ Union (the same conservative lobby group that dog-whistled to its members this week that “the politically powerful Nanaia Mahuta” could be the next PM) published a snap poll last night. 

The Curia poll of 1000 voters showed most wanted the Three Waters reforms scrapped. Three Waters is “electoral kryptonite”, argues the group’s executive director Jordan Williams.

Williams may well be right. The decision for Hipkins and his new ministerial team is whether it pushes forward with the reforms in the belief that fixing the country’s broken drinking water infrastructure is the act of a government willing to act responsibly for future generations – or whether it defers the plan in the desperate hope of buying itself another three years in office to resume its reform agenda.

Just tinkering with the reforms will not make a material difference to Labour’s electoral prospects. Advancing the reforms with appropriate adjustments (like removing stormwaters to instead progress “two waters”) would be a courageous decision. It would also be a defiant one, and a dangerous one.

One last taxing decision

The departure of Jacinda Ardern does raise one interesting question that a brave new leader may wish to ponder. The 2019 decision to rule out a capital gains tax was made despite “genuinely believing there are inequities in our tax system” that a capital gains tax in some form could have helped to resolve.  

She ruled it out – but only in her own capacity as Prime Minister. “Under my leadership, we will no longer campaign for, or implement a capital gains tax – not because I don’t believe in it, but because I don’t believe New Zealand does.”

In two weeks’ time, she will no longer be prime minister. That opens the door for Hipkins to put a capital gains tax back on the table. It’s a policy that successive governments on both sides have paid lip service to, then backed away in dismay at the public reaction. Arguably, it should have cost Labour the 2017 election: the party’s polling dropped behind that of National amid concerns about whether baches or farmhouses might be taxed, but then Winston Peters opted to form a coalition with Labour regardless.

It may well be that attitudes have now changed. The extension of the bright-line test on investment properties to 10 years means that a capital gains tax would have very little additional impact on the housing market; it would have greater impact on land and buildings, business assets, intangible property and shares that are erratically taxed at present.

Previously, the main object of a capital gains tax was seen as popping an inflating housing bubble. But interest rates are doing that already.

Now, the object of a capital gains tax would be to tax those who earn their money from the appreciation of their investments consistently with those who earn their money from wages and salaries. It would eliminate some of the vagaries that have distorted the New Zealand economy, pushing investments from loophole to loophole, from shares to rental properties to KiwiSaver schemes with untaxed fees to whatever opportunity comes next….

“In this world, nothing is certain except death and taxes.”
– Benjamin Franklin

Is Hipkins the bold new leader who would push forward with reforms like Three Waters, perhaps negotiate a cross-party agreement to raise the retirement age to 67, and even put a capital gains tax back on the table? Certainly, it would set him apart from Ardern; it would show him as his own man, charting his own course.

These could be seen as the decisions of a leader who is putting the long-term interests of younger generations ahead of his own party’s immediate electoral interests, in the knowledge that the chances of winning are slim anyway.

Or they could be seen as the heedless actions of a prime minister with little regard for the concerns of those who elected him.

Either way, it would almost certainly be the funeral of this Labour Government. Three Waters, longer working lives and new taxes would be too much for many voters to accept – but they would provide some substantive additional lines to the epitaph of a government that has achieved far less than its supporters expected.

A loss in this year’s election would likely spell the end for the unsuccessful leader, whether Chris Hipkins or Christopher Luxon. Only occasionally do caucuses give an unsuccessful leader a second chance. 

American statesman Benjamin Franklin said there were two certainties in life – death and taxes.

Let’s see if Chris Hipkins agrees.

Newsroom Pro managing editor Jonathan Milne covers business, politics and the economy.

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