John Key is right that New Zealand needs to cut interest rates but we need more than that too - Richard Prebble

Sir John Key has called for the Official Cash Rate to be cut by 100 basis points.

Opinion

KEY FACTS

• The Official Cash Rate was kept on hold at 3.25% on July 9
• Sir John Key has called for the OCR to be cut by 100 basis points
• The Reserve Bank’s live GDP tracker shows growth is down 0.288% for the quarter

In my three decades in Parliament, the best natural politician I served with was Sir John Key.

He intuitively understood voters and had an exceptional head for numbers. Key never lost an election.

When he speaks, the coalition should listen.

Key warns the coalition risks losing the next election. He says the Reserve Bank got interest rates wrong again – first too low, now too high – and it’s crushing the economy.

The data backs him. Massey University’s GDPLive shows GDP growth at just 0.261% for the quarter and down 0.53% annually. It puts inflation at 2.18%. With dairy booming, most of the economy must be in recession.

The Reserve Bank’s Nowcast GDP tracker is down 0.288% for the quarter.

Key says that with no sign of wage inflation, the Reserve Bank should cut the Official Cash Rate by 100 basis points – from 3.25% to 2.25%.

The Taylor Rule that central banks use to guide interest rates indicates the OCR is 50 basis points too high.

Key is also right that the central bank’s money printing fuelled the inflation that destroyed the last Government. Now, with rates too high, it’s strangling growth and may destroy this one.

It seems the Government had no plan for replacing former Reserve Bank Governor Adrian Orr.

I nominate Key. He’s qualified and has the judgment the job demands. If appointed and interest rates are cut, the economy would be growing in election year.

If Key is unavailable, appoint the economist who warned that $100 billion in quantitative easing would cause inflation: Auckland University’s professor Robert MacCulloch. Internationally recognised for his work on central banking.

If the coalition aspires to more than winning elections, it must do what Key never did: tackle why New Zealand is sliding down the OECD rankings.

It’s not that the world doesn’t want what we sell. Dairy prices are excellent, meat sales are solid, and tourism is recovering. We’re just badly managed.

To lift our standard of living, we must raise our productivity which has been static for a decade.

The Treasury’s recent analysis highlights that “New Zealand has much lower levels of capital per worker than OECD peers”.

We lag Australia because its compulsory superannuation pumps billions into productive investment.

We should have shifted to savings-based super 50 years ago. That’s no reason not to do it now.

Last week’s abandonment of open-plan classrooms was a good start to lifting education standards. Abandoning pupil-led learning would be even better.

Health is another failure. We have a Soviet-style monopoly with low productivity. Waiting lists grow despite record spending. More money is not the answer. Singapore achieves better outcomes for less – based on compulsory savings, price transparency, and private providers. We should copy it.

One thing Key did achieve was restraining the growth of the civil service. According to the International Monetary Fund, Government expenditure was an estimated 41.39% of GDP in 2023.

The 59% of the economy in private hands just isn’t big enough to generate the investment, wealth and exports we need.

We are over-regulated. The OECD’s 2023 Government at a Glance ranked New Zealand last in the OECD for barriers to permits, licences and foreign investment. The Regulatory Standards Bill isn’t a nice-to-have. It’s essential.

Key is also right about the ban on foreign home buyers. Foreigners won’t bring their capital or expertise if they’re told they can only rent.

There are about 200,000 able-bodied adults on Jobseeker Support. That number has barely moved since Key’s time, despite job vacancies and social investment strategies. Australia has had a Work for the Dole scheme since 1997.

Employment Minister Peter McCardle introduced Work for the Dole scheme in 1998. Labour scrapped it. We should try again.

Last year, in an international comparison, New Zealand’s economy ranked 33rd out of 37. That makes it a mystery why Luxon waited so long to visit China, our biggest trading partner.

And why did the Prime Minister go to a Nato summit in Europe? Every other Pacific PM stayed away knowing the summit would pledge to spend 5% of GDP on defence and criticise China. As New Zealand is not going to do either a PM focused on growth would have stayed at home.

We have a bloated bureaucracy focused on political correctness rather than the hard work of delivery. An opposition that thinks New Zealand can tax its way to prosperity. An economy that’s 41% government, starved of capital, and bound in red tape. Without reform, we will never climb the OECD ladder.

Key’s rate cut might win the next election. Only real reform will return New Zealand to the top tier of the OECD.