Economists Warn New Zealand Government of Economic Missteps

A group of 20 prominent economists has issued a stern warning to the New Zealand government, asserting that its current economic strategy is detrimental and causing long-term harm to communities. In a letter addressed to both the Finance Minister and the Prime Minister, the economists argue that the government’s hands-off approach is exacerbating issues such as rising child poverty, increased unemployment, and strained food banks.

The economists, who represent a range of backgrounds including independent, union, and academic affiliations, claim that the government’s fiscal policy has significantly misjudged the economic needs of Aotearoa. They emphasize that it has not only failed to mitigate the recession but likely worsened it. The letter states, “The policy prescription ordered by your administration is causing long-term harm, and that harm will continue to intensify if the prescription is not changed.”

Previous Concerns Ignored

This recent communication follows a similar letter sent nearly a year ago by a group of 15 of the same economists, which was largely overlooked. At the time, Nicola Willis was in Antarctica, leading to Housing Minister Chris Bishop responding on her behalf. Bishop famously remarked that Willis was “more likely to take advice from a penguin” than from economists aligned with the Labour Party. In light of this, some economists have humorously referred to themselves as “the penguin economists,” and they have since recruited five additional members to their cause.

Among the signatories are notable figures such as Ganesh Nana, former head of the Productivity Commission, and Craig Renney, a union economist who also serves on Labour’s policy council. They argue for a shift towards less austerity and more borrowing to stimulate the economy.

Nana stated, “It’s definitely not a ‘we told you so’, it’s very much a call to action for the government to step in and play its much-needed role.” The economists assert that the government’s policies have not been based on “sound economics,” but rather on political cycles that ignore pressing economic realities.

Economic Indicators Paint a Grim Picture

The economic indicators cited by the group illustrate a concerning trend. Economic growth has been in decline for nine of the past 15 months, resulting in an economy that is now 1.3% smaller than it was at the time of the last election. GDP per capita has also dropped below levels recorded in June 2022. Unemployment figures are climbing, with over 400,000 New Zealanders unable to find adequate work. Youth unemployment is particularly alarming, with 42,000 fewer individuals aged 15 to 24 in the workforce.

The letter highlights that Māori and Pasifika communities are experiencing unemployment rates in the double digits. Additionally, soaring food and energy prices coupled with stagnant wage growth mean that the average full-time worker is approximately $1,300 worse off in real terms compared to two years ago.

The construction sector faces a collapse, and annual manufacturing output has diminished to levels seen a decade ago. The economists note that business liquidations are projected to reach an all-time high, signaling significant distress in the economic landscape. “These are not the outcomes we would expect from an economy or a country that is working,” the letter asserts.

Child poverty rates are anticipated to surpass government targets, while homelessness is on the rise. Food banks are struggling to meet unprecedented demand, further underscoring the need for immediate government intervention.

The group criticizes the government’s recent Budgets, which implemented around $23 billion in tax cuts and depreciation changes, suggesting these cuts have failed to stimulate growth and diverted essential funds from public services.

Call for Action

The economists advocate for a comprehensive plan that addresses poverty, revitalizes the labor market, and transitions the economy towards high-value production. They stress the necessity of obtaining support from various sectors, including business groups, unions, iwi/Māori, and local communities.

“Distributionally, the revenue changes delivered to date also predominantly support higher-income earners and owners of capital assets. Neither is likely to support additional output,” the letter argues. The economists emphasize that the government’s current strategy should not focus on reducing debt but rather on increasing expenditure to sustain demand within the economy.

Willis responded to the letter by expressing her disagreement, particularly with the suggestion to increase taxes, borrowing, and spending. She stated, “I don’t agree. That was the approach taken by the previous government and it resulted in runaway inflation, exploding debt, and a structural deficit.”

As the economic situation evolves, the economists expressed hope that their renewed plea for dialogue and action will elicit a meaningful response from government officials. They concluded their letter by stating, “The economic facts have changed since last year. We hope that means you are open to changing your mind too.”