Jacinda Ardern’s government may well go down in New Zealand economic history as one of New Zealand’s biggest spenders. Photo / Michael Cunningham
It is potentially useful to have a country’s economic policies reviewed by international organizations.
Done well, they provide residents with expert, non-partisan perspectives.
They are probably doing more harm than good locally if they just applaud whatever the government of the day does.
The International Monetary Fund assessments had the old value. At best, they were dry, technocratic, and evidence-based. Political shortcomings were pointed out, diplomatically of course.
The latest IMF staff statement on the New Zealand economy was released last week. From my reading, the statement unfortunately falls into the category of laudable praise.
The central idea is that New Zealanders do well under the leadership of a capable and caring government.
The statement praised the government for its “strong economic and health policies”. Its management of Covid-19 has been “successful” and “sound”. He provides no evidence to support these conclusions.
It endorses the government’s one-off interventionist measures in the area of housing. He recommends “maintaining” them. Yet the longer anti-landlord and forger mortgage policies remain in place, the more serious the unintended consequences.
It even endorses “complementary measures” to further reduce carbon dioxide emissions.
Yet measures such as subsidies for electric vehicles cannot reduce net national emissions. Under New Zealand’s emissions trading scheme, net zero carbon emissions by 2050 can be achieved at lower cost without such measures, given public will.
He salutes the government’s income insurance scheme. It argues that it “fills an important gap in social protection”. It is not a welfare consideration. A wellness approach would establish that employees have no better way to spend the estimated annual cost of $3.54 billion. Tell that to struggling households.
There is also no obvious gap in “social protection”. New Zealand has had unemployment benefit within living memory.
More disturbingly, the argument seems to assume the desirability of cradle-to-grave social security. This proposal ignores costs and assumes a benevolent but necessarily dictatorial government.
Such utopian thinking is dangerous to our freedoms and prosperity.
New Zealanders have paid a high price in terms of lost income and freedoms in the face of government-imposed lockdowns and restrictions linked to Covid. Was it worth it?
Expert assessments by more than one New Zealand academic have concluded that the net benefits to the wellbeing of New Zealanders have been negative. In particular, Professor John Gibson of the University of Waikato has published several analyzes that question the well-being of lockdowns.
Surprisingly, the government has yet to produce its own professional welfare analysis. This despite the great imposition of its measures on the public. The scale of nationwide support for the anti-warrant protest further illustrates the public need for an appropriate response.
In short, the IMF’s wholehearted endorsement of the government’s success in its response to Covid appears to lack any analytical basis.
None of this is to say the government has had to deal with easy decisions or that border controls haven’t slowed the incidence of Covid. It likely reduced stress in the hospital, saved or extended some lives, and gave the public time to get vaccinated before exposure.
But none of these points address the issue of net welfare across the whole package – locks and mandates included.
What about the IMF’s praise for the government’s “strong” economic management? Perhaps he would have described Sir Robert Muldoon’s economic management as “strong”: it was certainly dictatorial, intrusive and restricted freedom.
This government may well go down in New Zealand economic history as one of New Zealand’s biggest spenders and a very intrusive regulator. It was a big spender before Covid hit, but Covid and a compliant reserve bank put the brakes on.
Specifically, Labour’s budget plan ahead of the 2017 general election assured the public that it would only increase public spending by $11.7 billion spread over the financial years 2018-2022. By November 2019, the increase had risen to $30 billion. This was before Covid appeared. According to the latest projections published by the Treasury, the increase is now $80 billion.
In doing so, the government and the Reserve Bank have put a lot of it on the tab. The money was placed in the owners’ bank accounts, and it appears to be a free lunch. Unfortunately, it is not the case.
The future cost is a concern. Media reports of households struggling with the rising cost of living are mounting, regardless of the latent increase in debt burdens.
Meanwhile, under “strong economic management”, cheap and plentiful money has contributed to skyrocketing property prices that have put homeownership out of reach for many.
The statement’s confidence in the government’s ability to manage the economy shrewdly is reflected in its forward-looking recommendations. Fiscal policy must “remain agile”. Monetary policy should “remain dependent on data”. The “standardization” of policies must be “carefully calibrated”. Structural policies “should aim to improve productivity”.
To top it off, the document considers that there is fiscal space for further spending increases but, according to one report, not for tax cuts.
It is difficult to see anything in this statement that the Prime Minister’s advisers would not have written, had they had the opportunity.
• Dr. Bryce Wilkinson is Principal Investigator at The New Zealand Initiative.