Prime Minister Christopher Luxon. Photo / Mark Mitchell
OPINION
Yesterday’s shock 0.3 per cent decline in GDP in just the September quarter makes New Zealand the worst-performing economy in the developed world.
Even then, the result was inflated by record net migration, despite yet another massive brain-drain.
Per person, GDP fell an extraordinary 0.9 per cent in just three months.
On an annual basis, GDP fell 0.6 per cent. That compares with our main trading partners all growing respectably over the same period: Australia up 2.2 per cent; the US up 3.0 per cent; and China up 4.9 per cent.
The mind boggles at how bad the data would have been had the previous Government not also cynically flooded the economy with borrowed cash.
It’s too easy to blame the Ardern-Hipkins Government alone for yesterday’s calamity.
Any remaining vestige of integrity it had was shattered by Wednesday’s Auditor-General’s report on its $12 billion pre-Covid New Zealand Upgrade Programme and the $3b Covid-era Shovel-Ready Programme.
In making changes to the list of projects to be funded, which was their prerogative, ministers were careful not to keep records of how or why changes were made, nor whether they were consistent or fair.
No one even knows where all the money went.
This follows last week’s damning Auditor-General’s report about Callaghan Innovation’s process to allocate funds to help start-up businesses.
The Auditor-General’s attention could usefully turn to the $3b Cook Strait ferry debacle.
While the Ardern-Hipkins Government wins the prize for most incompetent this century, the silver and bronze medals are well deserved by the Key-English and Clark regimes for so lazily resting on the laurels of their reforming predecessors.
GDP per capita wasn’t flat under Helen Clark, John Key and Bill English. But it certainly meandered as they spent 18 years sipping David Lange’s infamous cup of tea, enjoying the perks of office through years of strong but eventually slowing headline economic growth bequeathed by the Douglas-Richardson economic reforms.
Per-capita growth under those prime ministers was driven mainly by more of us entering the paid workforce and working longer hours. That’s self-evidently unsustainable unless immigration remains wide open permanently.
Pleasantly low-population developed economies – if they want to remain both – have less room for policy complacency than large economic powers, especially if distant from big markets.
As the previous Government’s disastrous legacy becomes ever-more apparent thanks to the Auditor-General and others, Christopher Luxon, Nicola Willis and their colleagues could probably coast to re-election by continuing the do-nothing attitude that worked for Key and Clark.
But to avoid presiding over decay, mimicking Key’s easy-going incrementalism and doing just a bit more work to finalise English’s social-investment algorithm isn’t enough.
Whatever we’ve done over the past quarter-century has seen us stand still or decline relative to the rest of the world. Operating like a fourth term of the failed Key-English Government – and thinking that’s somehow better than a third term of the failed Ardern-Hipkins regime – is to keep doing the same thing but expect a different result.
Luxon’s initial 49-point, 100-day plan is useful for binding the coalition partners together, maintaining trust with voters and projecting a sense of momentum. But even Luxon surely knows it won’t do more than take New Zealand back to 2017.
Willis is currently preoccupied with the immediate fiscal crisis and trying to put a credible Budget together by May.
To the extent that a medium-term economic strategy is discernible – which Luxon promises to soon “model out” – it appears based on doubling the value of exports within a decade.
That could happen tomorrow if the New Zealand dollar halved in value, which it eventually will if the current account deficit remains around the present Muldoonist 8 per cent of GDP too much longer. But presumably, Luxon has something better in mind.
Trade Minister Todd McClay says he’ll deliver the doubling of exports “by pursuing quality trade agreements, conducting a record number of trade missions to open doors for New Zealand exporters and making India a strategic priority for increased trade and investment”.
High-quality trade agreements aren’t likely in the current environment, while McClay’s second point suggests a touching naivety about the value of government-led trade missions. It is thus India that appears at the heart of Luxon’s medium-term economic plan.
In a nutshell, an FTA is meant to make India a $20b-plus annual export market, like China after the 2008 FTA.
India was the topic of the first formal speech given by a minister in the new Government. In his first trip since being sworn in, McClay leaves for New Delhi on Monday, the first step towards honouring Luxon’s promise to complete the India-NZ FTA before the next election.
The Beehive seems confident.
It says the relationship with probably the world’s most populous country, certainly its biggest democracy and soon to be its third-biggest economy was neglected by the Ardern-Hipkins Government, not just because of Covid.
The previous Government, initially led by then Foreign Minister Winston Peters, began New Zealand’s tilt away from China and towards Australia, the US, Nato and the East Asian democracies, but that was mainly a defence repositioning.
India wasn’t included.
In New Delhi, McClay will need to make an excellent impression on his opposite number, Piyush Goyal, a former investment banker in his home city of Mumbai and director of India’s largest commercial banks, the Bank of Baroda and the State Bank of India, among the world’s top 50 banks.
Goyal will rule out dairy and obviously beef from any deal, and repeat India’s long-standing demand that free trade in labour be on the agenda, a big ask from the world’s most populous country given New Zealand’s concerns about record immigration.
McClay being received by Foreign Minister Subrahmanyam Jaishankar, a former Ambassador to China and the US and chief executive of its foreign ministry before being personally elevated to minister by Prime Minister Narendra Modi, would indicate that India takes Luxon’s FTA proposal seriously.
That’s possible given the FTA’s geopolitical element, to reduce economic reliance on China as New Zealand leans militarily to Australia and the US.
China has noticed, cautioning New Zealand against diversification unless driven solely by “economic factors”.
“Allowing non-economic factors, or even groundless allegations, to get in the way of normal economic relations will not make an economy or its supply chains more secure or resilient,” its ambassador to New Zealand, Wang Xiaolong, said cryptically this week. “In fact,” he warned menacingly, “they will only become more fragile as a result, as such moves themselves constitute major – or even the biggest – risks.”
McClay needs to make sufficient progress in New Delhi to justify irritating Beijing.
- Matthew Hooton has more than 30 years’ experience in political and corporate communications and strategy for clients in Australasia, Asia, Europe and North America, including the National and Act parties and Auckland Mayor Wayne Brown.
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