A crisis occurs and it either passes, or a new stasis emerges.
We do not have a cost-of-living crisis because the fall in our living standards is not a temporary condition.
According to one of the few government departments still operating at some basic level of competence, the Department of Statistics, the cost of living for the average household rose by over 8% in 2022.
At the same time, average wages rose by just over 7%.
We do not index taxation, partly because the continued expansion of the state has created a demand for additional tax-revenue. As workers’ nominal income rises, they move into higher tax-brackets.
A crude analysis, based on the average wage of $61,000 moving to $64,000 would see this income earner paying an extra 1.4% in tax, or $900.
The net effect is that most Kiwis saw their real incomes fall by over 2% last year. This was not, however, evenly distributed. The better off you are the less impacted you are by this “crisis”.
Those on fixed incomes or on wages that are slow to rise as fast as prices are seeing their spending power fall much faster than the rest of society.
Those in debt are suffering disproportionately, as the cost of borrowing is spiking, and it is the working and middle class who are paying the cost.
A decline of 2% may not seem dramatic, and it isn’t, but the trend is significant and 2022 wasn’t an outlier but part of a long-term decline.
As recently as the early 1990s, New Zealand, Australia and Singapore had a similar average income. Based in US dollars, we are now at $49,000 per capita in income, compared to $60,000 for those living across the Tasman and $72,000 for the island state.
Long-term trends matter and we are now falling not only in relative terms, but in absolute ones.
How did this happen?
In New Zealand we have a focus on demand-management. When there is a recession or some other economic disturbance we focus on increasing demand. Our central government borrows or prints cash and this is distributed to those considered to be needy.
We do not give any attention to the supply-side of our economy: those who make things that the rest of the world wants to buy.
In truth, we do the reverse. We place layers of restrictions on our productive economy, from the Resource Management Act and the Overseas Investment Act to the increasing complexity of our anti-money-laundering processes.
All of these things make doing business more expensive and, consequently, we do less of it.
In the last five years we have also seen the dramatic expansion of the state, with thousands of people pulled into the public service. Not only is it unclear if these individuals are adding much value, they are unable to be employed by the private sector.
We have had three decades of consistently poor economic policies implemented by weak finance ministers, and prime ministers who rule by focus group rather than policy.
The last serious minister of finance was Ruth Richardson. She was forced from office three decades ago. Richardson imposed not only fiscal discipline, but also transparency on the nation’s accounts.
Richardson reduced the size of the welfare state by reducing the size of unproductive transfer payments and was finance minister when the labour market was partially deregulated with the introduction of the Employment Contracts Act.
She had what no other finance minister since has had: an understanding of economics. The rot began with her successor, Bill (now Sir William) Birch.
Now. I don’t mean to be too harsh on the former Minister of Everything. He did run a tight fiscal ship and sold off a few state trinkets, but with his ascension the reform era began by Roger Douglas ended. Since then, we have had three decades of malaise, inertia and decline.
At every stage since Richardson’s departure we have pursued economic policies that reduce the return to innovation, risk-taking and entrepreneurship, and increase the returns to the artfully unproductive.
Actions have consequences if you care to look for them. In 2022 Aotearoa New Zealand ran a current account deficit of nearly $34 billion – 9% of our GDP. The Department of Statistics calmly reports: “This is the largest annual current account deficit to GDP ratio since the series began in March 1988.”
We are buying more from the rest of the world than they are buying from us, and we are paying for the shortfall by selling assets and racking up debt. This isn’t necessarily a problem if we are using this inflow of capital to build capacity to increase future earnings but, we are not doing that.
We are using our current account deficit just like we are using the unconstrained fiscal deficit, to maintain our lifestyle long after our ability to pay for that lifestyle has ended.
We are buying Teslas, iPhones and subscriptions to Netflix in return for some dairy and some over-priced wine, and covering the difference with promises to make up the balance later.
The challenge now is that we do not wish to accept this new reality. We wish to maintain our previous lifestyle, to live in the manner to which we have become accustomed.
We believe that we are entitled to a high standard of living for reasons that we are unable to articulate, that are self-evidently obvious to ourselves but not, sadly, to the rest of the world.
