Opposition critical of Finance Minister after grim fiscal update, and the death toll from Vanuatu's 7.4 magnitude quake rises to 14. Video / NZ Herald, Getty, Michael Thompson
Editorial
THREE KEY FACTS
Deficits are forecast for the rest of the decade, by the old Obegal measure.
Finance Minister Nicola Willis has kept her $2.4 billion operating allowances.
Economic growth is flat, but house prices are forecast to increase.
Among its gloomy forecasts, Treasury sees gross domestic product (GDP) increasing by a modest 1.6% in the year to June 2025, before rising by 3.4% and 2.7%in the following two years.
In other words, our economic outlook got worse across 2024.
As the Herald’s deputy political editor Thomas Coughlan wrote last week: “It all points not just to a tight Budget in 2025, but tight budgets all decade, meaning a very tough path to re-election”.
Given how tough many Kiwis found 2024, this was hardly a tiding of great joy – either for Christopher Luxon and Nicola Willis, or for people on the street.
Experts said that meant the New Zealand economy had its weakest six-monthly period since 1991 (excluding the topsy-turvy Covid lockdown months of 2020).
Among all the figures and forecasts last week, one sticks out as the most alarming: New Zealand’s weakening productivity.
“Several factors are likely to have contributed to this slowdown including poor diffusion of innovation, weak investment, and a slowdown in international trade and connections,” Treasury said last week.
Experts have been warning of our productivity problems for years – and successive governments have paid lip service to fixing it but ultimately ignored it for more voter-friendly policies.
The answer? There’s no silver bullet – and it’s an issue plaguing countries across much of the world. Various experts and commentators in 2024 pointed to several levers the New Zealand Government could pull.
“Innovation and technological change are critical to productivity growth,” Productivity Commission chair Ganesh Nana wrote in his final annual report for the now defunct organisation.
“The Government can do that by building dynamic innovation ecosystems in specific areas of the economy, with firms at the centre of these ecosystems.
“But these ecosystems also include engaged workers with the right skills, international links, researchers, education and training providers, mentors and investors with deep knowledge and understanding of the industry and communities.
“Sustained long-term investments in these areas are central to lifting the productivity of the resources available to the nation,” Nana said.
Dennis Wesselbaum, associate professor of economics at the University of Otago, pointed to the potential benefits of artificial intelligence with one study finding generative AI could boost a worker’s performance by almost 40%.
The New Zealand Initiative’s Bryce Wilkinson said the country needed to be a better job “attracting overseas investment, reducing red tape to encourage innovation, and improving educational outcomes”.
“Also important is helping those without jobs to find work and shifting people out of low-productivity roles, most immediately in the public sector.”
None of these solutions are likely to pay dividends within a single election cycle.
Our politicians will need to be brave and champion policies that cement long-term change.
Such a move should be on all New Zealanders’ Christmas wishlists.
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