IMF report into NZ economy 'cringeworthy praise'

Dr Bryce Wilkinson
NZ Herald
29 March, 2022

There is potential value in having a country’s economic policies reviewed by international organisations. Done well, they provide residents with non-partisan expert perspectives.

They likely do more harm than good locally if they simply applaud everything the incumbent government is doing.

The International Monetary Fund’s assessments used to have the former value. At their best, they were dry, technocratic and evidence-based. Policy shortcomings were pointed out, diplomatically of course.

The IMF’s latest staff statement on the New Zealand economy was released last week. On my reading, the statement unfortunately falls into the cringeworthy praise category.

The overall thrust is that New Zealanders are doing well under the guiding hand of a competent and benevolent government.

The statement praises the government for its “strong economic and health policies”. Its management of COVID-19 has been “successful” and “sound”. It provides no evidence in support of these conclusions.

It endorses the government’s ad hoc interventionist measures in housing. It recommends they “be maintained”. Yet the longer anti-landlord and distortionary mortgage lending policies remain in place, the more serious the unintended consequences.

It even endorses “complementary measures” to further reduce carbon dioxide emissions. Yet, measures such as subsidies for electric vehicles cannot reduce net national emissions. (Under New Zealand’s emissions trading scheme, net zero carbon emissions by 2050 can be achieved at lower cost without such measures, given the public will.)

It commends the government’s Income Insurance Scheme. It argues that it “closes an important gap in social protection”. This is not a wellbeing consideration. A wellbeing approach would establish that employees have no better way of spending the estimated annual cost of $3.54 billion. Tell that to struggling households.

Nor is there any obvious “social protection” gap. New Zealand has had an unemployment benefit for all of living memory.

More disturbingly, the argument seems to assume the desirability of cradle-to-the-grave social security. That proposition ignores costs and assumes a benevolent but necessarily dictatorial government.

Such utopian thinking is dangerous for our freedoms and prosperity.

New Zealanders have paid a high price in terms of lost incomes and freedoms from government-imposed Covid-related lockdowns and restrictions. Has it been worth it?

Expert assessments by more than one New Zealand academic have concluded that the net wellbeing benefits for New Zealanders have been negative. In particular, Professor John Gibson at the University of Waikato has published several analyses that question the wellbeing case for lockdowns.

Astonishingly, the government has yet to produce a professional wellbeing analysis of its own. This despite the great imposition of its measures on the public. The scale of the support nationwide for the anti-mandate protest further illustrates the public need for a proper response.

In short, the IMF’s unqualified endorsement of the government’s success in responding to Covid appears to lack any analytical basis.

None of this is to argue that the government faced easy decisions or that the border controls did not slow the incidence of Covid. Doing so likely reduced hospital stress, saved or prolonged some lives, and provided time for the public to be vaccinated prior to exposure. But none of these points dispose of the net wellbeing question about the entire package – lockdowns and mandates included.

What about the IMF’s praise for the government’s “strong” economic management? Perhaps it would have called Sir Robert Muldoon’s economic management “strong”, it certainly was dictatorial, intrusive and freedom limiting.

This government could well go down in New Zealand’s economic history as one of New Zealand’s biggest spending governments, and a very intrusive regulator. It was a big spender before Covid struck, but Covid and a compliant Reserve Bank took the brakes off.

Specifically, Labour’s fiscal plan prior to the 2017 general election assured the public that it would increase government spending by only $11.7 billion spread over the fiscal years 2018-2022. By November 2019 the increase had risen to $30 billion. That was prior to the onset of Covid. On Treasury’s latest published projections, the increase is now $80 billion.

In so doing, the government and the Reserve Bank have put much of it on the tab. The money has been put into householders’ bank accounts, and it appears to be a free lunch. Unfortunately, it is not.

The future cost is a worry. News media reports of householders struggling against the rising cost of living are proliferating, independently of the latent increased debt burden.

Meanwhile, under the “strong economic management” the cheap and plentiful money contributed to skyrocketing house prices that put home ownership beyond the reach of many.

The statement’s confidence in the government’s capacity for astute economic management carries into its forward-looking recommendations. Fiscal policy should “remain agile”. Monetary policy should “remain data dependent”. Policy “normalisation” should be “calibrated carefully”. Structural policies “should aim at improving productivity”. If only.

To cap it all off, the document considers that, there is fiscal room for further spending increases, but according to one report, not for tax cuts.

It is hard to see anything in this statement that the Prime Minister’s advisors would not have written, given the chance.

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