Rogernomics — the economy is deregulated

By the early 1980s New Zealand's economy was in trouble. In 1965 it had been the world's sixth wealthiest country per head, but by 1980 it had slipped to 19th, and both inflation and unemployment were rising. Robert Muldoon, prime minister and minister of finance from 1975 to 1984, used controls to try to hold down inflation, and in June 1982 he announced a wage and price freeze. In opposition, Labour's Roger Douglas changed course at the end of 1983 and called for a market-led restructuring of the economy, built around a 20 percent devaluation of the dollar followed by the removal of subsidies to industry, border protection and export incentives. His colleague Stan Rodger called it a 'quite unacceptable leap to the right'. The economic policy Labour took into the 1984 election was a broadly worded compromise drafted by Geoffrey Palmer, which made no mention of devaluation and said that necessary structural change would be gradual and agreed.

Muldoon called a snap election for July 1984. Dealers expecting a new government to devalue began selling the dollar, and the result was a currency crisis that became public two days after Labour won. Muldoon at first refused the incoming government's instruction to devalue, provoking a brief constitutional crisis, before accepting that he had no choice; the dollar was devalued by 20 percent. Douglas became minister of finance, with David Caygill and Richard Prebble as associate ministers, a group known as the 'Troika'. Journalists at the New Zealand Listener coined the name 'Rogernomics' in February 1985. Between 1984 and 1986 Treasury officials drove dramatic reductions in industry protection and assistance. The financial market was deregulated, controls on foreign exchange were removed, and in March 1985 the dollar was floated. Most support for farming, including fertiliser subsidies, tax concessions and concessionary interest rates, was phased out. Taxes were lowered and a goods and services tax, initially 10 percent, was introduced in 1986. Douglas later wrote that speed was a deliberate strategy: 'Define your objectives clearly, and move towards them in quantum leaps, otherwise the interest groups will have time to mobilise and drag you down'.

The reforms then reached the state's own businesses. The State-Owned Enterprises Act 1986 created government-owned companies from existing departments and corporations, to be run on a profit-making basis, and the new corporations began operating in April 1987. The new enterprises shed thousands of jobs, among them about 8,000 at New Zealand Post, 5,000 at the Forestry Corporation and 4,000 at the Coal Corporation. The removal of tariff protection cost thousands of manufacturing jobs, and the abolition of subsidies hit farmers hard, with some losing their farms. Māori were hit particularly hard because they were disproportionately employed in the industries being restructured; Māori unemployment reached 25 percent by 1992, when the overall rate was 10 percent. The fourth Labour government began selling state-owned enterprises in 1989, but it was the National government elected in 1990 that carried out most of the sales. By 1999 the assets sold were worth more than $19 billion.

Labour was comfortably re-elected in 1987, just before the sharemarket crash, but the prime minister, David Lange, and Douglas were increasingly at odds over the nature and pace of reform. In January 1988 Lange announced that a further tax and benefit package would not go ahead, and Douglas left Cabinet 11 months later (Te Ara says he resigned), as did his ally Richard Prebble. Lange had also backtracked on Douglas's call for a flat rate of income tax. When the caucus voted Douglas and Prebble back into Cabinet in August 1989, Lange resigned. At the 1990 election Labour suffered its worst defeat since 1931, and the National government at first reinforced the reforms.

Meanwhile the economy had stalled. Per capita GDP fell or stagnated in every year from 1986/87 to 1993/94, the longest recession of the post-war era, and unemployment reached 11.1 percent in March 1992. Brian Easton, writing in Te Ara, notes that there is no agreement on the cause of this 'Rogernomics' recession, though a common explanation is that liberalisation was badly managed, especially by over-valuing the exchange rate. Some argue that all the reforms were necessary; others that they caused unnecessary hardship. Easton describes a middle view, that many measures were necessary but not always well implemented while others were extreme and inefficient; in his account this was the view of the Labour-led government elected in 1999, which reversed or modified many of them but broadly kept the liberal market economy.