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John Key: Portrait of a Prime Minister, by John Roughan (Penguin Books)
Learning the ropes
Most who enter Parliament share that motive to “make a difference” and politics can be cruel to the best of them. National’s incoming “class of 2002” got to see just how cruel it could be.
The day they arrived for their first caucus meeting, brimming with first-day excitement, they walked into a wake. No fewer than 16 of the previous caucus were there to be farewelled.
Only six had planned to retire. Jenny Shipley, Wyatt Creech, Max Bradford, John Luxton, Doug Kidd and Warren Kyd were given silver trays. The other 10 had seen their careers disappear that Saturday night.
Gavan Herlihy, who had thought his Otago seat safe, said to reporters, “Six years ago I wandered up those steps with such hope in my heart. Today the heart is…” He didn’t want to blame anyone. He turned away with an audible “bugger.”
Timing is everything in a political career. The right moment to come into Parliament is not when your chosen party is in power or even coming to power. New Zealand has seen political figures such as Jim McLay and Jim Anderton who has all the qualities of a prime minister and almost certainly would have made it to the top if they had entered Parliament at a different time.
The right time is when the party is at a low ebb. When John Key decided to make the jump from finance to politics, he chose the perfect year.
From his seat at the back, Key concentrated on watching and learning the mysterious rules and procedures of the House.
One afternoon early in the term, he was listening to ACT leader Richard Prebble, a veteran down in front, as Prebble argued with the Speaker about the way a Labour minister was proposing to advance a bill. Prebble pressed his point and the Speaker agreed with him, telling the minister he would have to go about the legislation in a different way.
National’s Gerry Brownlee, who had agreed to the government’s desired procedure, was glaring at him. When the debate moved on, the ACT leader was surprised to be quietly joined at his bench by the new member for Helensville who whispered, "I’m curious, what did you just do?" Prebble was impressed.
"Nobody in the National Party had ever asked me what I had done on a point of order. So I explained the point and how it worked. Then he asked me, ‘Why did you do it?’ I told him the government had been setting a trap and the Nats were walking right into it.
"If we had gone along with it we’d have found we couldn’t move an amendment to the bill. Now the issue would go to a committee and we could look at it. The point was actually complex but I could tell from what he went on to ask me that he grasped it immediately. About 70 per cent of MPs retire without ever understanding these things. He is quick."
A time to assess
John Key is no longer the fresh-faced financial achiever who came into Parliament talking about making a "step change" in the New Zealand economy. That phrase disappeared in the fallout from the global financial crisis before he even took office.
He never knew precisely what he meant, except that he believed the economy was like an underperforming business that could be generating a higher level of income for all New Zealanders if only its government was prepared to be more daring, such as taking on more debt. He admits he now knows better.
"If you’d asked me when I first went into politics how important was public policy to a country’s success on a scale of one to ten – one being not important – I would have said seven. If you ask me now, I’d say 9.5. Because when you look around the world, there are lots of countries with everything going for them and they do really badly, and there are countries that don’t have those environments that do incredibly well."
Good public policy, as prescribed by international institutions such as the OECD, is dull. It means controlling government spending and taxation, balancing the budget and maintaining sound monetary conditions for low inflation. Most importantly, it means low government debt.
That is the first figure credit agencies want to know when they assess how well a country is governed. The government debt reflects whether the budget has been balanced over a reasonable period. It is not the total national debt which includes private-sector borrowing, and less of a worry in open economies with floating exchange rates. The government’s debt is what really matters.
On that score Key’s performance is mixed. He inherited a budget heading deep into deficit. Despite the cost of a recession and two destructive earthquakes, he and Bill English expect to post a surplus in 2015, enabling them to project credible debt reductions in the years ahead. They have managed to contain public spending without drastic cuts in any services or the painful economic adjustments of the past.
But Key also inherited a very low public debt from the Labour Government that had enjoyed eight years of eco¬nomic growth. Labour’s legacy was the main reason that National has been able to run up $60 billion of debt since 2008 without putting New Zealand’s credit rating and living standards at much risk.
With strong growth returning in 2013 to 2014, generating Budget surpluses from 2015, New Zealand has an opportunity to get its public debt down again before the next economic ‘shock’ occurs. Key seems in no hurry. His Government aims to get the debt back down below 20 per cent of GDP no sooner than 2020.
On the eve of its first budgeted surplus, Key said surpluses gave the Government an option to promise tax cuts at the 2014 election weighted to the lower paid. If Key remains in office to 2017 or even 2020, it is doubtful he will leave a public debt as low as the one that Labour left him.
Since 2013 the economy has been booming on the Christchurch rebuild. By March 2014 the country recorded 3 per cent growth, more than the world’s leading economies that were still on post-recession monetary stimulants or trying to wean themselves off them.
Business confidence in New Zealand was at its highest for 20 years. Average wages had risen 2.8 per cent over the year. Inflation was just 1.6 per cent, though as a precaution the Reserve Bank began raising interest rates in March, the first western central bank to do so since the recession.
The "rock star" economy was set for even faster expansion in 2014–15 from strong dairy export prices and the $40 billion injection of insurance and government funds into Christchurch. New Zealand could have the fastest-growing economy in the OECD this year, but commodity prices are fickle and the earthquake rebuild is a temporary stimulus.
Something more needs to happen if New Zealand’s low average income is to rise from near the bottom of the OECD table and start to match those in countries that attract educated young people. Key believes the secret to sustained growth lies in what he calls "connectedness" to the world.
"New Zealand needs to remain open, efficient and welcoming to foreign capital, students, tourists, people coming to live here. Engaging in that trading world is what is going to make us wealthy. New Zealand is going to be better. I think it’s already better. It’s a more interesting place being multicultural.
"People are worrying about their kids staying here and having jobs here. Well, the only way you do that is with international connectedness. We are not going to get wealthy selling things to 4.5 million New Zealanders."
Reprinted with permision from John Key: Portrait of a Prime Minister, by John Roughan (Penguin Books)