When you are very unwell, diagnosing the medical issues accurately as well as pinpointing the main problem that needs the most urgent treatment is crucial. There’s no point having your doctors spend all their time on your long-term blood pressure issues if you have stage three cancerthat is an imminent existential threat.
This is also true for a national economy where much of the public discussion of late has been entirely focused on public debt, when Government will get to surplus, and the need for more spending cuts. I don’t want to argue that these matters are anything other than important. We do need fiscal restraint from the public sector, and a clear-eyed understanding of the difference between wasteful spending without return and wise surgically placed investment that takes a nation forward.
But issues of government debt, spending and surplus, while important, are only one of our issues and not even our No 1 problem right now. Yes, on the latest Treasury projections net core Crown debt is expected to rise to 45% of GDP in 2024/25, before peaking at nearly 47% in 2026/27. I accept there is nothing good about this and among its poor consequences are the significant servicing costs and increased tax take required.
I also accept the perennially strong point made by economists and politicians that as a small remote economy we need to be more vigilant than others around public debt because we have less ability to deal with the crises and shocks that inevitably arrive via Mother Nature or from the global economy and require big Crown spending.
But let’s keep this in perspective. Many of the most successful economies in the world have public debt of over (often well over) 100% of GDP, including the world’s pre-eminent superpower, the United States.
At the end of last year The Economist asked which national economy did best in 2024 and judged this off the back of five economic and financial indicators: GDP, stock market performance, core inflation, unemployment, and government deficits. Who won? Well, Spain, a country with public debt over 100% of GDP. Greece and Italy, also with very high debts, likewise scored alongside Ireland and Denmark in the top five, because while they with Spain were once some of the globe’s worst economic delinquents, now they are in a period of strong resurgence.
Spain is on track to grow by 3.5% and its joblessness is at its lowest in over a decade. Photo / Ricardo Pinto
While public debt is important, it is only one factor when diagnosing an economy’s wellbeing. As The Economist points out, real GDP growth is “widely regarded as the most reliable measure of an economy’s overall health”, and Spain is on track to grow by 3.5%. Additionally, its joblessness is at its lowest in over a decade. Economically it and its people are in a real purple patch.
In 2025 New Zealand’s top economic issue is a lack of investment and GDP growth (and yes for the sticklers, the poor productivity behind these current negatives as well). This is because it’s higher investment and growth that bring increased economic activity, higher wages, more wealth, and, consequently, higher standards of living, and for government, a higher tax take and, with discipline, lower debt.
More fundamentally it is higher investment and growth that will stem our cancer as a country that needs to be dealt to with the utmost urgency: our young and other talented Kiwis who we nurture and train continuing to leave for greener pastures. Of course, this has always happened, but they used to come back. They aren’t now.
It’s a very competitive world out there and we need to face up to the reality that there are other great places with higher GDPs and growth and therefore higher wages and standards of living. Not many people leave a country with these factors for one with lower metrics, not because they necessarily consciously assess the numbers but because they can just tell by their high standard of living.
One dad told me over the summer about a relative who is a new teacher. They can earn around $60,000 here fresh out of college. But Australia also wants them and including perks they’ll be on close to $100,000. I think we know where they will end up and that this is more than an isolated anecdote.
Our statistics at the end of 2024 showed we are in the worst recession (excepting the height of Covid) since 1991. Our growth is forecast to increase by a modest 1.6% in the year to June 2025 before rising higher in the following two years. However, none of this purely cyclical growth picture, driven really only by the Reserve Bank, is good enough if we want the higher wages, wealth, and standards of living to keep Kiwis here. Instead, Government, business, all of us, need to focus with urgency on higher investment and growth than we will get just from Adrian Orr lowering interest rates. In fact, we really need to pull finger.
For Government this means boldness in reform, a strong growth plan, and investing where there is a clear business case for doing so. And all this with more relentless urgency than it has so far shown on growth. But business and others must also play their part, supporting bold reform and driving it from within as well. It must be a team effort.
Simply focusing on the Government’s fiscals as so many are doing today is only slightly better than thinking that stopping the fancy biscuits at the company board meetings is going to turn things around (yes, I am being flippant). It won’t.
Saying goodbye to the Tim Tams – or indeed all the Government’s billions in wasteful spending – won’t be enough to stop us also saying goodbye to our young and talented and nor will it stem our ongoing relative economic decline.
