Roadmap for Recovery: Briefing to the Incoming Government

The New Zealand Initiative
8 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. The OECD predicts our collective income or Gross Domestic Product (GDP) could fall by as much as 10% in 2020 alone. While Treasury’s Pre-election Economic and Fiscal Update forecasts are more optimistic (with GDP falling by 3.1% in 2020), GDP figures released by Statistics New Zealand for the June quarter reveal our collective income fell by 12.2% compared to the previous quarter.

Even before Covid-19 New Zealand struggled with long-standing productivity problems, with productivity growth being crucial to raising living standards in the long-term.

Employment has been supported by $14 billion of wage subsidies which are now coming to an end. Unemployment is now on the rise. Indeed, in the final week of June the unemployment rate was 6.2% with 11,000 fewer employed people than the previous quarter. The OECD predicts New Zealand’s unemployment rate could climb as high as 8.9% in 2021.

Finally, public debt is projected to balloon from 19% of GDP in 2019 to 28% in 2020. After peaking at over 56% of GDP in 2026, it is only projected to modestly fall to 48% in 2034. This will place a huge burden on future New Zealanders.

This country desperately needs sensible policies to protect the livelihoods of all New Zealanders, now and in the future.

New Zealand’s labour market settings are performing well overall, delivering relatively high participation rates, job creation and low levels of unemployment before Covid-19. Labour market settings do not require a radical overhaul, although flexibility in the labour market should be further enhanced to support employment. Recent and proposed reforms to the labour market, however, threaten employment and the flexibility required to deal with the aftermath of the Covid-19 crisis.

Raising or introducing new taxes would hurt growth and is not necessary for getting the public debt back under control. Instead, there is ample scope to reduce public spending through greater efficiency and scrutiny and 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.

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

Promoting employment, growth and productivity, and a credible path back to sustainable debt levels is critical. The New Zealand Initiative has developed a number of key recommendations, outlined in this report and summarised in the following table, which will help achieve these goals, facilitate recovery and safeguard our future prosperity.

Roadmap for Recovery summary 3

Click here to download the two-page summary of Roadmap for Recovery: Briefing to the Incoming Government. 

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