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 the Mayor of Auckland.
But that was only thanks to the net 28,330 new immigrants who arrived over those three months to make up for the net 14,980 citizens who left.
Per capita, we’re now at least 18 months into a recession. Unless everyone has produced and earned more in the current quarter than in the previous three months, we’re 21 months into that recession.
The average New Zealander is nearly $300 a month down compared with September 2022, using March 2024 dollars. That’s $1200 a month less for a household of two parents and two kids. Collectively, we’ve all taken a 4.3% pay cut over 18 months, with more on the way.
There’s never been anything this bad as far back as Statistics NZ reports.
The recession after the Global Financial Crisis was close. In the 21 months from September 2007, we went back 4.2% on average. Our current malaise has happened faster and is worse.
In the 15 months after the ‘Mother of All Budgets’ in July 1991, we went back less than 1% on average, before GDP per capita began growing strongly from the end of 1992.
But that was part of a deliberate strategy to move boldly and urgently to lower the deficit, and thus inflation and interest rates, and get the economic and political returns well before the next election. In contrast, the current Government is meandering, spending and borrowing more than its predecessor.
The downside of headline GDP being up 0.2% is that it risks delaying the Reserve Bank’s first interest-rate cuts.
While March-quarter headline inflation hit expectations of 4%, non-tradables inflation remained at 5.8%. On Wednesday, the Reserve Bank’s chief economist Paul Conway made clear the bank thinks non-tradable inflation is what drives medium-term inflation, which is what drives its decisions on the official cash rate (OCR).
He said there are now “some reasons to think that inflation may be more persistent than in our current projections in the near term”.
That is the bank warning publicly that OCR cuts may come later than it has previously indicated – which was no earlier than the second half of 2025 according to its monetary policy statement a month ago.
There’s now a risk the Government will be waiting until the beginning of election year for the first OCR cut and even of another OCR increase before then.
Suggesting exactly that, the dollar rose immediately yesterday on news of the higher-than-expected headline GDP result.
We’re now in a standoff. The Reserve Bank reviews the OCR in two and a half weeks but won’t have the benefit of June quarter inflation data, to be issued on July 17. The bank will first respond to that on August 13.
But that review won’t be informed by data rather than conjecture about the effect of the tax cuts that will hit middle-class voters’ pay packets at roughly the same time.
Finance Minister Nicola Willis claims she received Treasury advice on April 4 that the tax cuts will be deflationary but has so far refused to release that paper. It is expected to say that her tax cuts are deflationary compared with government spending but inflationary compared with using that money to reduce borrowing.
More important than what Treasury thinks is what the Reserve Bank does. More important than either is whether middle-income households spend the money, which seems likely given tough times, or save it, as Willis hopes. That won’t be fully known until the end of the year, with uncertainty on inflation and interest rates remaining until summer.
Finance Minister Nicola Willis claims she received Treasury advice that the Budget's tax cuts will be deflationary. Photo / Mark Mitchell
Investment decisions depending on clarity about either will stay on hold. That will affect unemployment which the Government needs to stay low, both politically and because it cannot afford the welfare bill to add even more to the $17 billion cash it needs to borrow between now and the election.
The Government didn’t expect any of this when it was elected, mainly because the National front bench was convinced Christopher Luxon’s mere election would boost business confidence and investment.
That is why it now struggles to outline a programme, as the Prime Minster puts it, that will restore the mojo of the investment and business communities.
Energiser-bunny enthusiasm may work at company sales retreats but those who make major private-sector investment decisions need more.
It’s worrying if Luxon really thinks exports grow, tourist numbers increase and new investment flows because of two-day prime-ministerial trade missions.
They can’t hurt, but no business deal gets done just because a Prime Minister visits supermarkets and gives a few speeches in Tokyo or elsewhere. He would be better more accurately communicating that a prime minister’s international engagements are overwhelmingly dominated by security matters, especially right now.
It’s good, as he puts it, that Luxon wants to “go be New Zealand’s biggest cheerleader on the world stage”. But it’s silly to suggest firms like Fonterra, Zespri, Silver Fern Farms and Air New Zealand are C-listers and need a former Unilever executive to show them how to achieve “external orientation”.
Eyes rolled when he said before leaving for Japan that his job is to “lift the best firms in New Zealand to become globally frontiered firms”.
What business needs is for him to do his job well and leave them to get on to do theirs.
As an aside, it is best if he doesn’t repeat his comments on Wednesday that he may consider imposing economic sanctions on China, our biggest trading partner.
Luxon is fond of setting key performance indicators (KPIs) for others. As Q2 2024 comes to an end and Q3 begins, here are some for him.
First, do whatever it takes to get the cash deficit and the government’s borrowing requirement down so that interest rates fall this year, not next – let alone 2026.
Second, get long-term resource-management legislation before Parliament in Q3, rather than being distracted by the fast-track project that – if anything – will slow things down as each ministerial decision gets reviewed by the courts.
Third, decide where you stand on China vs Nato, and don’t swing from one to the other depending on who you are talking to.
And fourth, get National’s polling back up, ideally above the 38% you won last year.
If investors think your Government risks meandering for two years before being voted out, then confidence will never return to the economy – and you will have the ignominy of leading National’s first-ever one-term Government.
