Olivia O’Malley is a former press secretary to a Leader of New Zealand’s Opposition and a long-time Conservative staffer. She currently works in public affairs.
Few would argue that the UK is not crying out for change. Growth is sluggish, productivity seems an intractable problem, and frontline public services are in decline.
Yet Labour, though all but certain to win, has struggled to alight on a policy platform that will deliver the growth it promises. The major parties have scrapped about whose tax plans are more expensive. All have pledged, if elected, to do more and go further on spending.
None has a convincing solution to fix the fundamental and structural issues at the heart of Britain’s woes, and none appears to be pursuing anything more radical.
There is, however, a blueprint for wholesale change: New Zealand. Specifically, 1990s New Zealand.
In 1991, New Zealand’s government spending was high, even after several years of moving away from the Muldoon era of economic protectionism, later alcoholism, and ‘Schnapps’ elections.
Macroeconomic reforms instituted by the Labour government between 1984 and 1990 had changed the economic fundamentals: on being elected, Labour devalued the New Zealand dollar, sold off state-owned businesses, and abolished agricultural subsidies overnight.
At the time of those changes, Roger Douglas, the Financial Minister and the reforms’ main architect, was heavily influenced by the Chicago school of economic thought and successfully argued that New Zealand had struggled to adapt to the loss of the Empire and trading links with Britain, precipitated by the UK joining the EEC in 1973. Tectonic shifts such as free-market reforms were necessary if New Zealand was to catch up with the rest of the world.
In the main, Douglas was right and his policies laid the foundations for New Zealand’s economic consensus today. The country boasts a successful, unsubsidised agricultural sector and strong export links, particularly with Asia.
But, for all the changes that were made, and despite these being felt by New Zealanders personally – unemployment increased from 3.6 per cent in 1986 to 10.6 per cent in 1991 – the reforms never truly touched the sides of New Zealand’s growing social spending.
Enter Ruth Richardson and the National Party.
Labour’s far-reaching economic reforms were deeply unpopular with Labour’s base. Internal debates about the government’s direction ensued and Douglas stepped down as Minister of Finance in 1988. The National Party, equivalent to the UK Conservatives, criticised the breadth of the reforms and spoke of the importance of a ‘decent society’. National won the 1990 general election.
But Ruth Richardson, the incoming Minister of Finance, was also a proponent of the Chicago school, believing in small government and free-market policies. And for all the cataclysmic changes to the way New Zealand’s economy was managed, the key tenets of New Zealand’s popular and expensive welfare state remained.
Over fifty years, New Zealanders had become accustomed to the safety net instituted by Labour in the 1930s under Michael Joseph Savage a popular prime minister. New initiatives – such as the Domestic Purposes Benefit in the 1970s – were occasionally added or removed, but nothing beyond a bit of tinkering ever really took place.
Richardson’s Budget of 1991 – the new government’s first, as well as the first-ever televised Budget and the first delivered by a woman, for Richardson was New Zealand’s first female Minister of Finance – would prove to be far more radical than National had envisaged.
Unemployment benefits were cut by $14 a week, equivalent to just over £14 per week in GBP today, representing a 25 per cent cut, and sickness benefits slashed by $27 (£27, or 20%).
Nicknamed the ‘Mother of All Budgets’ by Richardson herself, the cuts did not stop there. In health, changes that would be unthinkable to users of an NHS ‘free at the point of care’ was instituted, with charges for outpatient visits to hospitals “at a similar rate to patients of private GPs”. Universal benefits for families were completely abolished, trade unions were weakened and free university became a thing of the past, leading to an exodus of educated New Zealanders struggling to pay crippling student loans.
Richardson’s economic agenda was dubbed ‘Ruthanasia’ by the press, and several of National’s political opponents derided the measures as gratuitously cruel.
The political fallout was extensive. Not only did the Budget have a huge immediate impact on New Zealanders, it was contrary to what had been promised by Jim Bolger, the Prime Minister, in the lead up to the 1990 election.
In 1993, National held onto its majority by a single seat, a referendum to change the electoral system from First Past the Post to the current Mixed Member Proportional (MMP) system from the 1996 election onwards was successful, and Richardson stood down as Minister of Finance.
The legacy of the Mother of All Budgets did not end in 1993 and looms large in New Zealand’s political memory. Richardson never politically recovered and the moniker of the Mother of All Budgets stuck. But while few of the actual policies Richardson implemented remain, the things that Richardson prioritised – principles such as competition in public services commissioning, value for money, balancing the books, and the pursuit of government surpluses – remain key drivers of public policymaking in New Zealand more than thirty years on.
New Zealand’s case study offers British Conservatives clear lessons. The first is that radical change to transform spending priorities in expensive yet popular areas is possible – and, once implemented, can be hard to roll back. But the second is worth bearing in mind too: such radicalism may be deeply unpopular.
The challenge for any new government is to decide whether its priorities lie in making lasting changes or staying in power.
