February 13, 2025 • 38 mins
The Government has declared 2025 the year of economic growth, with its current action plan for the next quarter honing in on various economic growth plans.
Craig Renney, chief economist for the CTU, and former advisor to Labour Finance Minister Grant Robertson, joins Thomas this week to discuss economic growth from a left-leaning perspective and what he thinks needs to be done.
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Speaker 1 (00:06):
Hello and welcome to on the titles the New Zealand
Heralds Politics podcast. I'm your host EPD, political editor of
the Herald of Thomas Codlin. With me today is as
Craig Rennie. He is the chief economist at the CTU,
Grant Robertson's former Ministerial Advisor and is currently on the
Labor Policy Council. For your finger in Mini Pies, Craigs Craig, Hello,
(00:26):
how are you? I'm are you managed to get a break? Well?
Speaker 2 (00:29):
I did. I had some some lovely gardening opportunities in
what sort of past for summer during Christmas here in Wellington.
But right now we all seem to be benefiting from
a scorching summer, So no conflidants from me.
Speaker 1 (00:40):
I feel the Wellington summer when it comes is will
we say it's worth? It's it's nice.
Speaker 2 (00:47):
And every I'm from Newcastle in the UK and currently
it's about minus two, so every day is a pleasure
here and well.
Speaker 1 (00:54):
The reason and the reason we've we've got you on,
Craig is the government sort of started the year with
a big scenes here. This year is the year of growth.
Growth is probably going to heaven this year anyway, the
economy shrink last year and the Reserve Bank is cutting
interest rates. So you know, one would I speak to
economic growth, but the government wants what's more growth once
(01:15):
sustainable growth, growth, growth, growth in all its forms, you
put some sort of muscle on the bone. I guess
this week with a going for growth policy document setting
out competition, it's repackaged a lot of it's deregulation, kind
of thrust, the ministry regulation, the Regulatory Standards Bill, repackaged,
it's fast Trak repackaged, it's arime reforms as all part
(01:36):
of all of the stuff is already happening, but it's
repackaged at all as a part of a growth agenda.
I mean, let's just get some general thoughts from you
on that. What do you what do you think of
it in general?
Speaker 2 (01:46):
Well, me, in all governments, I can't think of a
government who hasn't wanted economic growth. So all governments want
economic growth, regardless of whether they're national led, labor lad
anyone lead. The challenge is actually how you get there
in what difference it makes for New Zealanders, because at
the end of the day, we don't just have growth
for growth's sake. We have growth so that we deliver
(02:06):
better jobs, we deliver better incomes. The government has more
tax revenues so we can deliver better health and education
and other services. And that's the idea, is that growth
will deliver those good things. It's the kind of the
elixir or the panacea of all problems in government. The challenge,
of course, is how you get there, and what we've
(02:27):
seen from the government doesn't really seem to be a
plan to have growth. The Growth Plan, the Going for
Growth Plan that was delivered, has eighty projects in its
many of which have been completed already, so it's more
sol of eighty bullet points of things they're doing. But
there's no sense of what our good economy looks like.
(02:47):
There's no sense of how we're going to get there
and what kinds of investments are going to get us there.
It's very much more a case of the government seeing
how we're stepping further back from the economy. We see
less of a raw for government in many places, and
how we support their sort of businesses to grow. And
that's characterized very much in the in the Next Steps
(03:11):
and how We Get involved section of this report, which
says economic growth is ultimately driven by business owners who
take risks to invest. Economic growth is driven by workers, communities, government, exports, imports, regulations,
a range of things. So it's quite a it's quite
a narrow focus of a of a growth doc.
Speaker 1 (03:32):
I suppose I'm finally just a sort of point of history.
I remember when you were, when you were in government,
and I was. I was on the Prist Gallery and
international international media were quite interested in their well being
budget kind of approach. And there was some international commentary
that New Zealand had given up on growing the economy
and was more interested and well being, and I'd get
a lot of sort of queries about this. Nice. No,
(03:53):
there's still very much consumed, very much still, everyone is
still growing the economy. But it's it's a different it's
a it's a it's a different way of of I guess,
redistributing the fruits of growth, rather than turning one's back
on growth and redistributing what already exists. I suppose to
sort of to draw in your own experience of government.
