Business leaders and conservative politicians are pointing to New Zealand as an example of good economic management. But former NZ government adviser Marcus Ganley says we need to look deeper.
New Zealand politics seldom attracts much attention in Australia. The fact that the NZ Labour Party went through its first leadership election that included rank-and-file party members only weeks before the Bill Shorten v Anthony Albanese leadership challenge bypassed many who were quick to draw comparisons with the UK and Canada.
But among business commentators and Liberal Party politicians there is a tendency to praise the economic management of current the New Zealand government. In his reply to the 2013 budget, then-shadow treasurer Joe Hockey claimed New Zealand provided a model Australia should follow. New Zealand media reported that at the Australia New Zealand Leadership forum in 2012, Australian business leaders described New Zealand as being “blessed” with its government.
The latest example of this tendency to glorify the New Zealand government for good economic management was provided by Jennifer Hewitt in Wednesday’s Australian Financial Review under the headline “New Zealand’s National Party leads the way”. The problem with this analysis is that it conflates the fiscal and the economic.
It is true that the John Key-Bill English minority government has overseen a strong fiscal consolidation. But to place this in context, the Labour government they replaced in 2008 had delivered a surplus budget every year from 2000 to 2008 and had paid off government debt, resulting in the government accounts showing a net asset position from 2006 onwards. Despite Hewitt’s comment about growth under former NZ prime minister Helen Clark’s government, for the period 2000 to 2008 New Zealand recorded the longest economic expansion since the end of World War II.
Like most similar economies, the New Zealand budget position deteriorated dramatically during the GFC. This resulted in the 2008 Pre-Election Fiscal and Economic Update (PREFU, functionally equivalent to the Pre-election Economic and Fiscal Outlook) showing deficits across the forward estimates. Fortunately the prudence of the previous Labour government in paying off debt and building up assets ameliorated the impact of this.
The National Party government has overseen a fiscal consolidation, and a return to surplus is expected by next year. Along with spending reductions, this has been aided by a 20% increase in the rate of GST. However, an economy is not simply about budget management. When the wider economic performance of New Zealand is examined, the picture is less rosy. Two key variables show this: economic growth and unemployment.
Taking the size of the economy in 2008 (when the National Party was elected) as the base, the New Zealand economy is 1.18 times bigger today. This compares with Australia, where the 2013 economy is 1.25 times bigger than in 2008. Growth under the previous New Zealand government averaged just under 3.5% per year.
Under Clark’s government from 1999 to 2008, unemployment in New Zealand was continually below Australia’s. From 2005 to 2007, unemployment in New Zealand was below 4%. In 2005, according to Organisation for Economic Co-operation and Development statistics unemployment was in New Zealand was 1.2 percentage points lower than Australia. This has changed completely under the National Party. On the latest OECD figures unemployment in New Zealand is nearly 1.7 percentage points higher in New Zealand than Australia. At the same time, the wage gap between Australia and New Zealand has increased by nearly $NZ90 per week since the election of the National Party government.
At its essence government is about priorities. Strong fiscal management is important. It ensures government services are sustainable and avoids placing undue burden on future generations for the services provided today. However, fiscal management is not everything. Before heaping too much praise on New Zealand’s National Party, it is worth looking at the economy as a whole.
*Marcus Ganley was a senior adviser to former NZ deputy prime minister and finance minister Sir Michael Cullen