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Insights 40: 23 October 2020
NZ Herald: IMF fiscal forecasts make grim reading for NZ, says Bryce Wilkinson
 
Podcast: Eric Crampton on the low-hanging policy fruit for Labourís second term
 
ABC radio: Oliver Hartwich and Josie Pagani on the NZ election

Election result a call to action
Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz
The sense of relief was palpable as the long election campaign finally ended. It is even better that the result delivered a clear mandate without the need of compromises, deal-making and brinkmanship.

Labour secured a first-past-the-post result despite our MMP system. This never happened before, and it may never happen again.

The absolute parliamentary majority is an impressive achievement for Prime Minister Jacinda Ardern. It is a nod from the public for (largely) keeping Covid-19 out of the country.

It is also a call to action. When a party holds 53% of seats in Parliament, there is no excuse for not delivering results.

The campaign was dreadful for policy. Every proposal was costly, barely workable and unsuited to lifting New Zealand’s economic performance and restoring livelihoods. An extra public holiday (Labour), more electric vehicles (National) or a new wealth tax (Greens) would not boost jobs or productivity.

But boosting productivity is just what New Zealand needs. The economic challenges resulting from Covid-19 are dramatic, here are some:
  • Government debt increase from 19% to 56% of GDP in 2026;
  • Through its quantitative easing policy (about $20,000 per Kiwi), the Reserve Bank could eventually hold half of public debt and inflate the housing market;
  • The IMF forecasts real per capita incomes to be lower in 2025 than they were in 2019;
  • New Zealand’s net international liability position – the amount we owe the world – stands at $180.1 billion, or $90,000 per household;
  • GDP per hour worked remains about a fifth lower than the OECD average (Turkey and the Slovak Republic are already doing better than New Zealand);
  • Trade as a percentage of GDP stands at a low 56% – too low for a small economy and way lower than Canada (65%), Denmark (105%), Ireland (240%), let alone Singapore (319%);
  • New Zealand’s inward stock of foreign direct investment stands at a meagre 39% of GDP compared to an OECD average of 45%.
The economic situation is difficult, and there is no shortage of other issues.

New Zealand’s performance in international education assessments has fallen sharply over the past couple of decades. The water infrastructure in the major cities requires enormous investment. And then, there is dealing with the industries temporarily decimated by Covid.

The situation is serious but at least the political power to deal with it is now as clear-cut as it could be. The Government can now start the job of getting New Zealand out of its current state. Kiwis have made it clear they do not want politics to be a handbrake on escaping the status quo.

Taking wellbeing seriously
Dr Bryce Wilkinson | Senior Fellow | bryce.wilkinson@nzinitiative.org.nz
In 2018, the Labour-led Government proudly released its first wellbeing budget. It would be great if Labour uses its second term to truly focus on wellbeing.

By calling it a “wellbeing” budget, the Government believed it was taking a new step. In reality, wellbeing is always at the core of any competently assessed public spending. In other words, every budget is a wellbeing budget.

Heading into the next term, some wellbeing priorities are of immediate concern.

For instance, welfare dependency and unemployment are both rising. Responding to the implications and consequences of Covid-19 will be tricky. The Reserve Bank is creating credit as if money is not a scarce resource and inflaming the housing affordability problem.

Government largesse with borrowed money has fuelled unrealistic expectations for this recovery. Interest groups daily ask the Government to give them bigger slices of the national income pie. Many Kiwis aspire to higher living standards than they can achieve through their own efforts. There are reasons for this.

Low national income per capita makes everything less affordable – health care, education, a cleaner environment, better housing, food on the table. Who really thinks New Zealanders want to be less able to afford these things than, say, the Australians?

Low income growth reduces future wellbeing. US research published last month estimates that the growing pile of industry regulations in the US since 1980 cut economic growth by 0.8% each year, compounding. As a result, its national income per capita in 2012 was nearly 25% lower.

Tyler Cowen, economics professor at Virginia-based George Mason University, made the general case for focusing on longer-term outcomes in his 2018 book Stubborn Attachments. The power of compounding mathematics means lifting per capita income growth over time by even small increments is more beneficial for future generations than almost any other policy tweak.

So how is New Zealand faring?

On the International Monetary Fund’s latest estimates and forecasts, “only” 17 of the 39 “advanced economies” had more income per capita than New Zealand in 1980. By 2019, this had risen to 24. It expects by 2025 this will leap to 32.

To put this into perspective, New Zealand’s forecast income gap with Australia will be 26% by then. The gap was much closer (13%) in 1980.

A Government that takes wellbeing seriously must take income growth seriously. Let’s see it.

Riding into the political sunset
Leonard Hong | Research Assistant | leonard.hong@nzinitiative.org.nz
Winston Peters will exit politics for the third time in his career. I spotted his ghost at Parliament the other day. He looked unusually grumpy.

Maybe it was just my hallucination, but after decades of observing him it was incredibly lifelike. After all, his mannerisms have become predictable. So, I sidled up to the apparition and asked if he found the election outcome a bit depressing.

“No, no. No, no. No, no. There’s no need for you to go into a fit of gloom and doom at this point in time,” he replied curtly.

Ok. But perhaps he had some thoughts on Ardern’s campaign?

“Can I finish? Can I finish? Look, Mr Hong, you’ll do much better if you listened for a second.”

I began to apologise, but he must have thought I was interrupting — “No, no, no, no, stop right, stop right there. Stop right there, Leonard.”

Instead of carrying on, he just glared at me. After a few moments I asked if this was the true end of his political career.

“Look, look, this is just now speculating on what neither you or I or anybody else, including the experts, could possibly prognosticate this far out.

“Why would you make a statement like that? Try and be neutral and unbiased. If you are going to ask questions back it up with some certainty.”

Now I understood what it’s like to be a press gallery reporter. Poor things.

“I’m not giving you my comment on that,” Peters continued. “But I do believe in a thing called commercial accountability, as we also believe in political and journalistic accountability.”

I gave him one final chance to say something nice to say about David Seymour and Gerry Brownlee.

“If Nelson Mandela can walk out of Robben Island after 27 years and forgive his oppressors, so can I.

“I could’ve been the Prime Minister years ago if I was prepared to suck up to the right-wing ideology for the National Party. I think that we’ve covered the subject as comprehensively as we can possibly do it.”

I raised my eyebrows. Again, he must have thought I was about to ask a question.

“I’ve got a message for my friends in the media, and it’s all bad. Most of them have been arrogant, quiche eating, chardonnay drinking, pinkie finger-pointing snobbery – and fart blossoms.

“I have never heard such obsequious, subservient grovelling, kowtowing, palm-kissing nonsense.”

And so, the inimitable, Right Honourable Winston Peters walked into the political sunset. Generations of journalists will miss his wordy ways of not answering questions.

We wish him unexcited calm in retirement. It would be a New Zealand First.
 
On The Record
 
All Things Considered
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