The Greens have broken dramatically with the James Shaw era

The Spinoff

18-06-2025

The party's new fiscal strategy hones in on a 'fundamental asymmetry' in how we think about public investment – and envisages government borrowing at roughly three times the level backed by the former co-leader.
Back in the mists of time, in the dim and distant past – in the year 2017, in other words – Grant Robertson proudly announced something he called the Budget Responsibility Rules. If elected, he proclaimed, a Labour-led government would largely maintain National's financial settings, capping day-to-day spending at about 30% of GDP and infrastructure-related borrowing at 20% of GDP.
The rules would have kept state expenditures well below those of comparable European countries. Rather than being economically justified, they were pure politics: an attempt to reassure swing voters that Labour was a financially prudent party.
The rules – which Labour adopted in government but then rapidly relaxed – were hotly debated at the time. The Green leadership team, however, willingly signed up. (Well-placed sources even argued they had originated the rules.)
The party's leaders were, for their troubles, castigated by former MPs like Sue Bradford, who accused them of conforming to a neoliberal orthodoxy. But Bradford would, I suspect, have been delighted with the scenes that unfolded at the Wellington Museum on Tuesday, as Chlöe Swarbrick launched a new Green fiscal strategy under the heading of 'Real economic responsibility'.
The Greens had already signalled a fresh radicalism with May's 'alternative budget', which envisaged an extra $25bn in taxes, most of it supplied by the wealthiest 1%. This would have lifted New Zealand state spending to western European levels: at last the social-democratic nirvana was beginning to take shape, in Green policy papers at least.
Those taxes were designed to fund government spending on day-to-day services: teachers' salaries, payments to the long-term ill, GP consultations. But, in orthodox economics, governments also borrow money to build long-term infrastructure that will be around for generations: schools, hospitals, wind farms.
In return for borrowing this money from the private sector, the government pays interest over many years. This deal allows it to build things now that it otherwise could not, if limited by its current reserves of cash; it also ensures that future generations, who will benefit from that infrastructure, pick up part of the tab.
New Zealand commentators and policymakers, however, have long taken a peculiarly constrained approach to such borrowing. Partly this reflects a vague memory of the 1980s, when successive administrations played a little fast and loose with the public finances; partly it reflects the enduring influence of small-state thinking. Either way it has constrained state borrowing to levels well below those seen in other nations now or New Zealand in the past.
This fear-laden atmosphere surrounding public debt also shaped the choices made by people like Robertson and his Greens economic counterpart James Shaw. Nor has that atmosphere really dissipated: dire warnings about the government 'going broke' are everywhere, and even some progressives fret about state borrowing.
Times, though, have changed: the sense of a country crumbling at the edges has strengthened, likewise the urgency of the climate crisis. Institutions like the National Party and the Treasury seem caught between two worlds, tolerating higher debt levels than seemed possible in 2017 – 40% and 50% of GDP, respectively – but constantly portraying it as a negative force, one liable to ruin the country at any given moment.
There were no such qualms apparent on Tuesday, however, as the Greens made it clear they were willing to challenge the conservative narrative – and challenge it not with empty rhetoric, not with mere assertions, but with a fairly forensic dismantling of what Swarbrick called the 'straitjacket' currently placed on public investment.
Packed with graphs and citations, her new fiscal strategy envisages government borrowing – to fix our failing infrastructure and tackle climate change – at around 55-60% of GDP, roughly three times the level backed by Robertson and Shaw. Borrowing could, the strategy argues, go far higher still. It justifies this by finding multiple flaws in the current orthodoxy.
The first target is the Treasury's belief that we need to keep borrowing low because we might at any time be hit by an economic shock so huge that it costs the government 40% of GDP – around $160bn currently – to fix. This, as Swarbrick pointed out scornfully on Tuesday, assumes we need to be ready for 'two Covid-19-size shocks occurring simultaneously, or more than 23 simultaneous Cyclone Gabrielles' – a wholly unnecessary level of insurance.
Second, the Treasury's analysis – by its own admission 'very conservative' – assumes that the interest rates our governments pay on their borrowing will significantly outpace economic growth, weakening the state's ability to 'grow' its way out of debt. Yet interest rates have, over the last 30 years, been only marginally higher than growth rates.
Equally importantly, the Greens' new analysis hones in on a 'fundamental asymmetry' in how we think about public investment (which is what state debt really is). The Treasury's models meticulously count the interest paid on state borrowing, while failing to properly capture two things that strengthen the case for investment: the damage done by not spending money, and the benefits that occur when it is spent.
Decisions, in other words, are systematically weighted against extra investment. As Craig Renney of the NZ Council of Trade Unions often points out, the Treasury can tell you exactly how much it will cost to build a new hospital, almost down to the brick – but not how much it would cost the relevant region, in lives degraded and shortened, to not rebuild it for decade after decade. Nor does the Treasury properly quantify the benefits – in improved health, lives and productivity – once said hospital is completed.
As the Greens' new strategy argues, official forecasting covers – at best – the short-term economic benefits from government investment, missing things like 'productivity gains from investments in health, education, infrastructure, and R&D, which emerge and diffuse over time'. While, in short, we have over-emphasised the supposed dangers of borrowing too much, we have been consistently inattentive to the dangers of borrowing too little.
Right now, given the desperate need for state investment in our crumbling infrastructure, it is under-borrowing – not over-borrowing – that is economically irresponsible. That, at least, is the message the Greens want to send. Their radicalism is not one that seeks to overturn every last principle of orthodox economics: there is no suggestion, for instance, that printing more money is the solution to all our woes.
What the Green Party displayed this week is a carefully calibrated radicalism, one that delights in demonstrating that others – principally, the Treasury and the National Party – have been doing orthodoxy wrong, and that even the current financial rules leave far more room for manoeuvre than they have realised. 'The things the Green Party are putting on the table are entirely credible,' Swarbrick carefully noted at the launch, 'and will be recognised as such by international debt markets.'
The latter is an interesting point. The fiscal strategy argues that international lenders care far less about the percentage of state debt than they do about the economic fundamentals, and that no one is going to downgrade the credit rating of a country that is effectively strengthening its infrastructure, lifting skills and making itself more climate-resilient.
Even if that is so, the argument does rely on extra state investment being well spent. Our infrastructure woes stem not just from under-spending but also from our extraordinarily inefficient approach to building things. A lack of tradies, not state funds, is arguably the biggest constraint on new construction. And plenty of extra cash has been pumped into the education system in the last two decades without noticeable results.
How to get the machinery of the state working better is, in short, an entirely separate question, one which the Greens – and, in their defence, most people – have not yet fully confronted. It was evident on Tuesday, though, that Swarbrick had her sights set on a different problem. 'No area is treated with more mysticism than economics,' she declared. 'That's where the real power lies.' And that's where the Green agenda for change is now clearest.