Remember those silent movies where the heroine is tied to the railway tracks or going over the waterfall in a barrel? Finance Minister Nicola Willis seems intent on portraying herself as that damsel in distress. According to Willis, this country’s current economic problems have all been caused by the spending schemes cooked up by the dastardly and long-departed Grant Robertson, in cahoots with Treasury. So don’t blame her for the current state of the New Zealand economy. We appear to be paying her over $300,000 a year to wring her hands and blame everyone else for the country’s plight.

Really, how long does Willis think that this schtick – it was Labour! it was Treasury! – can be credible? (Isn’t it time she stepped up? We have opened two advent calendars since she got the job of running the economy.) Originally, the recession that we are now experiencing was deliberately engineered by the Reserve Bank, via its OCR-led determination to snuff out a temporary surge in inflation. (This surge was not caused by an allegedly spendthrift (!) Hipkins administration.)

In the doldrums of the recession, it was Willis who chose to then impose draconian cuts to jobs and spending that have served only to plunge the economy deeper into recession, and put the likes of the Wellington retail economy in the ICU ward.

Some basic points appear to have eluded Willis: people don’t spend up large when they‘ve just lost their jobs, or are fearful of doing so. When the state stops building, hiring and investing, the economy stalls. It is hardly surprising that an economy starved of consumer spending and state investment is now showing signs of anorexia.

Flushed and busted

The grim evidence is piling up about how bad Willis is at her job. Tax receipts are down, debt is higher, a fiscal surplus will now take longer to achieve. Wage growth is being predicted by Treasury to virtually flatline at 1% over the next four years, in an economy that in per capita terms is unlikely to begin growing again until 2026. (GDP growth is forecast to be in margin of error territory at only .5% next year, down from the 1.7 % predicted in the May Budget.)

As Treasury has also just pointed out, tax receipts are expected to be down by $13 billion on where we were six months ago, in another sign of a retail economy that’s been put flat on its back. Roughly one in nine New Zealanders aged between 15 and 64 are now on a benefit. Unemployment is expected to rise inexorably from 4.8% to 5.4% in 2025 until by 2026, about 200,000 people are expected to be on the jobseeker benefit.

As the media has widely noted, the return to surplus is being pushed out until 2028/2029, if we’re lucky. These are the outcomes you would expect to see when a set of relentlessly contractionary fiscal policies are being pursued during a recession. Regardless, Willis is promising more of the same, and is promoting it as (a) a necessity and (b) as a sign of virtue. It is neither.

Since Willis plainly wants a scapegoat, why not the Reserve Bank? As the story has oft been told, it was the RB that kept interest rates high for too long, out of a misplaced fear that a 1980s-style wage /price spiral was always just around the corner. Given that paranoid mindset, the last thing Willis should have done was to spook an already skittish central bank with a tax cuts package that caused the RB to defer its reduction of interest rates, lest those mis-timed tax cuts (Willis again) should undo the painful progress made against inflation. By the time the RB finally began cutting interest rates, lasting damage had been done.

In desperation, the coalition government keeps repeating the myth that it inherited a terrible economic legacy. Somehow this eluded the international rating agencies, who were still praising Labour’s prudent economic management right up until the cusp of the election. True, the coalition has inherited a recession that was largely a by-product of the steps taken by the Reserve Bank to counter the inflation caused by the Covid rescue package jointly created by the Reserve Bank’s Adriana Orr and Labour’s Grant Robertson.

In 2020 through into 2021, that Covid spending package – which the business sector was clamouring for at the time, and demanding be bigger - had rescued the economy, saved jobs, and kept firms afloat. But here’s the lesson. In the face of Covid’s global recession, it was those injections of state spending that kept the economy ticking over. Faced with this year’s recession, Willis has largely done the exact opposite.

As a consequence, and while other developed economies are emerging from their post-Covid battles with inflation, New Zealand is still in the doldrums, with depressed times extending through 2025, and with more cutbacks on the way. As mentioned, the applications for job seeker support are rising - even though MSD Minister Louise Upston has been busily turning down food grants, refusing to adequately fund food banks, and using tough benefit sanctions to punish the victims of her own government’s incompetence.

Footnote One: These contractionary policies by central government are also having serious ripple effects at the local government level. By cancelling Three Waters, by canning various spending-for-growth initiatives, and by offloading central government whins and responsibilities onto local councils, the cumulative effect has been to make rate rises inevitable. Yet the coalition has had the gall to turn around and tell local government to control rate rises, stick to the basics and cut “extravagances” like the funding for libraries and community social services.

In an ACT policy that dates back to Rodney Hide, the coalition is even re-floating the idea of “pegging” rates, a sinking lid measure to ensure that local government – once it has cut funding for the likes of community social services – will never be able to re-instate it in future.

With good reason, local governments are rebelling at the hypocrisy of the coalition government in offloading responsibilities that it is now refusing to co-fund at a significant level. (There is little talk now of refunding to councils their share of GST revenue.) Needless to say, central government is not imposing on itself the same spending disciplines (and capital planning strictures) that it is demanding from local government.

For example: besides the establishment costs, the median salary among those employed in David Seymour’s pet Ministry of Regulation is $154,800. Much the same goes for the stratospheric wages (and the doubled budget) at Willis’ new Social Investment Agency:

The average salary for staff at the Social Investment Agency is $148,215, which is higher than the average salary of $97,200 across other government agencies. The median salary at the agency is $143,659, which is also higher than the public service median of $84,000.

Finally, remember how Three Waters was demonised for eroding the democratic powers of local government? The new measures being imposed on local government by the coalition make that look like a walk in the park. Memo to local government : be careful of what you wish for.

Footnote Two: Ruth Richardson was the last ideology-driven National Party Finance Minister hellbent on deepening and prolonging a recession by her cuts to government spending, social services and the welfare safety net. Reportedly, the Treasury has estimated that the cuts Willis proposing will be deeper on a per capita basis than those made by Richardson. In the end, the damage done in the early 1990s – to the economy and to National’s re-election chances – saw Richardson get fired. History does not necessarily repeat itself but sometimes, it chimes.

Footnote Three: As mentioned, other developed countries are emerging/have emerged from their post-Covid inflationary hangover. New Zealand by contrast, is facing a policy mix in 2025 likely to keep us locked into being a low wage, low skill, high domestic cost, low inward migration, high outwards migration country. One in which in sector after sector, a relatively small number of incumbents get to extract neo-monopoly profits from their captive customers.

The likes of Willis and Seymour would doubtless regard any change of course as a sin against their economic gospel. Little wonder though, that people are streaming across the Tasman in record numbers. Even if our current leaders can’t see the wisdom of the government having a plan to invest funds in order to promote growth, Australia is doing so. As was pointed out a few months ago:

Amazing Australia can provide such a better quality of life when it has unaffordable and economically destructive policies like Fair Pay Agreements, capital gains taxes, an income-free tax threshold, 45% tax on income over $190k, and a higher minimum wage...

Survival song

A term of government can seem as endless, and as punishing as a bad marriage:

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