A nasty aftermath parallel?

Six years ago this coming Sunday Helen Clark won office. She won a third term in September-October. But is her nemesis round the corner?

Few — and I was not one — predicted six years ago that Clark would get three terms.

We reckoned without export and house price booms.

We reckoned without her evolution in office, with touches of populism in, for example, her championing of the rugby world cup bid and her pitch rightwards since 2002 in forming governments.

And we reckoned without her feral determination to win when the chips are down, displayed claws and all in the election campaign and the subsequent government-forming negotiations.

Clark is now almost certain to be in office on January 19 2007 when she will pass Sir Joseph Ward (and three days earlier Jim Bolger), to become the seventh-longest Prime Minister.

If still in office on September 17 2007 she will pass Sir Sidney Holland, on July 24 2008 Sir Robert Muldoon and in August 23 2009 Labour’s longest-serving Prime Minister, Peter Fraser, That would take her into fourth place.

But by 2009 the “if” will have become very big. It depends not only on getting through this term with Winston Peters and Peter Dunne but winning the next election.

Let’s consult history.

In August I suggested the two closest parallels to this year’s election were 1928 (the Liberals’ return from the grave to government) or 1969 and 1981 when governments just squeezed back, in part at least in each case because the opposition was not fully ready to govern.

The second parallel turned out the more apt. National won 454,503 extra votes in what felt to supporters and many outsiders like a 1928-style resurrection. But Labour added 97,100 votes to its 2002 total to hold on.

National was not quite ready. Labour, told by its pollsters a week out it was 3 per cent behind, as Sir Keith Holyoake thought he was a week out in 1969, slid back in, chastened and with work to do.

And it will have its work cut out if the 1969/1981 parallel extends to the election aftermath.

Directly after the 1969 election prices leapt. In February 1970 Holyoake’s government was routed in a by-election by voters who could express irritation without risking a change of government. In 1972, 10 months after Holyoake was ousted as National leader and Prime Minister, the rout was extended nationwide.

After Sir Robert Muldoon’s narrow win in 1981 the economic dam burst. By June 1982 he had swathed the economy in controls — on prices, wages, interest rates, even directors’ fees. It was the last gasp of the command economy set up in the 1940s. As the leaks through and round his controls proliferated in 1984, Muldoon called a snap election and was routed.

Are these the parallels that await Clark?

The grasshopper economy, tanked on debt, chirruped merrily until election day. At household level the economy may have been a stronger plus for Clark than in 2002. Understandably, Michael Cullen showed no inclination pre-election to interrupt the grasshoppers’ wondrous summer.

Now a whiff of autumn is in the air. Retail sales growth might at last be edging off its high. House building has edged off (though that is in part the obverse of the scramble to get building done before Labour’s cost-adding Building Act cut in). Fixed-rate mortgages have edged up a bit.

And belatedly Cullen and Alan Bollard are examining bludgeons to clobber the house bubble.

Cullen and Clark badly need a soft landing, that is, a drop to year-on-year GDP growth of 1.5-2 per cent for 18 months or two years, offset by the massive fiscal injection (committed during the grossest election auction in 30 years), followed by a nicely rising rate of growth leading up to an election in late 2008.

Instead, week by chirruping week a hard landing has become more likely. If so, voters will still be doing it hard next election time. This election win may have been snuck through at the cost of the next.

Look at the numbers: household debt one and a-half times disposable income; household dissaving 12 per cent; house prices 17 per cent above trend and 40-50 per cent above the long-run rise in rents; an external balance of payments current account deficit headed for a banana-republic 10 per cent of GDP; inflation headed for 4 per cent and maybe 5-6 per cent if the dollar corrects from its huge overvaluation with a thump; rising wages in a supertight labour market squeezing company profits, which will constrain tax revenue, and jobs, in due course.

Something has to give sometime. When it gives the people who will be hurt most will be Labour people, who, with not much to come and go on, have struggled into an overpriced house or investment property.

They will need tax cuts. Some deserted Labour for tax cuts in the September election, judging by talk in union circles. If the worst comes to the worst and Cullen stays as stony-faced as he was last week under the Treasury cane, Clark will be lucky to get to be fifth-longest Prime Minister, let alone fourth.