Debating the economy

Michael Reddell NZ politics

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.

22 thoughts on “Debating the economy”

    • Yes, TOP has given some serious thought to policy, without the resources the major parties have. If I don’t agree with him on lots of points, Geoff is a serious and thoughtful guy.

      Re your colonisation point, I forgot to mention Genter’s line that we have to address the “fundamental underlying inequality” that stems from ‘colonisation’.

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  3. I’m not setting out who I am voting for, but don’t ridicule those that don’t vote right. One of the weaknesses of this blog is a lack of understanding of those who vote left of centre. It’s possible to accept that productivity is almost everything in the long run, but nonetheless think that an Adern-led Government would be better than a Collins-led Government for the country; and further to think that it’s tactically desirable to have the Greens in Parliament and that their perspective is valuable around the cabinet table. A vote for the Green party doesn’t mean that the voter wants Green party economic policies implemented holus-bolus. We have a well entrenched technocracy, and as you are at pains to constantly point out, even our most neoliberally anchored institutions don’t push policies that would actually improve productivity.

    How much Covid to allow in and when is one of the most economically important issues for the coming three years – what do you think is the best decision on that economically, and who would you trust to make it?

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    • In this election I certainly don’t have a preference as between a National and Labour-led govt (at present, I’m leaning towards not casting a party vote at all). At the last election I hankered for – and voted for – a change of govt. I can well see how a centre-left party would bring about needed change – and econ policy reform (whether housing or productivity). It would be easy to craft a narrative for doing so in terms of the interests of their traditional voter base, and historically, for good and ill, it was the Labour and LIberal govts that did the biggest reforms in NZ history. In many respects my criticism of the current govt is a variant of that on the left: far too conservative.

      As for the Greens, there are things I’ve agreed with them on. They used to champion civil liberties etc (back in the Keith Locke days) and I admired their willingness to champion governance changes at the RB (even used to help them when they asked on some of those issues). But, as I noted, I doubt anyone votes Green for economic policy (growing the cake) type reasons – which is fine, as there are more important things in life.

      On your final question, I think the answer to the first part is unknowable yet – I’m more or less with the current approach for a few more months until there is some virus clarity, but who knows beyond that. Among individuals, I think Robertson is a very safe pair of hands, but also recognise that Collins was a competent capable senior minister. Since Labour is a more aggressively secular/atheistic/materialist group of people, I trust them less on some of the non-economic dimensions of Covid restrictions, but not so strongly that i will vote for either Lab or National.

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      • I think you’re more ACT than any other party based on your comments on your blog, and on-the-record claims by minor party leaders from the ‘debate’ last night (8th)
        e.g. Seymour last night claimed he wanted the NZ economy to diversify away from China, criticised the major parties’ subservience to China, criticised China’s human rights, and wanted a GST cut. He also wants house prices to come down (even if he didn’t say so).

        I didn’t catch any claims about productivity though.

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      • They are a funny mix. Seymour is, of course, all-in in favour of high immigration and has no obvious model for NZ long-term underperformance. There are bits in his economic prescription that of course I like – but I would never vote for them since at present they (he) is a party of drugs, death(suicide) and abortion.

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      • As far as this election goes you can at least still vote against cannabis and euthanasia with the referendum and party vote ACT. Abortion is trickier, but I don’t see any other party in power that opposes it.

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  4. We seem to be have a moral conundrum in NZ because of 1. globalisation means you don’t worry if your group is trithing while other NZrs aren’t doing well (because elsewhere people benefit) or 2. Post modernism means no objective truth?

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  5. Depressing as usual. But thanks!

    One thing I think is an easy fix – apart from freeing up land for housing – is to allow employment areas around the Auckland fringes. At present no one could establish a campus style complex (eg Apple Parkhttps://en.wikipedia.org/wiki/Apple_Park) or indeed develop an area like Silicon Valley.

    This is due to the Auckland Council deciding where business should go – and that is in the city CBD and people should commute only by bus or train and only live in high density shoeboxes near a public transport stop. Presumably this is to make Auckland look more ‘international” with skyscrapers.

    It is one of the little noticed disasters of the Unitary Plan – everyone can see there is not enough housing land – but there is almost no employment land opened up at all. The tiny amounts re-zoned has been taken of course by landbankers. People talk about NZ needing more businesses like Fisher and Paykel Healthcare – yet they are located on a 42ha campus in East Tamaki (land value now $110M) – show me where you could build something like that today. Sleepyhead is having to move their factory and 1500 jobs to, of all places, Ohinewai – to get out of the clutches of the Auckland Council.

