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| Roger Partridge | Chair | roger.partridge@nzinitiative.org.nz | ||||||||||||
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On both counts, the PM is right. Government policy must look beyond the pandemic. In 2022, Covid will not be conquered, but it is less likely to dominate the public’s attention than it has over the last two years. The 2023 election will not be dominated by Covid, but by the policies needed for the country to succeed in the virus’s aftermath. But does the PM have the prescription for the recovery? Ardern identified housing, child poverty and climate change as the three big challenges facing the country. Each of these three topics is important. But New Zealand already has a policy framework to get us to net-zero emissions by 2050. We have the world’s best emissions trading scheme. Gold plating will only waste resources. On housing and child poverty, identifying the problem is one thing. The solutions are another. The National-Labour accord should ease planning-related housing constraints. But local governments also need their funding structures changed to incentivise them to provide the infrastructure to support new housing developments. The solution to our poverty problem is to improve school leavers’ education outcomes. However, fixing our broken education system is conspicuously absent from the Prime Minister’s list of priorities. High inflation, burgeoning government spending and the rising cost of regulation also fail to make Ardern’s list. Yet those problems are a major concern for 2022. Growing political polarisation is another troubling issue for the country. In part, this is down to the pandemic. But the Ardern Government’s increasingly race-based policies – including in health, three waters and the RMA - are fuelling divisions that have not been seen in decades. New leader of the opposition Christopher Luxon picked up on some of these themes this week. He talked of needing to improve educational outcomes and labour productivity to improve wages and prosperity. And he spoke about governing all New Zealanders under “one system.” Luxon is driving his own reset. But his words will give Ardern and the electorate food for thought. Though Luxon’s first salvos in Parliament focussed mainly on Covid, the next year (and the one after) must not be all about Covid. They must be about the policy prescriptions needed for a more prosperous, inclusive and cohesive New Zealand. |
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| Leonard Hong | Research Assistant | leonard.hong@nzinitiative.org.nz | ||||||||||||
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Right now, young people have a reason to be concerned. Since Covid-19 arrived 18 months ago, New Zealand’s net public debt has nearly doubled. Government net debt rose from 19% of GDP – Gross Domestic Product – in 2019 to 34% this year. This is the highest ratio since 1996. The bulk of debt increase was from the wage subsidies – around $18 billion. Other business support programmes were supplementary. These fiscal responses were intended to enable faster economic recovery. New Zealanders were seared by the 1984 debt crisis. That experience produced a broad bipartisan consensus in favour of fiscal responsibility rules. Budget surpluses were achieved by the mid-1990s and sustained, albeit with reducing spending discipline, to 2008. Those surpluses helped New Zealand weather the storms of the 2007-08 GFC and the Christchurch earthquake. But it took seven years of fiscal slog and expenditure restraint to restore fiscal surpluses after the GFC. Big spending increases from 2017 preceded Covid-19 and now the challenge of turning ongoing fiscal deficits into surpluses has arisen anew. Are current arrangements up to the task? Not in our opinion. In 2014, the New Zealand Initiative proposed a Parliamentary fiscal council to help Parliament better scrutinise government spending and fiscal prudence. This was not out of the blue. In 2011, the OECD found that “independent fiscal institutions can buttress a government’s capacity to comply with a numerical rule.” These institutions exist in 28 of the 38 countries in the OECD. In 2017, the-then opposition parties – Labour and the Greens – endorsed a Fiscal Council of an unclear design. The advent of Covid has stilled work on this, and there are no indications that fiscal discipline and constraint will be the heart of the Government’s priorities. A global pandemic understandably opens the fiscal taps, but that only heightens the need for a subsequent return to fiscal discipline and accountability. That determination is not yet evident. To fail to restore discipline in spending quality and current financing is to do future generations a disservice. It is fine for the young to inherit debt backed by assets of equivalent value, but not otherwise. Herbert Hoover’s remark is best seen as a humorous aside that would be irresponsible if put into practice. |
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| Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz | ||||||||||||
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This being the last full Insights edition before the holiday break, I have a Christmas wish. A wish for National’s new Finance critic, Simon Bridges. It would help to right a long-nurtured Festivus grievance. In the leadup to Festivus six years ago, perhaps inadvertently, and certainly on bad advice, then-Minister Bridges killed New Zealand’s prediction market, iPredict. Now that National no longer has a budget for polling, he might now regret it. Anyway, I digress. I loved iPredict. I miss it every single day. Punters like me could trade iPredict contracts on future unemployment rates, whether bills might pass, who would win the next election, and whether any party might have another leadership spill. But more importantly, prices on iPredict contracts provided excellent forecasts. Their prices were probabilities. For seven years, iPredict ran on the smell of an oily rag. But National-government anti money laundering rules were just too costly. Even major banks have run into a few minor compliance issues. Westpac may have some Festivus grievances to air with the guy who designed the scheme. So, in 2015, iPredict asked for an exemption. There was no real money laundering risk in an exchange whose total deposits wouldn’t amount to a deposit on a decent house these days. Money laundering at SkyCity would have been far easier, but iPredict wasn’t building anybody a convention centre. Bridges, on advice of officials, and probably without even realising the implications of a pen-stroke, declined. Facing compliance costs multiples of its annual budget, iPredict folded. Enough of Festivus grievances. High on my, and hopefully on any potential future Minister of Finance’s, Christmas wish list: the resurrection of iPredict. Finance Ministers depend on good advice. And core agencies’ forecasts and advice have gotten a bit iffy. Competing advice from people with skin in the game, channelled through a prediction market to create price signals, can be especially valuable. Will house prices collapse, or skyrocket? Will up-zoning legislation lead to much more building? It’s hard to go short on house prices – other than at a place like iPredict. Ministries sometimes propose simply crazy things like cash-for-clunkers schemes. The betting markets could help show whether those kinds of schemes are likely to reduce net emissions. At worst, they’d let me take free money from naïve optimists betting from their offices at the Ministries. Bringing back iPredict would be a true Festivus miracle. |
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