After nigh on three decades of constant and unflinching
devotion to free-market economic orthodoxy, the Treasury seems
to be opening the door to fresh thinking, albeit only slightly.
This week's declaration by Treasury chief executive Gabriel
Makhlouf that his department - the Government's primary
source of economic advice - does not have the monopoly on
good ideas could not have been better timed as far as
Opposition parties were concerned.
In arguing for Reserve Bank intervention to cut back the high
dollar, Labour, the Greens and New Zealand First are trying
to persuade voters that National's hands-off economic
orthodoxy is not up to the job in a world coping with the
nasty aftertaste of the global financial crisis.
Things have yet to get really bad here. But the sluggish
economy and the Finance Minister's cheery reminders that
things are not going to get much better for some time have
given Bill English's critics greater political leverage to
challenge the status quo.
It is all about trying to disabuse voters of the notion that
National is still the safest pair of hands when it comes to
managing the economy.
Mr English may still be winning when it comes to the fiscal
numbers, but the Government is looking increasingly
understocked on the ideas front.
This week's underwhelming "package" of measures to make
housing more affordable is a case in point. What do you do
when the market cannot meet demand? You turn local
authorities into whipping boys for the failure when they have
actually been doing exactly what you told them to do - free
up land for housing development.
Meanwhile, your largest supplier of new homes - Housing New
Zealand - is busy divesting itself of more houses than it is
acquiring as it tries to cope with outdated housing stock and
the Treasury's expectation that it produce a reasonable
dividend while also finding fresh cost savings.
Monday's package did not come up with anything which would
have been of immediate and appreciable help for some families
to get into their own home. Such assistance might come next
year as the Government looks to make better use of the huge
sums paid out in accommodation supplement.
As Mr Makhlouf has clearly identified, the Treasury is far
too consumed with number-crunching rather than crunching new
ideas. That the winds of change are blowing through
Wellington's No 1 The Terrace is evident in his first annual
report since becoming chief executive more than a year ago.
He went into more detail in a speech on Thursday in which he
talked of wanting to improve the Treasury's public image - in
particular that it cares about people's living standards as
much as the "almighty dollar".
That the head of the Treasury is also acknowledging the need
for new thinking might seem to undercut National, which has
long preached the virtues of economic orthodoxy.
However, Opposition parties will be reserving judgement on Mr
Makhlouf until they see the degree of any shift in Treasury's
Mr Makhlouf has echoed Opposition arguments that the global
financial crisis and its recessionary aftermath means no
quick return to "business as usual" conditions of strong and
stable growth across the globe. He says the economic
environment is now more complicated and poses a significant
challenge to the Treasury in its role as "policy ideas
But Mr Makhlouf stopped far short of pulling the rug from
under Mr English.
The Treasury head made it clear some things - sound monetary
policy, prudent fiscal policy, low inflation and keeping debt
under control - remain fundamental, as do matters such as
properly functioning markets, price signals and incentives.
What Mr Makhlouf is flagging is a different Treasury from the
stereotypical view of the department as a "bunch of white men
in grey suits with a beige mindset".
He wants a more outwards-focused organisation that is not
only a "hothouse of ideas" but more open to the ideas of
This revamping of the Treasury's view of its role is
certainly in stark contrast to its long-running
take-it-or-leave-it approach to economic advice.
Ever since Sir Roger Douglas blitzkrieged the country with
wave upon wave of economic reform in the 1980s, the Treasury
has continued to extol the virtues of the market,
privatisation and low tax, while denouncing the state as a
drag on growth.
Successive finance ministers have been served up the same old
elixir of policies - one that only works if the recipient
drinks the whole potion, however.
That successive finance ministers have opted not to swallow
what would be electoral poison has not deterred the Treasury.
It has been stuck in a first-past-the-post time warp in which
one-party governments could get away with doing pretty much
what they liked.
It is possible Mr Makhlouf's more "collaborative" approach is
a belated response to the more complex politics generated by
the MMP voting system.
It is definitely a response to what may potentially be a very
nasty inter-generational battle brought on by the pension and
health costs of an ageing population.
In last year's post-election briefing papers, the department
warned that the considerable fiscal challenge posed by an
ageing population would require trade-offs.
Given economic and social instability could result from
uncertainty about those trade-offs, the Treasury saw it as
crucial that efforts be made to build broad public consensus
on the way forward.
To that end, the Treasury has taken the first step in finding
consensus by convening a major conference later this month in
conjunction with Wellington's Victoria University.
Under the Public Finance Act, the Treasury is required to
produce 40-year projections on the fiscal position and
identify challenges facing future governments, such as those
arising from society's ageing population.
The suspicion will be that the Treasury is seeking to define
consensus on its terms of tight fiscal restraint and low debt
ratios to force cuts in superannuation and other
In that context, it is significant that Mr Makhlouf has also
been saying that under his leadership the Treasury will not
be shy about entering public debate.
His predecessor, John Whitehead, was hardly a shrinking
violet when it came to advocating publicly for a particular
policy to be adopted, sometimes straying across the
increasingly blurred boundaries between supposedly neutral
public servant and ideology-driven politician.
If Mr Whitehead ventured into previously forbidden territory,
Mr Makhlouf clearly intends to ensure the Treasury fully
occupies that territory when it believes there is good reason
for doing so.
The Treasury has always been the major bureaucratic player
behind the scenes. On the surface, it might seem desirable
that Treasury is more open, transparent and honest about its
role and influence. But going public makes the Treasury a
political player - and no-one seems to have thought through
the constitutional ramifications of that.
- John Armstrong is The New Zealand Herald political