Yesterday’s headline
June-quarter gross domestic product (GDP) data wasn’t as bad as the Reserve Bank and most other economists feared, but that was largely because it turns out the March quarter was worse than previously thought.
GDP fell by “just” 0.2% in April, May and June. That’s largely because, on a seasonally adjusted basis, net immigration was over 10,000 through the quarter.
In the year to the end of June, a record 80,200 New Zealand citizens left the country permanently, but compensated for by the record 179,600 new immigrants who arrived.
To her credit, Finance Minister Nicola Willis has asked to be judged on GDP per capita, which measures how things are going for the average New Zealander. An even better measure is gross national disposable income per capita. After both peaked in September 2022, they have now fallen for longer and by more than recorded in any previous comparable data.
Covid can’t be blamed. When the second lockdown ended in December 2021, the data suggests we were better off than we had been in December 2019. It’s what happened in 2022 and election year that caused the present troubles.
After peaking in September 2022, real GDP per capita has fallen by 4.6% in the seven quarters since. In 2024 dollars, that’s nearly $300 a month per person, or $1200 month for a household of two parents and two kids.
Even after the global financial crisis (GFC), the per-capita recession was never this deep or long. After September 2007, GDP per capita was down just 4.2% over the following seven quarters, before beginning to recover. Not helped by the Canterbury earthquakes, we finally returned to our September 2007 living standards at the end of 2012.
This time, we’re probably not yet at the lowest point, with indications the September data will reveal an unprecedented eighth quarter of per-capita recession.
Disposable income per capita is worse, already down 6.2% compared with September 2022.
In 2024 dollars, a four-person household is over $1600 a month worse off than two years ago. Give or take a few dollars, they’re no better off than six years ago.
Despite wars in Ukraine and the Middle East, it hasn’t been anything like this bad in Australia, east Asia, Europe or North America, where GDP per capita and disposable incomes have mostly risen since Covid.
Absent a further global or domestic shock, like war widening in Europe or the Middle East, a sharemarket crash or a natural disaster, we may recover from the approaching low point and return to our earlier living standards quicker than after the GFC – but that is hardly guaranteed.
Our uniquely perilous position in the developed world may have something to do, as the Prime Minister believes, with New Zealanders having lost their mojo during the Labour-led regime.
If so, it’s a shame we don’t have a Lee Kuan Yew, Ronald Reagan, Margaret Thatcher, Bill Clinton, Tony Blair or even John Key or David Lange to help us believe New Zealand has a way out of our immediate predicament and horrifying economic, fiscal and social medium-term projections.
Christopher Luxon might add that to his own key performance indicators (KPIs) that he sets for others.
But neither Luxon nor Jacinda Ardern alone can be blamed for the past two decades not living up to the strong, sustained growth in per-capita living standards and disposable income from late 1992 and through most of the Helen Clark era.
It has become trite to point to our productivity growth lagging behind the rest of the developed world, often hidden – and made worse – by papering over the problem with cheap, imported labour.
Clark hoped to solve this problem with her Knowledge Wave partnership. In the end, her legacy was just more corporate welfare and handouts to median voters.
In its first term, the Key Government – pushed by Act – commissioned former Reserve Bank Governor Don Brash and former Labour Finance Minister David Caygill to advise how to raise productivity to restore living standards to those of Australia.
Taking their job seriously, Brash, Caygill and their working group made recommendations across monetary and fiscal policy, welfare reform, superannuation, health, education, tax, managing the Crown’s balance sheet, road user charging, mining, excessive regulation and competition policy, labour law, the Resource Management Act, urban zoning, water allocation and export marketing.
Key immediately rejected the lot. Instead, his Government’s approach was more corporate welfare and “business growth agenda” brochures suggesting a surprising penchant for Soviet-style economic planning.
Ardern focused more on kindness than competition, and was then distracted by Covid.
Luxon promises to “rebuild the economy” but, even less than Key, fails to explain what that means and involves over the next decade.
His Government has become distracted and is investing its political capital in issues that no serious economist believes will make any difference.
Even on the economy, his focus is very short-term, with his quarterly action plans bullet-pointing unconnected initiatives, many either trivial or promising no more than more Wellington paperwork.
The “rebuilding the economy” pledge seems largely limited to the admittedly essential task of fixing the Government’s books, a few two-day Prime-Ministerial trade missions and the free-trade agreement with India Luxon promises to have signed before the next election.
The focus on balancing the books is also largely short term and unlikely to be delivered given cost blow-outs at Health New Zealand.
Despite the post-2030 demographic timebomb being known about since at least the 1980s, Luxon’s Government has so far followed all its predecessors in preferring to pretend it doesn’t exist. There are no plans to reduce the scope of the public health system and cut superannuation entitlements or – alternatively – introduce major new sources of revenue.
That leaves only accelerating productivity growth faster than the rest of the developed world to address the medium-term fiscal crisis and remain part of that club at all. Yet Luxon gives no account of how that might happen.
More likely, we will soon have to accept we are no longer part of that club anyway, and so can’t expect the health and education services, roads and public transport systems, near-nationwide coverage of three-waters and other infrastructure, or the retirement income and other universal social welfare found in Australia, east Asia, Europe and North America.
This won’t cheer you up but, sadly, whenever this unprecedented per-capita recession finally ends, even bigger and more deeply entrenched problems lie ahead – with fewer obvious solutions and a political class mostly unwilling to seriously address them.
