This is a re-post of an article originally published on pundit.co.nz. It is here with permission.
We’ve announced we are the ‘Yes Government’. Do you like it?
Yes, Prime Minister.
Dreamed up by the PR team. It’s about being committed to growth. Not that the PR team know anything about the economy. So how do we go about it?
You mean growth of GDP, sir?
The Minister of Finance – what’s her name? – said in her 2025 Budget Policy that there would be three overarching goals – let me see, where did I put it? ah, yes – ‘building a stronger more productive economy, delivering more efficient, effective and responsive public services, and getting the government's books back in order’. She added that the goals are ‘the Government's wellbeing objectives, as achieving them is the most important contribution the Government can make to the long-term social, economic, environmental and cultural wellbeing of New Zealanders’. We are required by law to have wellbeing objectives, you know.
But, sir, wellbeing is not the same thing as GDP.
No ‘buts’, no ‘nos’. This is a yes government.
Yes, sir. I was just pointing out the difference.
My first-year economics dealt with the two in different parts of the course. Never really got my head around the difference. Might as well treat them as the same for my government.
Yes, sir.
So when are we going to get some growth of GDP? The Half Yearly thing-a-me-bob wasn’t too optimistic.
The macro-economic indicators which have come in since we did the forecast have been worse than expected. The business closure rate remains high. We expect the contraction to continue a bit longer, but we havn’t done the next round of forecasts yet. There is a view among the troops that the upturn may be weak – but we have yet to decide. The downside risks will be greater than for December’s ‘Economic and Fiscal Update’. There is increasing concern that Trump’s tariff policies will precipitate a world economy downturn, and we cannot rule out there may soon be another global financial crash. We are due for one. Many of the indicators suggest financial instability, and the upset over Deepseek [the Chinese AI firm whose recent announcement clipped a trillion dollars off share values] warns just how fragile financial markets are. Meanwhile the Chinese economy is still spluttering.
That’s not good enough. We need some growth.
Yes, sir. I should add that the current GDP track is not the same as the growth of production capacity. We are currently a bit below full capacity so there could be a bit of catchup. You may be concerned with the sustainable long-term economic growth.
Actually, what I am concerned with is what will make the Government look good, particularly as we run up to next year’s election.
Understood sir. We can temporarily accelerate the current GDP growth rate by increasing the fiscal deficit. That will mean you will miss your stated budget target. The increase may be inflationary; the Reserve Bank might have to increase interest rates.
We wouldn’t want that. But we could expand the economy just before the election when the inflationary pressure is not obvious. So we’ll focus on increasing long-run capacity.
Yes, sir. Some of those measures may also lift the economy in the short term.
Good. Now I have a list of policies here. What about digital nomads?
They won’t have a big impact and they may not lift New Zealanders’ incomes much. Most of the GDP increase may go to the nomads. That’s an example of why an increase in GDP does not always lead to an increase in support for the government.
Except among the commentariat.
Exactly. Nobody believes them either, except other members of the commentariat.
How about we increase foreign investment?
If they are just buying New Zealand assets, there is not much benefit. New investment creates jobs, which boosts the economy in the short run the way you are wanting. In the long run there are typically fewer jobs than the construction phase and more of the profits go offshore. The exact balance depends on the particular case.
Does that include the fast track projects?
Yes, sir. Most won’t get underway before the election and you’ll have to manage the political backlash. Some of its arguments are valid. But during the investment phase the projects will produce jobs, usually fewer than in the production phase.
Privatisation?
It may not do much for economic growth. The 1980s sales program didn’t make much difference. Many were botches. We had to buy back NZ Rail and Air New Zealand. (I know.) We had to set up Kiwibank because selling off the POSB left a gap in the market which the trading banks ignored. It took us decades to unwind the private monopoly that the privatisation of Telecom created. We’ll prepare a list of possible asset sales. It won’t be long.
Including the government equity in the electricity generation companies?
Yes, they’ll be high on it. There is an argument though, that the sector should be nationalised and the companies merged into a single government-owned and operated entity. Actually, what we would like to do first is design a better regulatory regime for electricity production and supply. Currently, it seems to be price gouging consumers and businesses – some big ones say they are closing down because of it. There’ll be a consumer outcry when there are major price increases later in the year.
Oh dear. You seem to be suggesting there is not much we can really do. We could reduce regulation.
