Roger, Ruth and Jacinda

The capital gains tax was an article of faith for left-wing supporters of Jacinda Ardern. Its failure to materialise has been attributed to weak leadership or, worse, political  deception. But there is a further explanation: Ardern’s devotion to the legacy of the Fourth Labour Government. An uneasy marriage between neoliberalism and social justice has been at the heart of our politics since 1984. Confronted by the prospect of a divorce, Ardern chose to renew the wedding vows.

Once asked by a journalist how much of her thinking is ‘socialist’, Jacinda Ardern replied ‘not much’. Yet, her announcement that there will be no capital gains tax – for as long as she is leader – shocked New Zealand’s media and political establishment. The belief that Ardern would lead major tax reform had become an article of faith for many on the left. After all, what was the use of a Labour government if not to tax capital? Such was their faith that most leftists overlooked the conservatism of Winston Peters and New Zealand First. Peters, who turned 74 earlier this month, has been an opponent of a capital gains tax since the idea was first mooted by Labour in the 1960s. Yet, the media consensus – perhaps owing to the confidence of the left – was that Labour would reach a compromise with Peters. They were wrong.

So, what happened?  Bryce Edwards has speculated that the entire tax reform programme was a cynical exercise in virtue signalling. When she established the Tax Working Group, Ardern must have known that Peters’ entrenched opposition to the capital gains tax was unlikely to change. But to rule out the tax then would have betrayed a total lack of principle and undermined faith in the Labour cause. After all, support for Ardern’s ‘politics of kindness’ has relied on the belief that her government is making a genuine attempt to address poverty and inequality. The failure to implement the capital gains tax could be forgiven if Labour was seen to have at least tried. Indeed, centre-left voters may now blame Peters and NZ First for any lack of progress.

Ardern has been widely criticised in the media for weak leadership. But once they had got over their shock, long-time political commentators such as Audrey Young praised Ardern’s decision as ‘pragmatic’. I suspect this will become the accepted narrative. By defusing the issue of tax, and denying National a powerful weapon, she has improved Labour’s re-election chances. Though it may breathe new life into the Greens. But I think there is more to Ardern’s decision than leadership failure or electoral strategy. As a child of the 1980s, Ardern grew up in a period of major social and economic transformation. She would later join the political party responsible for this change. Ultimately, it is Ardern’s belief in the Labour Party that explains her decision to break faith with the left.

Ardern’s Labour Party: A Brief History

The term ‘neoliberalism’ is often used to describe the policy consensus that emerged out of the 1980s. This concept refers not just to a set of policies, but an ideology of the state. David Harvey, the Marxist scholar, describes neoliberalism as a “central guiding principle of economic thought and management” based on the belief that “liberating individual entrepreneurial freedoms and skills’” should be the main purpose of government. Most commentators see fit to classify neoliberalism as a ‘right-wing’ project. However, in New Zealand, it was the social democratic Labour Party that deregulated the economy and introduced market-based reforms to the public sector.

The popular narrative is that the Fourth Labour Government (1984-1990) was ‘captured’ by a small clique of right-wing ideologues led by Finance Minister Roger Douglas. The reforms caused major dissent within the Labour rank-and-file. The resulting ideological conflict eventually led to the downfall of that government, and a schism in the Labour Party. However, the neoliberal project was continued by the National Government of Jim Bolger in 1990-1993. Major cuts to welfare spending, deregulation of the labour market, and reforms in the health sector were introduced. This agenda was led by Finance Minister Ruth Richardson. However, public opposition resulted in a hung Parliament at the 1993 general election. The country also voted for MMP. This new system of proportional representation would hand considerable power to minor parties. Richardson was sacked, and the Bolger Government retreated.  The forward march of neoliberalism was halted.

But there is a problem with this narrative. Academics and commentators have often overlooked the social democratic character of the Fourth Labour Government. In doing so, they blur the lines between ‘Rogernomics’ and ‘Ruthanasia’. Douglas and his Cabinet colleagues never intended to dismantle the welfare state. On the contrary, distributive justice remained a priority for that government. Spending on health, education and welfare was increased significantly. Government spending on benefits and social security, alone, soared from $4 billion in 1984 to over $10 billion in 1990. Tax reform provided relief to low and middle-income families, while beneficiaries were given substantial income exemptions and abatement rates. However, the Fourth Labour Government did cancel the universal family benefit in favour of a more targeted approach. This represented a significant departure from the approach of past governments but did not result in the decline of the welfare state.

The Fourth Labour Government also used the state to promote wider social justice. Gender equality was made a serious priority with the passage of the Employment Equity Act and a new Ministry of Women’s Affairs. A Māori housing scheme was introduced, the Waitangi Tribunal was given the power to investigate Treaty claims back to 1840, and Te Reo Māori became an official language backed by an official body. The Fourth Labour Government also rewrote the country’s immigration laws to end racial discrimination at the border. These were major policy achievements that had a lasting impact on New Zealand politics and society. In fact, this progressive social agenda formed a key part of the public policy regime that developed out of the 1980s. The Bolger Government largely continued this work, advancing the Treaty settlement process, and passing specialised anti-discrimination legislation.

Deregulation of the labour market and retrenchment of welfare in the early 1990s are usually seen as a continuation of Rogernomics. But these measures do not sit comfortably with the Fourth Labour Government. On the contrary, the Fourth Labour Government passed legislation to protect workers’ rights and address inequality.  Labour would spend much of the 1990s vigorously opposing National’s attempts to introduce a more laissez faire approach to social policy. Ultimately, National failed in this agenda. The election of a new centre-left government in 1999 restored social spending and reversed market reforms in health, housing, and employment relations.

The Labour-led Government of Helen Clark did not repudiate the main tenents of the post-1984 consensus, however. Clark and her finance minister, Michael Cullen, had both served in the Fourth Labour Government. They were social democrats who embraced fiscal conservatism. The emphasis was on maintaining business confidence through low inflation, low taxes, and a high degree of economic freedom. To this end, the Clark Government avoided major reform to address unfairness in the tax system. The Clark Government also refused to increase core benefit rates above inflation. Welfare remained targeted, with the focus on personal responsibility and incentives to work.

Ardern’s election as a Member of Parliament in 2008 coincided with the defeat of the Clark Government. But a decade later, the party remains in an uneasy marriage between neoliberalism and social justice. Ardern’s disavowal of socialism was in keeping with this marriage. Whatever she may believe about the virtuosity of tax reform, Ardern’s political ends can only be realised within the ideological parameters set by her Labour predecessors.  And so when confronted by the prospect of a divorce, Ardern did what Clark before her did. She renewed the wedding vows. 

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