Key Takeaways:
- New Zealand’s debt position is still relatively modest compared to other countries, with a faster track to surplus than many comparable nations.
- The government is focused on getting the books back in balance and bending the debt curve down, while also ensuring that the economy is stable and secure.
- Extreme saving measures would not be beneficial for the economy or New Zealanders in the short, medium, or long run.
- The government is committed to ongoing efficiency and savings, but without unnecessary levels of human cruelty.
- The economy is showing signs of recovery, with better-than-expected GDP growth figures and a stable inflation environment.
Introduction to the Economic Debate
The New Zealand economy has been a topic of debate in recent times, with some critics arguing that the government’s approach to fiscal management is too conservative. However, Finance Minister Janine Willis argues that the country’s debt position is still relatively modest compared to other countries, and that the government is on a faster track to surplus than many comparable nations. This approach has been criticized by some on the left, who argue that it is too severe and conservative. On the other hand, some on the right, such as the Taxpayers’ Union, are concerned about New Zealand’s long-term economic security and argue that more needs to be done to reduce debt and get the books back in balance.
The Importance of Fiscal Restraint
Willis argues that it is essential to get the books back in balance and bend the debt curve down, but acknowledges that this requires real restraint and trade-offs. She notes that the tight operating allowances in the government’s Budgets and forecasts involve significant restraint and that more extreme saving measures would not be beneficial for the economy or New Zealanders in the short, medium, or long run. For example, she points to a proposal by the Taxpayers’ Union to remove all Working for Families tax credits, which would leave 330,000 low-income families with young kids $180 a week worse off. This, she argues, is not a sensible course of action and would have significant negative consequences for vulnerable members of society.
Interpreting Economic Data
The recent release of the Crown accounts and GDP growth figures has highlighted the complexities of interpreting economic data. The Crown accounts showed a significant increase in debt and deficit, while the GDP growth figures were better than expected. Willis argues that these two releases do not change the underlying story and that the economy is showing signs of recovery. The GDP growth relates to the immediate economic cycle, while the Treasury half-year economic and fiscal update (Hyefu) relates to the structural foundations of the economy. She notes that the data is starting to show growth coming through in a broad-based way, with firms investing in machinery and equipment, and the construction and manufacturing sectors growing. This, she argues, bodes well for the future in terms of job opportunities and income opportunities.
Addressing Structural Issues
Willis acknowledges that New Zealand has some fundamental underlying economic issues that require being addressed. These include the fact that too much of the country’s growth has come from selling houses to each other, rather than productive investments, and that basic literacy and numeracy skills of school leavers have not kept up with the needs of the modern workforce. She also notes that the Resource Management Act has been holding back investment in various sectors. These are the issues that people have started to contemplate more closely as they look to the cyclical recovery, and the government’s job is to give people confidence that they can be fixed. While there are no silver bullets, Willis is optimistic that progress can be made on these issues.
Looking to the Future
Looking out to 2026, Willis is focused on building a stable economy in which Kiwis feel confident to invest and build wealth. She wants to see a rock-solid economy, with foundations in place that can be built upon, and people having a sense of stability and security. She notes that the trend of Kiwis leaving the country may be shifting, with the latest data from Stats NZ showing fewer people leaving. This, she argues, is because the economy is getting better, and the two things are related. The government’s job is to stick to the course of making the economy better, and to give people confidence that they can fix the underlying structural issues.
A Message for Kiwis
Willis’s message for Kiwis heading into the holiday break is to try to see New Zealand the way it is perceived by people internationally. She notes that New Zealand is a country with stable institutions, good social cohesion, and a government that is pro-reform and pro-business. The country has incredible entrepreneurial stories, such as Rocket Lab and Xero, and high activity levels at the small business and entrepreneurial level. While New Zealanders have been telling themselves a story of a country that has been through a tough time, Willis argues that it is time to focus on the good story and build on it. By doing so, the government can help to create a more positive and optimistic narrative about the country’s future, and encourage Kiwis to invest and build wealth in New Zealand.