Is that is that sort of what is is partly
(04:14):
there two pieces? I guess what it was partly missing
there is is this seems to be focused very much
on the business, the role of capital. I guess if
you had to use that sort of economic language and
growing the economy, there's less of a focus on on
on the other legs, which are government and labor. And
then in terms of you know, when when the economy
(04:36):
does grow, it will grow this year and there's potentially
this sort of there doesn't seem to be much of
a focus on ensuring that everyone enjoys the fruits of
that growth, which I guess is where the wellbeing stuff
came in. You know, the economy grew in those in
those three years pre COVID, and that was about ensuring
that economic growth were you know, people enjoyed it proportionally
to their input to the to their growth.
Speaker 2 (04:56):
Yeah, I mean certainly right now, we all hope that
there's economic growth coming. All of the forecastles predict economic
growth returning, and you would expect so we're in quite
a steep recession at this point in time, and so
you would expect some form of bounce back, particularly as
interest rates start to fall quite quickly. The challenge is
(05:16):
what kinds of economy then comes out of that mix
of policies, Because if you just simply rely upon interest
rates falling, you're more likely to return to the kind
of pre twenty seventeen economy where you see very rapid
house price growth. We all sell houses and coffees to
each other and hope for the best, and we hope
that the wealth effect of rising house prices induces some
(05:39):
kind of consumption. We're also hoping for a return to
much higher levels of tourism, which essentially was one of
the growth drivers in the past, and that dairying and
fruit and agriculture again deliver export growth. The question is
did we think in that period leading up to twenty
(06:00):
seventeen and even a little bit afterwards, that that was
delivering the kinds of outcomes that we wanted to see
in New Zealand in terms of better housing, fewer homeless people,
more equitable growth, where we saw wages rising at the
same time, and the challenges that doesn't seem too much
agenda there. There's a lot of agenda about creating competition.
(06:21):
There's a lot of agenda about reducing regulations. There seems
to be quite a big gender about encouraging overseas investment.
And overseas investment is great, but it doesn't itself create growth.
It needs to land in an economy that growth can
occur in, and that means having a skilled workforce, it
(06:41):
means having the infrastructure in New Zealand, and all of
those things need to happen alongside that.
Speaker 1 (06:48):
In word investment, there were an interesting point. So I
just want to raise some which I think speaks to
what you were just saying. As a lion of Nicola
Willison speaks. She so to the New Zealand Economics Forum
and Wykato, which said, it's not hard to look back
on the past few decades and see complacency where once
there was an assumption about the inevitability of economic growth
(07:10):
are given to be traded off against a host of
other values. That stance now seems blissfully naive. And it
is interesting because that does seem to be the tension
that you know that the kind of political battle maybe
over the last of two decades is that you know,
we have demographically and in terms of the way that
we have, as you said, Juice, the sort of housing
market to to to rely on kind of consumption driven growth,
(07:34):
and then we've we've had a sort of demographic tail wind.
We've had an expert ton of tailwind from China. We've
had tourism, Tourism obviously playing a role to the point
where probably probably prior to the twenty seventeen election New
Zealanders we're thinking we're kind of reaching the upper limit
of what we can sustain here. That during I think
during those those three years, the last three years of
(07:56):
that that last national government, the political debate really was
around there seems to be large degrees of satisfaction with
the economy as it was, but also large degrees of
ankst about what was being traded off environmentally, socially to
sustain it. And now that the trade offers switched to,
people seem to that well they certainly the government thinks
that people are behind trading off those other things for
(08:17):
economic growth, but that doesn't you know, one imagines if
this plan gets implemented and you know, in a couple
of years time, one would imagine that the angst about
the environment rising house prices, it returns. You're not really
changing anything. You're just sort of you're you're you're, You've
you've tried one economic you're switching model that you're switching
back to another one. So we do you know, there's
a long winded question, but so the question is it
(08:39):
seems we're really struggling to find a sustain you know,
an an economic growth model that that is sustainable visa
of e tourism that is sustainable, visa B house prices
that are sustainable, redairing. You know, it's hard.
