This commentary looks at the year ahead. The Prime Minister has described this as the year of ‘delivery’ for the Government and she aint wrong. In addition we need to keep an eye on what’s happening in New Zealand’s economy and society, and how international events could affect us.
Numerous Government working parties will report back during the year. Three notable inquiries for working people are on Fair Pay Agreements (whose report has just been released), tax (soon to be with the Ministers) and the welfare system (due in the next few weeks). Their common theme is fairness and reducing inequalities. Potentially, they are all moves in the right direction.
Yet New Zealand is stubbornly stuck at the high level of income inequality it reached in the mid 1990s. There seems to be no will to challenge New Zealand’s high inequality sufficiently to return it to our early 1980s position of being one of the more egalitarian societies in the world. The question will be: if implemented, will these be enough? I don’t believe so.
Housing is at least as big and important. The Opposition and media have of course tried to paint the Kiwibuild programme as being in crisis. But turning around housing affordability is an enormously difficult endeavour. To fault a programme because it has not succeeded in six months where previous Governments have barely tried is shallow nonsense. That doesn’t mean it is perfect, but it should be fixed and set to work.
Over all these areas looms the big question: can the Government do enough under its self-imposed restrictions on spending and borrowing – its Budget Responsibility Rules? It says we need lower debt for a “rainy day” such as a global downturn or natural disaster. But by international standards we are already well within safe debt levels and could have a higher level of debt without it damaging our resilience. The bigger danger in our present situation is that by diverting spending to further reduce debt, we damage the capability of our society to prosper.
There is international debate on these matters and on the austerity policies that held back recovery. New policies are being discussed which give the Government other choices.
The most likely cause of a downturn in New Zealand’s economic activity is from outside New Zealand. There certainly are risks from the US, China and Europe, but none are certainties. It does mean that the government should be thinking through how to respond so that New Zealand sustains minimum damage. Given already low interest rates, the Reserve Bank does not have much room to stimulate the economy by conventional monetary measures. The government needs to ready other options.
This is far from doom and gloom. The economy is trucking along, with unemployment approaching the low 2007 levels. There is plenty of opportunity to make real change. The Government should take it.
Download the full bulletin: CTU Economic Bulletin 206 – January 2019