On the Money: Heading for a spell of Rob's mob before Rogernomics has to return

By Michael Coote

Friday 21st June 2002

The secret of Rothschild wealth is said to lie in selling too soon.

That could be a smart ploy given the optimism of many market commentators concerning the investment outlook under a returned Labour-led government. Business as usual for investors is the message.

Contrarians would take this complacency as a signal to bet against New Zealand.

The phoney war being waged between Labour and the Greens is just a pitiful distraction. Both parties are confident of return to Parliament with increased strength. Labour obviously would like to rule alone, with a coalition shared with the Greens and the remnants of Jim Anderton's political following as a second but still palatable choice.

The Greens have moved to defuse their supposed timebomb stance on GE by having Jeanette Fitzsimons clarify that her party is not against GE as such but merely uncontrolled release of GM organisms into the environment. Labour could live with that, so it is left to the rest of us to wonder at the contempt expressed for our collective intelligence by the charade of the GM non-issue.

The real import of the upcoming election is that it will be a referendum on fully implementing Labour's version of social democracy. What is on offer is intensification of effort to restore the universalist welfare state of the 1970s. Three pillars of "no-fault," rights-based welfarism from that period - the DPB, ACC and Government Superannuation - have all been shored up by the present government.

It is not an accident that Labour looks with pride on relaxation of access to the DPB, renationalisation of ACC and the Cullen superannuation fund as core achievements of its first term.

These deeds are all of a piece. Together they restore the welfare state much as erected by Norman Kirk, Bill Rowling and Rob Muldoon. Comparison of Helen Clark's prime ministerial style with Sir Robert's therefore goes deeper to her government's neo-Muldoonism. It is not just Ms Clark but her entire government that represent Sir Robert in drag.

Interest rate policy will be decisive for investments after a new governor is selected for the Reserve Bank post-election. Treasurer Michael Cullen has stated publicly that he wants the incoming governor to abandon a prescriptive mid-range inflation target of 1.5% and that he thinks our present interest rates are too high.

Instead he wants the Australian approach to monetary policy to be introduced, with flexibility over inflation levels ranging across 0-3% and a "look through" to the status of the business cycle.

Accordingly, interest rate policy after the next election could be softer than presently expected. The result would reduce interest income for investors and weaken the rise of the kiwi. Real estate should continue to firm in value, as would shares generally, because rents, dividends and borrowing costs would all look more appealing. Overseas investments would be less eroded in value if unhedged against our currency.

All that should cheer investors up and would no doubt create the false impression that everything is doing wonderfully well. But the underlying effects of a bloated state sector would remain to retard the private sector over the longer run, with universalist, rights-based welfare ultimately dragging the country down.

The oft-quoted figure of an average $26,000 per annum extra compliance costs for each business - representing a starter job paying $500 per week - under the present government will most likely increase, more so if the Greens have a say in coalition.

Over the longer run, New Zealand looks to be a rum gamble for investors under social democracy of the Rob's mob sort that nearly wrecked the country once before. History repeats itself and, after a spell of neo-Muldoonism, we are likely to be back to revisiting the Rogernomics opposition of the welfare state to international competitiveness.

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