Speaker 2 (08:50):
I think you you've you've sort of you've touched on
a really sore point in sort of New Zealand economics
for a really long time, which is none of us
actually agree with what good looks like, and we move
growth models from what you may call easy growth. It's
really easy to grow the economy by two percent when
the population is growing by two percent because there are
two percent more consumers by stuff, right, But it's actually
(09:14):
much harder to grow good, long term sustainable jobs. And
it's really hard to do that, particularly in places where
you've had you've seen big job losses or long term
job losses in regions of New Zealand that have been
you know, economically depressed for some time. But I mean,
if you look at you know, GDP from tourism, it
(09:36):
generates about just shy of four percent of our GDP,
but it has around two hundred thousand jobs. That that
tells you that each of those jobs is contributing a
much smaller part to GDP because that's roughly about eight
percent of all of the jobs in the country. So
(09:56):
these are creating quite low paid, low output jobs. Do
we want higher output jobs in that sector? How do we?
How do we One of the things we learned from
both COVID and from cyclone Gabrielle is that our supply
chains and that our economy is structurally quite weak. You know,
if we have a if something gets knocked out, we have.
Speaker 1 (10:18):
A big problem.
Speaker 2 (10:19):
So how do we How are we building resilience in
the economy, How are we building security in the economy.
There's very little in what the government that I see
that the government has put forward that builds resilience, builds
that future prosperity. It seems to want the sugar rush
of how can we reduce some settings to create some
(10:40):
more demand, rather than having any kind of longer term
focus on growth.
Speaker 1 (10:45):
So to that tourism example, just sort of saying, you know,
obviously that's a lot of jobs important, but but but
there are other sectors of the economy where your GDP
output poer worker is high and it wouldn't be the
worst thing in the world if we could find a
way of directing some of that tourism workforce into those jobs.
Speaker 2 (11:06):
DA for the economy, well, certainly that New Zealand has
a crowding, chronic long term productivity problem, and if we
create lots more jobs in sectors that respond very poorly
to productivity, then that's going to just exacerbate that particular problem.
Whereas if we deliver growth in sectors where there's actually
much higher where productivity improves much more quickly in terms
(11:29):
of investment, advanced manufacturing, pharmaceuticals, you know, in other areas,
then actually we can go okay, we can build long
term sustainable jobs, improve our overall productivity, and improve the
resilience of the economy to future change.
Speaker 1 (11:44):
Around the foreign investment settings and around some of them
irma changes. I'm in fast trakers obviously a massive political
ground at the moment. What I always find an interesting
question I always sort of asked myself, any we need,
you know, we need need? Government does in Chary just
how is the excissor? Government always has the always says
the question do we keep it, do we change it,
(12:04):
do we repeal it? And it's always interesting to see
how the government choose to do that. I was surprised.
I surprised the current government got rid of the RMA
changes that the previous government made of all, you know,
they were done, the consultant money had been spent. Keep
it surprised as well that they got rid of the
clean car stuff. It is always, you know, it's it's
very interesting to see how how different governments play the game.
(12:28):
Another surprise, I guess they've kept the top text right.
I think just an acknowledgement there will be a long
time before any government, even a right wing government, can
actually afford to get rid of it, even if they
really want to, which this government clearly very much does.
Do you think that any of these changes are you know,
compatible with a future left wing progressive government.
Speaker 2 (12:49):
I think one of the challenges there is that we're
going to need to see to what extent they're actually
able to actually embed any of these changes over the
next few years before we get to an election, and
to what extent any of them are actually bearing any
fruit in terms of actually delivering the things that they're
claiming to deliver. New Zealand chronically needs better long term
(13:09):
settings and things like RM reform. It needs better long
term settings and things like water infrastructure. It needs better
long term settings in workforce planning, because we're actually terrible
at workforce planning. So hopefully it's not as simply a
case of seeing that was done by one side, go up,
must be bads and therefore we must.
Speaker 1 (13:28):
Chuck it out.
