David Cunliffe's economic vision - opinion
Opinion and interview by James Murray
David Cunliffe was keen to talk business.
In an interview with 3news.co.nz at the beginning of the Labour Party Campaign launch, the Finance Spokesperson spoke confidently about his party’s economic policies.
Relative to other politicians we have interviewed during the campaign he was more focussed on the nuts and bolts of things than pushing his personality.
Since then a lot has become clear – Labour’s ‘policy-first’ campaign has put personality on the back-burner and thrust the flagging economy to the fore.
This is a strategy that at first seemed a good move considering the Prime Minister’s popularity.
Of course, Key then invoked Jerry Maguire, forcing Labour Leader Phil Goff to mangle a metaphor (Maguire never showed anyone the money, he asked others to show the money to him) and explain his party’s costings sans asset sales.
As Political Editor Duncan Garner said last night, there is an old saying in politics that explaining is losing, and it has to be said that Labour – who won the first week of the campaign hands down – look to be wounded over this.
But this seems a sad attitude to take. In an ideal world voters would vote on policies that are well explained and well thought out rather than on who wins a slagging match.
Misogynistic and sincerely-apologised-for comments about Judith Collins aside Cunliffe has stuck to the policy line much more closely than Goff, who has been drawn into the personal insult game during the first two debates.
With Goff and Key thrusting drunken sailors and monkey’s uncles at each other like inflatable rapiers my conversation on economic policy with Cunliffe is as sharp as a surgeon’s scalpel – on his side at least.
First off he shows no sympathy for his counterpart Bill English on credit downgrades.
“This Government has been big on PR and very light on proper change. The rating agencies and, I might add, the OECD and the IMF have all said the same things about what is fundamentally wrong with our economy,” he says.
“We don’t export enough, we don’t export enough high value products, we’re over dependent on a few commodities in a few markets.”
He also calls out Bill English on the country's debt problem – citing our obsession with investment properties as a root cause.
“We have got far too much debt, but unlike what Bill English has been preaching, nearly 90 percent of that debt is private debt. It is the housing bubble of the last two decades coming home to roost. So I think it is 86 percent private debt, last time I looked 55 percent was house mortgages, about 23 odd was farm debt, about 16 was business working capital.”
Labour’s solution to this is a capital gains tax. A sensible, should-do, policy that is potentially unpopular with richer sections of the voting public and potentially misunderstood by others. It’s a policy in line with raising the retirement age to 67 by 2033 - tough and potentially unpopular, love. The Labour Party are hoping their analysis of the Government being high on style and low on substance will win over informed swing voters and give them enough of a leap in the polls to form a strong coalition with the Greens.
With John Banks fluffing things in the Epsom electorate, see his attempts to win over Chinese voters last night, there is a real chance ACT may not get back into Parliament. This could potentially make the numbers a lot closer come November 26.
This is something Cunliffe is keen to point out in our interview – saying Labour’s internal polling showed the gap to be considerably narrowed – although trusting the polls of political parties is fraught with journalistic danger.
Later in the conversation, Mr Cunliffe savages the Government for shying away from suggestions made by their own Tax Working group.
“So we’ve got an overwhelming private debt problem which feeds into the next problem, which is growing international indebtedness. We can fix that, but you need things like a capital gains tax, that gets the incentives in the tax system right and you need a strong savings policy,” he says.
“Now the Government shied away from the report from the Tax Working Group – a perfectly good report. [The group] floated the idea of a capital gains tax or a land tax – the Government refused to implement it.
“It’s had a savings working group and it has refused to implement a particularly strong savings policy – only a maybe, one day, what if we could do auto-enrolment for a few. That is pretty small, halfway house.”
Mr Cunliffe thinks New Zealand’s love of rental properties is a disservice to young people.
“We don’t have an obsession with home-owning. The rate of home-owning has declined. We have an obsession with rental property investment – a sector that pays no tax at all and has driven up house prices to lock young people out of the market.”
On Labour’s election website one of their key policies is making sure interest rates get lower. A seemingly curious policy considering the OCR has been at record lows during National’s term, largely due to the need to stimulate demand after the Christchurch earthquake and the knock-on effects of failing international markets.
But Mr Cunliffe points out that the traditional monetary method of adjusting the base rate to control the retail rate has not had the knock-on effects expected.
