The Government hasn’t stopped talking about growth since the Prime Minister made his “yes” speech at the Auckland Chamber of Commerce last week.
But so far, the measures announced would seem hardly likely to suddenly pitch New Zealand into the fast-growth East Asian league.
The digital nomad announcement hardly deserved its three-Minister press conference billing.
Nevertheless Tourism Minister Louise Upston claims inquiries are flooding in for and she told Parliament yesterday that there had been 8000 hits on Tuesday on the visa site.
Auckland Mayor Wayne Brown might have been on surer ground when he called on the Government yesterday to reciprocate China’s decision to allow visa-free entry for New Zealanders.
Statistics NZ figures for tourist arrivals for the 12 months to November last year show that arrivals from China were down 40 per cent on pre-covid arrivals to November 2019, when 408,300 Chinese tourists arrived here.
That number is substantially more than the digital nomads.
But this is a Government that is increasingly showing it prefers incremental small-scale solutions to big bold ones like Brown’s.
The problem seems to be that the Government can’t quite make up its mind whether to go full speed for growth and damn the fiscal torpedoes.
This dilemma was vividly on display at the first meeting for the year of the Finance and Expenditure Committee with Finance Minister Nicola Willis and her Treasury Advisors at her side.
That Committee now has a new chair.
Kaikoura MP Stuart Smith has been sacked for unexplained reasons and replaced with Upper Harbour MP Cameron Brewer.
Smith has surprised many of his colleagues with his adept chairing of the Committee but he missed out on Cabinet and seems unlikely ever to make it. Retirement might be his next option.
Brewer, on the other hand, has a solid business CV and is well-connected in Auckland. He is well regarded within the Caucus and party and his familiarity with the Auckland business world might be an important asset that could see him make the Ministry before too much longer.
The politics of growth and the allied fiscal situation are complex.
National’s mantra last year was that the profligate spending by Labour, particularly during its last term in office, had led to what the Prime Minister ill-advisedly on Tuesday called three years of recession created by Labour.
Unfortunately for him, the Treasury yesterday fronted up to the Finance and Expenditure Committee to say the data for the past three years had been revised, and New Zealand had not been in recession for three years.
In fact, said Treaury’s Chief Economic Advisor, Dominick Stevens, New Zealand was in recession only last year.
“There have been recent revisions to GDP data that have changed the profile of GDP over the course of three years,” he said.
“Previous figures suggested roughly flat growth overall.
“The new figures suggest growth over 2022 and 23 and then a period of decline.
“However, on a per capita basis, New Zealand economic activity has declined.”
Stacked up against the growth statistics is the perilous fiscal outlook facing the country.
Finance Minister Nicola Willis set it out very clearly to the Committee.
“Ministers of finance must take measures to address fiscal positions that are not sustainable in the long term,” she said.
“And it is a fact that right now, New Zealand is running a $13 billion deficit, and we are borrowing to bridge that.
“We have been in deficit since 2019.
“At the moment, we are putting money into the economy by borrowing.
“We are not taking it out, and that is the right course of action right now to ensure we can continue to provide sustainable public services and support New Zealanders.
“But we also have a very important job to do to chart a path to recovery in NZ.”
It is becoming clear that despite the tough talk from Luxon and Willis about the need to get the fiscal situation under control, the Government is wary of taking the kind of drastic cost-cutting actions that its predecessor, the Bolger Government, did in the 1990s.
Willis was doing the tough talk yesterday about the limits she was imposing on Ministers in the current Budget round.
“We’ve set a very high bar for any new spending initiative,” she said.
“Ministers have been asked, if possible, within their portfolios, if they wish to pursue a new initiative, to create additional funding in one area to see if there’s something they can reprioritize in another.
“This is akin to what most businesses are doing all the time, and many households are doing all the time, putting money where it can make a difference.
“And then the third thing is that across Government, we continue to look for areas where spending programs haven’t delivered the outcomes that we had wanted and have proven not to be successful.
“We think those funds could be better used elsewhere.”
She is also changing the way the deficit is measured, which has the effect of Treasury’s forecasts showing a $1.9 billion surplus in 2029, whereas using the traditional measure, the accounts would be showing a $2.4 billion deficit.
Willis has arrived at her new rosier forecast by excluding the Accident Compensation Corporation from the accounts.
ACC is currently in deficit, which has the effect of dragging the overall fiscal numbers down. Still, Willis argues that because the scheme is self-funding, its deficit doesn’t really matter because it will soon be back in surplus.
Furthermore, it would be a distortion to allow a year-to-year fluctuation in ACC’s balance sheet to determine the country’s overall fiscal direction.
Labour’s Finance spokesperson, Barbara Edmonds, quoted from Treasury documents obtained under the Official Information Act showing that the department opposed Willis’s move.
“One of your reports is the key risks of removing ACC from OBEGAL (the traditional deficit measure) are changing your short-term indicators so soon after sitting them could weaken your fiscal strategies credibility, especially at a time when the fiscal outlook has deteriorated,” she said.
“That is from advice that is dated on 14th of November. Do you stand by that advice?”
Treasury Deputy Secretary Struan Little said the Treasury stood by all its advice.
But he said that of the $12 billion deficit, roughly half was created by the Crown Entity sector, and ACC made up $4 billion of that.
“So the question in terms of communicating the fiscal position is whether it is reasonable that four billion is taken account of when you know that by law ACC will need to make sure that the deficit is corrected through the passage of time,” he said.
So, apart from recalculating the deficit target that she must overcome, Willis is relying on growth to do much of the rest of the work and, importantly, either having to make savage spending cuts or raise taxes.
“Additional growth of even a quarter of a per cent of nominal GDP each year would boost tax revenues by $2 billion a year by the end of the forecast period,” she said.
“So, while some people would say just tax them more and strangle the economy, my approach is let’s grow the economy so we don’t need to strangle them with more taxes.”
But the problem there is that where the Government’s story runs out.
Willis is promising to announce legislation in the Budget that will improve productivity and thus boost growth.
But when she spelt out the Government’s priorities to improve productivity, she simply recited a list of current policies and actions, reforming the Resource Management Act, cracking down on inefficient regulation, encouraging overseas investment, science reform and delivering good infrastructure.
The Government might have an excuse if it argues that it is becoming obvious that consensus within its coalition is becoming harder and harder to achieve. That is why it is beginning to look like a government that can only make incremental change.
It is also obvious that the current political strategy is to carpet-bomb the media with talk of growth.
But the reality is that nothing much has really changed, particularly if you focus on the traditional measure of the deficit.
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