Debating the economy

At lunchtime yesterday I went along to the debate sponsored by Victoria University’s Institute for Governance and Policy Studies among the finance spokespeople for our various political parties. I presume the invitation had been spread reasonably widely, but in the end only Labour, National and the Greens turned up (New Zealand First’s Fletcher Tabuteau was ill and sent an apology, and I presume, quite rationally, David Seymour was spending his time where he thought potential ACT voters might be).

Having only three speakers, and all of them serious figures, had some advantages – there was only an hour, and no one wants lots of time going to people/parties that aren’t in, or likely to be in, Parliament.

The Green Party’s Julie-Anne Genter spoke first. She was very fluent. We heard about the four principles the Greens suggest they build all policy around. These were “ecological sustainability”, “social responsibility”, “non-violence and peace”, and “subsidiarity’ (whatever one makes of the rest of them I wasn’t sure how their nationwide plastic bag ban fitted with the notion of subsidiarity). And then there were the six major policies. Remarkably, I even found myself agreeing with one of them – I might normally be categorised as being on the right, but I’ve long hankered for a system that treats victims of accidents and of long-term illness/disability more similarly (the Greens want ACC to cover both).

But for the Greens, the economy seemed to be just something for governments to use to redistribute and pursue their own visions. There was no sense at all that sustained growth in real wealth mostly arises from private sector entrepreneurial activity. So we heard briefly about the poverty action plan (higher taxes and a lot more welfare spending), ACC (see above), on housing all she emphasised was the government building a lot more housing (with no recognition that, all else equal, that if the government builds more the private sector is likely to build fewer).

And finally there was transport. This was the one place where she mentioned stimulating the economy (recall that the debate was about economic policy). The Greens, of course, want lots more trains – rapid regional passenger rail, not just between Auckland, Hamilton and Tauranga (almost certainly uneconomic as they would be) but from Wellington to Napier and to Wanganui, the overnight train from Auckland to Wellington (why, when one can fly in an hour?), and then in time down the whole east coast of the South Island. In her words “just as it used to be”. It was breathtaking – bringing back memories of time Gabs Makhlouf told as, as a new arrival at The Treasury, that the thing New Zealand got wrong decades ago was insufficient investment in rail. There would be, on the Greens’ telling “massive productivity benefits” from this rail programme. Quite possibly she meant that these “massive productivity benefits” might also stem – and a little more plausibly so – from more public transport in our cities, but beyond the cities themselves it just seem to take leave of any sense of reality or economics (and that without even the points Richard Prebble made on rail in his column in the Herald earlier this week).

I think it was safe to say that the Greens’ vision would be one that would make us poorer – perhaps not in absolute terms, but certainly further widening the alarming productivity gaps that already exist to the rest of the advanced world. Then again, as I noted in my post the other day, no one votes for the Greens because they care about economywide economic performance, or the choices it makes possible.

National’s Paul Goldsmith was next. Sadly – for the spokesperson of the largest Opposition party – there wasn’t much there. We got the upbeat stuff about how he was sure the country would get back on its feet – smart entrepreneurial people, products the world wants, and all that. I guess that is all fine in a short-term Covid context, but it rather ignored 70 years of relative economic decline, that has continued more recently under governments led by both major parties. We heard about National’s temporary income tax cuts – you might approve or disapprove (I think they are less bad than spraying money around favoured projects, less good than a temporary GST cut, and less good – and much more expensive – than looking to monetary policy) – but it was all very short-term in nature. We then heard about how many jobs were being created each month in the last term of previous National government – even as per capita income growth was very subdued – allegedly based on “business investment and confidence” seeming to ignore just how weak business investment actually was for the whole of the last decade (National or Labour).

He was on more appealing ground – although probably not to the predominantly left-wing audience – when he emphasised the importance of a vibrant private sector – including in job creation – and spoke of the increasing regulatory imposts, including Labour’s further increases in the minimum wage and in sick leave requirements.

Oh, and then there were the “bold plans” for infrastructure. Fair enough. They are proposing to spend a lot of money – but then so are the Greens – but there was no sense of a narrative of how this might make a real difference to reversing decades of productivity underperformance. No sign, in fact, that he really cared. It was sad, if a little predictable (we’ve heard nothing different from his leader).

Then Labour’s Grant Robertson spoke. He was on-message, and so we heard about his aim of building a ‘base for truly sustainable economic development”, about infrastructure spending, about the $4 billion the current government has apparently already put into rail, and (a little more positively) about the National Policy Statement on housing. Less relevantly perhaps we heard about the new Public Service Act, and changes to the Public Finance Act, and to the Reserve Bank Act (it was a fairly geeky audience), about spending on improving the “three waters”. And then he did throw in the p-word: Labour apparently wants to lift productivity, and believes it will do this by “heavy investment in skills”, a “significant boost” to R&D subsidies, and by supporting small business and pursuing their trade agenda. Oh, and he ended noting that next year the government would have climate budgets, and that it was important that the government keep up its push for 100% renewables.

It was pretty underwhelming stuff, and again there was no real sense that – even with all the resources of The Treasury and the Productivity Commission at his disposal – the incumbent had any serious ideas about making more than marginal differences to productivity (recall that, for example, we already have some of the highest adult skill levels in the OECD), or was even particularly bothered about doing so. Robertson seems to be a safe-enough pair of hands, if continued managed decline is your vision.

There was a short question time – too often with long questions. In it, Paul Goldsmith allowed himself to get bogged down on the question of whether his family would spend or save the temporary tax cut if they received it (who cares, although he probably should have had a better pre-prepared line). Asked about why Labour wouldn’t adopt a tax policy more like that of the Greens, Genter opined that it was because the level of political debate was so trivial and the main Opposition party was distorting people’s perceptions etc. Also from the Greens a reminder that they want to go even beyond the Welfare Working Group recommendations in lifting benefits. Goldsmith did make the point that only a better-performing economy supports higher sustainable incomes.

The final answer I noted down was from Goldsmith. He stressed the importance of job creation (hard to disagree) but in commenting on the housing market seemed only interested in pushing back against the new regulatory imposts on landlords. Agree with him on that or not, it simply isn’t the main game. Get house prices down to 3 or 4 times income in our larger cities and rents won’t just stop rising, but one would expect them to fall. But – consistent with his leader, and with Labour’s shameful stance on this too – there was not even a hint that National would welcome, or pursue, lower house prices.

It was all deeply underwhelming. As one respected commentator I talked to afterwards observed “that takes us an hour closer to the grave, and we are none the wiser”. We have two big parties with no interest in, or ideas for, reversing decades of economic decline, and almost running scared from any suggestion that house prices might appropriately fall, all complemented by a third party only really interested in cutting the cake differently and perhaps shrinking the size in the process.

The Minister of Finance was born in 1971. He’s been on record admiring the economic performance and institutions of places like Denmark and Sweden. In 1971, real GDP per hour worked in New Zealand was 79 per cent of that of Sweden and 85 per cent of that of Denmark (our relative decline was already well underway). By 1990 – when the 4th Labour government he is keen to dissociate modern Labour from left office – that was 72 and 64 per cent respectively. Last year, it was 60 and 57 per cent. There is a whole range of countries – mostly in Europe, but including the US (and probably Singapore and Taiwan) with average labour productivity 60 to 70 per cent higher than that in New Zealand. Productivity really matters for the living standards this country can offer its people, but none of these parties seems to have anything much to offer. All evidence suggests they really don’t care either.