Whichever parties form the government after the election will have a major task on their hands to introduce more balance into the economy, if there is to be any realistic hope of returning to Budget surplus by 2026/27 as the PREFU predicts.
In virtually every area, the economy is in a worse position than it was when the government last changed in 2017. It is therefore obvious and easy to blame this deterioration on the economic management of the current government, but that is a somewhat lazy response, which may not be all that accurate.
Most, but not all, of the decline and the build-up of debt levels has occurred because of the government’s response to the pandemic. Few would disagree that the government needed to keep essential services operating as economic activity became stifled by the pandemic response. Given our favourable debt to GDP ratio, the decision at the time to borrow around $53 billion looked conservative when compared to the borrowing programmes of other countries. It seemed the right thing to do to cushion to the greatest extent possible the adverse economic impacts the pandemic was likely to have on New Zealand households.
However, a couple of lessons from history were overlooked in the process. In 1974/75, in the wake of the first oil shock, the Rowling government borrowed heavily to protect New Zealanders from its worst impacts. By the time of the 1975 election, that policy was being derided by Robert Muldoon’s National Party as “borrow and hope”, and he was able to win a landslide election victory on the pledge he would “rebuild New Zealand’s shattered economy”. But his subsequent economic management, also based on the worthy premise of shielding New Zealanders from the worst impacts of a deteriorating international economic situation, led to even more borrowing. By the time of the 1984 election, Muldoon’s erratic, protectionist approach had stifled growth and productivity to the extent that New Zealand was literally days away from having to default on major loan repayments.
When the current government began its Covid-recovery borrowing plan in 2020, those few critics who dared raise the spectre of loans having to be repaid, with future economic activity compromised accordingly, were quickly shut down. In the prevailing atmosphere of the time, that any criticism or even questioning of anything the government was doing in response to the pandemic bordered on treason, it was easy ignore critical opinions. Since then, though, debt has ballooned to around $100 billion, with annual repayment levels now around $9 billion.
Of itself, that may not be so bad, certainly compared to other countries, were it not for the quality of much of the Covid19 recovery spending. A raft of assistance programmes was introduced which were costly, and cumbersome to access, with very little subsequent accountability for how the funding so advanced was being spent.
At the same time, there was little additional investment in critical areas like the health system – the best the government offered was the most comprehensive shake-up of the public health service in more than 20 years, which would take several years to become operational. Today, eighteen months after Te Whata Ora replaced the former district health boards, there has been no discernible improvement in the quality and scope of services provided to patients. Staff shortages remain throughout the system with critical services, like cancer treatment, having to close in some areas as a result. This week’s pledge from the government to train more than 300 additional doctors by 2027 is three years too late – investing in improving medical and nursing capacity should have been a priority for the post-pandemic response, not left to be tossed out as a last-minute election sweetener, to try to appease senior medical professionals currently taking unprecedented industrial action.
This goes to the heart of the country’s current economic problems, as identified by the PREFU. Rather than use the additional post-pandemic borrowing to improve the country’s health and physical infrastructure, the government undertook too much unproductive expenditure that has shown no long-term return to the country, while still incurring debt that must be repaid. As in earlier times, initial relief that people were being spared the immediate impact of the worst of circumstances, quickly evaporated when it was realised that the debt incurred not only lives on long after the crisis has passed, but also limits the scope of future government actions. Belatedly, both the Prime Minister and the Minister of Finance seem to be acknowledging the public frustration their approach has bought about.
This is Labour’s dilemma. The poor quality of much of its additional spending is becoming clear, leading it to announce billions of dollars of spending cuts to reduce the debt it has run up. And proposals, like this week’s announcement to train more doctors, simply invite the criticism of why these were not priorities when the first pandemic recovery borrowing occurred three years ago. Despite the Prime Minister’s lament to the contrary, the public’s yearning for something better is perfectly understandable.
The PREFU’s message is clear: after the last three wasted years, the next government needs to control its spending to enable debt levels to be reduced and the Budget to return to surplus. Implicit in that is a stronger focus on the quality and purpose of government spending. But that is no licence for a widespread slash and burn policy. Rather, the unfocused and poorly prioritised approach of the last few years needs to be replaced by a greater discipline and emphasis on productive physical and social infrastructural investment, ahead of pet projects and other worthy, but essentially “nice to have” ones.
