It’s time to get serious about New Zealand’s recovery

Dr David Law
Insights Newsletter
9 October, 2020

New Zealand faces its worst recession in nearly a century. Unfortunately, the economic response to the challenges of Covid-19 leaves much to be desired. Most new policy initiatives proposed in the run-up to the 2020 general election range from trivial at best to economic sabotage at worst. New Zealanders deserve better.

The scale of the problem is immense.

Independent forecasts by the OECD predict an unemployment rate of 8.9% next year, and figures released by Statistics New Zealand for the June quarter of this year reveal our collective income fell by 12.2%.

To make matters worse, even before Covid-19 New Zealand struggled with lacklustre productivity performance – productivity growth is crucial to raising living standards in the long-term.

Then there is the rising public debt – projected to peak at over 56% of GDP in 2026 (up from a mere 19% in 2019). Taking on some additional debt for an effective public health response and economic support is justified, but additional spending and promises now go well beyond that.

This week, the report Roadmap for Recovery: Briefing to the Incoming Government was released to help plug the policy gap. The report includes over 30 recommendations to promote employment, growth and productivity and a credible path back to sustainable debt levels.

Productivity could be improved with key changes to education, regulatory settings affecting investment, monetary policy and climate change.

But the next Government must resist the temptation to tighten labour market settings. These are performing well, delivering relatively high participation rates, job creation and low levels of unemployment before Covid-19. If anything, labour market settings should be more flexible now.

Raising or introducing new taxes will hurt growth. More tax is unnecessary for getting the public debt back under control. Instead, there is ample scope to reduce public spending through greater efficiency, scrutiny and by ending wasteful spending on costly programmes which do not deliver on their objectives. Health, education and welfare need not be affected by these changes and may even improve. Changes to retirement income policy alone could return the public debt to about 30% of GDP by 2034.

This report will not leave you feeling warm and fuzzy. New public holidays, green schools offering DNA activation ceremonies, PayWave fees, electric cars, wealth taxes and a guaranteed minimum income do not feature on our list of recommendations.

But, if a prosperous New Zealand floats your boat, Roadmap for Recovery: Briefing to the Incoming Government will have you hooked.

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