All around the world, governments, economists, and even neoliberal bastions like the World Bank are urging a change in the direction of economic policy away from the mistakes of a decade ago – all except here in New Zealand, where the government appears determined to repeat them. Branko Marcetic examines the Government’s pay freeze for public sector workers.

Observing events in the rest of the world, the state of things in Aotearoa can sometimes feel like they’re happening in an alternate universe. And that’s not just because for more than a year, New Zealand’s been living almost as if the pandemic never happened, healthy and free of the anxiety and restrictions people overseas are still forced to endure.

But in fact, New Zealand is exceptional for a different reason. All over the world right now, economic opinion is turning against the austerity and debt fears that reigned supreme for the past decade, as governments, economists, and musty, conservative institutions all acknowledge the need to invest now to shore up a post-Covid economy.

Danish Prime Minister Mette Frederiksen — a young, female social democrat who has drawn numerous comparisons to our own prime minister —called austerity an “old-fashioned way of thinking” and promised a program of robust public spending. In the UK, an influential Thatcherite think-tank has similarly renounced the austerity it used to cheer, and instead urged Tory Prime Minister Boris Johnson to hold to his inconsistent vow not to worry about historically high government debt. Even in the United States, President Joe Biden, a lifelong fiscal conservative, has put his traditional fear of budget deficits to the side and embarked on a program of trillions of dollars of spending.

All of this has happened at the explicit urging of some of the world’s most conservative economic institutions.

“First you worry about fighting the war, then you figure out how to pay for it,” said Carmen Reinhart, the World Bank’s chief economist, one of the leading crusaders for austerity a decade ago.

“Fiscal authorities can actively support demand through cash transfers to support consumption and large-scale investment in medical facilities, digital infrastructure and environment protection,” wrote the International Monetary Fund’s chief economist, warning that there is a “consensus that fiscal stimulation was withdrawn too quickly right after the financial crisis” last time.

Several high-ranking figures from the OECD are now calling the spending cuts and debt paydowns their organisation pushed governments to do after the 2008 global financial crisis a terrible error. “The first lesson is to make sure governments are not tightening in the one to two years following the trough of GDP,” says its chief economist, pointing to the “mistake” made through 2010-11. “Austerity is not the answer today, both because of the bad experiences from the last crisis and because today we are in a zero-interest rate environment,” says its deputy secretary general.

So as the rest of the world rethinks the policy mistakes of the last decade and urges a bold change in direction, what is our nominally social democratic government up to? Doubling down on those very same mistakes, it seems.

The government’s three-year pay freeze for public sector workers announced on Tuesday is rightly being assailed across the board as a betrayal of the frontline workers who have worked themselves to the bone and risked their own health to keep New Zealand moving through a tough year. Worse, it was prefaced with a statement from Finance Minister Grant Robertson thanking “the public service for their contribution during Covid-19” and acknowledging “the efforts of our frontline staff” and their “dedication and public service” through the crisis. It would be hard to engineer a bigger slap in the face to frontline workers if you tried.

Needless to say, the move is only going to put a further squeeze on working New Zealanders already grappling with sky-high living costs that are getting worse, from fruit and vegetables to, especially, housing, which has been experiencing runaway inflation compared to incomes. As Paul Kelland points out, you can freeze incomes, but living costs are going to keep going up, effectively turning this pay freeze into a pay cut. It not only threatens to push overseas already strained nurses and teachers that our country has struggled to retain— the very same workers who struck just three years ago over, among other things, inadequate pay — but also to prod the most experienced and therefore highest paid public sector workers potentially into the private sector.

Unfortunately, by now we’ve come to expect that these concerns aren’t at the top of this government’s priorities. From refusing to lift benefits to blaming low-wage workers for its own missteps on the pandemic, this government has consistently exhibited an antipathy to what in theory should be its core voter base.

But with this latest pivot to austerity, Labour isn’t just defying its most loyal constituents — it’s rejecting the pragmatic advice of much of the global power establishment it aspires to emulate.

As Robertson explained on Tuesday, it’s the fear of government debt that’s driving all this. In other words, the government is embarking on the very economic strategy — an early pivot to austerity that puts debt concerns over human ones — that foreign governments, economists and conservative institutions like the World Bank and IMF right now are overwhelmingly rejecting as a proven failure. We don’t know exactly what ideas Jacinda Ardern and Frederiksen shared in their well-publicized phone call last year, but it probably wasn’t that.

If the government really feels the debt is such a pressing issue, it’s not as if it didn’t have alternatives. A booming housing market and growing wealth inequality might’ve been a prime opportunity to replenish government coffers by asking investors and the 1,904 Kiwis who are worth more than $30 million to pay their fair share. This would do much more for narrowing the economic inequality that Robertson claims this attempt to pit public sector workers against each other is about.

But Labour has already ruled out putting in place capital gains or wealth taxes (which have already been used to great effect in countries like Argentina and Bolivia for this purpose), seem cool on introducing an inheritance tax, and have dismissed raising the tax rate for trusts, one of New Zealand’s most popular vehicles for tax avoidance. This, despite breezily raising taxes on ordinary New Zealanders yet again in the middle of the pandemic last year in the form of higher petrol, alcohol and road user charges. Consistent with how they’ve governed so far, Ardern and Robertson are happy to demand workers sacrifice for the greater good — but asking the rich to do the same is a red line they simply won’t cross.

As one more kick in the teeth, just a day after the pay freeze announcement, the government announced that its books were $5.2 billion better than expected, raising the question of why the pay freeze is necessary at all. What’s more, as Treasury itself admitted late last year, this state of affairs is in no small part because government support kept consumer spending up over 2020, funnelling more tax revenue back into its coffers, and suggesting that there’s less tension between public investment and keeping the government’s books in order than Robertson would have us believe. But instead, his government’s strategy is to effectively stifle consumer spending for the next three years from public sector workers.

After last year’s stunning election result, there was fevered speculation about just how Labour would spend its unprecedented political capital in a second term. We appear to have now found out: it will reject the advice of most mainstream economic opinion, protect the existing arrangement of wealth and power in the country, and pick a fight with the country’s largest union. Now the question is whether public sector workers will take it, or rebel like they did three years ago. Debt or no debt, someone is going to have to pay.

Branko Marcetic is co-host of the podcast 1 of 200 and a staff writer for Jacobin magazine. This article has been republished under a Creative Commons CC BY-ND 4.0 license. It was first published on the Democracy Project.

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