The National Party part of the Government might have had worse days than yesterday, but it’s hard to think when they were.
The day began with a damning poll, which stated that Auckland business leaders didn’t rate either the Prime Minister or his Finance Minister, and backed up their poll responses with a series of highly critical comments.
Then, just after midday, there was a brief respite with the Finance Minister introducing the new Reserve Bank Governor, an articulate and seemingly confident Dr Anna Breman, first deputy governor of the Riksbank, Sweden’s central bank.
But even there the Minister, Nicola Willis, had to answer a charge from the Taxcpayers’ Unioon that she had hurriedly scheduled the announcement to take the spotlight after what was to come next.
That was the Treasury’s four-yearly Long Term Fiscal Statement.
That was summed up right at the start by Deputy Secretary and Chief Economic Advisor, Dominick Stephens.
“The main message of the document is that New Zealand’s fiscal policy is not currently on a sustainable path,” he said.
“Change needs to happen.”
The 125 business CEOs who responded to the Herald’s “Mood of the Boardroom” would endorse that last sentiment.
The net measurement of their confidence in the economy was down by nearly 13 per cent on last year.
Mood of the Boardroom Executive Editor, Fran O’Sullivan, summed the responses up.
“CEOs are looking to Christopher Luxon’s Government for clear leadership and direction as New Zealand reaches an inflexion point,” she said.
“Where is our North Star or our moon bets? They question, saying a much more ambitious – or captivating — path is needed to prise the country out of its malaise.”
And the survey has found two scapegoats: the Prime Minister and his Finance Minister.
Neither were rated among the top ten Ministers.
Instead, Education and Immigration Minister Erica Stanford topped the list with Winston Peters second. ACT’s Brooke van Velden was in the top ten, but not the party’s leader, but NZ First’s Shane Jones was there seven places behind his leader.
Some of the comments on Luxon were damning.
Former Mercury CEO Fraser Whineray said, “Luxon went into Parliament with the biggest Rolodex of any PM, all of whom were ready to help support getting things done and provide real-world advice across multiple sectors.
“He hasn’t used it at all.”
That sums up a frequent comment from the CEOs that Luxon did not engage with them.
Frequent comments were that he was “not a good listener”, “doesn’t take feedback well even if delivered constructively” and “needs a stronger Prime Minister’s Office behind him”.
The CEOs were equally critical of Willis.
Forty-three per cent said her growth agenda was not appropriately positioned to lift the New Zealand economy, while 35 per cent backed it, but 22 per cent were unsure.
Privately, the CEOs complain about her spiky response to criticism.
That was on display at the launch of the survey.
Asked by moderator, NZME Chief Content Officer, Murray Kirkness, about her and Luxon not featuring in the top ten Ministers, she replied: “I will speak to the 150 people in this room intensely, but you are not broadly representative of the 5 million people we serve.”
And then she had a crack at Sir John Key.
“We are right now confronting issues that were not confronted for too long,” she said.
“And I mean decades, not just years, and so I’m afraid, John Key, I’m not letting you off the hook either.”
Perhaps she had noticed he was sitting next to Erica Stanford, who is now emerging as a future leadership rival to Willis.
But it wasn’t that Labour did much better.
Leader Chris Hipkins rated lower than Luxon and lower than his finance spokesperson, Barbara Edmonds.
She spoke at the launch but won no friends when she announced that Labour would reinstate the ban on offshore oil and gas exploration.
That reaction was not surprising, with a majority of respondents citing energy security and pricing as their major concern.
However, beyond that, she was at pains to emphasise that a Labour Government would work with business and would try to work on a bipartisan basis on major policy issues.
But she read the room well (apart from the exploration announcement) and came up with a vision.
“What worries me the most, though, and it’s something that has come through the survey, is that we are actually facing something more deeply, and potentially more damaging, disconnection,” she said.
“People are doing everything right, showing up, working long hours, juggling two jobs, running their business, and still, that’s not enough.
“When that happens, resentment can grow, and when people lose hope, they stop imagining a better future.
“They drift away from their communities, from their institutions, from the clubs, even their democracy.
“Our job as leaders in this room is to rebuild those connections, so the strongest communities are not found online, but right outside our front doors and in our workplaces.
