Finance Minister Grant Robertson went on the offensive this week to counter the gloom engendered by political opponents and business leaders about the state of the New Zealand economy.
He cantered through a field of positive statistics to show everything is hunky-dory—- well, almost everything.
Yes, there are some problems over low levels of productivity, the challenges of digital change, and mixed signals over future tax and workplace legislation.
But Robertson in his speech in Auckland accents the positive :
- Our terms of trade are near a record high;
- Our stock market is up around its record high;
- Building consents in the June quarter were up 7.5%, pointing to robust residential investment in new housing:
- Business investment was up 5.5% in the latest GDP data.
“This has led to solid employment growth, with 94,000 more people employed in the year to the end of June. Unemployment sits at 4.5%, with projections of it heading towards 4% over the next few years.
“Last week’s employment statistics also showed the highest employment rates ever for Maori and women, and we’ve seen a fall in the number of young people not in employment, education or training. Last week’s ANZ Job Ads series was up 4.7% in July from a year ago.
“And we are seeing wages start to rise as working Kiwis share more in the benefits of economic growth.That is where we are now.That is not to say that everything is perfect or there are not challenges and risks that we must face”.
While the terms of trade are high — and the NZ dollar has edged down 8% since mid-April — the dollar is still over-valued. Commodity prices in the export trade are generally flat on a year ago, but the key dairy price index is down 7.1% over the 12 months.
ANZ Bank economists think the data flow is suggesting the peak has been passed in the commodity boom.
As for the sharemarket, it may too have reached a peak. International markets are edgy as the threat of trade wars worry investors. “The Economist” says despite generally strong economic data there is reason to heed the warnings signs flashing around bond markets.
Robertson says the concern about the international picture “is something I share and which the government will continue to monitor”.
But, he adds, there is every reason to be optimistic about New Zealand’s future economic prospects, “and this government is committed to working alongside the business community to develop them”.
The difficulty is that within the messages the government is delivering, the business community finds it hard to discern a coherent narrative.
The government without consultation shuts down future oil and gas exploration.
Employment law reform appears weighted in favour of unions and not enterprise.
More than $2 billion is laid out for first year tertiary education students’ fees but several polytechnics and at least one university are in financial strife.
As economist Michael Reddell says in his blog:
“ There is little sign that anyone near the top of government really has a sense of what might make a useful and substantial difference to the medium-term performance of the New Zealand economy. You will, for example, never hear them talk of a real exchange rate out of line with the relative productivity performance of the New Zealand economy, or show any understanding of how that might come about.
“In practice, they seem wedded to much the same failed economic strategy as the previous government – notably the “big New Zealand” rapid inward migration strand – made worse, at least in prospect, by things ranging from large increases in minimum wages to aggressive headlong pursuit of net-zero emissions targets with not a decent cost-benefit analysis in sight”. .
Robertson insists the fundamentals of the NZ economy are strong.
“We are in surplus – projected to be $3.1bn this year, rising to $7.3bn by 2021/22. Net core Crown debt is low compared to international trends, and our Government is committed to reducing that to 20% of GDP over the next five years. Over the forecast period we are set to see GDP growth average around 3%.”.
But sceptics see problems looming for the government on its fiscal performance as it meets the demands of the nurses, soon to be followed by primary teachers (will they agree to anything less than the nurses?) and then by secondary teachers.
What then about the police, fire service and other elements in the public sector?
The government says it is going to fix the infrastructure deficit. But the construction sector is in a mess, skills are short, and the flow of workers to higher wages in Australia is beginning to accelerate again.
Sure, the government says next year’s Budget will serve as a broader nationwide stock-take than the traditional Budget, which focussed on economic and fiscal information. Robertson says his vision is for the Budget to become an annual update showing how we are doing as a nation, as well as the Government’s plan for improving the nation’s wellbeing over the years ahead.
The well-being approach to the Budget process is part of taking a longer-term view of the impact of Government policies on the New Zealand economy and New Zealanders. It’s about budgeting for the future
The Budget will also include a Living Standards Dashboard, which Robertson says is about “measuring our success”.
But how much will it mean if real GDP per capita continues to slide?