1984 New Zealand constitutional crisis
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The New Zealand constitutional crisis of 1984 arose following the 1984 general election, and was caused by a major
currency crisis A currency crisis is a type of financial crisis, and is often associated with a real economic crisis. A currency crisis raises the probability of a banking crisis or a default crisis. During a currency crisis the value of foreign denominated deb ...
. The crisis led the incoming government to review New Zealand's constitutional structures, which resulted in the
Constitution Act 1986 The Constitution Act 1986 is an Act of the New Zealand Parliament that forms a major part of the constitution of New Zealand. It lays down the framework defining fundamental political principles of governance, and establishes the powers of the ...
.


Background

Prior to 1985 the
New Zealand dollar The New Zealand dollar ( mi, tāra o Aotearoa; sign: $, NZ$; code: NZD) is the official currency and legal tender of New Zealand, the Cook Islands, Niue, the Ross Dependency, Tokelau, and a British territory, the Pitcairn Islands. Within Ne ...
was controlled centrally by the
Reserve Bank of New Zealand The Reserve Bank of New Zealand (RBNZ, mi, Te Pūtea Matua) is the central bank of New Zealand. It was established in 1934 and is constituted under the Reserve Bank of New Zealand Act 1989. The governor of the Reserve Bank is responsible for N ...
at an exchange rate fixed to the
United States dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
. In early 1984 the Deputy Governor of the Reserve Bank,
Roderick Deane Sir Roderick Sheldon Deane (born 8 April 1941) is a New Zealand economist, public sector reformer, and businessman. He served as deputy governor of the Reserve Bank of New Zealand, and as CEO and chairman of the country's largest telecommunic ...
, became concerned that the New Zealand dollar had become significantly overvalued and was vulnerable to currency speculation on the financial markets in the event of a "significant political event".


Currency crisis

At the time, New Zealand was led by
Prime Minister A prime minister, premier or chief of cabinet is the head of the cabinet and the leader of the ministers in the executive branch of government, often in a parliamentary or semi-presidential system. Under those systems, a prime minister i ...
Sir Robert Muldoon and his National Party
government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is ...
. Media speculation followed a leak that a potential incoming Labour government would be likely to significantly devalue the dollar upon election. The Reserve Bank advised Muldoon, who was also the
Minister of Finance A finance minister is an executive or cabinet position in charge of one or more of government finances, economic policy and financial regulation. A finance minister's portfolio has a large variety of names around the world, such as "treasury", " ...
, that the dollar should be devalued. Muldoon ignored the advice, believing it would hurt poorer New Zealanders in the medium term. In June 1984, as a result of dissension within his own parliamentary caucus, Muldoon announced a
snap election A snap election is an election that is called earlier than the one that has been scheduled. Generally, a snap election in a parliamentary system (the dissolution of parliament) is called to capitalize on an unusual electoral opportunity or to ...
to be held in
July July is the seventh month of the year in the Julian and Gregorian calendars and is the fourth of seven months to have a length of 31 days. It was named by the Roman Senate in honour of Roman general Julius Caesar in 44 B.C., it being the mont ...
. This caused an immediate run on the dollar, as currency speculators believed a Labour win would mean devaluation. Despite a deepening foreign exchange crisis, Muldoon continued to refuse to devalue, forcing the Reserve Bank to take some extraordinary steps, such as closing the
Forex The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all as ...
markets for a short period of time to slow down devaluation. On 14 July, Muldoon and National lost the general election, and the
Fourth Labour government The Fourth Labour Government of New Zealand governed New Zealand from 26 July 1984 to 2 November 1990. It was the first Labour government to win a second consecutive term since the First Labour Government of 1935 to 1949. The policy agenda o ...
led by
David Lange David Russell Lange ( ; 4 August 1942 – 13 August 2005) was a New Zealand politician who served as the 32nd prime minister of New Zealand from 1984 to 1989. Lange was born and brought up in Otahuhu, the son of a medical doctor. He became ...
was set to be sworn in on 26 July.


Constitutional crisis develops

By constitutional convention, between election day and the return of the writs for the election, an outgoing caretaker government implements the directions of an incoming government.


15 July

On the morning of Sunday 15 July, Reserve Bank officials (Reserve Bank Governor Spencer Russell, deputy
Roderick Deane Sir Roderick Sheldon Deane (born 8 April 1941) is a New Zealand economist, public sector reformer, and businessman. He served as deputy governor of the Reserve Bank of New Zealand, and as CEO and chairman of the country's largest telecommunic ...
, and Treasury Secretary Bernie Galvin) met with the head of the Prime Minister's Department
Gerald Hensley Gerald Christopher Philip Hensley (born 4 December 1935) is a former New Zealand diplomat and public servant. Biography Born in Christchurch, Hensley was educated at St Bede's College, Christchurch and Canterbury University College where he too ...
, and agreed that the currency market could not open on Monday unless there was a devaluation. Contacted by Hensley, Muldoon refused to meet that afternoon but told him that they could close the market on Monday if they liked, and agreed to meet them at 8:30 am on Monday 16 July. Russell closed the market on Sunday evening. The Reserve Bank officials also wrote a letter to Lange, and a senior Treasury officer unofficially briefed the incoming Finance Minister
Roger Douglas Sir Roger Owen Douglas (born 5 December 1937) is a retired New Zealand politician who served as a minister in two Labour governments. He became arguably best known for his prominent role in New Zealand's radical economic restructuring in the 19 ...
on the situation.


