In contrast, Luxon, citing inflation and interest rates alone – which aren’t the Beehive’s responsibility anyway – says everything is looking up.
In reality, faster-than-expected falls in inflation and interest rates, while good news for consumers and borrowers, reflect growing pessimism about the speed and scale of any hoped-for recovery.
Relatedly, there’s no serious prospect of a fiscal surplus in the foreseeable future, and none at all after 2030.
Yesterday’s interim Crown accounts for the four months to October 31 reported an operating deficit of $4.6 billion, $900 million worse than expected in May.
The cash deficit is $3b worse than expected in May, and net core debt has reached a new record of $178.5b, 43.2% of GDP. It will be at least $187b by year’s end – around $97,000 per household, on top of your own mortgage – and will keep rising.
Whatever Luxon claims, all Treasury’s data reveals that, like Argentina historically, his policy settings remain basically those adopted by Labour after 2020: just keep borrowing, baby, until we default sometime in the 2040s.
Luxon is equally in denial over his Government’s polling.
Two Australian pollsters have publicly released data this week indicating that, if an election had been held last month, there would have either been a hung Parliament or a Labour-Green-Te Pāti Māori (TPM) Government.
The first poll, by Freshwater Strategy’s Dr Mike Turner, even suggests that, despite Chris Hipkins’ role during Covid, he leads Luxon as preferred Prime Minister.
Luxon insists secret polling says otherwise.
“Kiwis,” he claims, “know we have got a plan and they can see that plan is starting to work.”
The problem is that neither public polling nor economic data support those assertions.
Half of New Zealanders think the country is heading in the wrong direction and only a third think it is on track.
The only polling winner from the Treaty Principles Bill debacle has been Te Pāti Māori, now looking secure in Parliament even without winning electorate seats. Not even Act has gained anything.
Coalition strategists are right that a campaign targeting Te Pāti Māori’s influence in a new Hipkins regime should see right-leaning Labour voters drift back to National.
Yet, scare campaigns, however well-grounded, are seldom enough.
For re-election, the coalition needs evidence, accepted by voters, first that the economy is turning around strongly; second and relatedly that at least current health services are fiscally sustainable; and third that there is a plausible path to avoid the permanent debt spiral and default Treasury forecasts.
So far, Luxon scores zero out of three.
Luxon complains that no government can fix an economy in a year.
Labour, he says reasonably, “took the keys to the car, they drove it full bore into a big ditch”. The coalition, he insists, is “hauling it out of the ditch and getting it turned up the right way and into first and second gear”.
Yet he attacks critics from his right, who argue that’s not happening fast or effectively enough, by saying “it’s somewhat naive, to be honest with you, to say, we’ve had six years of economic mismanagement, and in 12 months we’re supposed to fix all that”.
In fact, there weren’t six years of economic mismanagement. The Labour-NZ First coalition ran a perfectly mainstream economic policy for its first two years. Only after Covid, with Winston Peters kept away from the Beehive, did Grant Robertson begin his borrowing binge.
In any case, Luxon is plainly wrong that an economy can’t be materially improved in a year.
Two weeks after Luxon’s coalition deal, Javier Milei was sworn in as President of Argentina, then a complete basket case for similar reasons to New Zealand.
Unlike Luxon, Milei deserves respect for having a radical plan – whether you personally agree with it or not – that he believed would work, and for being prepared to implement it swiftly and boldly, putting what he saw as the interests of the Argentinian people ahead of his own re-election.
His spending cuts were so massive that, the OECD reported yesterday, in less than a year, the fiscal deficit of over 3% of GDP in 2023 has been turned into a surplus of 1.5% of GDP – the first since 2010, and picked to improve further from 2025 so debt can be paid back.
Out-of-control inflation has already fallen nearly tenfold, from 25% a month before Milei took action to 2.7% in October, the lowest since November 2021.
Argentina’s trade position and current account have moved into surplus. Investment is returning and real wages are recovering.
After this year’s 3.8% recession, Argentina’s GDP is picked to rise by 3.6% in 2025 and 3.8% in 2026.
In contrast, the OECD calls New Zealand’s GDP growth “feeble”. Any growth, it says, has been driven solely by immigration, “80% of which is low- and medium-skilled”.
It reports our current account deficit will stay above 5% of GDP. Households and the Government will keep borrowing more through the forecast horizon.
The OECD confirms productivity has been falling. Endorsing Willis, it says that “high bank margins and capital costs reduce demand for credit, and a lack of competition reduces pressure to invest and innovate”. That demands she urgently accelerate her plans to smash the banks' oligopoly.
The OECD also says lack of competition in the electricity market is holding back investment and productivity. Electricity regulators also need a kick up the bum.
Milei had some more obvious quick wins and his bold prescription may not be exactly right for New Zealand. But his success makes liars of those claiming New Zealand’s ever-worsening outlook was inevitable and that it’s not possible to turn things around in a year.
Topping it off, Milei, despite his radical and painful reforms, is also polling better than Luxon. Perhaps Argentinians respect – even if they don’t like him or it – that Milei was at least serious about his job and had a serious plan to try to turn their homeland around.
