The statistics have economic pundits enthused. New Zealand`s economy has done much better than most, since Covid.
Agriculture is doing very well. Construction is booming. Manufacturing has strong domestic demand. Unemployment is only 4.7 per cent. Tax take is up, and projected Government deficit down. Taking a short term economic view, things are looking good.
But what about a longer-term view? New Zealand had minimal institutional saving until Kiwisaver began in 2008. It is not compulsory. Our rates of contribution are low and attract no tax concessions. There is $82 billion currently in Kiwisaver- a small sum compared to many other countries.
Institutional savings provide capital, which fund managers invest into commerce: the sharemarket, and into direct business ownership. Lacking domestic capital to support them, New Zealand companies over the past 50 years have turned overseas for funding.
The extent of direct foreign ownership of the New Zealand commercial sector is now amazing. Our banks, insurance companies, breweries, hotels, media, half our supermarkets… the list of businesses owned offshore is very long. Without a pool of savings in this country over the past 50 years, to fund and retain ownership of our commercial sector, New Zealand has sold the family silver.
This high overseas ownership of New Zealand business comes at a price. Dividends are remitted overseas, pushing our balance of payments into deficit. In 2017, $8.5 billion more was remitted offshore than we received as external income.
If Kiwis are not saving enough, what have we been doing with our money? Answer: buying houses.
We have traditionally bought a house when marrying; paid it off over our working life; sold it and downsized when the family has grown up. The amount remaining is our retirement nest egg.
Houses frequently now serve a dual purpose in New Zealand. They provide shelter and they are also the means whereby many provide for retirement. With rising house prices, this dual approach has served individual Kiwis well.
But it has not served the country well. Once built, a house creates no employment. To raise the mortgages needed to fund expensive houses, banks have borrowed offshore - leaving New Zealand with high private overseas debt. And now it is apparent - house prices can surely rise no more.
Our kids can no longer afford to buy a house - unless their parents can fund them into it. That's not good for long-term social cohesion. New Zealand has among the most overpriced houses in the world- meaning many will get hurt if rising interest rates cause house prices to seriously correct.
Overall the NZ economy is seriously unbalanced. We Kiwis own our houses (and the enormous mortgages that go with them). Overseas interests substantially own our commercial sector, with the earnings that generates.
Without adequate institutional saving, we have ended up with the wrong end of the deal. We should have sought to own our commercial sector, and the income it provides. That would have left us with less funds to drive house prices to unfortunate levels.
What has happened to this imbalance since the lockdown ended? It has got dramatically worse.
Driven by ultra-low interest rates, a suspension of minimum deposits, and generous Government spending, houses prices have risen by 29.8 per cent. In one year!.
Alcoholics offered unlimited free drinks in a bar could not have got more carried away than the New Zealand house market since Covid.
Meanwhile, many more NZ businesses are passing into overseas ownership. Last month, it was Bay Audiology. Before that Education Perfect, Timely, Ninja Kiwi, Vend, Seequent, to name just some of the IT companies sold this year.
These are not our commercial clunkers. These are our best and brightest commercial hopes for the future. The tidal wave of commercial value passing out of this country since Covid has surely been of comparable magnitude to the growth in house prices over the same period.
Major damage to the long-term future has occurred since Covid. Our over-investment in housing and our under-investment in business have both intensified. Add significantly increased government debt, and our grandkids will not be thanking us for the materially worse legacy we are leaving them after Covid.
What should happen now? New Zealand should make Kiwisaver compulsory and increase contributions steadily to match Australia at 12.5 per cent. That would leave people less money to bid up house prices; build capital to start buying back our commercial sector; and help fill the massive underfunded superannuation liability that New Zealand faces.
Are any politicians advocating such policies? Unfortunately, not.
• David Schnauer is an economist and retired lawyer. His free book "Covid, Catalyst for Change" is available at rethinkingpolicynz.com.