16 July

After their meeting on Monday morning, Russell and Galvin boarded a flight to Auckland in order to advise Lange, and Deane reluctantly briefed Labour's Deputy Leader
Geoffrey Palmer Geoffrey Palmer may refer to: Politicians * Sir Geoffrey Palmer, 1st Baronet (1598–1670), English lawyer and politician *Sir Geoffrey Palmer, 3rd Baronet (1655–1732), English politician, Member of Parliament (MP) for Leicestershire *Geoffrey Pa ...
, before escaping from waiting journalists out a back door. Muldoon called Lange at 10:30 am and suggested they make a joint statement that the currency would not be devalued. Lange said he would give Muldoon an answer after meeting with Russell and Galvin. The meeting, which also included Douglas and his incoming associate finance minister
David Caygill David Francis Caygill (born 15 November 1948) is a former New Zealand politician. Caygill was born and raised in Christchurch. He entered politics in 1971 as Christchurch's youngest city councillor at the age of 22. He served as a Member of Pa ...
, took place at
Auckland International Airport Auckland Airport is the largest and busiest airport in New Zealand, with over 21 million passengers in the year ended March 2019. The airport is located near Māngere, a residential suburb, and Airport Oaks, a service hub suburb south of th ...
. On being advised that a joint statement would not solve the currency problem, Lange told Russell and Galvin to inform Muldoon there would be no joint statement. Lange then travelled to unrelated meetings with the U.S. Secretary of State in
Ohakea RNZAF Base Ohakea is an operational base of the Royal New Zealand Air Force. Opened in 1939, it is located near Bulls, 25 km north-west of Palmerston North in the Manawatu. It is also a diversion landing point for civilian aircraft. The bas ...
and the Australian Foreign Minister in
Wellington Wellington ( mi, Te Whanganui-a-Tara or ) is the capital city of New Zealand. It is located at the south-western tip of the North Island, between Cook Strait and the Remutaka Range. Wellington is the second-largest city in New Zealand by metr ...
, before returning to Auckland. Meanwhile, Russell and Galvin decided while travelling back to Wellington that they should not tell Muldoon, but that Lange should do so himself. Muldoon was left waiting for a response and despite Hensley's appeals to Galvin, received none before going home around 5 pm. His wife told him to have a rest and took the phone off the hook without telling him. By now, Deane had decided Muldoon had to be told what had happened, but could not reach Muldoon by phone. Lange had meanwhile imposed a 24-hour news blackout on the currency problem, and was reported in the 6:30 pm television news as saying that Muldoon was "refusing his advice on the matter". Muldoon had his press secretary issue a statement that this was untrue, and agreed to a television interview with Richard Harman that evening. Shortly afterward he received a handwritten note from Deane explaining the situation, followed by a letter from Lange. In the interview, Muldoon went over the events of the day from his perspective. He said Lange had not yet responded to him, that "I am not going to devalue, as long as I am Minister of Finance", and that he hoped Lange would agree tomorrow not to devalue. Prime Minister elect David Lange responded with an interview of his own. He stated: "This nation is at risk. That is how basic it is. This Prime Minister outgoing, beaten, has, in the course of one television interview tried to do more damage to the New Zealand economy than any statement ever made. He has actually alerted the world to a crisis. And like
King Canute Cnut (; ang, Cnut cyning; non, Knútr inn ríki ; or , no, Knut den mektige, sv, Knut den Store. died 12 November 1035), also known as Cnut the Great and Canute, was King of England from 1016, King of Denmark from 1018, and King of Norw ...
he stands there and says everyone is wrong but me".


17 July

Following the interviews, a further crisis was triggered in the foreign exchange markets: when the exchange opened on 17 July, millions of foreign exchange dollars left the country as currency speculators expected a devaluation of the New Zealand dollar. Lange later remarked "We actually were reduced to asking our diplomatic posts abroad how much money they could draw down on their credit cards! That is the extent of the calamity that had been ground into us by the briefings that we'd got".


