Coalition talks: On economics, Luxon is arguing about nothing with Winston Peters & David Seymour

As coalition negotiations drag on, it has been left to speculation about what disagreements are taking place. They cannot be on economic issues. The differences in terms of finance-related policies between National, ACT and NZ First are trivial and inconsequential. It cannot be that the nation doesn't have a new government due to sticking points over matters like National's foreign buyer tax which has been featuring prominently in the mainstream media, nor for that matter any other tax or spending policy. For example, the foreign-buyer tax would only raise around 0.1% of GDP.

In terms of other tax policies, here is one of NZ Firsts "founding principles":

Our long-term objective is New Zealanders paying less tax.

It is identical to National's and ACT's. As for fiscal policy, NZ First wishes "to create surpluses to deal with unfunded commitments and to pay down debt". It could be copied from the ACT Party. None of them is offering anything remotely resembling a radical restructuring of a single part of our economic landscape.

So what is going on? The main differences between the coalition partners lie in the non-economic arena, particularly matters pertaining to race. NZ First doesn't remotely share National's vision of mass immigration since in its view that does not put New Zealanders "First". And of course on Treaty issues, ACT & NZ First are miles away from National.

Consequently, forming a coalition appears to be fraught not because of anything to do with economics, but because NZ First and ACT know full well that should the Nats water down those two parties strongly-held views on race-related matters, then both those two minor parties will be abandoned by their supporters at the next election.

Is National's Economic "Strategy" Already Unravelling?

When Tony Blair's New Labour government came to power in 1997, he pulled off a remarkable string of three election victories. The "trick" of this achievement stemmed from Blair's promotion of, in particular, the financial services industry in London, and his support for light-touch regulation. The entire UK economy was lifted. Tax revenues soared from that industry, even as bankers paid themselves huge bonuses. They loved Blair. So how did he placate the left of his party? Blair poured those tax revenues into "rebuilding" the National Health System, which was his main election promise. He won support from both right and left, at least for a time. The way Blair made it happen, though, was on the back of a booming economy, and that one industry in particular.

Meanwhile in NZ in 2023, our economy has barely been growing this past year. In GDP per capita terms, we're currently in recession. Total GDP is rising only on the back of soaring immigration. Without a Blair-style boom, how can National pay for the required investments in health-care, education and infrastructure? It can't. What large industry can National rely upon to engineer a boom? It is far from obvious.

The way out would have been for National to propose an entirely new approach to welfare, such as moving to a savings-based Singapore-style model, for example. But the party has no intention whatsoever of doing anything that could remotely be labelled as "radical" .. which means it can not appeal to any significant potential efficiency gains that will help ensure our welfare system can do more for the same level of existing funding.

This National government could well unravel.