When we continue to spend our money on stupid stuff, we get a dumb country. New Zealand politics is now in perpetuity going to be dominated by massive disaster funding and rebuilds. Last week it announced a ‘national resilience plan’ with $6 billion attached, in response to the 2023 storms including Gabrielle. This is remarkably similar to the $6 billion of core Crown expenditure on the Christchurch earthquake rebuilds a decade ago. But it is dwarfed by the tens of billions government spent on direct wage subsidy during COVID 19. With this volume of state subsidy of our economy over so many years and three country-altering disasters, why is the New Zealand economy so bad?
Last year New Zealand’s current account deficit – the difference in value between what we import and what we export – was a massive $33.8 billion or nearly 9% of GDP. In part that is due to tourism collapsing, and in part because as soon as we were collectively able to travel we booked and went which drives up travel and services imports. The export sectors that kept us in literal bread and butter were dairy and meat products, and shortly statistics will also track the surge back in inbound tourism.
As MBIE reported last year, we continue to do a few agricultural things well in dairy, meat, forestry and fruit. Wine and infant formula being about as much as we stretch to major value-added exports in manufacturing.
After that, what we are good at in services is tourism. So when that tanks, we tank. MBIE also notes that our degree of ‘path dependency’ or just doing well what we’ve always done well is really hard to change, hence the use of the word ‘dependency’.
What we are spending $71 billion on is for the most part buildings, and concrete and steel for roads.
For the most part the Cyclone Gabrielle and Christchurch earthquake responses have spending on similar items: fixing transport infrastructure and sewers and water supply, repairs to Crown-owned school and hospitals, funding local government to deal with their local roads (For both Cyclone Gabrielle’s impact as for the Christchurch earthquakes there is also a lot more state expenditure in EQC payouts).
But while small bunnies were pulled out of tiny 2023 Budget hats in the form of prescription charges and public transport subsidies, check out where the real money is going: $71 billion on infrastructure. It’s got a title, but little else: the National Resilience Plan.
Minister Robertson said in his media release that “This investment will initially focus on building back better from the recent weather events. It will also include future proofing road, rail and local infrastructure wiped out by the extreme weather, as well as telecommunications and electricity transmission infrastructure.”
The obvious question must surely be: where was this scale of commitment to alter the economy after COVID 19? COVID 19 and our government’s response to it caused one of our worst and sharpest economic reversals we have ever faced. Why are we fundamentally unchanged as an economy? And why when we are so ‘path dependent’ do we not have economic leadership that can start to shift us out of this?
This government already appears to have forgotten how bad our economy was by late 2020: our GDP contracted by 12.2% in the 2020 June quarter. After propping up most of New Zealand business with wage subsidy, we then had sharp growth and ended with an overall expansion of .4% after a forecast full year 1.7% economic contraction. As typical examples, in mid-2020 Air New Zealand laid off 3,500 staff, and over 1,000 hospitality businesses closed. By November 2021 thousands of companies had been liquidated. These major industrial shifts continue through 2023 in New Zealand industry sectors including tourism, film and television, construction, and horticulture. The low headline unemployment rate veils the massive continued churn and instability in most major private industry sectors.
It was only in February 2022 that the OECD warned us that border restrictions and declining house prices were the major risks to the New Zealand economy, and that excessive Government spending was causing the economy to overheat.
Why don’t we have a plan with dollars attached to actually improve our economy? Is spending $71 billion on dumb concrete and steel the response to the economic cataclysms that beset us?
The day after Budget 2023, Grant Robertson was interview on RNZ and said of the COVID 19 response, “I don’t govern in hindsight.” Well that’s all fine but where is the plan for the future beyond yet more disasters?
On the one hand is the dumb and low value: $71 billion on concrete and steel, and an export economy dominated by low value-added sectors in dairy, meat and wood as it has been since about World War 1. On the other hand the engines of innovation, our universities, are choked of funding and continuing to rapidly shrink. AUT has taken out over 230 academics and tutors. Massey University is going through massive restructuring. Otago University is in the process of getting rid of several hundred academics and other positions and wiping out whole departments.
Government restructuring of all polytechs is also leading to hundreds of further teaching and administrative positions. The pro-commercial agenda of successive governments including Labour has seen a long term decline in per-student funding and a turn to commercial operations relying more and more on overseas students.
Government investment in R&D this time is $400 million for Wellington to re-do a couple of buildings into health, oceans and climate, and a few exceptionally niche pet projects out of Crown Research Institutes.
Yes, that’s $400,000,000 for a few smart jobs in Wellington, compared to $71,000,000,000 spent on dumb concrete and steel.
When we continue to spend our public money on stupid stuff, over a few terms we get a dumb country that is more and more subsidy and welfare dependent, more and more vulnerable to changes in commodity markets, more and more unable to pay its way, more and more in debt, and going down the same path every year doing the same dumb poor things.
What we missed this budget and every single budget since about 2002 is an actual good and funded plan for the prosperity of New Zealand. Until then we don’t have a government that is improving the economy of New Zealand.
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