Where the right is getting it wrong
The political right, struggling for relevancy in the postCovid world, is repeating the same mistake the left made during its wilderness years when John Key was in ascendancy.
I’m no expert on the internal issues plaguing the National Party right now. But when it comes to economic attack lines, there’s a familiar desperation to commentary that attempts to tell Middle New Zealand the economy is terrible, when it clearly isn’t.
The left fell into that trap through the peak of the Key years between 2012 and 2016.
It failed to acknowledge the comfortable reality for Middle New Zealand and was largely ignored by all but the ideologically faithful.
Eventually, the lack of investment in housing and infrastructure caught up with National.
Labour was able to highlight the deeper structural problems that were being allowed to build up while the economy ran hot on immigration, tourism and dairy exports.
Bill English tried to put the foot down on the spending in the 2017 election campaign but was too late — just.
Cut to 2021 and, despite what some critics might hope, the immediate strength of the economy is not being exaggerated by Treasury, or the Finance Minister or anyone else in the Government.
In the past few weeks, a steady stream of data and forecast upgrades from both local and international economists has pointed to an economy running hot.
You can take your pick from across New Zealand, Australia or the world — there’s near uniformity to forecasts that see the economy growing more than 3 per cent this year and next. They might all be wrong. But it would take something exceptional to knock them off course at this point.
ANZ, often considered one of the more pessimistic local forecasters, has GDP growth running at 3.5 per cent this year and 3.8 per cent next.
Singapore-based Fitch Solutions, which upgraded its New Zealand dollar outlook last week, is tipping growth of 3.6 per cent this year.
In this context, Grant Robertson doesn’t need to exaggerate economic progress.
He can literally sit back and let the glowing reports roll in.
A more relevant criticism is that the Government is underplaying the
outlook to ensure it constantly keeps beating expectations. I don’t know if that’s by good luck or design but it’s the way things keep landing for them.
Even now that economists have reassessed initial apocalyptic pandemic fears, we’re still seeing the Government coffers fill faster than expected.
Less than a month after the Budget, Treasury’s fiscal forecasts have already been surpassed.
This should be good fodder for critics of the Government’s underlying performance.
Treasury’s low-ball forecasting was predicted on Budget Day by Westpac acting chief economist Michael Gordon.
“Where we were surprised was the lack of a significant upgrade to the Treasury’s revenue projections, despite a similar set of GDP forecasts to us,” Gordon wrote on the day.
“Tax revenue has consistently surprised to the upside in recent months, but the Treasury’s projections assume that this won’t continue.”
It took just two weeks for him to be proved correct.
The point Gordon makes is not that there is anything wrong with Treasury’s top-line growth forecasts.
They are pretty unremarkable, sitting just to the conservative side of the market consensus — at 2.9 per cent for 2021 and 3.2 per cent for 2022.
Where Gordon is sceptical is that Treasury underestimates the amount of revenue that these rates of economic growth will deliver to government.
Perhaps this just reflects a longstanding conservative Treasury outlook.
Regardless, the economy is strong and strengthening right now.
“New Zealand is one of the bestperforming economies among its key trading partners primarily because we have had success eliminating and keeping out Covid-19 due to our isolation and tight border controls,” ANZ economists wrote on Friday.
How should the Opposition approach this?
First, it needs to acknowledge reality. Then it should stay tightly focused on the mechanics of implementing policy.
Labour’s competence there, while improving, leaves plenty of room for criticism.
Meanwhile, it should lift its horizons higher and focus on the longer term.
Accusations of fiscal irresponsibility won’t cut it.
Robertson has headed those off by reducing the deficit and debt track.
But the Government is making some big bets on longer-term transformation of the economy.
It believes that policies like Fair Pay Agreements and reducing the inflow of unskilled migrants will push wages up and drive productivity growth as business invests in capital and training.
These are ideologically led policies. The economic research is inconclusive either way.
These policies might work. I hope for New Zealand’s sake they do. Or they could backfire. Labour could be leaning too heavily on business to shoulder the burden of transformation.
There is a risk that investment is discouraged and growth falters in the years ahead.
These are risks that those on the right should be highlighting.
They are tougher, more nuanced arguments to make — but they are also more credible.
To be fair, recent commentary by the likes of the NZ Initiative and National’s own shadow Treasurer Andrew Bayly suggests there are those on the right who understand this.
But they are being drowned out by a chorus of complaining that is undermining the important role that right-of-centre thinking needs to play in economic debate.
The reality is that Covid has driven a global shift back to “big government” Keynesian policies — not just in New Zealand and the US but across party lines into the UK and Australia.
That requires the right here to do some fresh thinking.