Mike Hosking: The Government’s economic choices are coming back to haunt us

Finance Minister Grant Robertson says it is not about comparisons - but it is. Photo / Mark Mitchell

OPINION

The question for our esteemed Finance Minister Grant Robertson is, how long can he keep saying with a straight face that “we are well placed” to deal with what is an increasingly obvious economic calamity.

The 50 basis point official case rate increase from Adrian Orr last week pretty much blew whatever credibility was left out of the water. New Zealand is now into outlier territory.

As many parts of the world increasingly get 25-point rises or, in Australia’s case, no rises at all, we continue down the path of 50 points and a cash rate at 5.25 vs Australia’s at 3.6.

It also seems pretty much certain we are in a recession or, if per chance we aren’t, we are about to be. There is too much economic evidence piling up for us to avoid the so-called “hard landing”. The Government’s tax take is coming in now under budget. The cost of the government’s debt is rising. The size of that debt as a percentage of GDP is going up. The ratings agencies are now publicly commenting on it and talking of possible downgrades.

The trade deficit is at record levels, we are not selling enough to the world to offset what we are bringing in. The main foreign exchange earners of tourism and dairy are now problems for the economy. Tourism is back at 50 per cent of what it was, and the speed of the resurgence post the borders opening is now slowing. When it’s slowing and you are still only at 50 per cent you have issues.

Dairy has demand issues, and the auction numbers of late look increasingly worrying.

While all that is going on, the Government continues to spend beyond its means. The previous Saturday 1.4 million of us got more money, not because we did anything to earn it, but simply because the cost of everything was rising.

Think about that, the Government borrowed yet more money to hand out to people who need yet more money to pay for things, because the cost of everything is going up. That is called a wage/price spiral: one feeds the other.

The fact no one made anything to earn that money is the red flag; the Government didn’t have the money either, it borrowed it.

Now part of the crime is a lot of us who asked for money in terms of wages got it, because our employers couldn’t afford not to give it to us, because if they didn’t we would’ve potentially left.

That is the one bright part of the economy. Everyone has work.

But they have work because we haven’t let enough people into the country to avoid the wage-price spiral that’s been engineered.

I say engineered because there can be no other reason for keeping the immigration settings the way they have been, other than to drive prices and wages up in an artificial fashion.

Unlike Australia, who are now better off than us because they let people in, therefore kept a lid on wages, therefore were able to stop interest rate rises earlier than us, we are still stuck in this mad spiral that can only end in economic carnage.

Australia, by the way, is expecting 650,000 migrants by the end of the decade; people flock to aspirational places.

So along with Australia, we can now almost certainly add Britain, most of Europe and indeed the US, to the list of countries that appear to be avoiding recession. They appear to be managing a soft landing to their economic circumstances.

And while we know why we aren’t able to achieve the same feat, the real question is how come? How is it we have got this so spectacularly wrong? Benefit of hindsight is always useful but the mistakes seem increasingly obvious.

Too much printed money. Too much of that money spent on things that had nothing to do with Covid. Not enough questions and rigour around where the money was spent and what value, if any, it was adding. A funding for lending programme for banks that had no rules around it. An immigration setting that fuelled wage spikes. An immigration setting that because of delays, led people to choose other countries. And an increasingly frustrated Reserve Bank governor who asked the government to rein it in, as well as telling the public to cool their jets. Both parties ignored him, because the Government loves debt, and we all had pay rises.

Like a slow-moving train wreck, this is all coming back to haunt us. The tragedy of it all is we are increasingly seeing places where it isn’t as bad.

Grant Robertson likes to say it’s not a game of comparisons: actually, it is.

And we lose.