“We have a lower reserve bank official cash rate than we have had for some time – that is true. But New Zealand’s retail interest rates, relative to most of the developed world including Australia are higher,” he says.
“So there is a wedge above the OCR, between that and the retail rate.
“It’s partly because the banks fund not simply from the reserve bank, but also from domestic deposits and offshore borrowing which is hedged, and a few other things.
“That all feeds into where interest rates are. On average they are higher than most countries.”
Mr Cunliffe and Labour point out that current monetary policy – where interest rates are increased if there is an influx of domestic demand to reduce the chances of potential inflation – is not well-designed to keep the exchange rate low and exports competitive.
On their website this theory is well-explained:
“When there is a surge in domestic demand, the policy response is to increase interest rates. Ironically, higher interest rates attract even more inflows of foreign capital, which then gets lent out and sometimes causes even stronger domestic demand.
“This cycle increases New Zealand’s overseas debt at the same time as punishing our most productive businesses and first home-buyers; the two sectors that we least want to affect.”
Outside of interest rates and into real world economics Mr Cunliffe is passionate about modernising New Zealand industry.
He compares New Zealand to Denmark; a country of similar size and population and also with a strong agricultural sector.
“We earn about the same amount from agriculture, but they earn three times as much from non-agriculture industries because they have boosted design, quality, hi-tech, manufactured goods,” he says.
“We are real innovators in New Zealand, we have great R &D and design and lots of smart people, particularly in the hi-tech sectors.
“[We have] lots of good niche manufacturing. As I go round the country I am amazed by what I see and yet we underperform, because we still think it’s about shearing cows and milking sheep.
“It’s got to be about more than that, there’s not anything wrong with that we should keep doing it. But we will never be able to milk enough cows to have an income like Denmark’s.”
Could New Zealand have a company like Nokia on its hands one day?
“Well, we certainly could,” he says.
“We need to invest more in research and development, we need a better patenting system, we need to have better capital availability for growing firms.
“The problem is really well documented – we need to build on the venture investment fund, we need to ensure we have more support for young Kiwi companies going overseas. We need to ensure the Government actually buys products from New Zealand companies instead of importing big brand names.”
And Mr Cunliffe puts the blame for a lack of New Zealand companies competing on the global market squarely at the Government’s feet.
“This is stuff we could quite easily do if the Government of the day was playing hard for New Zealand, rather than sitting on the sidelines waiting for someone else to do the work and worrying about being popular.
“The trouble with the National Government is it is all about them, it’s not about New Zealand, it’s not about doing the hard yards, it’s about turning up for the photo ops and people are rapidly getting sick of that.
“And then we get into the rundown of public sector capability, and then when we have an oil spill we haven’t got the capacity to deal with it. Or we take the safety inspectors out of our mines and we wonder why we have a mine disaster.”
Labour’s policies are strong at this election and Mr Cunliffe was sure on his feet when discussing them.
Their figures may have taken a bit of a bashing this week, but as our Business Editor Michael Wilson explains – you can do anything you like with the numbers, but they will always be inherently unpredictable.
The bluster over numbers is largely irrelevant for the future. It is a convenient way for National or Labour to get negative headlines about each other.
A competitive modern New Zealand needs structural change – not necessarily a change of Government – but the country’s economic playing field needs levelling. It probably even needs a roof like the Otago Stadium. Currently, business is not incentivised to go into the sort of hi-tech industries that will bring the high-wage, highly educated society many of us want.
Sympathy with Occupy protests may not be universal, but they are a symptom of malaise with an economic system too tired to try anything new.
I’d vote for any party who seriously want to take on an over-reliance on agriculture and provide for companies who will open up newer, potentially greener and potentially more lucrative industries.
Labour say they are the party that will do that – but they didn’t change much while Clark was in power.
They will also tread softly, few political parties these days make radical, ‘overnight’ changes – because the consequence of failure is too high.
Mr Cunliffe will be hoping this line will pick up middle class, aspirational voters whose politics are firmly in the centre. They’re the voters they lost in the last election and the ones who are key to any political victory in modern Western democracies.
The problem he may face is the message he wants to get across being drowned out by Goff and Key’s infantile squabble in the corner of the playpen.
Click on the video tab above to hear the full interview with David Cunliffe.