18 July (resolution)

Roderick Deane and Spencer Russell then spoke to several senior ministers within the National Party caucus. On the morning on Wednesday 18 July, after an emergency caucus meeting, Muldoon relented and agreed to devalue the currency upon Lange's wishes. Muldoon's most senior Cabinet members, led by the soon to be Leader
Jim McLay Sir James Kenneth McLay (born 21 February 1945) is a New Zealand diplomat and former politician. He served as the ninth deputy prime minister of New Zealand from 15 March to 26 July 1984. McLay was also Leader of the National Party and Leader ...
, had threatened to remove Muldoon from his leadership of the National Party and thereby strip him of his post as Prime Minister and Minister of Finance.Interview with Jim McLay from a TVNZ documentary on David Lange – ''Reluctant Revolutionary'' (2005) Cabinet members Jim McLay and
Geoffrey Palmer Geoffrey Palmer may refer to: Politicians * Sir Geoffrey Palmer, 1st Baronet (1598–1670), English lawyer and politician *Sir Geoffrey Palmer, 3rd Baronet (1655–1732), English politician, Member of Parliament (MP) for Leicestershire *Geoffrey Pa ...
had key roles in persuading Muldoon to step down. They advocated a 'caretaker convention' despite it not existing formally. McLay drafted the convention and presented it in a press statement on 17 July, where it became recognised as the 'caretaker convention'. The New Zealand dollar was devalued by 20%. In a 1994 documentary on the crisis, former Cabinet minister
Hugh Templeton Hugh Campbell Templeton (born 24 March 1929) is a former New Zealand diplomat, politician and member of parliament for the National Party. Early life and family Templeton was born in Wyndham, Southland, in 1929. He was educated at Gore Hi ...
confirmed that McLay, working with
Bill Birch Sir William Francis Birch (born 9 April 1934), usually known as Bill Birch, is a New Zealand retired politician. He served as Minister of Finance from 1993 to 1999 in the fourth National Government. Early life Birch was born in Hastings on 9 ...
and
Jim Bolger James Brendan Bolger ( ; born 31 May 1935) is a New Zealand retired politician of the National Party who was the 35th prime minister of New Zealand, serving from 1990 to 1997. Bolger was born to an Irish immigrant family in Ōpunake, Taran ...
, was ready to approach the Governor-General,
Sir David Beattie Sir David Stuart Beattie, (29 February 1924 – 4 February 2001) was an Australian-born New Zealand judge who served as the List of Governors-General of New Zealand, 14th Governor-General of New Zealand, from 1980 to 1985. During the 1984 New Z ...
to have Muldoon removed as Prime Minister (Beattie had suggested he could remove Muldoon prior to the Cabinet meeting on 19 July).


Result

As a result of the
constitutional crisis In political science, a constitutional crisis is a problem or conflict in the function of a government that the political constitution or other fundamental governing law is perceived to be unable to resolve. There are several variations to this ...
, the incoming Labour Government convened the Officials Committee on Constitutional Reform to review New Zealand's constitutional law, and the
Constitution Act 1986 The Constitution Act 1986 is an Act of the New Zealand Parliament that forms a major part of the constitution of New Zealand. It lays down the framework defining fundamental political principles of governance, and establishes the powers of the ...
resulted from the two reports by this committee. The issue of the transfer of power from incumbent to elect governments (and hence Prime Ministers) was not resolved by this Act however, and the transfer of executive powers remains an unwritten constitutional convention, known as the 'caretaker convention' which was developed by
Jim McLay Sir James Kenneth McLay (born 21 February 1945) is a New Zealand diplomat and former politician. He served as the ninth deputy prime minister of New Zealand from 15 March to 26 July 1984. McLay was also Leader of the National Party and Leader ...
.


Dramatisation

A television mini-series, ''
Fallout Nuclear fallout is the residual radioactive material propelled into the upper atmosphere following a nuclear blast, so called because it "falls out" of the sky after the explosion and the shock wave has passed. It commonly refers to the radioac ...
'', dramatising both the events surrounding the crisis and the initiation of New Zealand's nuclear-free policy (a major plank of Labour's 1984 election campaign) was produced in New Zealand in 1995. This mini-series, written by
Greg McGee Greg McGee is a New Zealand writer and playwright, who also writes crime fiction under the pseudonym Alix Bosco. Biography McGee was born in 1950 in the South Island town of Oamaru. In his early 20s McGee played rugby as a Junior All Black and ...
and Tom Scott, starred Mark Mitchell as Lange and
Ian Mune Ian Barry Mune (born 1941) is a New Zealand character actor, director, and screenwriter. His screen acting career spans four decades and more than 50 roles. His work as a film director includes hit comedy ''Came a Hot Friday'', an adaptation of c ...
as Muldoon.IMDb
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References


Sources

* * {{DEFAULTSORT:1984 New Zealand Constitutional Crisis Constitution of New Zealand Political history of New Zealand
Constitutional crisis In political science, a constitutional crisis is a problem or conflict in the function of a government that the political constitution or other fundamental governing law is perceived to be unable to resolve. There are several variations to this ...
Constitutional crisis In political science, a constitutional crisis is a problem or conflict in the function of a government that the political constitution or other fundamental governing law is perceived to be unable to resolve. There are several variations to this ...
Constitutional crisis In political science, a constitutional crisis is a problem or conflict in the function of a government that the political constitution or other fundamental governing law is perceived to be unable to resolve. There are several variations to this ...
New Zealand New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island count ...
1984 in New Zealand law 1980s in New Zealand July 1984 events in New Zealand