We now have actual figures for the past two quarters, since June 2023, and a May 2024 Reserve Bank financial stability report, plus the March 24 Ministry of Finance Budget policy statement.
To no one’s great surprise, the reality for the New Zealand economy is even worse than BERL’s projections last year. The March 2024 Interim nine-month Treasury Report showed operating deficit of $5 billion for first three-quarters of the year - a staggering $619m more than expected.
The projected GDP increase of 1.5 per cent ... actually 0.6 per cent, currently tracking -0.1 per cent
The projected CPI (inflation) of a 5 per cent increase ... currently tracking at 4 per cent
The projected unemployment rate 3.6 per cent ... currently tracking 4 per cent
Interest rates ... the Official Cash Rate is now at the highest points since 2009, 5.5 per cent, with no forward-looking optimism.
To summarise, a collapse of GDP and rather sticky inflation.
While I don’t expect councillors to particularly follow geopolitics, treasuries, bond futures and capital markets, I do expect them to read and interrogate the council’s commissioned documents and have at least a cursory passing interest in finance and our Government’s Budget policy statement.
Just the overviews, let alone the granular of the BERL, Reserve Bank and the Budget statements, which show we almost certainly qualify for having the requirements for stagflation, with: slowing economic growth; rising unemployment; high inflation; falling demand; stagnant wages; high interest rates; a decrease in business investment; and an increase in government debt.
The New Zealand economy is an agricultural economy. Both the Reserve Bank and the Budget draft report specifically acknowledge that these sectors are under stress, with increased costs and reduced returns both nationally and internationally.
In the past six years, as a direct result of government policy shutting our hydrocarbon industries in 2018, our economy has lost a minimum $2.5b/year from its GDP, and lost government revenues of $750m/year - and that’s NOT coming back.
No industrialised economy on Earth has economic stability without control of its energy source, and New Zealand is now at the mercy of importing all its fossil fuel requirements from a global market that is both tightening and prone to supply constrictions.
The only sectors of growth in New Zealand have been the public sector and, as night follows day, public debt.
The state of the country’s finances is ruinous and as Nicola Willis is finding out, there are no easy options.
“The structural increase in spending means that the Government would be in deficit - and would need to borrow to cover this deficit - even if the economy was operating at full capacity. This is not sustainable,” she said in her March 27 Budget policy statement.
Meanwhile, the Reserve Bank indicates there is no likelihood of the base rate being lowered and Treasury bonds continue to trend upward to 10-year highs.
The facts on the ground in Tairāwhiti:
- The GDC area represents 1 per cent of the NZ population
- It contributes less than 0.7 per cent to the NZ economy
- It is a net recipient of taxpayers‘ monies from outside the area
- The area relies almost exclusively on beef, sheep, forestry and horticulture for its income, all sectors that are specifically highlighted in the Reserve Bank report as being under stress, with reduced returns in national and international markets.
The wake-up call from the Budget policy statement is what any householder could have told them.
As Margaret Thatcher so succinctly summarised: “The trouble with socialism is eventually it runs out of other people’s money.”
As the Reserve Bank says in its May report: “Most borrowers have repriced on to higher interest rates. Householders have reduced their spending and some have reduced principal repayments to make debt servicing more affordable.”
For a unitary district council with only 18,684 rateable units, and a working-age population of 20,400 but only around 12,000 actual wealth creators, it is complete and utter folly for this council to continue with this nonsense of fiscal irresponsibility.
Under the council’s own policies of prudence and intergenerational equity, and its obligations in the Local Government Act of 2002, the councillors MUST reject the Three-Year Plan and insist there can be NO increase in either the debt or the rates.
Gisborne District Council does not live in a bubble and money doesn’t simply appear - not anywhere.