    Again the misguided “anti-sprawl” urban containment policies are the culprit. After delivering house prices three times what that should be – they take away your chance of getting a decent job to pay for them.

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  6. What do you think should be done to boost productivity which, by inference, should lead us to a high wage economy?

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  7. RE Productivity:

    1) The government is about 37 % of the economy. Government (central & local) needs to legislate to force itself through proportionate socio economic cost / benefit assessment on all it spending to ensure it is productively used.

    2) Agriculture as major export earner is already very productive per capita – large gdp & few people

    3) If one reviews the top 20 companies in NZ very few are productive and grow gdp & gdp per capita by export outside of agriculture. Most are simply servicing the local economy. Yes, they can be productive within NZ but NZ is so small 5m vs the rest of the world 7.8bn

    https://www.value.today/headquarters/new-zealand
    #3 Fisher & Paykel
    #4 Xero
    #9 Air NZ – partial

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  8. Our electronics and whiteware comes from China, Thailand or Vietnam. The foot wear and clothing from China, Bangladesh, Indonesia, Pakistan and so on. Most of building materials, apart from timber and some cement, also come from overseas. In the country of 5 millions this can be understood -the economies of scale are just not there. But, a quick look at just today’s headlines shows another dismal story…
    “(…)jobs are in jeopardy in the meat processing and exporting sector(…)”, “(…)business community is bracing for the economic fallout from the loss of ni-Vanuatu workers and backpackers for the coming fruit harvest(…)”.Another paper reported a few days ago: “(…)One fishing company is effectively out of business while others are bracing for large financial hits as the deepwater New Zealand industry, unable to get skilled foreign workers into the country, have begun tying up vessels(…)”. All this in just a few parts of the primary sector, but the entire primary industries sector relies to a great degree on the immigrant labour. Other branches of NZ economy are not much better – the long and short term immigration skill shortage list contains a great variety of occupations, which people should have been trained for in the small country with 8 universities and some 15 or so polytechnics. Why does it not happen? Why, in the country of 5 millions we have to import even the bus drivers? Yet, at the same time, the number of people on all sorts of job seeker benefits is now counted in the hundreds of thousands. And how do our politicians deal with all this? Are “hate speech”, “death with dignity” or “cannabis law reform” really the most important issues this country faces right now? Much more could be added here, but what’s the point? Equally, there’s a very little that can be said about the deplorable role of NZ media, which seem to be far more interested in trivia and click-bait than in the serious analyses and holding public figures to account…

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    • I have thinking alot about the NZD. The NZD has value because Buyers or speculators of NZD give it value. With that agreed value we can buy imported goods and services. It therefore does really matter what and how much you export as long as you export something.

      The RBNZ prints as much currency as our $300 billion economy needs and clearly has unlimited ability to print NZD.But they are very disciplined. Even though the RBNZ talks up big on the $100 billion in bond buying, so far they have bought up only $41 billion. But all that rhetoric on money printing is just purely rhetoric. A look at their balance sheet shows an equivalent build up of $41 billion plus in deposit settlements owed to banks. None of that has flowed to the public. Money printing rhetoric that no one, not even banks gets to spend.

      The RBNZ now declares it will lend to banks $26 billion. Come on, we all know they have no choice but to lend to banks up to $41 billion to clear the amount owed to banks from bond buying.

      The NZD is the 11th most traded currency in the world. It is that traded value that allows us to buy whatever we need from overseas.

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  9. “Auckland to Wellington (why, when one can fly in an hour?)”

    Why indeed. An hour you say? Let’s play your dismissive game.

    Taxi/shuttle/bus from Welli to airport = 30-60min. Checkin before flight 30-45 min. Flight = 60 min. Get off flight, get bags, Taxi/shuttle/bus from airport to Ak = 60-90min

    So your flight that takes “an hour” actually consumes 4-5 hours. And flying is thoroughly unpleasant, with huge COVID risks. No thanks.

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    • I guess it depends a bit on your starting/ending point and time of day etc, but I go to Akld reasonably regularly for mtgs of a board I’m on, and leave home in Wgtn at perhaps 8:45 and get to the venue in Penrose by 11:30.

      I guess it also depends if you like flying. You seem not to, while I generally do.

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