Nonetheless, it was on a platform of applying business practices to government that saw Luxon elected. So, after 15 months in the top job, how is our PM CEO and his team doing?
A general rule in business, and in life, is it’s okay to borrow to help yourself grow, to invest in capital, or in emergencies – but borrowing for the day-to-day is a sign of trouble.
Luxon and Nicola Willis, who were so against Grant Robertson’s borrowing to get New Zealand through Covid-19 and Cyclone Gabrielle, inexplicably chose to give up a large chunk of revenue in tax cuts (mostly for landlords and the already well-paid) and fill the gap in their self-created structural deficit with increased borrowing.
At the same time, they chose to cut investments in long-term infrastructure that is important to our long-term success.
The inter-island ferries are on hold, Dunedin Hospital has been cut back.
Kāinga Ora’s build programme has been cut back to zero. The extra debt it had amassed was labelled “unsustainable spending” despite the tens of thousands of new homes built with that money, which are an asset on the state housing provider’s books. Who owns these homes? New Zealand taxpayers like you and me.
Borrowing to build assets that grow in value, let alone serve an important social and economic purpose (hospitals or ferry terminals anyone?) is an investment in our future.
Borrowing to pay for tax cuts for the wealthy really is just a way to hollow out government and repay this generation’s landlords for their staunch financial support of National and Act at the expense of our kids and mokopuna.
It would be one thing if all this had led to rapid economic growth.
Instead, we’ve got a deep recession, we’re losing key manufacturers, and tens of thousands of young Kiwis are joining the record brain-drain.
The Irish economist David McWilliams recently described Ireland, a country with similar issues as New Zealand in terms of its failure to invest sufficiently in its housing and infrastructure as its population and economy has grown, as like a business that is “over-trading”.
Businesses that over-trade extract as much profit as they can for today’s management and shareholders at the expense of investing in assets and infrastructure necessary for future profitability.
Tax cuts increase present debt and under-investment cuts future growth that is meant to service that debt. Every year the gap is not closed further borrowing is required creating an increased spiral of debt. Is this the Robert Muldoon-ian track we’re promised to get back onto?
The next stage the Government is hinting at is asset sales. As a business, it’s one thing to change your asset mix as times change – like how Kāinga Ora might sell an expensive plot of land in a high-value suburb so it can build more homes elsewhere.
It’s another thing entirely to start flogging off assets to try to cover the shortfall of revenue created by bad choices - like tax cuts for landlords.
Selling our public assets, whether that’s power companies or hospitals, means the profits from the investments we have made as taxpayers in our country now flow offshore, leaving us worse off.
This is not an argument against foreign investment. Targeted investments that bring expertise and technology are vital to an isolated economy such as New Zealand. But selling our core infrastructure because the Government decided to cut taxes? That’s like selling your house to pay for a holiday.
Rising debt, recession, under-investment in infrastructure and a pending asset fire-sale - if New Zealand really was a company, the board would surely be thinking twice about whether they made the right decision in their choice of chief executive and chief financial officer.
With only 18 months until they have to seek reappointment, Luxon and his team will need to start showing results, or they may find the voters telling them “Thank you, but we’ve decided to go with someone else”.
