One of the most lunatic conceits of the Covidians was the delusion that entire economies could simply be ‘put on hold’ with no flow-on effects. Few peddled this nonsense with more ignorant fervour than the Ardern government in New Zealand.
Their bought-and-paid-for media bootlickers went all in on the madness, too. The media insisted that, after a precipitous plunge during lockdown, GDP and debt levels were rapidly recovering. Never mind that this was a classic dead-cat bounce, or that the long-term effect of Jacinda Ardern’s economic vandalism wouldn’t really hit for a few years.
Surprise, surprise: fast forward a few years, and both GDP and real income are on a downward spiral. Debt is spiralling. And spending is almost as out-of-control under the Luxon government.
New Zealand is not in a debt crisis yet. But if nothing changes, it is only a matter of time […]
The final weeks of last year delivered some sobering numbers. Treasury forecasts showed New Zealand’s debt burden will reach 45 per cent of GDP by 2029, nearly double the pre-Covid benchmark for prudent public debt.
At the same time, the Economist released its latest ranking of OECD economies. New Zealand placed 33rd out of 37 – only just ahead of Finland, Latvia, Turkey and Estonia.
The biggest problem is that New Zealanders have become far too accustomed to living beyond their means from the government purse.
The most urgent problem facing New Zealand now is fiscal. If spending is not brought under control, the government will not be in a position to sustain its broader reform agenda, let alone implement the kind of tax relief that would boost economic competitiveness. It might not even get re-elected […]
The Luxon government spent its first year on some important reforms, especially in education, resource management and labour market regulation.
Much of this is the legacy of the Ardern years and should have been easily foreseen as Covid hit. Nothing, as Thomas Sowell says, is so permanent as a temporary government programme. This is the peril any government inflicts on itself, and its successors, with any ‘emergency relief’ spending. Once the mendicant classes, rich or poor, get a taste of government money, they scream blue murder if anyone tries to take it away again.
For all the government’s rhetoric about restoring discipline to public finances, government spending remains far above pre-pandemic levels. Core Crown expenditure is over 31 per cent of GDP. That is significantly higher than the 28 per cent recorded in 2019 when Jacinda Ardern’s government delivered her so-called Wellbeing Budget.
No one would have accused Ardern of austerity at the time. Yet bringing spending back to that level would require cuts equivalent to three per cent of GDP – around $NZ12 billion in today’s economy.
Meanwhile, the biggest mendicant class is making sure its lips remain wrapped firmly around the taxpayer teat.
Despite the tough talk of public service cuts, they have barely happened so far. The only major structural change so far has been the abolition of the Māori Health Authority and the Productivity Commission (which immediately got replaced by a new, and larger, Ministry for Regulation). That is hardly the radical reset required to restore fiscal sustainability.
Venezuela beckons as New Zealand’s future. Unless it finds itself lucky enough to benefit from a government like Argentina’s.
The public sector wage bill would be the obvious place to start. In the Ardern years, the public service headcount went up from 47,000 full-time staff to around 62,000. Unfortunately, this expansion did not yield any better outcomes. Cutting it back now should be the order of the day.
The Javier Milei government in Argentina has already slashed the country’s public service by nearly 35,000 troughers. Going forward, every new public service hire must be offset by three terminations.
Then there’s USA’s incoming Department of Government Efficiency. How much this body will shrink America’s gargantuan public service remains to be seen, but Vivek Ramaswamy states that DOGE may eliminate entire federal agencies and reduce the number of federal employees by as much as 75 per cent. Elon Musk has also proposed slashing the number of federal agencies from more than 400 to fewer than 100. Potentially, the US could save trillions.
Will National (face it: the Greens and Labour are a lost, socialist cause) ever show similar fortitude?
Yes, the Luxon government has taken some good first steps in its first year. And the fiscal problems are not of its making but legacy issues of its predecessor.
But in its second year, Luxon’s government must now demonstrate that it is serious about turning New Zealand’s economic trajectory around. That means moving beyond incremental changes and embracing deep, bold and structural reforms.
Good luck with that, at least with Christopher Luxon in charge.
