The trading banks yesterday concluded that though GDP figures released yesterday show the economy is not in recession, it may well soon be.
Nevertheless, the fact that GDP has gone up 0.8 per cent in the latest quarter and that StatsNZ revised the previous quarter’s figure to show a very modest 0.1 per cent increase meant that technically, New Zealand is not currently in recession.
That left some explaining for National’s finance spokesperson, Nicola Willis, to do since her party has plastered the country, the media and its speeches with claims that the country is in recession.
It’s not, or possibly more correctly, not yet.
She dodged media questions asking whether National would now take down the billboards saying New Zealand was in recession.
“The Reserve Bank forecasts recession, for most New Zealanders, they feel like they are in recession,” she said.
That became a theme; that numbers like yesterday’s GDP figures were just “technical.”
“Let’s not talk about what’s technical,” she said.
“Let’s talk about what’s real.
“The reality for far too many New Zealanders is that the wages have not kept up with inflation.
They are struggling to pay their bills; they are struggling to pay the mortgage.
“It feels like a recession. And we can have a big debate about the technical numbers, but that is the cold, hard reality.”
Finance Minister Grant Robertson was, however, claiming victory.
”It’s a victory for the New Zealand economy and for the people who work hard every single day to make sure that we deliver quick, quality jobs,” he said.
“This does show that we’ve got a resilient New Zealand economy.
“These have been incredibly tough times for businesses and households.
“We have to call it, in my opinion. I think that the New Zealand economy is going through a particularly tough time.
“There will be challenges ahead of us. But this does set us up well for the rest of the year. “
Kiwibank’s economics team, Jarrod Kerr, Mary Jo Vergara, and Sabrina Delgado, has a slightly more downbeat take than that.
“Let’s tell it for what it is: it’s old data,” they said.
“We have simply bounced off very low levels, levels that were impacted by the flooding and cyclone.
“The full force of the RBNZ’s tightening is yet to come.
“And we continue to expect weak economic activity over the second half of this year and into 2024.”
ANZ bank economist Miles Workman told a similar story.
“Growth in per capita terms remains very soggy at 0.2% quarter on quarter, showing economic conditions are still very weak for people on the street,” he said.
“On that front, high inflation and higher interest rates are certainly taking their toll on households and businesses, and that pressure is not expected to change until the RBNZ can confidently say it’s got inflation back in the bag.”
As a consequence, Workman is forecasting a possible interest rate rise in November.
It is inflation that is the shadow hanging over the whole economy and the dilemma facing the political parties over what to do about fiscal policy.
Spend too much, and that will push inflation up, and the Reserve Bank will react with higher interest rates or cut spending too much and risk driving up unemployment.
ACT yesterday, as might have been expected, opted to cut.
On the surface, ACT’s Alternative Budget looks only slightly different to the figures contained in the Pre-Election Economic and Fiscal Update (PREFU).
Like the PREFU, ACT does not see a surplus in the government accounts until 2026/27 and even then only slightly larger than that forecast by the Treasury.
But ACT is proposing substantial tax cuts and, unlike National, is not trying to claim they will be self-funding.
The tax proposals are not new but go beyond National’s “Back pocket boost” proposals.
Under National, income above $15,600 would pay a 17.5 per cent tax, but under ACT, that rate would apply to all income up to $60,000. Similarly, National would start the next rate, 30 per cent, at $48,000, but ACT would start it at $70,000. Both would then charge 33% up to $180,000 when the rate would rise to 39%.
ACT would also pay an offset to low and income and middle-income people to compensate them for the fact that all income would be taxable.
National says its proposal would cost $2.1 billion in 2024/25; ACT says its proposal would bring in another $1.5 billion of income tax while it refunded $3.1 billion in 2024/25.
However, ACT has spelt out substantial cost cuts — including its promised sacking of 15,000 public servants and the abolition of Te Puni Kokiri and the Ministries of Pacific Peoples, Women, Crown Maori Relations and Ethnic Communities.
On the other hand, when asked specifically how many public servants National would sack to get its savings, Willis once again failed to give a number.
“It’s not our policy,” she said.
“Our policy is to work with the chief executives of the government agencies we’ve identified to ask them to identify the savings they think can occur quickly while prioritizing and preserving frontline services as well. “
But on Monday, National leader Christopher Luxon had a different take on what the CEOs might do to get the savings.
“They may stop filling in vacancies, and they may actually lay people off,” he said.
It is the opacity in National’s costings that gives rise to the continued questioning of Luxon and Willis as to the specifics of their economic plans.
That opacity has been thrown into sharper relief by ACT’s actions in releasing its highly detailed plan.
Given also that the GDP figures have now thrown the spotlight on the impact the fiscal spending might have on inflation, National can only expect that pressure to get more intense.
But Willis yesterday simply denied there were problems with the costings released so far.
“I utterly reject that,” she said.
“Some economists have used different assumptions to come up with different numbers.
“We have put together a careful, prudent plan.
“We’ve had an independent economist assess that, and they agree with us, and we’re confident in our costings.”
If she or her party are wrong and there is a $500 million hole in their costings, then that will not only be inflationary and thus prolong the era of high-interest rates but also might be expected to raise long-term bond rates if the government has to borrow more to cover the gap.
Discussions about numbers may be technical, but in terms of the next 12 – 18 months, they have the potential to affect everybody’s day-to-day life.
That is what the election campaign should be about.