I’ve had a crack at identifying what the year has taught us, and the lessons we need to learn. Of course, the very act of doing so creates contradictions. We need to reduce our spending, but there are some areas we must invest. Change can be tough. But we don’t have much choice.
The starting point is, that “it’s the economy, stupid”. That economy is at the heart of the current challenge for NZ Inc. The latest fiscal update, released earlier this week by the Government revealed what many of us expected; things are not getting better. In fact they’re getting worse. Core Crown expenses are growing, our debt is higher than ever, economic growth is still slow and unemployment is rising.
Then, Thursday’s news confirmed what many of us in business are already feeling. The announcement that New Zealand’s gross domestic product decreased by 1% in the September 2024 quarter confirms that our recession is deep and difficult. A Kiwibank economist said it’s the worst since 1991. I remember 1991. We don’t want to go back there.
Our dollar, buying US63c a year ago, buys just US56c today.
Of course, thinking New Zealanders know that the woeful state of our economy is not the fault of the current Government. The mess has been brewing, and worsening, for some time. But it is their job to fix it. The arrival of a new Government provides an opportunity to drive change on many fronts, and this Government was elected on a change agenda. And while things are changing in some areas, the current concern is that it is too little, and too slow.
At the heart of our problems is the level of government spending. We should note that there have been efforts to reduce some of the massive headcount increases that occurred under the last Government, but it feels like we have taken a water bucket to a bushfire. International Monetary Fund figures suggest our general Government expenditure is now 42% of GDP. That means we have to borrow to operate, and every dollar we borrow brings with it an interest bill we can no longer afford.
To go hard on government cost reduction will bring agonising hardship to many people. But the reality is we have more than twice as many government departments as similar-sized countries elsewhere, and appalling productivity. We can no longer afford the current approach.
The demonisation of David Seymour is another thing we got very wrong in 2024. Despite a lack of support from his coalition partners, Seymour upheld his campaign promise to bring a discussion about the ongoing interpretation of the Treaty of Waitangi in our society. He has done so in a manner that has been calm and respectful for the most part, and he has explained his views with simple clarity. Unfortunately, many of those with opposing views have failed to act with similar dignity. Politics must rise above name-calling and personal abuse.
The gradual decline in parliamentary standards is another lesson we must take heed of. As standards decline, so too will respect for tradition and ultimately Parliament’s authority. The decline in standards is partly reflected in the personal presentation of many of those parliamentarians in the debating chamber. Dress codes seem to have become a thing of the past. Poor behaviour will logically follow, as evidenced by members of the opposition delivering an aggressive haka, and even miming the pointing of a gun at a member of the Government. Our most experienced politician, the Deputy Prime Minister, has spoken of his concern about parliamentary standards and he is right. Parliament’s Speaker needs to reinforce appropriate expectations of behaviour.
The decision to delay the Dunedin Hospital project yet again is a difficult one to swallow. This is where the contradictions start, and we all know we can’t afford it. But I’m not sure we can afford not to build it either. I’ve never seen any construction or infrastructure project get cheaper because you waited. The rise in cost for the fantastic Christchurch stadium, Te Kaha — once budgeted at $260 million before a seven-year delay — to $683m is a case in point. It might be difficult to find the money, but after 10 years of waiting, the hospital is one infrastructure project that is necessary and overdue.
There’s a lesson from the Cook Strait ferries debacle, too. It’s always risky to kill off a commitment without first having an alternative proposal. No one will disagree with the need to replace our ageing fleet of ferries. We need to come up with a solution and we need to do so quickly and cost-effectively. It’s another one of those contradictions. We can’t afford it. But we have to do it. Sooner or later it will become a health and safety issue. Mechanical issues with the existing fleet are occurring more and more frequently and the costs will soon outweigh the benefits. But the Cook Strait ferries are pieces of infrastructure that make our country complete. And we don’t have any choice.
There’s a large lobby of people from within the country who seek to antagonise and alienate our farmers. The continued pressure on our farmers to respond to increasing levels of compliance and climate-related obligations risks the very industry that we ultimately owe our standard of living to. The single biggest opportunity for our economically disabled country to recover is to make our farming sector outrageously successful once more. Despite the chaos in the world, people still need food. We’re one of the best in the world at growing it and delivering it. But we need to make it easier for our farmers, not harder. We need to incentivise them to double down on livestock and crops, rather than the forestry conversions that return so little potential by comparison. If our cows fart, so be it. We’re not going to turn around climate change on our own. Our economy needs those cows, farts and all.
It’s almost five years since the Covid-19 pandemic presented a set of economic challenges that we have not yet recovered from. Our Reserve Bank has been at the centre of responding to those challenges. At every step of that five-year journey, the Reserve Bank has been altering monetary policy to enable the economy to weather the storm. The current state of the economy should be read as a report card on the performance of the bank. Every reaction, every decision, every adjustment has been too little, too late.
In August of this year, the bank stated that interest rate reductions were unlikely in the near term. By September they had initiated what would become three interest rate reductions by year’s end. If those bankers were with me in boardrooms in February they would have seen the need to lower rates. Business has been strangled for much of the last five years, but this year we’re suffocating. Manufacturing, real estate, construction, motor vehicles, hospitality, appliances, or retailing of any sort, are all deeper into the doldrums than they were a year ago. Bank officials need to spend less time behind computers in their Wellington offices and more time in the real world, in the boardrooms and in the empty retail stores. That is where they will see the damage they have wrought.
In wrapping up the year, it is difficult to overlook the largely unchanged line-ups in the political parties who left government and became the Opposition a little over a year ago. It takes a unique type of person to mess something up as badly as they did while in government, and to then stand aside and criticise the people who are trying to fix the mess they created.
We need politicians on both sides of the political spectrum who will contribute to constructive discussions about the challenges we face. We need those politicians to work together on big issues such as healthcare, education and infrastructure so the decisions they make and the solutions they deliver are able to survive changes of government. Those politicians need to understand the health of the country is much more important than the ego of any individual.
As we look forward to 2025 we should do so without underestimating the challenges that lie ahead. It will take hard work, tough decisions and a few bruises to get the collective “us” — Government, business and individuals — back on our feet. But there are glimmers of hope. Although it might not be happening fast, we see snippets of a government making hard decisions. The recent decision to ban greyhound racing was one such example.
We see ministers who are starting to stand out. Erica Stanford makes sense whenever she talks about education and Chris Bishop is making a positive contribution to the housing debate. Winston Peters has proven he can be a team player and his enthusiasm for re-establishing our presence on the international stage should be widely celebrated. His colleague, Shane Jones, is one of a small group of politicians who has genuine workable ideas to boost productivity and growth in the country.
As we farewell a difficult year, there are plenty of lessons from our past. Let’s learn from them as we pursue a better way. There is much to think about. And we must do better.
Footnote: Thanks to all of you who have read these columns over the last year. Thank you for the feedback, both the positive and the negative. I wish all of you a happy Christmas, a safe and enjoyable holiday season and a fantastic year ahead in 2025.