And while we slide down both the relative and now the absolute rankings, we magnificently refuse to confront the reality of our economic situation. Our national discourse is consumed with petty disputes on the most crushingly banal of matters.......The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective.
A crude analysis, based on the average wage of $61,000 moving to $64,000 would see this income earner paying an extra 1.4% in tax, or $900.
The net effect is that most Kiwis saw their real incomes fall by over 2% last year. This was not, however, evenly distributed. The better off you are the less impacted you are by this “crisis”.
Those on fixed incomes or on wages that are slow to rise as fast as prices are seeing their spending power fall much faster than the rest of society.
Those in debt are suffering disproportionately, as the cost of borrowing is spiking, and it is the working and middle class who are paying the cost.
A decline of 2% may not seem dramatic, and it isn’t, but the trend is significant and 2022 wasn’t an outlier but part of a long-term decline.
As recently as the early 1990s, New Zealand, Australia and Singapore had a similar average income. Based in US dollars, we are now at $49,000 per capita in income, compared to $60,000 for those living across the Tasman and $72,000 for the island state.
Long-term trends matter and we are now falling not only in relative terms, but in absolute ones.
How did this happen?
In New Zealand we have a focus on demand-management. When there is a recession or some other economic disturbance we focus on increasing demand. Our central government borrows or prints cash and this is distributed to those considered to be needy.
We do not give any attention to the supply-side of our economy: those who make things that the rest of the world wants to buy.
In truth, we do the reverse. We place layers of restrictions on our productive economy, from the Resource Management Act and the Overseas Investment Act to the increasing complexity of our anti-money-laundering processes.
All of these things make doing business more expensive and, consequently, we do less of it.
In the last five years we have also seen the dramatic expansion of the state, with thousands of people pulled into the public service. Not only is it unclear if these individuals are adding much value, they are unable to be employed by the private sector.
We have had three decades of consistently poor economic policies implemented by weak finance ministers, and prime ministers who rule by focus group rather than policy.
The last serious minister of finance was Ruth Richardson. She was forced from office three decades ago. Richardson imposed not only fiscal discipline, but also transparency on the nation’s accounts.
Richardson reduced the size of the welfare state by reducing the size of unproductive transfer payments and was finance minister when the labour market was partially deregulated with the introduction of the Employment Contracts Act.
She had what no other finance minister since has had: an understanding of economics. The rot began with her successor, Bill (now Sir William) Birch.
Now. I don’t mean to be too harsh on the former Minister of Everything. He did run a tight fiscal ship and sold off a few state trinkets, but with his ascension the reform era began by Roger Douglas ended. Since then, we have had three decades of malaise, inertia and decline.
At every stage since Richardson’s departure we have pursued economic policies that reduce the return to innovation, risk-taking and entrepreneurship, and increase the returns to the artfully unproductive.
Actions have consequences if you care to look for them. In 2022 Aotearoa New Zealand ran a current account deficit of nearly $34 billion – 9% of our GDP. The Department of Statistics calmly reports: “This is the largest annual current account deficit to GDP ratio since the series began in March 1988.”
We are buying more from the rest of the world than they are buying from us, and we are paying for the shortfall by selling assets and racking up debt. This isn’t necessarily a problem if we are using this inflow of capital to build capacity to increase future earnings but, we are not doing that.
We are using our current account deficit just like we are using the unconstrained fiscal deficit, to maintain our lifestyle long after our ability to pay for that lifestyle has ended.
We are buying Teslas, iPhones and subscriptions to Netflix in return for some dairy and some over-priced wine, and covering the difference with promises to make up the balance later.
The challenge now is that we do not wish to accept this new reality. We wish to maintain our previous lifestyle, to live in the manner to which we have become accustomed.
We believe that we are entitled to a high standard of living for reasons that we are unable to articulate, that are self-evidently obvious to ourselves but not, sadly, to the rest of the world.
And while we slide down both the relative and now the absolute rankings, we magnificently refuse to confront the reality of our economic situation. Our national discourse is consumed with petty disputes on the most crushingly banal of matters.......The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective.
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