Lange and Douglas (1984–1989)
The conflict between Lange and Douglas mirrored the inconsistency at the heart of the government. Lange's talk of consensus and inclusiveness during the 1984 general election campaign echoed Labour's social-democratic history. Douglas personified radical change.
Lange strongly supported the 1984 budget, and promoted it to party and public. Douglas and Lange were a formidable political combination, both in Cabinet and in public, where Lange's humour and rhetoric complemented the determination and single-mindedness embodied in Douglas's commitment to economic restructuring.
Lange valued Douglas's doggedness in the government's first term of office, when "urgency was needed and boldness was at a premium", but believed he was limited by an inability to accept or understand interests that were not in tune with his. In 1986, the two took opposing sides in Cabinet debates about the establishment of a royal commission on social policy, which Lange saw as an intellectual counterweight to Treasury. At the beginning of 1987, relations between the Douglas and Lange offices were strained when Douglas and his ally Richard Prebble persuaded Cabinet to reject Lange's wish to accept the resignation of the Minister of Māori Affairs, Koro Wētere, following the Māori loan affair.
Douglas shocked Lange in April 1987 by telling him that his preferred option for the 1987 budget included a rise in GST from a rate of 10% to 15%, the extension of user charges in public health and education and the sale of most government assets, and the eventual achievement of a flat rate of income tax at 15 per cent. Lange wrote that "it was an unaccustomed addition to the burdens of office to have the finance minister take leave of his senses". After discussions with Lange and senior colleagues, Douglas did not pursue his proposals.
In the 1987 election campaign, Douglas underlined the need for continuing radical reform, while Lange said that radical economic reform was largely complete. Douglas's appeal to commercial interests was reflected in the large amounts of money (including $250,000 given by Auckland businessman Alan Hawkins) he collected for the campaign from the business community. He did not convey the money he raised to the Labour Party organisation, but chose to manage it himself, allocating funds for purposes like television advertising.
Lange's campaign was lacklustre, and Douglas appeared to have contributed more to Labour's victory in 1987. Mike Moore, then a senior member of Cabinet, said that Lange had won the 1984 election, but Douglas won in 1987. Labour increased its parliamentary majority. Votes swung to Labour in National's safest seats and swung to National in seats that traditionally voted Labour.
Immediately after the election, Lange reshuffled the Cabinet without consulting Douglas. He wrote later that he no longer trusted Douglas and wished to use the reallocation of portfolios to put some restraints on him.
Douglas continued to work on the radical proposals he signalled earlier in 1987. A worldwide fall in share markets in October 1987 gave his work greater urgency. In December 1987, the Cabinet agreed, in spite of Lange's reservations, to a statement of principle that supported a flat rate of income tax and a new form of income assistance called guaranteed minimum family income (GMFI). GMFI was a Douglas initiative and for reasons of urgency he did not inform colleagues of Treasury advice that the proposals were a fiscal risk.
The announcement on 17 December 1987 of the government's intention to introduce GMFI and a flat rate of income tax marked the high tide of Rogernomics but did nothing to settle growing tension between Douglas and Lange. Douglas refused to accept Lange's contention that his proposals were unworkable. Douglas was in Europe in January 1988 when Lange told a press conference that officials had been unable to resolve the practical difficulties of the flat tax/GMFI proposals and that the government would have to reconsider them. Douglas, believing that he had the support of a majority of Cabinet, immediately returned from Europe, and the rift between prime minister and finance minister became a matter of public knowledge.
Although Cabinet abandoned GMFI and reached a compromise about tax scales, the government's standing did not recover from the division between Douglas and Lange, which worsened and became more open as the year went on. Lange believed that David Caygill was Douglas's only tenable successor as finance minister, but Caygill refused to serve if Lange sacked Douglas. In December 1988, Douglas wrote to Lange to tell him that he intended to tell the Labour caucus he could no longer serve in a government led by him. Lange construed this letter as a resignation and replaced Douglas with Caygill.
In August and September 1988, some Labour Party members founded the Backbone club, a ginger group within the party that support Douglas in his financial reforms. Douglas himself continued his campaign against Lange through public statements, the unauthorised release of cabinet papers and on 21 December 1988 an unsuccessful challenge against Lange's leadership in the Labour caucus. In June 1989 his supporters in caucus moved a motion of no-confidence in Lange, which Lange only narrowly won. On 3 August 1989, the Labour caucus voted to return Douglas to Cabinet. Lange, who saw the vote as a choice between him and Douglas, resigned his office almost immediately afterwards.
Lange insisted that policy differences were behind his disagreement with Douglas, telling a press conference following his resignation that "Now is the time for the principle to replace the personality". He was critical of Douglas's conduct: "But with Roger his resolution, and his particular absolutely relentless pursuit of what he conceived to be an agenda worth pursuing, overrode all considerations of loyalty and in the end all manifestations of friendship." Douglas did not accept that there were any philosophical differences at issue, and attributed other motives to Lange: "In my mind he created the division that in my mind was never there. We had separate roles. I understood what my role was. I felt he should have understood what his role was."
Lange's successor Geoffrey Palmer did not restore Douglas to the finance portfolio, then held by David Caygill, but appointed him Minister of Police and Minister of Immigration. Douglas did not stand for Parliament at the 1990 election, which Labour lost. His policies, however, continued under the aegis of Ruth Richardson, the Minister of Finance in the new Fourth National Government of New Zealand (in a style that became known as "Ruthanasia").
