Like Barack Obama, New Zealand prime minister John Key was elected leader of an English-speaking country in November 2008. Like Obama, he campaigned on a platform of change and deposed an unpopular incumbent party. Like Obama, he has been steering a rich economy through a domestic recession and the global financial crisis. But whereas Obama has adopted a big-government approach to economic stimulus, his counterpart in Wellington has embraced a robust free-market strategy.
Since taking office, Key, head of New Zealand’s center-right National party, has signed a multilateral free-trade agreement with twelve countries in the Asia-Pacific region and has commenced a regulatory review program aimed at eliminating unnecessary and inefficient regulations. His government has also capped the number of staff in the public service (halting the growth of a bureaucracy that became hugely bloated under Key’s predecessor, Labour prime minister Helen Clark, who served from 1999 to 2008) and introduced a bevy of tax cuts designed to stimulate job growth. Delivering his first budget in May, Key continued to distinguish his economic policies from those being adopted in Washington, London, and Canberra. He imposed a cap on government spending set at half the average spending level over the past five years, reining in government growth to 2 percent per year. Key’s “line-by-line” review of federal spending identified and cut back $2 billion worth of non-essential programs. His conservative budget pushed the New Zealand dollar higher and prompted the ratings agency Standard & Poor to increase New Zealand’s foreign-currency rating from negative to stable.
Key’s economic-stimulus plan has sought to improve private-sector productivity by reducing red tape and fiscal disincentives, rather than by borrowing and spending billions of dollars to prop up growth and bail out ailing industries. Meanwhile, his health-care reforms have reduced bureaucracy, encouraged private health-care provision, and improved value in the public health system. New Zealand health minister Tony Ryall has stated categorically that the government is “not interested in supporting any recommendations that increase bureaucracy.” The Key-Ryall reforms are a world away from Obamacare.
A recent OECD report on responses to the global financial crisis shows just how much New Zealand has bucked the trend among advanced Western democracies. (A comparative graph can be found here.) America’s economic-stimulus package represented approximately 5.5 percent of GDP, most of which was devoted to new government spending and handouts. Australia’s stimulus package was approximately 4.5 percent of GDP — and, like America’s, most of it went to government spending. By contrast, New Zealand’s stimulus package, which was a little smaller than Australia’s, was composed almost entirely of tax cuts.
The Nationals’ success runs counter to claims that the global financial crisis and other factors have created a new political environment in which conservative parties must jettison or dilute their free-market policies if they want to win elections. The evidence from New Zealand indicates that conservative parties can still triumph in the Anglosphere. Last November, the National party captured nearly 45 percent of the vote, which, by Kiwi standards, is a very large share. New Zealand has a proportional-representation electoral system, and no party has achieved an absolute majority since 1951. The combined vote share won by the two center-right parties, the Nationals and the ACT party, in 2008 was 8 percentage points greater than their combined share in the 2005 election.
Key campaigned as an unabashed small-government conservative. In their campaign platform, the Nationals vowed “to bring discipline to government spending, to reduce red tape and to reduce personal taxes.” Key further demonstrated his commitment to smaller government by entering into a “confidence and supply” coalition with the libertarian ACT Party, which grew out of New Zealand’s Association of Consumers and Taxpayers (hence the acronym) and advocates free markets, individual freedom, and a minimal welfare state. The “confidence and supply” agreement means that ACT votes with the government on motions of confidence and appropriations. As part of the deal, the Nationals granted two ministerial positions to ACT members of parliament. Although ACT won only about 4 percent of the popular vote, New Zealand’s proportional-representation electoral system allows for minor parties to enter parliament with a considerably smaller proportion of votes than would otherwise be required in a preferential electoral system.
Key has a strong background in global financial markets — he is a former foreign-exchange trader with Merrill Lynch — and a faith in capitalism that many foreign leaders seem to have forsaken in favor of populist cash-splash initiatives. “I don’t believe we’re seeing the death of capitalism, or anything near it,” Key told the Australian last spring. He’s also wary of responses to the crisis that involve heavy borrowing and spending. These responses “saddle future generations with an enormous amount of debt that they then have to repay,” he told the Wall Street Journal in March. “There’s a limit to what governments can do.” That is something the Obama administration should keep in mind.
– Lydia Bevege is a student at the University of Melbourne.