Caygill faces the toughest test of his astute political career

Press, 17 December 1988, Page 20

Caygill faces the toughest test of his astute political career

THERE ARE two big differences between the new Minister of Finance, Mr Caygill, and the old one, Mr Douglas. First, Mr Caygill is a political survivor. And second, he is a gradualist. Where Mr Douglas is no stranger to relegation to the back benches — he was sent there in 1980 for challenging the then leader of the Opposition, Mr Rowling — Mr Caygill has quietly worked his way up. He would like one day to be Prime Minister.

And where Mr Douglas was keen to tell international audiences that the best way to get successful economic reform was to do as much as possible all at once, Mr Caygill’s approach will be to take it more slowly. That, perhaps, is why Mr Douglas suggested that Mr Caygill may achieve more than he could after his own communications breakdown with the Prime Minister, Mr Lange. Certainly, Mr Caygill is already riding a fine line on support for Mr Douglas’s policy approach. His espousal of “Rogernomics Mark 2” owes as much to Mr Lange’s call for the “second stage” of economic reform as it does to simply replacing Mr Douglas. This is not to say that Mr Caygill and Mr Douglas are not alike.

Their approach to economic management, particularly the general preference for marketoriented, deregulatory policies, is identical. That is why Mr Caygill referred to Mr Douglas this week as his “tutor.”

As Mr Douglas said in his preelection autobiography: “Our different styles have proved to be complementary. David is calm, logical, and methodical. “The difference in our approach to a problem is that I move directly to the end point I want to achieve and then work back from there. Caygill counters my impatience by moving forward with caution, a step at a time, considering the ground all the way.” Prophetically, he said: “It is a method which does not ruffle as many feathers as mine.” Mr Caygill said as much himself at his first press conference as Minister of Finance, saying his appointment would mark only a change of style, and not of substance.

That was just what the financial markets wanted to hear, and they showed surprising stability

Pattrick Smellie, in Parliament, assesses the

problems ahead for the new Finance Minister

within 24 hours of Mr Douglas’s departure. But so far they are only suspending judgment, and are waiting for signs that Mr Caygill can back that commitment with action. Moreover, there are key areas where Mr Caygill has shown he is not prepared to go as far or as fast as Mr Douglas. For example, one of the few remaining elements of the ill-fated December 17 economic package, launched with such fanfare a year ago today, is the programme of tariff reductions. This will halve the average levels of protection for manufacturers by 1992. Mr Douglas pushed for much quicker, deeper cuts in protection levels,, which will remain high by international standards even after the agreed reductions are completed. But Mr Caygill’s concern for resulting job losses and the ability of New Zealand industry to restructure quickly enough won the day in Cabinet. It seems likely that the spate of closures and 'redundancies among Christchurch manufacturers played a part in his decision to take a more gradual approach. In the health portfolio, too, Mr Caygill showed an instinct for self-preservation by washing his hands of the Douglas-inspired Gibb task force report on the hospital system. Well before the report emerged with predictably radical proposals for hospital management, Mr Caygill had clearly indicated he would not be acting on them. . And at the time of the December 17 economic package, Mr Caygill was angered by Mr Douglas’s inclusion of health proposals on which he had not been consulted.

While there was a cooling of their relationship, it was later patched up. But the episode indicates that Mr Caygill is not likely to show much relish for radical social spending initiatives, an area targeted by Mr Douglas.

Just as his action on the tariff issue raised him in the eyes of manufacturers, so has his middle-of-the-raod approach to social policy won him endorsement from the trade-union movement, and the Left-wing of the Labour Party. Whether Mr Caygill is a car-

bon copy of Mr Douglas is crucial to the policy issues that lie at the heart of the Douglas sacking. The debate within the Government and increasingly in the wider community is about whether the pain of economic adjustment is justified by the results. It is crystalising into support for a slower pace and a less austere approach to inflation control. The calls for a slowdown are clearly favoured by the Prime Minister, and just as clearly, Mr Caygill’s style permits that — both because his approach is inherently less headlong than Mr Douglas’s, and because he does

not hold the power to sway Cabinet the way Mr Douglas could. But what Douglas adherents, and many in the financial markets, fear is that the so-called reorientation of Rogernomics will simply degenerate into a soft options exercise. The result of that would not be less pain, and a more managed pace of change, but worsening economic fundamentals going into the 1990 election. To the extent that it is the Prime Minister’s conscience that drove him to reject his former Minister of Finance, would that also drive him either to a rejection of Mr Caygill, or a further rejection of current economic

policy, or both, should Mr Caygill try to buck him? It is far too soon to tell. Two of Caygill’s strongest assets for the moment are his comparative anonymity with the general public and the fact that the Cabinet as a whole will want to start re-establishing its economic credibility as quickly as possible. His low public profile helps in that he doesn’t bring too many preconceptions about his position with him. Opinion polls before the last General Election showed that hardly anyone knew who he was, but those who did heavily endorsed him. That means he can build from scratch. For economic purposes, the only place he is reasonably well-known is among the operators in the local money markets, who reacted positively to his appointment. The Cabinet desire to close ranks on the flip-flops of the last year means he should be able to deliver a sound first Budget which will be reasonably tough on spending, but may also include some tax increases. His commitment to announce a true financial surplus in election year — a surplus not helped by asset sales —is important for market confidence at this stage. But actually demonstrating that ability to impose a fiscally responsible economic policy on the Government will be far more important. Interest rates are not likely to start falling in a sustainable way until that happens. Mr Caygill therefore faces the toughest test so far of his political career. So far, he has managed to keep his nose clean in every job he has held, through a combination of personal integrity, and shrewdness about the lie of the political land. He refused to back Mr Lange earlier this year when he wanted to replace Mr Douglas, and gained the respect of the rest of the Cabinet by doing so. At the same time, he was able to take the position offered by Mr Lange, again with broad Cabinet backing, in the face of Mr Douglas’s decision to walk away from a Lange-led Government. The tightrope he walks now, however, is a far more difficult balancing act. He must balance the Prime Minister’s and the general public’s growing desire for more humane, less painful economic reform against the possibility that there is no such path, given the size of New Zealand’s continuing economic problems.