Kia ora. Long stories short, here’s my top six things to note in Aotearoa’s political economy around housing, climate and poverty on Thursday, October 31:
US and European GDP growth figures overnight show the world’s largest economies, along with that of our nearest neighbour Australia, are still growing solidly because of ongoing Government investment. Meanwhile, New Zealand’s economy is slumping into a deeper recession because of budget cuts described by Treasury as the most severe per-capita in our history, done without any signs of a fiscal or debt crisis that prompted Ruth Richardson’s less-severe ‘Mother of All Budgets’ in 1991.
Scoop of the day: Marc Daalder reports for Newsroom this morning that Te Whatu Ora-Health NZ employs no one to deal with Long Covid, despite the hundreds of New Zealanders debilitated by Long Covid.
Deep-dive of the day: Max Frethey takes a closer look via RNZ’s Local Democracy Reporting on how Tasman District Council doesn’t have a single councillor under the age of 30.
Solutions news: The Wellington City Mission will open its new $50 million building today, which includes 35 transitional housing apartments, a medical centre, dental surgery, social supermarket, chapel and cafe. RNZ
Quote of the day: Tauranga cardiologist Dean Boddington, who is quitting because of burnout, says Health NZ Commissioner Lester Levy is ‘living in La-La Land’ if he thinks the system can cope with $1.5 billion of spending cuts, telling RNZ’s Nine to Noon yesterday: “The whole system relies on people overworking."
Chart of the day: A single container ship of solar panels can provide as much electricity as more than 50 large LNG tankers of gas or 100 large coal ships, the IEA says in its Energy Technology Perspectives report for 2024 published overnight.
(There is more detail, analysis and links to documents below the paywall fold and in the podcast above for paying subscribers. If we get over 100 likes we’ll open it up for public reading, listening and sharing.)
New Zealand’s self-inflicted economic crash landing
NZ slumps deeper into recession as rest-of-world lands softly
New Zealand’s economy is now well into a third year of economic stagnation and recession that is already deeper in per-capita terms than the 2008/09 recession after the Global Financial Crisis (GFC). Back then, the Key-English Government of 2008-2017 could rightly argue that recession was caused by a drought, the very-global GFC and finance company collapses here, which was why they chose not to deliver tax cuts in their first Budget and instead avoided knee-jerk Government spending cuts.
That National Government was reluctant to repeat the experience of cutting Government spending hard for the poorest in the teeth of a recession, as happened in 1991-1993 because of threatened credit rating downgrades and dangerously-high Government foreign debt and borrowing costs in foreign currency. Then-Finance Minister Ruth Richardson could credibly (although still contested) argue the cuts were needed to keep foreign investors happy and avoid some sort of currency collapse and accelerated blowout in Government interest costs.
There can be no such justification now. New Zealand’s Government debt-to-GDP ratio is less than two-thirds its peak levels of 1991 and the interest costs are less than a quarter of their levels back in 1991, relative to GDP.
Where is the crisis?
The austerity has only just begun, as Treasury’s Chief Economic Adviser Dominick Stephens pointed out in a speech in late September, which included this chart.
“The Treasury’s latest forecasts assume that most of the return to surplus will be driven by declines in per capita government consumption. The implied speed and size of this decline is generally unprecedented in recent history in New Zealand. “ Treasury’s Chief Economic Adviser Dominick Stephens
I also spoke to Stephens about this for When The Facts Change here:
The Government is betting the private sector will step up to replace the $40 billion or so in spending cuts forecast over the next three years, either through foreign investment to buy assets or households taking on extra debt against an even more inflated housing market.
But IMF and other studies show a multiplier effect from Budget cuts that reduces GDP by almost three times more than the Budget cuts, and that the economic effects are worse than improving the Budget position through tax increases, which generate a one to one reduction (rather than a three to one reduction).
“New IMF Fiscal Monitor provides estimates showing that fiscal consolidation measures always reduce output and consumption - cuts in public investment are particularly detrimental. "If taxes are progressive, raising them leads to smaller output losses." Philipp Heimberger, Macroeconomist at the Vienna Institute for International Economic Studies via X
This week’s IMF Fiscal Monitor report released also showed untargeted Government cuts hit the poorest the hardest, and by more proportionally than the cuts themselves.
Meanwhile, other countries with higher debt ratios, including Australia and the US, are not deliberately crunching their economies with unnecessarily harsh budget cuts. They are all running looser fiscal policy with higher levels of public investment.
Scoop du jour: No one for Long Covid
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