Robert MacCulloch: For the record: the CEO's of NZ & John Key's government are to blame for our ailing infrastructure

This blog does try to be non-partisan, in the sense we critique both sides of our politics. On that note, nearly ten years ago when John Key was PM, I lobbied the government to ramp up investments in infrastructure, both new projects - like a second harbour crossing in Auckland - and repairs to existing infrastructure. We argued to Key that those projects could be his "legacy". He never seemed much interested.

For the record, the Key government did not want to commit to the spending. It saw balancing the budget as its primary concern. Bill English lauded the fact that the size of government, as a percentage of GDP, fell during his tenure. The ethos of the Key government was summarized by this Treasury statement:

“Since Budget 2009, the Gov’t has been charting a course to tighten spending, return to surplus, cap the increase in public debt as a share of GDP & bring this debt down to more prudent levels”.

However, our public debt at that time was already at prudent levels & immigration was hitting record highs - though those records have since been smashed this past year. Huge pressure was being brought to bear across our entire infrastructure - our roads, schools and health system. My view at the time was that the country required a massive upgrade in that infrastructure, particularly since the NZ government was able to borrow at historically low interest rates after the global financial crisis in 2009. Those rates have now more than doubled. Given the Key government's tax commitments, infrastructure investments would have had to be financed by a combination of borrowing & user-pays, which it refused to do.

I gave a formal presentation to the NZ Initiative, which Christopher Luxon joined in later years. It was attended by the CEO's of most of our large companies. My impresssion was that they disagreed with the presentation. Why? They wanted less government spending, lower taxes and supported Bill English's balanced budget. Key was their hero.

This was my overhead slide that the CEO's of New Zealand thought was a stupidity:

The Government's approach is wrong in the NZ context of

= A low Public Debt to GDP ratio (~ 35% compared to ~ 80-90% in US, UK)

= Strong banks & no “Too-Big-To-Fail” Problems arising from the global financial crisis (GFC)

= A high credit rating on public debt

= Government able to borrow at historic low interest rates post the 2008 GFC

= Spare Capacity Post the 2008 GFC

= World’s lowest corruption so small “leakage” on public investment

= Not a return to ‘Think Big’: instead an investment programme in infrastructure (and people / skills / education) aimed at boosting private sector productivity

I want the new government to succeed - though to do so it has to get its head around the idea that presently it is looking very much like the Key government that preceded it when it comes to economic policy. That is, super high immigration, a woeful lack of infrastructure investment, accompanied by a desire to cut income taxes and balance the budget, leaving it nowhere to go to finance big projects, other than by user-pays. The main difference between the Key years and now is that there is even less public funding available, due to our stagnant economy and high interest rates that make borrowing harder.

Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.