Everyone agrees, sir, that some of the regulation is clumsy and ill-suited for purpose, some bits are badly administered and that we should be trying to remedy these failures. That supervising task is now delegated to the Ministry of Regulation although we shall be monitoring them. But there is not a lot of evidence that our regulatory regime is holding back economic growth more than it is in other countries. A lot of regulations are trying to align GDP growth with improving wellbeing and a sustainable environment.
As I have said, those are not a priority for this government.
They are for some of your voters, sir.
But not all of them. We have to win only a half. The last item on my list is the research sector. We are pumping public money into it. That should make a difference.
The evidence is that technological innovation is crucial to economic growth. But there is not a lot of evidence that subsidising it will have a lot of effect. Some of our most successful innovators like Xero and Fisher and Paykel didn’t get a lot of government funding.
Most technology is developed overseas. The big challenge is to adapt it to New Zealand. We talk as though our public research system is going to develop an international breakthrough technology. We’ve been talking like this for almost three decades and it still hasn’t. It might. But we might have got a better return spending it on Lotto.
Of course, there are areas where we have to be local. It would be a fat lot of use if our geologists depended on Australian research. But generally, the issue is the direction of research. A key channel for importing world-class technology is world class local research. It is ever so important that our medical research keeps up with the frontier. True for other areas like AI and 3D printing.
We also need to upgrade workforce skills so it can adapt smoothly to the new technologies. The indications are that the quality of the management of our large firms is not world class. Whenever this is discussed – always in hushed tones – no one is sure how to upgrade it.
You seem very pessimistic about our being able to do anything about the growth rate.
New Zealand economists were grumbling about our poor growth record before you and I were born, sir. The grumbling only goes back sixty-odd years when the data first became available, and economists began to better understand the growth process. There is not a skerrick of evidence that the six decades of grumbling has accelerated our economic growth rate. Where is the evidence that the Productivity Commission made a difference? You closed it down because it didn’t. You will find the grumblers can point to our lowish productivity growth rate, as they could back then. But their nostrums are not connected to any causal process backed by evidence.
What we can do is remove impediments to maintaining the growth rate. Like removing the Telecom monopoly which was blocking the broadband rollout. It’s a more humble objective than accelerating the GDP growth rate, but we’ve been pretty successful at that over the years.
I hear all your economics, but I am running a political airline. We need a story that will resonate with the public and the commentariat even if it does not make sense to experts. So we will keep to our ‘yes to growth’ strategy. Got that?
*Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.
14 Comments
Yeah, the framing device isn't the cleverest or most original spoof, but it's stringing together a lot of excellent analysis and history.
The comments may produce some well-contemplated dissent, but I'm not holding out hope since the two at time of writing are orbiting around new derivatives of the root "woke".
RMA review, infrastructure commission, land supply, mining and resources, etc. so much more happening than this article suggests with all due respect.
Eden park, speed limits, the list goes on.
9 years of wokeness doesn't get fixed in 1 term but the progress is real.
Luxon is making a number of significant mis-steps.
They should not be compromising on the requirement to speak English fluently for all immigrants - including those with large amounts of money.
Land should never be available to purchase by anyone who is not a citizen.
To date the National Party has done little to nothing about dumping the co-governance woo woo and the rest of the wokery that was pushed by Labour.
If they don't do something significant in that space then they will find many of their supporters walking away from National and towards one of the two parties that actually are prepared to do something about it.
NZ actually needs a party much like Reform in the UK.
I dont think tinkering with the foreign investment rules is going to make any difference. In the 2 years BC (Before Covid) foreign investors pumped $2.2B into the economy, in the 2 years since borders reopened, a mere $70M. The stench of a wealth tax is going to linger long and hard in NZ. Its now a country, just like South Africa, where Sovereign Risk is a real thing. Much like how the oil & gas industry is not going to be making substantial investments into NZ knowing that another ban will simply be imposed the next time Labour/Greens get into power. And how long before a Left wing party in NZ passes a South Africa style Expropriation Act?
Govt bans, non-renewal of leases on Maori/Govt land, expropriation of assets, wealth taxes .... I have a hot tip for those looking to attract wealthy people to NZ. Our first, second and third priority is preservation of capital. Keeping the money that we've already made, is more important than making more of it. As Warren Buffet famously said, " “The first rule of investment is don’t lose money.” And if you ask about the second rule? “Don’t forget the first.”
Income taxes or buying houses is a long way down the list. Unless you can guarantee the safety of people's assets and wealth they are not going to come here.
"what I am concerned with is what will make the Government look good, particularly as we run up to next year’s election"
The key phrase. Every politician's primary focus is to win the popularity contest.
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