This week, 20 economists published an open letter calling for increased government spending. They argue that spending now will reduce economic pain. Reducing the public debt can wait. 

Open debate about the best path forward matters, especially when so many New Zealanders are doing it tough. 

But the letter’s central argument is puzzling. 

The last government left an economic mess. Deficit spending was entrenched. Net public debt reached 40% of GDP. 

Meanwhile, serious problems persisted in health, education and welfare, despite spending increases between 2018 and 2024. Inflation was too high. Real GDP per capita fell for four of five quarters before the 2023 election. Labour productivity was also falling. 

That mess came from the policies the letter now proposes: sustained deficit spending, believing growth would follow. 

It has not. 

The current government faces competing pressures. Some say Budgets 2024 and 2025 should have cut harder. Others argue that would have been too polarising; lower prolonged pain is the right call. The 20 economists represent a third position: continue to spend, borrow and hope economic growth will emerge, regardless of spending quality. 

These camps disagree on the path forward. But they share common ground: productivity growth would help deal with our economic challenges. The question is how to get there. 

The open letter assumes prolonged deficit spending is the best answer. Yet it does not give us an analysis of how this would make a positive difference. 

Nor does the letter address restoring a prudent public debt level before the next natural disaster or global crisis. It is currently much higher than the 15-25% of GDP finance minister Michael Cullen deemed prudent in 1999. Debt policy must also address the Treasury’s dire public debt projections. 

The letter calls for a broadly accepted economic plan. But such a plan needs measures to boost productivity growth, which the letter ignores. 

Deficit spending is not a growth strategy when spending quality is poor. The New Zealand Infrastructure Commission reports that infrastructure spending levels were reasonable, the problem is quality. 

Better spending would be a start. Other measures might include lower tax rates, less red tape and greater respect for property rights – though any new policies need to be accompanied by rigorous evaluation and cost-benefit analysis. The point is that productivity gains require more than spending and hoping. 

The letter’s authors might object to alternative approaches. But can they explain why their own would work?