But it seems like New Zealanders have collectively decided to ignore the China crisis until after the election and the Rugby World Cup.
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The powers in Bejing might conjure up some centrally planned magic to make it all go away for another year or so.
But there are plenty of China experts who seem to think it is different this time, that Xi Jinping understands the structural issues he is dealing with and is prepared to tough this cycle out.
If he does that, and China’s economy continues to slide in the coming months, then all the policy promises of New Zealand’s upcoming election campaign will go out of the window as the incoming government faces a revenue shock along the lines of the Asian financial crisis in 1997.
Dairy prices will keep falling and tourism will take longer to get back to pre-pandemic levels. The recession that most economists have pencilled in for later this year and early next will be deeper than forecast.
The government will take in less tax revenue ...
That’s right, tax. This column is meant to be about tax, not China.
Don’t blame me. It wasn’t my idea to make this election a referendum on two different varieties of tax cuts.
I’m not quite sure whose idea it was.
I guess the major parties have both leaned into public pressure for relief from the high cost of living.
But let’s be blunt.
Tax cuts are a terrible idea until we have declared victory over inflation and shored up the Crown accounts against the risk of another external shock.
Given the fairly sizeable odds that the current situation in China might be that external shock, both parties should be very focused on a post-pandemic tidy-up of government spending.
New Zealand opted to run a very strong response to the pandemic and (despite my view being about as fashionable as a middle-aged man in skin-tight jeans) I still think it was worth it.
We kept the virus out of the country until the bulk of the population was vaccinated. We had a lower death toll than we might have had.
But we need to front up to the fact that those choices came at an economic cost. We effectively put them on the Crown credit card.
I don’t think Labour has addressed that with enough urgency. I assumed, from the rhetoric of the past year or so, that National was going to address it more aggressively than its new tax policy suggests.
To be fair, both parties have started to talk about more aggressive spending cuts. But both have made their task a lot more difficult by offering tax cuts that promise little long-term benefit for the economy.
Once the Crown accounts are in better shape, we are going to need some intense focus on productivity and wealth creation.
The revenue paths we’ve relied on for the past 20 years – dairy exports, tourism and property speculation – offer rapidly diminishing returns, even if they do find their way out of their current cyclical doldrums.
I’m not against using tax (or the removal of it) to shape economic behaviour when it is well-targeted.
To me, targeted tax relief – if we are sure we can afford it – would be directed to business.
If we were serious about setting this economy up for future growth we’d be looking at more substantive tax breaks for companies investing in new technology and R&D.
We might look at breaks for the kind of high-tech international corporations that we want to invest in this country.
That’s what places like Ireland have done with great success.
I heard National leader Christopher Luxon talking very enthusiastically about the Irish model at a financial conference last month.
Yet National’s tax policy doesn’t deliver on that.
It seems to be all about putting a few more dollars in the back pockets of hardworking ordinary Kiwi battlers with squeezed middles (or whatever we are calling the hypothetical swing voter these days).
I’m sceptical of the line we often get from the political right, that hard-working ordinary Kiwis are best placed to spend tax dollars.
Compared to many nationalities, hard-working ordinary Kiwis are terrible at saving and investing in anything other than property.
The data suggests that as soon as hard-working ordinary Kiwis stop feeling squeezed they spend their money on rental properties, eating out and overseas holidays.
Of course, it’s all very well for me to sit here rattling off sensible long-term economic policies. Both Chris Hipkins and Chris Luxon have to try and win an election before they get to do anything.
I just hope that, whichever of them ends up winning, they are ready to move fast and adapt policy to meet the next fiscal challenge we will inevitably face.
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