Letting the numbers tell the story
Statistics show how economy has fared during National’s nine years in office
Political polls are not the only source of statistical insight into how people might be feeling on the eve of the election. There is information to be gleaned from the routine flow of economic data, too.
On household incomes, the most timely data we have is collected with the June quarter household labour force survey.
It draws on a large sample, 15,000 households, and covers income not only from wages and salaries, but selfemployment and government transfers. Everything but investment income, in short.
It found that in the year to June, the average household income rose 2.7 per cent, or 1 per cent after adjusting for consumer price inflation.
However, consumer spending and household debt both grew considerably faster than average income, which in turn outstripped labour productivity gains. Such trends are brittle.
Still, to whatever extent sentiment here and now matters electorally, it may be instructive that consumer confidence is strong. It is the highest since July 2014 in the ANZ-Roy Morgan survey, while the WestpacMcDermott Miller survey found the proportion of households reporting that they are in better shape financially than they were last year is at its highest level in a decade.
Actual consumer spending is running hot as well. Retail sales in the June quarter were up 6.7 per cent on the year before, and more than 3 per cent in real per capita terms. It is a bit of a worry how much spending growth is outstripping income growth.
The Reserve Bank reckons the household saving rate has been negative for three years now — spending has exceeded disposable incomes — and it expects it to remain so.
It is also problematic that incomes are growing faster than the labour productivity which ultimately has to support sustainable income gains.
In the year ended June, gross domestic product grew 2.5 per cent but the population grew 2.2 per cent and the working age population 2.4 per cent. So output per capita barely increased.
It is the same story for output per hour worked, which was up just 0.1 per cent in the latest June year. As the Treasury and private sector economists have observed, labour productivity over the past four years has been essentially flat.
Also outstripping income growth has been household debt which, the Reserve Bank reports, grew by 7.1 per cent or $13.4 billion in the year to June.
That was mainly from a $12.7b increase in housing loans, which in turn mostly reflected house price inflation.
The impact of house prices at what are eye-wateringly high multiples of income, especially in Auckland, is mitigated by low interest rates. Ten years after the global financial crisis, the world is still awash with cheap money, which matters when about a third of the money the banks lend us is imported.
Housing costs are the big driver of the inequality that is masked by cheerful-looking averages like 2.7 per cent pre-tax household income growth.
The most comprehensive data we have on the trends in incomes, inequality and hardship comes from the hefty annual reports complied by Bryan Perry at the Ministry of Social Development.
The most recent incorporates results from Statistics New Zealand’s household economic survey conducted between mid-2015 and mid-2016. It would not therefore capture an increase in real welfare benefit levels in Budget 2016.
But taking a longer-term view, the Perry report tells us that the income of a household at the 90th percentile (that is 10 per cent down the list of households ranked by income) in 2016 was 16.5 per cent higher than the equivalent one in 2009. That increase is after inflation, tax, government transfers and housing costs.
For a household at the 10th percentile, the increase was a more modest 9.4 per cent over the same seven years.
The median household income rose 12.5 per cent over the same period.
A key factor underpinning household income growth has been jobs growth.
Bill English this week pointed to an increase of 181,000 in the number of people employed over the past two years.
But over the same period, the labour force grew 6.9 per cent, so that the number of people unemployed fell by only 9000 to 128,000.
The employment rate is high by historic and international standards. At 76 per cent of people of “prime working age” — 15 to 64-year-olds — New Zealand’s employment rate is the fourth highest in the OECD.
“And the average annual wage is up $13,000 under National,” English added.
That represents an increase of 26.7 per cent since the September 2009 quarter, or 12.9 per cent after CPI inflation.
It makes for a compound average annual increase in real wages of 1.4 per cent per annum.
How much credit a government can claim for real wage growth on its watch is debatable. Real per capita public spending, on the other hand, it can definitely be judged by.
It is especially relevant when the population is growing rapidly, so the time series of real government spending per capita compiled by Derek Gill at the Institute of Economic Research and Toby Moore at Victoria University of Wellington is useful.
The average level of government spending in real per capita terms during National’s nine years (including the Budget for the current year) is 11.7 per cent lower than the average over Labour’s nine years before it.
It peaked in fiscal 2011 when the Christchurch earthquakes hit an economy still in the feeble early stages of recovery from the GFC recession, and has been trending lower since then.
The declining trend in core Crown expenditure since the 2011 peak, both in real per capita terms and as a share of GDP, is even more stark when you consider that it has coincided with a relentless rise in the share of the Budget taken up by New Zealand Superannuation.
In 2009 super accounted for 12 per cent of the Budget; this year it will be 17 per cent.
In real per capita terms, super will cost the taxpayer 35.5 per cent more in fiscal 2018 than it did when National took office, against a comparatively gentle 7.5 per cent increase over Labour’s nine years. The effect is almost entirely demographic. The entitlement parameters have not changed over those 18 years.
For the biggest ticket item, health, the opposite applies. Real per capita health spending in the current year will be 4.6 per cent higher than in 2009, but that in turn was 26.7 per cent higher than in 2000.
At least the health spend has increased in real per capita terms under the present Government and held its own as a share of the Budget. Spending on education, by contrast, will be 7.7 per cent lower in real per capita terms this year than it was in 2009.
Whether all these numbers are good enough to buy National a fourth term in power, we will discover tomorrow.