New Zealand has drifted under National for 3 years. They came to power with a plan they developed years earlier at the peak of the good times: cut taxes, sell assets, build roads. They haven’t altered that plan despite the weakest ‘recovery’ in history, no jobs, record borrowing, and the dark clouds on the economic horizon. They have, in Bill English’s words “muddled through” while we’ve got poorer.
They’ve failed to turn the economy around, failed to lay the foundations for the future but they predict things will magically get better with ridiculous scenarios like the dairy herd doubling in 15 years – where would the water come from – and tourism also doubling despite 4 years of rapid decline.
A 2nd term would be same muddling through as the 1st plus asset sales. Rod Oram fillets them:
“National has a straightforward and comprehensive plan to build a more competitive economy,” Prime Minister John Key told delegates to the Deloitte-Business New Zealand election forum last Monday.
A few hours later, the two organisations announced the results of their pre-meeting survey of business. “Does the government currently have a co-ordinated plan of action focused on raising New Zealand’s economic performance?” was the first question asked.
Yes, said 34.5%; No, said 27.7%; Unsure, said 37.8%.
So, does National have a plan or not?
In fact, it has two: the simple one Key described and Finance Minister Bill English defended later in the meeting, and the complex one it never talks about, its Economic Growth Agenda Mark II.
No wonder lots of people are confused or underwhelmed.
“No matter how often the government talks about a plan to get economic growth, it is not resonating with business,” said Deloitte’s chief executive Murray Jack.
Key tried. He conveyed the simple plan in a few well-worn phrases. English said this would deliver what the country needed, “systemic improvement right across the economy, not just some rinky-dink scheme that one sector or another thinks it might benefit from.”
As it happens, though, sector schemes such as the Primary Growth Partnership, in which the government is investing $70 million a year, are central to the government’s Economic Growth Agenda.
English added it would take five to seven years for the benefits of systemic improvement to emerge.
On that timetable, the economic growth rate would start to accelerate in 2013 and be humming by 2015. But, in fact, Treasury and other forecasters reckon growth will spike in 2012-14 then fall back to its long-term average of around 2%.
Half of that spike will come from rebuilding Christchurch and fixing leaky homes, and that won’t boost export-led growth.
So, despite our longest boom in 60 years, followed by our longest recession in 40 and a change of government, the growth rate will remain chronically short of the 4% to 5% required to meet our economic, social and environmental needs.
That’s because the generic plan, if executed well, would only improve the playing field for business. It won’t be much help turning companies into sophisticated, global, high-value, growth enterprises.
So that’s where the government’s Economic Growth Agenda Mark II is supposed to kick in – by the way, you can forget about Mark I, it was a scanty thing the government cobbled together during its first 18 months in office.
It’s very hard to find a description of EGA II among all the government’s documents. It took a while earlier this year to winkle it out of the bureaucracy.
The two main goals for 2025 are to catch up with Australia and to lift exports to 40% of GDP from 30%. Government long ago stopped discussing the first. Indeed, the GDP per capita gap between Australia and us has grown since National came to office. Ours remains below its 2007 level, while Australia’s continues to grow.
EGA II identifies five “cross-cutting themes” that will work the magic:
Stronger International Connections through initiatives such as “NZ Inc, regional and country strategies”, a NZ major events fund and air connectivity.
Better Business Innovation actions such as “investment strategies aligned across agencies” and refocusing government assistance “to address better innovation needs of high value sectors”.
Smarter Capital through the likes of “improved flow of quality foreign direct investment” and “stronger firm management capability”.
Competitive Cities thanks to “economic development strategy and spatial plan for Auckland and other cities”.
Economy and the Environment through an “advisory group to recommend ways to develop and leverage NZ’s clean green brand”.
The themes are right, but the implementation is a shambles.
The government’s thinking is shallow, its sub-plans few, patchy and often inconsistent or contradictory. Execution is painfully slow.
EGA II has picked four export sectors to deliver the big economic uplift required to meet its 2025 goals:
Knowledge intensive manufacturing and services are supposed to treble their exports from $9b in 2009, to $29b in 2025
Food and beverage is likewise meant to treble to $58b
Tourism revenues from overseas visitors almost double to $14b
Minerals and petroleum are meant to grow strongly from $4b (the government hasn’t set a target for them, but alludes to billions of dollars of royalty income to help fund schools and hospitals).
All these are targets are incredible, in the literal sense of the word. For example, dairy would have to roughly double its output to treble its value. But where will the extra 4.4 million cows go?
Knowledge intensive sectors will largely happen in transformed urban economies, but the government is stomping all over the ambitious plans of our three main cities for achieving that shift.
Tourism is going backwards. Short-stay, low-spending Australians are making up in volume, but not value, for steep declines in our high-value European, Japanese and US visitors. Tourism jobs are low value and seasonal, so each new job is no help in lifting GDP per capita.
And on petroleum, the government’s energy strategy document shows that output from deep offshore fields ramps up only after 2025, and that relies on technology that doesn’t yet exist.
No wonder business is worried.