Speaker 2 (13:29):
It's a case of, actually, how do we deliver better,
longer term deliver settlements in these places. One of the
bits I would say that that's actually true of right
now is that there's been a lot of proposals or
a lot of talk about how we change potentially corporate
tax settings or how we deliver tax incentives to companies
(13:51):
to grow. There's very little evidence internationally, virtually non that
corporate tax changes drive foreign direct investment or drive better
outcomes for firms inside developed countries. But there is good
evidence about things like R and D text credits, There
is good evidence around other incentives to invest. But how
(14:15):
you can develop company structures. I mean, mister Luxelan was
very keen to talk about Denmark in his how he
was going to talk about, you know, delivering New Zealand's
growth future of some of the Denmark's biggest firms are
actually not for profit charities set up in a very
(14:35):
specific way in order to encourage the most amount of
R and D and to encourage development ecosystems that exist
inside the firm, to grow the next firm, to grow
the next thing. So there are plenty of things that
we can.
Speaker 1 (14:47):
How would you change the seatings in New Zealand to
encourage so.
Speaker 2 (14:51):
For example, we already have a large number of cooperatives
in New Zealand. So are the settings right there that
are actually encouraging R and D and innovation in the
in the in those places? To what extent are do
we do we do? Do we have the R and
D tax credit settings right to actually maximize development here?
(15:12):
Overseas locations use things like patent boxes, for example, where
if you develop a patent in a country and exploit
it in our country, you can lock up the tax
consequences for that for a period of time in our country.
So and also one of the things you don't do
at that point of timp is you know, is you
don't say too because in the Growth document talks about
(15:36):
using innovation to deliver growth, which is fantastic, you don't
do that at the same time as radically reform. How
you do R and D inside the government's system, You don't,
you know, we've lost around five hundred scientists in the
in this round of changes to the from the previous budget.
None of that is helping the sort of long term
stability of delivering that kind of growth, because delivering growth
(15:59):
is a long term challenge. It's not something you do
in the short run. Well, you can ask Liz Trust
what happens if you're try and deliver growth in the
in the short term.
Speaker 1 (16:08):
One last question before we take a quick quick air break.
During your time working in the government, and obviously now
in the in the unions that the previous government when
it tried to make economic changes it was quite fond of.
They often used the word tripart tripard consensus. There was
a tripartite future of work for them. There was the
(16:29):
UH of course, there was another fear pay agreements and
and the social unemployments. One was with the big ones
and then were there was there a union voice on
the business Advisory group? Was that there was that was
that was just it was just the business. But you know,
it's sort of and and they obviously business obviously the
business business side of the three legands at all fought
(16:54):
very hard against fear pay agreements and and that kind
of consensus broke, but that they the consensus are fragile.
Admittedly fridgeile consensus survived for a long time around the
social Unemployments and Insurance scheme, which which you know might
have actually had labor been related, been implemented later in
(17:14):
the term. This government's taken a very different approach. There
has been very little a team that seems to building
a consensus between labry and capital, do you you know,
and it seems like that that potentially is also a
risk seek for at least lasting kind of consensus.
Speaker 2 (17:29):
I think that's the whole point of taking a triparthite
approach is to try and build both consensus about change,
consensus about where you make investments, consensus about how you
may grow and who benefits from that growth. And it
does two things wanted. It builds in a little bit
more long term outcomes that you hope as part of
the process. And that's why international organizations like the International
(17:51):
Libor Organization, you and an others have tripartite bodies built
into you know, their structures. But also you look at
the juris dictions that have seen much better growth than
the New Zealand over the past thirty forty years. They
tend to have more tripartite type structures built into their
domestic economic development delivery structures and mechanisms. Again, Denmark has
(18:13):
had tripartism since the Great Depression. Germany France has you know,
more tipartit basics. You know, in French workers are amongst
the most productive in the world, you know, so there's
you see real benefits from from tripartism and and it
really is a bit of a shame that that that
that tripartism has been lost because it's actually about just
(18:36):
communicating with each other, learning actually what each other's priorities are,
and then working together on what a solution might be,
rather than hoping to force it on somebody and then
assuming that you win and lose, because in the long run,
if you flip flop, no one who all. The only
people who win are the lawyers who get to redraft
(18:56):
the legislation over and over again.
