Stephens revealed that “economic growth falling short of expectations has been making it harder for the Government to bring the books back into balance”.
“New Zealand is currently running a fiscal deficit of around 3.1% of GDP” and Stephens revealed that “we would be in deficit even if the country was not in recession”.
“A key reason for the Treasury’s weaker economic forecasts has been accumulating evidence of a sustained productivity slowdown.
“Productivity growth … slowed to zero from 2014 until the end of 2019 … productivity had dropped back to pre-pandemic levels by 2024.
“Since the September quarter of 2022, per capita GDP has fallen by 4.6%”.
In plain language, the chief economist is saying we are stuffed.
The recession is worse than expected. The Government is spending more than it is earning. Government debt is predicted to go from near zero in 2008 to over 100% of GDP by 2048.
There is no improvement in productivity. On average Kiwis are poorer than we were two years ago. Without changes, we are going to be a lot poorer.
When explaining why our productivity is so bad, Stephens’ speech turns to waffle. “A range of probable causes for the productivity slowdown including poor diffusion of innovation, weak investment, and a slowdown in international trade and connections.”
Stephens even gives the excuse of Australia’s “slower trend productivity growth”.
Despite small nations like Ireland having good productivity, the Treasury appears to have few ideas.
Stephens’ concern is that the “Government spends considerably more on over-65s than it gathers from them in tax revenue”.
The Treasury wants to throw the elderly off the bus.
Last week a group of 15 economists wrote an open letter to the Prime Minister. There is no mention of productivity. They want to borrow and spend. Their recommendation is that the Government “immediately suspend all directions for further reductions to departmental and agency spending“.
Many were advisers to the Labour Government. Their letter explains how we got into this mess.
In contrast, Cameron Bagrie, former chief economist at ANZ, responded to the Treasury’s chief economist’s speech, writing: “It appears the towel has been thrown in.”
Bagrie points out that the OECD says we need a “national curriculum that more fully spells out knowledge requirements” and “revamped initial teacher training with a stronger focus on core subjects”.
Bagrie wants a national consensus to improve education and infrastructure.
Dr Bryce Wilkinson, one of the country’s best economic thinkers, opined last week. He also thinks achieving a surplus by 2027/28 “looks out of reach on current policies”.
Households facing an economic crunch, says Wilkinson, take decisive action to cut spending or increase income or sell assets.
“The Government has $187 billion invested in state-owned enterprises and Crown entities. That is roughly $90,000 per household.
“Why does the Government not sell assets it does not need to own? The proceeds could be used to reduce debt and stem the rising tide of interest payments.”
Professor Robert MacCulloch, one of New Zealand’s few internationally recognised economists, also wrote an article last week.
The professor assessed the Government’s economic policies. He concluded: “Sir Bill English-type, a steady-as-she-goes ... won’t work for the nation. It’s a new world. New thinking is required.”
I have been a Finance Minister and the Minister for State-owned Enterprises. The Treasury’s repeated fiscal forecasts that sometime in the future the Government’s books will balance were never credible.
The Government being asset-rich and income-poor makes no sense when the private sector is usually a more productive owner. The way to reduce government spending is to stop doing things.
There are whole ministries that would never be missed. There is only one way to lift living standards and that is to improve productivity. The OECD says New Zealand can boost productivity by unleashing digitalisation.
We need as a country to be best in class and to get our youth back in class. In term two just 53.2% of students attended school regularly. The answer is to stop paying schools for the students they enrol and only pay for the students schools teach.
We have known for 50 years that demographic change is coming and what we must do: switch from tax-based to savings-based. If now is not the right time, then when?
