Key Takeaways:
- New Zealand’s economy has declined by 0.9% in the June quarter, with a 1.1% decline in real GDP-per-capita.
- The country’s population has increased due to immigration, hiding the true extent of the economic downturn.
- The Government faces challenges in dealing with the Cook Islands crisis, where the Prime Minister’s dealings with China may be seen as a threat to New Zealand’s interests.
- Te Pāti Māori’s co-leaders have been criticized for their stance on sovereignty and their refusal to acknowledge the Crown’s authority.
- New Zealand’s security relationship with the United States is at risk due to the country’s low defense spending, which may lead to dependence on China.
- The Government’s fiscal policy is under strain, with borrowing increasing at a faster rate than under the previous Labour government.
Introduction to New Zealand’s Economic Decline
New Zealand’s economy has experienced a significant decline, with a 0.9% drop in headline GDP in the June quarter, resulting in a 0.6% decline for the year. This is a worse-than-expected outcome, with economists having predicted a 0.3-0.4% decline. The real GDP-per-capita measure, which the Government wants to be judged by, has declined by 1.1% in just one quarter, and 3.9% since June 2023. This decline is not solely due to external factors such as Covid, wars, or US tariffs, as many other countries have experienced similar challenges and yet have still managed to grow reasonably well.
The Cook Islands Crisis
The Cabinet must decide how to deal with the Cook Islands crisis, where Prime Minister Mark Brown’s dealings with China may be seen as a threat to New Zealand’s interests. Brown’s actions are outside his legal obligations to New Zealand, which has clear and recognized rights with respect to the Cook Islands’ foreign policy and national defense under the 2001 Joint Centenary Declaration. The situation is akin to Denmark taking action against a rogue Prime Minister of Greenland dealing secretly and illegally with a great power in violation of its agreements with Copenhagen. New Zealand asserting its authority over Brown’s government would not be a foreign invasion, but rather a necessary measure to protect its interests.
Te Pāti Māori’s Stance on Sovereignty
Te Pāti Māori’s co-leaders, Debbie Ngarewa-Packer and Rawiri Waititi, have been criticized for their stance on sovereignty and their refusal to acknowledge the Crown’s authority. While they deny that the chiefs of the various hapu ceded sovereignty to Queen Victoria, most New Zealanders, including Labour leader Chris Hipkins, believe that King Charles is sovereign now. The original Māori Party’s founders, Dame Tariana Turia and Sir Pita Sharples, were prepared to live with ambiguity around deep questions of sovereignty in order to make progress, but Ngarewa-Packer and Waititi appear less committed to balancing tikanga Māori and tikanga Pākehā in Parliament.
New Zealand’s Security Relationship with the United States
New Zealand’s security relationship with the United States is at risk due to the country’s low defense spending, which may lead to dependence on China. Foreign Minister Winston Peters has successfully rebuilt New Zealand’s security relationship with the United States over the past 20 years, but this may not endure if New Zealand taxpayers do not fund the associated costs. The country’s defense spending is currently at around 1% of GDP, which is the lowest among the 36 Nato and IP4 countries. Nato’s demands for increased defense spending may extend to the IP4, and New Zealand may need to increase its spending to at least 2% of GDP to maintain its relationship with the United States.
Fiscal Policy Under Strain
The Government’s fiscal policy is under strain, with borrowing increasing at a faster rate than under the previous Labour government. Finance Minister Nicola Willis had some good news with reports that only 249 families are receiving the full value of Christopher Luxon’s tax package, but almost everything else is more terrible than ever. The Government’s commitment to double defense spending based on its 2025 Defence Capability Plan and the expectations of its Australian ally and Nato and Indo-Pacific Four friends will require significant additional funding. Willis may need to think creatively about how to spend the extra $10 billion per year to keep Australia and Nato happy, and may consider investing in local defense-industry players or introducing compulsory or universal military service.
