Week in Review
Govt politically solid but economically vacant
The economy is stabilising, and so is the outlook for the Government's political fortunes, but fundamental problems remain unaddressed, writes Bernard Hickey.
The coalition Government and the economy is ending the year on a more solid footing than in the depths of winter, when Prime Minister Jacinda Ardern abandoned the Capital Gains Tax for her political lifetime and her Cabinet downgraded any serious aspirations for KiwiBuild.
The latest figures show total GDP, as opposed to real GDP per hour worked, is growing at more than two percent per year and the parties in Government would win an election on current polling, if all three got over the 5 percent threshold and combined again.
Last week's $12 billion infrastructure investment announcement has given some sense of momentum back to the Government, but the same problems evident in the economy before its late 2017 election are firmly in place. National is not proposing to change things markedly, touting yesterday in its housing and transport announcements it was the "Party of roads" and would be the "Government of Infrastructure," but without investing significantly more taxpayer funds in these mostly roading projects and continuing to talk about tax cuts.
Evidence of what that looks like is in the chart below showing investment per capita from 2007 to 2019. The forecast increase in per-capita investment in coming years barely covers lower population growth forecasts, let alone the infrastructure gap that opened up in the last decade.
Migration remains near record highs and at double to triple the levels of our OECD peers, while infrastructure spending and house building remain far below the levels needed to address either ruinous housing affordability or climate change preparedness (see more below in Sharon Zollner's chart). Any Government serious about reducing child poverty, cutting carbon emissions, increasing productivity and improving societal wellbeing would be investing heavily in transport and housing infrastructure to re-engineer our major cities with much more substantial public transport networks to support new medium-density housing.
It would also be talking a lot more about the effects of very fast and unplanned population growth, which has been an easy way for Governments of both flavours and small businesses to get politically-easy and investment-lite nominal and total economic growth.
However, output per hour work has remained stagnant for the last five years and GDP per capita is only rising because a greater share of the workforce is working longer hours. Like his predecessors Bill English and Steven Joyce, Finance Minister Grant Robertson has also been talking up the economy's achievements without addressing the fundamental problems of a lack of physical and social infrastructure investment and stagnant productivity.
There is no prospect of these issues being debated seriously or addressed with alternative policy choices in the election, at this stage.
That's because changing the settings to achieve the above would require higher Government borrowing, a shift of wealth from older landowners to younger renters, and a reset of the New Zealand suburban dream of owning a house in the suburbs with a backyard and two cars.
None of this is possible with the current voting demographics and an MMP system that drives the main parties to avoid changing the status quo, with only incremental changes that essentially bring forward future wealth and income from non-voters to current voters.
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