John Key gets a pass mark on economic performance but his score card is marred by some weak spots that could come back to undermine his long-term legacy.

As this week's half-year fiscal update showed, the big picture looks good.

We have ongoing GDP growth at about 3 per cent, unemployment at around 5 per cent and the crown accounts are solid with the Government booking surpluses that are forecast to top $8 billion within five years.


All of that has been achieved against the backdrop of the global financial crisis - which was at its peak when Key took over in late 2008 - and the disastrous Christchurch quake.

But there some black marks on that record. Chief among those is housing. Nationally, prices in this country have surged by 50 per cent during Key's time.

In Auckland they've more than doubled.

That's made a lot of middle-class homeowners feel very wealthy and provided a solid base of political support as Kiwis head off on overseas holidays in record numbers.

The housing boom has been a global phenomenon driven by the unusually low interest rate environment in the wake of the GFC.

Investors have been looking for somewhere to put their money outside of the bank and assets prices have soared - both sharemarkets and property.

If Key can't claim credit for the boom then neither can he be blamed for all the downside risk.

But the Key government has done nothing to tackle the issue, says Matt Goodson, director of Salt Funds Management.


"There is an awful lot of good that has been done but I think that is the one glaring risk that is ticking away, as it was for Ireland and Spain when they were lauded as a success stories back in the mid-2000."

The tax system remains skewed towards property speculation, Goodson says.

"Right now we're seeing 20-30 per cent house price increases in the provinces where there is no population growth - so it's not a supply shortage, its speculation," Goodson says.

Overall population growth and record net migration is widely cited as a factor taking the gloss off New Zealand's strong growth story.

Per capita GDP isn't nearly so strong and the extra population is adding to the housing bubble and highlighting some deficiencies in infrastructure spending.

"Strong net migration is a testament to the fact the economy is doing relatively well," says NZIER senior economist Christina Leung.

"The fact that we have strong employment prospects is encouraging a lot of people to come to New Zealand." You can argue that if you removed population growth then the performance would be a lot weaker but it is always the case that if you remove the statistics that are rising you get a different picture.

Goodson agrees that desirability of New Zealand in the eyes of the world is a positive.
"[Globally] New Zealand is perceived as open for business, it is perceived as a cool place to be, people want to be part of the New Zealand story," Goodson says.

It is quite an intangible achievement but may be the strongest part of Key's legacy, he says.

The crown accounts are widely seen as another success story - with surpluses and a focus on paying down government debt - but you could argue that Key has been too tight fiscally, Leung says.

"[Key] has left the Reserve Bank to do a lot of the heavy lifting in terms of boosting inflation and that caused some distortions in the economy," she says.

Goodson says the concerns are not public finances where one could argue that not enough had been spent on schools, hospitals and infrastructure to cope with the population growth.

"The concern is in terms of private debt levels, where 40 per cent of new residential lending is to housing investors."

The other black mark for Key will be his failure to deal with politically contentious issues like National Superannuation, Goodson says.

"It's one that could come back to bite us decades down the track. He has created some bright lines that will make it very hard for any other politician to cross, such as around National Superannuation."

Ultimately Key made the most of the market conditions he had to work with.
He has benefited from some ground work done by the previous Labour Government, particularly in booking the gains from the China free trade agreement.

He has not been a reformer but he has created a stable platform, in unstable times, for growth.

He exuded confidence and it rubbed off on the economy. Whether he has done enough to set the nation up for long-term prosperity, as outlined in those rosy Treasury forecasts, remains to be seen.

Liam Dann rates John Key's economic performance.
Liam Dann rates John Key's economic performance.