I was the minister in charge of the Rural Bank. The milk price is great for farmers. They will not spend it until the money is in their account. Then farmers will pay down debt, fund farm improvements and only then spend it for themselves.
Spend they will. The milk money produces a multiplier effect. The milk money flows through the rural contractors to the rural towns to the provincial centres until it reaches the cities. The milk price will impact the whole economy. The Government will benefit from higher than forecast tax revenues.
In the past 10 years, economic growth has come from immigration. Immigration has increased the size of the economy at the expense of living standards. As the economy has grown the average New Zealander has become poorer.
In 2013, our population was 4.4 million. In 2023 5.2 million. An increase of 800,000. Population growth of 18% in a decade. It is more than the combined population of urban Wellington and Christchurch. Those cities took 180 years to build.
It is the reason our hospitals, schools and roads are overwhelmed. It is unsustainable.
Economic growth coming from milk is sustainable.
Environmentalists attack dairying. They should be pro-dairy farming. The world needs milk. It is better for the earth for milk to be produced by the farmers with the lowest emissions in New Zealand.
Favourable spring conditions meant the milk production flush in October was up 2.8%. El Nino is forecast to cause the annual milk production to be marginally down.
The IMF is predicting the global economy will grow next year by 3.2%
The final milk payout will likely be higher than forecast.
Over my years in Parliament, I noticed commentators underestimate the positive effect of a high milk price. The latest Reserve Bank monetary statement has one passing reference to dairy prices.
The threats to a sustainable economic recovery come not from overseas but from our poor monetary and fiscal policy.
I believe we have a reckless central bank. The Reserve Bank governor in his interview with TVNZ last week did not acknowledge any errors. The governor claimed the bank had saved the New Zealand economy. There was no admission printing $50 billion caused the house price explosion and inflation and resulted in the Reserve Bank’s engineered recession. The governor blamed house prices on house buyers.
Far from saving the economy, New Zealand is now ranked number 180 out of 190 IMF countries for growth.
The record milk payout could cause inflationary pressure. If the Reserve Bank does not set interest rates at a rate that does not stimulate, we could see inflation return.
Westpac chief economist, Kelly Eckhold and Professor Robert McCulloch both believe New Zealand’s neutral interest rate, inflation neither rises nor falls, is about 4%.
The Reserve Bank’s latest statement indicates the Bank will overshoot again, cut interest rates to below 4% and stimulate inflation.
The governor in his television interview advocated Labour Party policy, borrow and spend.
It seems the coalition is taking his advice.
Fiscal policy is a threat to an economic recovery. Despite all the talk about restraint, Government spending as a percentage of GDP is increasing. The deficit is also increasing.
The coalition asking the civil service to exercise restraint is like asking your alcoholic uncle to drink less this Christmas.
New Zealand’s public service has doubled in size since 2000. The increase in population does not justify this. The Key/English Government capped the number of civil servants at 50,000. At the end of June 2024, there were 63,537 full-time equivalent staff, down slightly from the election but up slightly on a year earlier. Thirteen thousand more civil servants than the Key/English government.
Core Crown expenditure that National used to aim to be less than 30% of GDP is 33.4%.
We have world-leading research by economist Patrick Caragata commissioned by the IRD that says this level of Government spending crowds out the private sector and lowers the growth of the economy. Reducing Government spending as a percentage of the economy far from being recessionary enables the economy to grow.
The coalition are better managers than Labour, but the Government is following the same failed fiscal policy, borrow and spend.
In monetary policy, it is the same people.
There is a word for doing the same thing and expecting a different result.
