We won’t know for a while which parties will make up the new New Zealand Government. Whoever it is will face the same challenges.
The most likely shocks to New Zealand’s economy are from the international economy and from a crash in the housing market. There are still many concerns in Europe, the US, even China, and Australia. Another financial crisis is not impossible. We need to reduce New Zealand international debt (almost all private, mainly the banks: more affordable housing would help) increase saving, be ready to control international financial flows, and increase exports.
New Zealand’s economic growth has been moderate though better than many OECD countries, but it is much lower than during the 2000s, especially per person. There is little left after population growth for improved living standards. Productivity growth is abysmal, which is bad for future wage growth. Rapid growth in the workforce and low wages encourages lazy, command-and-control management practices with insufficient investment and too little commitment to staff training and employee engagement. We need better management and employment laws to raise productivity and ensure employees share the benefits.
Despite record high export prices, goods and services exports are at the lowest level relative to the size of the economy since 1990. The largest contributors to economic growth since it resumed in 2010 have been the professions, the “FIRE economy” – finance, insurance, real estate – construction, and retail, accommodation and food services (driven by tourism). They are a mixture of low wage, poor productivity performance and increased risk through unaffordable housing and record household debt. The imbalances in the economy are even worse when we consider the continued high level of inequality and poverty.
Government debt is low. Lowering it further is not a high priority. National’s policy of reducing government spending as a proportion of GDP squeezes public services. It is irresponsible and dishonest fiscal management to pretend to increase services without sufficiently funding them. Its surpluses were at the expense of social deficits. The current economic, social and environmental imbalances will fester unless significantly more revenue is provided.
We also need a framework to be prepared for the future of work: industry policies to replace shrinking industries with better ones, employment policies that give people a say over their future and ensure they share the benefits, and a capable state much better at supporting people through change and providing the public services they need for healthy, fulfilled lives.
Download the full bulletin: CTU Economic Bulletin 193 September 2017