The good news is the economy is returning to normal. The bad news is normal is still quite bad. Inflation is down but the crown accounts for the June year were described by Finance Minister Nicola Willis as “sobering”. They revealed an operating deficit blowout, while net core crown debt has grown to 42% of GDP, more than double the 2019 measure. There weren’t any earthquakes, pandemics or financial crashes during this 12-month period. The government needed to borrow $6.5 billion just to keep the lights on.
What’s the plan? Wither the mojo? There have been tax cuts and cuts to spending – and the latest Consumers Price Index numbers have vindicated Willis’s argument that her fiscal package would not be inflationary. But a larger picture of economic transformation has been slow to emerge – until last weekend, when Act and New Zealand First advanced policies that inadvertently complement one another and point to a potential growth pathway.
The first was Act’s David Seymour, wearing his Associate Finance Minister hat, who sent out a press release at the media-unfriendly time of 8.50am on a Saturday announcing a work programme to reform the nation’s foreign-investment regime. A recent OECD report found us at the bottom of the table – 38th out of 38 – for openness to investment. We are literally the worst.
In terms of foreign investment as a percentage of GDP, we’re 26th – still in the bottom third. The other small trading democracies we aspire to compare ourselves with – Ireland, Singapore, Denmark, the Netherlands – are at the top of the class. Their workers earn a lot more than ours, their economies are more productive and the improved technologies and skills introduced by foreign multinationals spill over into domestic companies. Attracting foreign capital also has a tendency to improve infrastructure and drive regulatory reform. Building a new supermarket in New Zealand costs twice as much and takes twice as long as the same supermarket in Australia. Successive governments seem indifferent to the effect this has on New Zealand consumers – perhaps they’ll fix things if a multinational corporation asks them nicely.
Then came Winston
The day after Seymour’s announcement, New Zealand First’s Winston Peters addressed his annual party conference in Hamilton and proposed the government establish a strategic infrastructure fund. Its job will be to build up the nation’s economic infrastructure in a manner that’s ring-fenced from political interference. This would integrate nicely with Infrastructure Minister Chris Bishop’s scheme to establish a 30-year work pipeline with bipartisan consensus – what better way to force politicians to agree on something than by taking away their ability to meddle with it? – and with Seymour’s goals to attract foreign investment. The fund could potentially offer preferential tax treatment to international co-investors on the grounds that the projects were in the long-term economic interests of the nation.
How much would all this cost? Peters is not famous for his modesty and he’s proposed the “small sum” of $100 billion. This is a moderate amount of money compared with the scale of the multitrillion-dollar sovereign wealth funds operating in the likes of Singapore and Norway, but New Zealand’s annual GDP is about $415 billion and Willis is scrambling to find the cash to keep hospitals open overnight. Where would the money come from?
Perhaps they’ll fix things if a multinational corporation asks them nicely.
Singapore’s Temasek fund was capitalised by transferring state assets – its bank, airline, power company, phone company – to be run as commercial for-profit entities, reinvesting the dividends. This is an attractive option for New Zealand, where the government has large stakes in commercial entities – Kiwibank, KiwiRail, Transpower, TVNZ, NZ Post – which it routinely operates either at a loss or, at best, minimal gains compared with the performance Temasek delivers (some officials quietly suspect the poor performance can be partly attributed to poor governance, gesturing at the rogues’ gallery of former Labour and National politicians cluttering up these boards).
The problem is an effective fund would need the power to sell down poorly performing assets it didn’t want to own – would you buy TVNZ if you had a spare $200 million? Labour and the Greens would condemn this as asset sales and it would become their platform in the 2026 election campaign.
Tigers and dragons
What about the Irish model? Following the Global Financial Crisis, the Celtic tiger converted its pension fund – equivalent to our super fund – into an economic development and infrastructure fund. It has a dual mandate to generate financial returns and deliver sustained economic growth. There’s $72 billion in the super fund started by Sir Michael Cullen back in 2001. That’s not a bad start – it’s supposed to start subsidising the crown’s superannuation liabilities during the 2030s, but the larger drawdowns aren’t scheduled until the 2050s.
Just as the socialist utopias of Scandinavia were once policy inspirations for our left-wing politicians – less so since they’ve liberalised their economies – Ireland and Singapore have become templates for our centre-right: they’re small trading nations without significant natural resources that have done awfully well for themselves. Peters has long been an admirer of Lee Kuan Yew, founder of the modern city-state; Christopher Luxon hankers after Singapore’s success. The admiration is often distorted like a fun-house mirror: Ireland has a capital gains tax with reduced rates for entrepreneurs, Singapore a property tax with higher rates for landlords, both incentivising investment into the productive economy. Neither scheme is deemed appropriate for us.
But the two countries’ foreign investment regimes and investment funds are excellent models to follow. Seymour’s work has been approved by cabinet and Peters has advanced his idea as an NZ First election policy – but there’s no reason it couldn’t become government policy before that. If the Prime Minister wants us to be like Singapore we’ll have to adopt policies that resemble its.
A promise of MMP was minor coalition partners would function as think tanks for the sluggish major parties, driving the change they seem so allergic to. This could be a rare example of this practice in the wild. If there’s a vision there it’s an improvised, fragmented one – but that’s better than none at all.