“Our purpose goes far beyond the bottom line and the boardroom. It’s about creating opportunity that reaches every part of our country.”
Edmonds might find that she has an ally in the new Reserve Bank Governor Dr Anna Breman.
Willis announced her appointment yesterday afternoon.
Breman is the First Deputy Governor of Sweden’s central bank.
Willis was obviously impressed with how quickly Breman has got to grips with New Zealand.
“What I would share from my experience and my engagements with Dr Breman is that she has a very good sense of what New Zealand history looks like, the challenges that we are facing, our political context, our monetary policy context, and all of that is critical to being able to deliver her role well,” she said.
“And it is significant in any leadership role in an economy that people understand that history, the way that previous decisions have been taken, and all of that informs the role.
“And I’ve been impressed in my engagements with Dr Breman by how much of that she has absorbed already.”
Breman herself however, was at pains to emphasise that the main role of the bank was to control inflation when she defined its core mandate.
“There are three main areas of responsibility for the Reserve Bank,” she said.
“The first is price stability. And we will stay laser focused on delivering on low and stable inflation.
“The second is prudential supervision of the financial system that promotes financial stability, and that is important for a healthy and growing economy.
“And third, but not least, is a safe and efficient payment system and that includes issuance of notes and coins.”
There was not a mention of any role in promoting economic growth.
That bigger picture came half an hour after the press conference to announce her appointment with Treasury’s launch of the Long Term Fiscal Statement, a document it issues every four years which has the purpose of projecting future fiscal balances and borrowing out for x years.
Dominick Stephens, Deputy Secretary and Chief Economic Advisor, was uncompromising in his presentation.
Stephens said that government debt levels higher than were projected in most past long-term fiscal statements.
“That’s partly due to big government responses to disaster events like the Canterbury earthquakes and Covid,” he said.
“But it’s also partly because fiscal policy choices over 20 years have not always addressed long-run challenges.”
And so the outlook is becoming urgent
Doing nothing is not an option. Treasury presented a graph showing that apart from a tiny surplus in 2028 – 29, spending would exceed revenue as a percentage of GDP, growing each year, out to 2065.
The upshot of that would be increased Crown debt, which would pass 50% of GDP in 2034.
Stephens said there was no one solution to the problem.
“If we relied on a single policy to try to plug the fiscal gap, very large changes would be required in that area,” he said.
“And so it seems more likely that a composite, or perhaps a rolling maul, or a range of options is going to be a preferable option.”
He said Treasury had modelled one such scenario.
That involved gradually lifting the age of New Zealand Superannuation eligibility to 68; constraining health cost growth by quarter of a percentage point per annum through efficiency and perhaps user pays measures; constraining growth in other government expenditure so that it fell as a proportion of GDP by 1.4 percentage points over 40 years, and lifting the rate of GST gradually from 15% to 24%.
Treasury Secretary Iain Rennie said none of these choices would be easy.
“But if we do not close the structural deficit, it will tighten the policy constraints over time,” he said.
“This could involve more drastic policy adjustments in the future than necessary and foreclose on some of the options we have as a nation for more gradual transitions.
“The modelling in the Long Term Fiscal Statement bears this out, showing that there are real economic and social costs to delayed reform. “
Nevertheless, like Stephens, he warned against looking for an economic king hit.
“New Zealand continues to have options and we don’t need to tackle 40 years’ worth of pressures in one fell swoop,” he said.
“We are required by the Public Finance Act to look out for years, for decades, in providing the analysis in the Long Term Fiscal Statement, but that doesn’t mean our strategic advice is to try to solve all the policy issues.
“On that same horizon, as our review of 20 years of Long Term Fiscal Statements illustrates, the future will unfold in ways that we can’t foresee at this point.”
But it is the apparent reluctance of the Prime Minister and Finance Minister to talk in any detail about the issues raised by Treasury that must contribute to the perception among the Mood of the Boardroom respondents that there is no plan and no vision.
What must have depressed the CEOs just as much was Barbara Edmonds’ refusal to talk about Labour’s fiscal plans.
Yesterday was not a particularly good day for either of the main parties.
