Capital Markets: Nicola Willis - How to get New Zealand back on an even keel

OPINION

The New Zealand economy is currently experiencing its most difficult period since the Global Financial Crisis. Household incomes have come under tremendous pressure from inflation, interest rates have risen rapidly, our current account deficit is the biggest in the developed world and our government books are increasingly in the red. New Zealand is struggling to live within its means and earn its living in the world.

This economic malaise is causing enormous pain for households, many of whom are struggling to pay the bills, service their bigger mortgage payments and stay on top of what feels like an increasingly fragile financial situation.

These pressures are the culmination of years of financial volatility — Covid-19 and global conflict have played a role, but loose monetary policy and extraordinary levels of government spending have exacerbated the inflation we are now experiencing — creating the conditions for rapidly rising interest rates.

Now is the time for policies that will repair New Zealand’s growth engine and get our economy back on an even keel.

National has three key areas of focus for delivering that: returning discipline to Government spending; ensuring our tax system rewards effort and achievement, and supporting growth in the productive economy.

That last point is where capital markets come in. New Zealand will only flourish if we can earn more in the world, deliver more value for the money we invest and we can power up the innovation needed to deliver better returns. That will require more capital.

National seeks well-functioning capital markets because they are essential to New Zealand’s economic prosperity and to our country’s growth prospects.

We want to ensure New Zealand’s employers, producers and entrepreneurs can access the capital they need to thrive and grow.

We see three key areas for focus: ensuring the regulatory framework facilitates capital flows, keeping up with international developments, and the Crown itself taking a modern approach to funding and financing large capital projects. We plan to start with the basics by streamlining some of the cumbersome red tape that has crept into our finance system.

The regulations created through the Credit Contracts and Consumer Finance Act (CCCFA) are a case in point. While well-intentioned, the prescriptive, compliance-heavy nature of those rules has proven burdensome for financial institutions and has effectively strangled credit flows, particularly to lower-income and lower-wealth New Zealanders.

An entrepreneur looking to extend their mortgage to fund a new venture shouldn’t have to explain to their bank manager which brand of cat food they’re buying or whether their Friday coffee is legitimate.

National will fix these regulations.

We also need to ensure we don’t make it too hard for New Zealand-based businesses to access the international capital they will sometimes need in order to grow. The overseas investment regime and implementation has become increasingly cumbersome: essentially putting up a big red stop sign to those who may want to invest here. It’s time we rolled the welcome mat back out to investment that enhances New Zealander’s prospects and living standards.

We need to streamline the spaghetti of overlapping regulatory work that has meant our financial institutions have spent more time on compliance and less on the innovation and value-add we all seek. We need to evolve policy frameworks to strike a careful balance between fairness, efficiency, and dynamism.

National understands the frustration of those working in capital markets who in good faith produced the Capital Markets 2029 report only to feel ignored. We don’t promise to pick up on all its recommendations but we think it’s a very good place to start.

We also recognise that the Crown has a big role to play in seeking more innovative funding and financing approaches — particularly for major infrastructure projects. National is willing to partner with private sector partners to help fix New Zealand’s infrastructure deficit.

The key is to remove the ideological view that government knows best and instead look at how we can leverage the advantages of the Crown and private sector to deliver better results for New Zealanders.

Ultimately, government policy must support the economic foundations needed for strong capital markets: responsible economic management, low stable inflation, good regulatory settings, effective education and skills delivery, innovation support and a global outlook. All need work right now, but with these things our growth prospects are significant.

Consistent and strong economic growth with low stable inflation isn’t a pipedream — it was a reality in New Zealand for many years. That economic backdrop enabled Kiwis to build a base of savings for the future, without the volatility the country has experienced in recent years. Achieving that again is possible — if a future government gets back to the basics of fiscal discipline and targets the drivers of economic growth.

· Nicola Willis is National’s deputy leader and Finance spokeswoman