It’s not simply the reality that there has been little real progress on the fiscal front. The revenue lost from the ill-framed and timed tax cuts saw to that.
It’s more the Government needs to also take on board that if we don’t get surging economic growth, tax revenues will not surge but unemployment and welfare bills will and debt will continue to grow irrespective.
Will going even harder on the fiscal front solve that or is it better to adopt an investment mindset where all policies are simply judged through a growth lens and debt used to grease the economic wheels until they are spinning again?
Auckland Business Chamber chief executive Simon Bridges will next week host Luxon for his second State of the Nation address.
In his inaugural speech as Prime Minister last February, the PM said: “I have to level with you New Zealand and say – the state of the nation is fragile.”
Clearly, it is still fragile.
His “Government of action” has delivered 90-day plans to address underwhelming metrics: slipping education standards, woeful performance in health and welfare; and infrastructure deficits – but getting major results takes time.
Last year, Luxon tempered his rhetoric with some inspirational words: “We’re a country with a glint in our eye and fire in our soul. We reach for the stars even while we stay close to our roots. We climbed Everest. We split the atom. We charted waka across the ocean to come here, and we’re blasting off to space to compete with the best in the world.”
But the speech entirely sidestepped race relations.
It would be entirely cynical – cowardly even – if the Prime Minister does not front up to the impact of David Seymour’s Treaty principles bill on race relations.
He may sidestep the Waitangi Day events at the Treaty Grounds this year, but a State of the Nation address must cover much more than economic issues if the Prime Minister is to inspire confidence that his Government is seriously on the right track.
No one wants to hear more about the economic environment that his coalition Government inherited. The Cabinet completed “The Great Unwind” last year. Ministers must now own the consequences of their own policies. And there have been some good policies in education and elsewhere.
The prevailing sentiment in the 2024 Mood of the Boardroom CEOs survey was it was time to pivot hard and focus on bold moves necessary to spur economic growth.
As one business chief put it three months ago: “Fiscal restraint is right for the times but where good investment stacks up we should get on with it.
“Labour did spend way too much and profligately so, but New Zealand doesn’t have a significant public debt issue relative to other nations; we have productivity and growth ones that require sensible investment. Finally, let’s see more policy boldness.
“It doesn’t need to be full Rogernomics or Ruth Richardson style, but more than English or Robertson incrementalism is required given New Zealand’s serious problems.”
Unfortunately, New Zealand has slipped on some international economic rankings.
But New Zealand is still ranked sixth in the Heritage Fund Economic Freedom Index for 2024. It’s notable that other members of the seven-strong Advanced Small Economies Initiative to which New Zealand belongs also rank highly on this index: Singapore (first), then Switzerland and Ireland. Denmark is in seventh place, Finland is 12th with Israel trailing at 26th.
New Zealand is not so competitive when it comes to tax settings.
The average top individual and corporate income tax rates for all countries in the 2024 Index are, respectively, about 30% and 25%. The average level of government spending continues to be about 31% of GDP, but the average level of gross public debt has risen above 65%.
Both New Zealand and Australia have lost their top-tier economic freedom status, with Australia no longer among the world’s 10 freest economies according to Heritage.
The Small Advanced Economies Initiative countries are all advanced economies by International Monetary Fund standards, and are of similar scale in terms of population with around 5 million to 10 million inhabitants.
Luxon joined the New Zealand Initiative on its study tours to two of those countries: Switzerland and Denmark. While Opposition leader he also went to Ireland and Singapore.
Notably, New Zealand has found it more difficult to get back on a growth trajectory than its peers.
