Editorial: 'Wellbeing' can be no substitute for economic growth

Editorial

As the year winds down and we contemplate what the next year may bring, there is some economic pessimism in the air. Most of this is coming from places far away but New Zealand cannot ignore it.

The "storm clouds are building", said David Lipton, first deputy managing director of the IMF, and the world's big economies are not well positioned to cope. They are carrying too much debt, largely as a result of the measures they took to maintain their economies after the crisis of 2008.

Ten years later, European economies are still living on those abnormal monetary arrangements while the United States is two years into a genuine recovery with unemployment low and interest rates rising. Property prices and stockmarkets are cooling with the realisation that rising interest rates will reduce demand for equity investment and that Wall St's long "bull" phase has finished.

Besides these storm clouds, a chaotic Brexit now looks more likely than not and Donald Trump's trade war with China could take a turn for the worse. Meanwhile, the Australian and New Zealand economies continue to enjoy good weather. So much so, New Zealand's Government is looking forward to producing a "wellbeing budget" next year.

A "wellbeing" approach to budgeting has been under study by the Treasury for many years but clearly did not excite the previous Government. It does excite this one. In essence it means economic growth will not be the most important measure of the 2019 budget, it will be just one of several measures of national progress. Of equal importance will be indicators such as child poverty reduction, inequality and climate change.

Delivering this philosophy last Thursday in its Budget Policy Statement 2019, the Treasury said, "Recent history shows that too narrow a focus on economic growth can be associated with negative outcomes such as growing income inequality and economic degradation." That may be so but it is important that pursuit of social and environmental goals does not stop economic growth.

The fact is, economic growth is the engine that makes all other policies possible. Growth gives business the confidence to invest and expand and employ more people whose earnings create more demand for goods and services and whose taxes have to pay for most of the "wellbeing" the Government wants to provide.

It is only in good times that a government has the luxury to pretend all these elements of wellbeing are equally important. If its policies cause the economy to turn sour it will soon be struggling to deliver its "wellbeings". If it overspends and puts the budget back in deficit and too much labour regulation discourages employment, a falling exchange rate will soon cause prices of imported goods to rise, depressing consumption, causing widespread lay offs, declining tax revenue and rising welfare costs.

In that event, improvements in other "wellbeing" figures will be cold comfort.

Of course, economic growth alone is not the goal of good government but without it, all the other goals would elude us. The world could bring us economic problems enough next year without us losing our focus on sustaining economic growth.