New Zealand business confidence has fallen to levels last seen during the Global Financial Crisis.
While the magnitude of the decline is hard to explain, as economic conditions are clearly far better than during the GFC period, the direction is far easier to understand.
Some commentators have blamed the decline on businesses not getting the Government they expected or wanted.
I think that is far too simplistic and what we are seeing is that businesses are growing increasingly concerned about the coalition Government's lack of clear strategy and poor execution of policy. We are clearly experiencing management by an unwieldy committee.
New Zealand has been blessed for much of the last two decades, under both Clark and Key, for having political leaders who were more pragmatic and less ideologically driven than the current lot. Remembering that financial resources are scarce and that expenditure needs to be prioritised, let's look at coalition execution around a number of policies.
Policy: Free tertiary education
Cost: $1.5 billion over 3 years
Who knew that this was one of the most pressing issues facing New Zealand but the Coalition government clearly decided it was and announced $1.5b of funding straight after the election.
Why students should receive this funding ahead of people going straight into the workforce or a trade or ahead of entrepreneurs setting up their own businesses has never been explained. A further weakness is that it initially applies to the first year of university not the last so that many unsuitable people will attend and have a go at the taxpayers' expense. And being a universal benefit people receive it whether they need it or not, so even the children of New Zealand's wealthiest families get a taxpayer subsidy. Targeted assistance would have been far more effective.
Policy: Support for overseas embassies and the Pacific
Cost: $1b over 4 years
Clearly a sop to Winston Peters, it was unusual to see this expenditure prioritised above much-needed pay increases for teachers, nurses, and police.
Policy: Labour market reform
Cost: Unknown, but will be substantial to business and employment
Simply dreadful. Andrew Little is a cloth-cap unionist who is still fighting a war that ended decades ago.
The biggest challenge facing most businesses is a shortage of skilled staff but these reforms, particularly changes to the 90-day rule and union rights to enter workplaces represent a triumph of ideology over pragmatism.
The 90-day rule was a huge success and resulted in many marginal people being able to enter the workforce and prove themselves. Labour laws are already skewed towards employees - just look at the steady stream of nonsensical decisions that flow out of the Employment Court.
Cost: $2b and rising
There is no doubt that we have a housing crisis with affordability being the key issue. Government policies relating to restricting sales to non-residents, extending the bright-line test to 5 years and removing the tax deductibility of negative gearing are all sensible and long overdue.
The lottery system of KiwiBuild, however, is one of the more poorly thought out policies in recent times. Those who win the ballot will be able to sell their property after three years and keep the taxpayer subsidised profits.
Those who don't get picked out of the barrel, who have equal needs, get nothing.
Policy: Water quality
Cost: Nothing much to date
Water quality was one of the biggest issues going into the last election with saturation media coverage. Remember the issues around Canterbury's rivers and the impact of dairying? Since then the media have moved on and so has the Coalition. This has been placed in the too-hard basket.
Poor. After promising large reductions in the number of net immigrants (relative to our population, New Zealand has the highest level of net immigration in the western world) in order to let our infrastructure catch up with our population growth, the Coalition has been at sea on this issue with no clear policy framework.
Policy: Provincial Growth Fund (PGF)
The PGF smacks of third world politics. Yes the regions definitely need support but a poorly defined slush fund that exists to fund pet political projects probably close to the next election is a recipe for disaster. Northland, in particular, has been underfunded for years and needs a clear plan around providing much-needed infrastructure. Northland should be one of New Zealand's fastest growing areas given its unique natural resources, but needs sound policy to unlock its potential, not a slush fund.
Policy: Ban of oil and gas exploration
Cost: Billions to New Zealand in the long term
It is clear that climate change is one of the biggest issues facing the world and we strongly support sensible steps for New Zealand to take a lead in this area. This policy however, which was announced without any consultation, will have almost no positive global environmental benefit as New Zealand will now have to import the oil and gas it needs. This was a clear case of poorly thought out "virtue signalling". It gave all types of long term infrastructure business a real shock and raised the risk premium on New Zealand. Policies focused on actually reducing NZ's usage of fossil fuels, like subsidising electric cars, e-bikes or solar energy, moving quickly to electrify public transport (for example, buses as China is currently doing), banning petrol sales post 2035, moving Fonterra off coal fired dairy plants or improving vehicle emission standards would be welcome and make more sense.
Policy: Tax Working Group
Cost: Unknown as yet
It is high time that a thorough review of our tax system was conducted and Michael Cullen has assembled a competent team. Our economy has long had far too much focus on investment in unproductive housing speculation at the expense of other areas. The TWG has created uncertainty while it goes through its deliberations but this is unavoidable.
The interim report is out now and the final report with recommendations is due in February 2019. Any legislative changes will only come into effect after the next election so this is a long period of uncertainty for businesses in a very important area.
The Coalition has a charismatic leader in Jacinda Ardern and most businesses want the Government to do well. However, until their policy direction becomes more pragmatic and clearer it is understandable that business confidence has declined.
- Paul Glass is the executive chairman of Devon Funds Management.