The balance required to achieve this will test the capacity of whoever is in government after the election. To avoid future generations being saddled with the consequences of the debt already incurred, there must be a start to the hard but necessary work of recovery.
Peter Dunne, a retired Member of Parliament and Cabinet Minister, who represented Labour and United Future for over 30 years, blogs here: honpfd.blogspot.com - Where this article was sourced.
Most, but not all, of the decline and the build-up of debt levels has occurred because of the government’s response to the pandemic. Few would disagree that the government needed to keep essential services operating as economic activity became stifled by the pandemic response. Given our favourable debt to GDP ratio, the decision at the time to borrow around $53 billion looked conservative when compared to the borrowing programmes of other countries. It seemed the right thing to do to cushion to the greatest extent possible the adverse economic impacts the pandemic was likely to have on New Zealand households.
However, a couple of lessons from history were overlooked in the process. In 1974/75, in the wake of the first oil shock, the Rowling government borrowed heavily to protect New Zealanders from its worst impacts. By the time of the 1975 election, that policy was being derided by Robert Muldoon’s National Party as “borrow and hope”, and he was able to win a landslide election victory on the pledge he would “rebuild New Zealand’s shattered economy”. But his subsequent economic management, also based on the worthy premise of shielding New Zealanders from the worst impacts of a deteriorating international economic situation, led to even more borrowing. By the time of the 1984 election, Muldoon’s erratic, protectionist approach had stifled growth and productivity to the extent that New Zealand was literally days away from having to default on major loan repayments.
When the current government began its Covid-recovery borrowing plan in 2020, those few critics who dared raise the spectre of loans having to be repaid, with future economic activity compromised accordingly, were quickly shut down. In the prevailing atmosphere of the time, that any criticism or even questioning of anything the government was doing in response to the pandemic bordered on treason, it was easy ignore critical opinions. Since then, though, debt has ballooned to around $100 billion, with annual repayment levels now around $9 billion.
Of itself, that may not be so bad, certainly compared to other countries, were it not for the quality of much of the Covid19 recovery spending. A raft of assistance programmes was introduced which were costly, and cumbersome to access, with very little subsequent accountability for how the funding so advanced was being spent.
At the same time, there was little additional investment in critical areas like the health system – the best the government offered was the most comprehensive shake-up of the public health service in more than 20 years, which would take several years to become operational. Today, eighteen months after Te Whata Ora replaced the former district health boards, there has been no discernible improvement in the quality and scope of services provided to patients. Staff shortages remain throughout the system with critical services, like cancer treatment, having to close in some areas as a result. This week’s pledge from the government to train more than 300 additional doctors by 2027 is three years too late – investing in improving medical and nursing capacity should have been a priority for the post-pandemic response, not left to be tossed out as a last-minute election sweetener, to try to appease senior medical professionals currently taking unprecedented industrial action.
This goes to the heart of the country’s current economic problems, as identified by the PREFU. Rather than use the additional post-pandemic borrowing to improve the country’s health and physical infrastructure, the government undertook too much unproductive expenditure that has shown no long-term return to the country, while still incurring debt that must be repaid. As in earlier times, initial relief that people were being spared the immediate impact of the worst of circumstances, quickly evaporated when it was realised that the debt incurred not only lives on long after the crisis has passed, but also limits the scope of future government actions. Belatedly, both the Prime Minister and the Minister of Finance seem to be acknowledging the public frustration their approach has bought about.
This is Labour’s dilemma. The poor quality of much of its additional spending is becoming clear, leading it to announce billions of dollars of spending cuts to reduce the debt it has run up. And proposals, like this week’s announcement to train more doctors, simply invite the criticism of why these were not priorities when the first pandemic recovery borrowing occurred three years ago. Despite the Prime Minister’s lament to the contrary, the public’s yearning for something better is perfectly understandable.
The PREFU’s message is clear: after the last three wasted years, the next government needs to control its spending to enable debt levels to be reduced and the Budget to return to surplus. Implicit in that is a stronger focus on the quality and purpose of government spending. But that is no licence for a widespread slash and burn policy. Rather, the unfocused and poorly prioritised approach of the last few years needs to be replaced by a greater discipline and emphasis on productive physical and social infrastructural investment, ahead of pet projects and other worthy, but essentially “nice to have” ones.
