With yesterday’s announcement by the Reserve Bank to cut interest rates by 1%, some are suggesting that the government should embark on a massive public works spree to stimulate the economy while increasing national debt at low interest rates.
This RBNZ move is by some measure a strong intervention by the Reserve Bank. As National’s media release noted, the only times in its history there has been cut of this magnitude has been “after the 9/11 terrorist attack, during the Global Financial Crisis, and after the Christchurch earthquake.”
The Reserve Bank’s primary concern is to get households and businesses spending more, to get more dynamism back into the local economy.
Wage rises are low, business investment is low.
But the crisis the RBNZ is signaling simply hasn’t happened. It’s nowhere near happening. We have about as many people able to be employed as we are going to get. GDP growth in the economy is still going at around 2.5%, and we remain in one of the longest cycles of sustained growth since World War 2. If there is a crisis to come, far better that government pay down debt now, increase social spending now, gently push up minimum wages, and keep even more stimulus for when it really does hit. That has been Robertson’s theme for this government, and he’s right.
Groups such as Infrastructure New Zealand want to see huge new projects get off the ground to stimulate the economy.
But there are no workers to be had to do any more infrastructure work.
Projects such as City Rail Link’s new Alliance are about to suck over
1,500 people both locally and internationally out of labour hire and consultancy businesses. If Auckland Light Rail got the green light tomorrow, the skill shortage would mean that most staff would need to be imported, even if some were pulled from the South Island. We haven’t even got the Auckland-Northland rail upgrade decision, but if we did there are no more rail workers to be had anywhere either.
After the limited effect of government interventions in the housing market, this government is not motivated to spend more of its political capital and ministerial careers chasing bulldozers uphill to corral families to buy houses they just can’t afford.
And in 2020-2021 we have additional stimulus in America’s Cup, APEC, and a slew of big sporting events.
So no, the government does not need to try a big debt-spree.
I am also skeptical that any stronger-directed plan from the massive Provincial Growth Fund would necessarily generate superior outcomes to what it’s already delivered. I’m sure there are Treasury and MBIE cone-heads who are running defensive counterfactuals about what the economy would be like without it, but that’s a mirage.
By any measure PGF is a big intervention, and there’s no sign adding more interventional cash would actually give a big marginal increase in private sector investment.
The other move the Reserve Bank is implying is stronger wage rises. We have to be honest and admit that there won’t be any sector-wide wage awards this term. The instruments to do it no longer exist and are just being slowly rebuilt. The remaining unions in New Zealand with any strength have fought and won the increases they are going to get.
There is otherwise no labour-side pressure on employers to increase wages. Even with such labour scarcity, wages are showing weak rises even now.
No, the lesson the New Zealand economy is going through is this:
Too much of the limited private savings that we have is lazy. Far too much of Kiwisaver is in default conservative settings. Instead of looking at pushing for compulsory Kiwisaver, and annual sit-downs with your investment manager to check on their health, public officials are just tooling around with ethical reforms.
Even an average-quality Kiwisaver should be able to show you every company you are invested in.
If government wants to stimulate the economy, it should force the entire Kiwisaver regime to work far harder. It could go for compulsory Kiwisaver, and it could go for a higher level of savings out of wages, such as going for 5% private + 5% compulsory business contribution.
Pump up the volume. Doesn’t have to go for the Australian 9% compulsion standard. But annual savings meetings with advisors would mean we lead ourselves to make our own money work harder in our own economy.
The second area of absent leadership is from business itself. Fonterra and Fletchers are very seriously damaged. We have few remaining large locally-owned businesses left, and still more of them like Westland Milk are leaving or being sold off. The previous 9 years have had few world-beating companies rise up, because private capital was all sucked into the housing speculation boom as mortgages. So there’s no new Icebreaker generation pushing through the ranks. We have thousands and thousands of tiny businesses, and on average they are getting smaller.
We have actually zero leadership from our New Zealand Stock Exchange, or Business New Zealand. No one wants to list, and the rare few who are prepared to list such as Xero prefer Australian listings. Nor is there any will shown by the likes of Business New Zealand to engage hard on cross-sectoral engagement with the government. They are a bunch of fucking lazy self interested moaning bastards.
Can anyone remember the last time a business leader stood up and said:
follow me, I know completely what businesses in this country needs? Me neither.
Business, buck up and lead yourself.
New Zealanders and New Zealand businesses will have to figure out themselves how to burn off their own mortgage burden and redirect their own money into businesses they want to see grow.
I hope Minister Robertson says to every critic this coming week:
You want strong economic leadership? Look in the mirror and start.