Dawn Chorus for Wednesday, January 31

The Finance Minister is on the defensive as it becomes clear the proposals for public service ‘efficiency gains’ means greater hits to front line services than expected, and after a concession that $400 million of cost savings from contractor spending will now be part of (rather than on top of) the touted cuts. Photo: Lynn Grieveson / The Kākā

TL;DR: The new Government’s December 21 order to civil servants to slash spending 6.5% has already been escalated to 7.5% cuts in some cases and are starting to endanger the coalition’s own promises for extra spending in some areas.

Police Minister Mark Mitchell revealed in Parliamentary Question Time yesterday that the Government would take three years to add an extra 500 front-line police officers, rather than the two years agreed in its November coalition deal.

Given freezes in decision-making on infrastructure and housing spending are expected to last well into 2024, the risk is growing that Government spending cuts and freezes will accelerate and deepen a per-capita recession that saw GDP fall 3% in 2023. A major reason for that was already-weaker-than-forecast real Government spending (see more in chart of the day below the paywall fold) and record-high migration, which the Reserve Bank said again yesterday was a driving force in high inflation that was stopping it from cutting interest rates within months. This year is shaping up as a year of stagflation, but with rising house prices and early tax reductions for landlords and those on the highest incomes.

Elsewhere in the news in Aotearoa-NZ’s political economy and beyond at 6 am:

• RBNZ Chief Economist Paul Conway pushed back yesterday at market expectations of Official Cash Rate cuts within months, saying in a highly-anticipated speech that high net migration and resilient domestic demand meant “we still have a way to go to get inflation back to the target midpoint”.

• James Shaw yesterday announced he would resign as Green Party co-leader in March, setting up a contest seen including Chloe Swarbrick and Julie-Anne Genter. (See more in quotes and cartoons of the day below the paywall fold)

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A year of stagflation to pay for tax cuts for the wealthiest