The balance required to achieve this will test the capacity of whoever is in government after the election. To avoid future generations being saddled with the consequences of the debt already incurred, there must be a start to the hard but necessary work of recovery.
Peter Dunne, a retired Member of Parliament and Cabinet Minister, who represented Labour and United Future for over 30 years, blogs here: honpfd.blogspot.com - Where this article was sourced.
6 comments:
Wow. That is a very slanted view of history.
The Labour hierarchy failed every election promise pre covid.
Then the labour hierarchy ran the most expensive and draconian covid response in the OECD, despite being told by the public service their approach would cost many more lives than covid was ever going to take.
Why the electorate thought Labour's failures were cause to give them another 3 years is beyond me.
Unfortunately it is the Labour base who will pay the highest price for their mindless voting.
Now we need to know why the labour hierarchy ignored the preprepared NZ pandemic plan to waste billions on a disastrous 'on the fly' covid response.
The answer undoubtedly lies in the billions.
Where is our money?
This is why there needs to be a full open enquiry into the governments handling of Covid.
Labour bankrupted the country, spent billions on political pet projects with no real oversight on what was being spent and where.
A simple question hasn’t been answered.
Where did all the money go?
The general public see and understand a billion of debt as a modern word or scenario that easily rolls off the tongue , with little understanding of the enormity to operate the country on the current GDP and the future requirement to pay back the "Billion dollar". There is no understanding of the future public sacrifice to now repay 100 times the Labour "Billion Dollar" debt.
Individually we cannot expect exporters to shoulder the debt , taxpayers have been promised tax reductions albeit minimal to the debt , therefore the brave scenario from ACT to focus on Government spending is a compelling fact of life .
The annual interest now to be paid on our Labour Party debt is commensurate with misfeasance in office , or treason.
Golly gosh.
You have every right to an opinion Peter but how different it is from my memory. Re COVID Labour was super quick to shut NZ down. Demand we all get vaccinated or lose our jobs or rights to travel etc. They told lies about the vaccine efficacy and transmission. These things they did, and more, were the exact opposite of the recommendations mentioned in a Medsafe report placed on Ardern’s desk at that time. They used bullyboy autocratic standover techniques to stop anybody discussing such things as growing evidence of limited vaccine efficacy, repurposed drugs or counter evidence around mask usage. They even banned us from using RATs while they were in common use overseas as being a sufficient COVID test.
Labour told us they were the sole pulpit of truth.
Meanwhile they continued creating new money and sprayed it all around NZ as if their very lives depended on it.
And the net result; every economic, health, crime and social metric within NZ shows failure at a massive scale.
the whole discussion about prefu is a bit silly.
The books are bad not and the assumptions are predicated on what follows.
Labour will continue to spend more than budgeted and produce very little of economic or social value so a repeat of the last 3 years will yeild an outcome worse than the PREFU projections. However if National lead a coalition we can expect a constant scream of we need more money but at the next election the books will be better than the PREFU expectation, wealth is not generated in the bureaucratic halls of Wellington but in the minds and garages of the nation with capital accumulated from work.
Peter, I think you missed the herd of elephants in the room which certainly contributed to the very bad economic situation we find ourself in. Namely:-
- this government has stood out for being staffed by incompetents; all senior ministers and both PM's have failed miserably in their portfolios. By almost every measure across every department things are worse now than in 2017.
- they have been driven by an extreme and racist ideology which has formed the heart of every policy, regardless of the sector
- they have shown a total disregard for the principles of democracy and freedom of speech and happily binned the Bill of Rights during the pandemic. They tried to push through ridiculous hate speech laws which were designed to throttle freedom of opinion.
- a good whack of the Covid fund was allocated to pro-Maori policies that had nothing to do with health.
They were so busy with all the stuff detailed above that economic management fell off the bottom of their racist to-do list, if it was ever on there in the first place.
Can you hear the trumpeting now, Peter? The herd's on the rampage and is trampeling everything in it's path.
Run for the polling booth, mate.
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