With image everything, compiling data to support a case one way or another not a priority for Government

We are living in an Orwellian economy where image is everything.

An overvalued exchange rate is described by the Finance Minister as a vote of confidence in our economic policies. The Christchurch rebuild is referred to as a key driver of our economy, implying that we should demolish cities on a regular basis to ensure prosperity.

The budget surplus is portrayed as a measure of success in economic management. This disguises the fact that it has involved cuts in real pay rates for teachers, police, nurses and other public servants. Cuts in government spending also generally impact on the least well off in society.

The main area of social welfare spending which is superannuation continues to be left in the too-hard basket. We continue to pay benefits to millionaires over the age of 65. However, 1000 unemployed have the opportunity to gain grants to relocate to Christchurch. This is great PR despite the small numbers involved and various strings attached. It implies the Government wants the rebuild bonanza to be shared by all.


Meanwhile, star principals and teachers are offered bonuses to sprinkle their magic dust on underperforming schools. The issues many of these schools face run much deeper than such an approach implies. But image is everything.

Housing inflation in key hotspots is labelled a purely supply side issue by the Government despite the lack of credible data showing what is actually happening in these markets. The Government has a remarkable reluctance to collect such data. An Orwellian economy is reliant on the absence of truth.

The Prime Minister is starting to waver on the need to collect data on the housing market. It is unlikely that such data will be made available before the election despite the relative ease of collecting such information. There is a good reason for this. If the data revealed the market in hotspots such as Auckland was being driven by demand by overseas buyers or residential investors then the Government would be forced to offer policies to address the issue. These policies could include restrictions on overseas buyers as apply in other countries. They may also necessitate changes in the tax system.

But it is more politically astute to label the problem as entirely a supply side issue. This allows the Government to lay much of the blame on local councils with their regulatory requirements that restrict the supply of new dwellings in certain areas. It also means they can present the solutions as long-term in nature.

The Reserve Bank provides some interesting data about what has happened to our economy in recent years. Its price index information reveals that in the six years since this government gained power, the total inflation rate has been 10 per cent. Wage rate growth has been 14 per cent. Therefore, the average worker is about 4 per cent better off in real terms. Housing inflation has been 21 per cent.

The bulk of middle New Zealand has seen their perceived personal wealth rise largely as a result of housing inflation rather than increases in their earnings. Unless New Zealand has discovered a new paradigm for economic prosperity this is not sustainable. No country has ever become rich through house price inflation although before the global financial crisis many deceived themselves this was possible.

What this Government appreciates is that if people are feeling wealthier they tend to vote for the status quo.

There is no magic bullet to solving the housing market quandary in areas such as Auckland. But it is incredible that there is a lack of independent data to reveal what is actually driving the market.


Politics and economics often make uneasy bedfellows.

Addressing the housing issue is crucial to our economic wellbeing. Housing inflation is a key contributor to the Reserve Bank raising interest rates to reduce inflationary pressures. This maintains our overvalued exchange rate which hampers a shift to export led growth. Meanwhile, young first home buyers are saddled with massive mortgages. They will spend much of their working lives servicing these debts.

Overseas-owned banks continue to make record profits from pumping funds into our mortgage market to fuel our house price-based miracle economy. We are living in an Orwellian economy where truth is often a casualty.