The unedifying spectacle of elected representatives locking horns in Parliament over the Labour government’s fiscal policy is matched only by a lack of direction and definition in the debate. Each political grouping appears to have its own take on the ground realities of the economy, leaving the average New Zealander neither better informed nor hopeful for the future.
Minister of Finance Grant Robertson insists public debt remains under 20% of GDP, with visions of a surplus in the fiscal years ahead.
While that may look like painting a pretty picture of the economy with broad strokes, the Opposition National’s approach appears to be to spray- paint the canvas.
The National Party’s finance spokesperson Nicola Willis catalogues a litany of government failures, including the Three Waters Reforms, the long waiting times for emergency treatment, fewer elective surgeries, fewer children attending school, declining numeracy and literacy rates, state housing waiting lists quadrupling, and thousands of families checking into motel rooms with their children.
Willis sees Labour running the biggest spending budget in NZ’s history.
The Labour government appears to be basing its credentials on its management of the economy through the pandemic. But whether that model works now that borders have reopened, and the economy needs to shift gears and get going is a moot question. Robertson’s optimism about the economy hinges on tourists and international students returning.
A record low unemployment rate of 3.2% has helped shore up tax revenue beyond the Treasury’s forecasts for financial year 2022 to date.
But a tight labour market remains a key constraint. The government needs to manage its immigration policies to ensure that demand is not hamstrung by a shortage of workers as more New Zealanders head overseas. If wages don’t keep up with rising cost of living, that would provide a push for the brain drain to Australia and beyond.
If the number of people leaving is not balanced by the number of people arriving, net immigration can be expected to drop, though the Treasury is forecasting annual net immigration to gradually increase to around 41,000 by June 2026.
Shortage of workers will retard growth and add to the inflationary spiral.
If the brain drain picks up through 2022 and spills into 2023, the government will be under pressure to further fine tune its policy around immigration.
The introduction of the Green List intended to make it easier to recruit overseas migrants for specific ‘hard- to –fill’ skill roles, which also includes a ‘straight to residence pathway’ for those in select occupations, may fall short of its objectives.
NZ looks set to continue to struggle to meet its labour requirements for the foreseeable future, resulting in pressure on wages.
Geographically, New Zealand is an island. Economically, it is not.
The global economic outlook impacts New Zealand at the best and worst of times. Key drivers include the war in Ukraine and China’s Covid 19 management which is hampering that country’s economy.
But the Labour government’s optimism on exports would appear to be borne out. Notwithstanding Covid, merchandise exports rose while primary sector exports have for the first time crossed $15 billion, belying fears of supply line disruptions.
On the domestic front, however, the government’s cost- of-living dole of $350 for those earning less than $70,000 a year, delivered in three monthly installments, which is aimed at offsetting the rise in cost of living, appears to have boomeranged, at least as a public relations move as an election year approaches.
National was quick to pounce when the government bungled by delivering the cost-of-living largesse to a non-targeted segment of the population living overseas. Around 2.1 million New Zealanders are estimated to benefit from the cost-of-living payments. Along with other subsidies on public transport and fuel, the government’s total support package tips $1 billion.
With the Treasury now acknowledging that inflationary trends are embedded in the economy, it is hoped that the Labour government’s optimism about the economy is based on sound judgment rather than rhetoric.