Speaker 1 (18:58):
It's an interesting like it's an interesting because like Key
kind of famously opened the government with the sort of
a job someone I think it was called the fourth
Labor government had a sort of similar similar technic I think,
and that was controversial the time. Helen Clark, however, we
sort of went I don't think she started the war,
(19:20):
but obviously had a battle with businesses during the verse
her first term. It's like, it'll be an interesting when
when the history of this government has written in decades
into the future, I think people will remark on the
fact that they decided to not go for the adn
Key approach of trying, at least at the beginning to
build consensus, knowing of course that that labor and national
(19:42):
are on different sides of the capital labor equation. And
but but both of those prime ministers did try to
build some form of consensus around what they were doing,
and this government has just not.
Speaker 2 (19:50):
I think you got right. There's this government certainly hasn't
been as open to that dialogue as previous governments have been,
even the John Key bil English governments. And what we
I've seen then is a lot of legislation in a hurry,
changing things like ninety day trials, giving rid of fair
pay agreements. We've seen attacks on things like a sickly
(20:11):
holiday pay. There's been a range of things where actually
the absence of a worker voice in that space is
meant that there hasn't been the consideration of issues that
workers and working people might consider being really important. We've
seen that quite narrow focus on delivering our regulatory changes.
Regulatory Standards Bill is arguably the ultimate, you know, expression
(20:34):
of that where which puts the delivery of economic growth
or puts the delivery of some kind of a removal
of the crown from from a place where it might
have an interest and the hope that delivers have better economy.
We're still an economy that you know, kills seventeen workers
(20:56):
a week as a consequence of you know, their work.
Speaker 1 (21:00):
It's a large forestries are still forest.
Speaker 2 (21:02):
Is a big is still not a great place to work.
But it's it's forestry, it's it's construction. It's a whole range.
Speaker 1 (21:09):
Of different that still ranks quite poorly.
Speaker 2 (21:12):
Yes, that would be that would be double the rate
of fatalities as you would find in Australia, five times
the rate of fatalities in the UK. Right, So you
know there are consequences to these things and we just
want to make sure an engineered stone is a real
example of that.
Speaker 1 (21:30):
Australia moved very fast on the Australia very fast.
Speaker 2 (21:33):
You can't buy engineered stone in Bunnings in New Zealand
because it's part of the Australian supply chain, but we
haven't banned it in the same way. We're currently consulting
on various bit on best profits. But you know elsewhere
in the world that sort of thing done very quickly.
Speaker 1 (21:52):
Well in Australia seemed like someone did a TV investigation
on it and then it was banned by the within days.
Speaker 2 (21:58):
Yeah, and then going to hear and and again. That's
what that lack of that engagement delivers because those sorts
of issues don't come to the fore in the same
way as you know we see in in this growth
document there are plenty you know, we talked about health
and safety as being an impediment to growth.
Speaker 1 (22:18):
Just for listeners. The engineered stones. Again, I think that
the creation of engineered stones common for kitchen being shops,
religious particles that are dedly how many people, it's lots.
Speaker 2 (22:30):
Worse than us best us as a product. It creates
a disease called silicosis of the lungs. And you see
very young, you know, very young workers who you know
were exposed to that dust and becoming very ill, very quickly.
Speaker 1 (22:43):
We're just going to take a quick break. I mean,
we'll be right back with Craig win Hello, and welcome
(23:04):
back to On the Tile, the Heralds Politics podcast. I'm
with CCU chief Economist Craig Winny. Just as another part
of the growth growth story, there will other sort of
hat on when you're not doing a job. You're sort
of a recreational fiscal whole finder. Listeners will be aware
of Craig's passion for public accounting and mistakes. One of
(23:26):
the other parts I think of growth is that it
makes economic growth makes life easier for the finance minister.
You have money to spend. And I was sort of
looking through some historic fiscal plans budgets the other day
because i'm you know, as Church because you sometimes I think,
and I was looking at your fiscal plan from twenty seventeen,
which you were involved in and kind of helping to
drow up. And you were with labor then and then
(23:49):
the first budget and when there was when there was
growth in the economy, and I guess it was there
was actually growth in twenty twenty up with a bounce back.
You it was a if you're a progressive party, you
can with that fiscal plan. It was a very clear
offer of saying, look, we'll have a slower debt track,
(24:11):
slightly smaller surpluses, will cancel the tax cuts, and all
of a sudden, you've got it's a straight trade off
to voters. You say, look, yep, less money. You're not
going to get the tax cuts, less money from that,
but here are the services that you can fund, and
all that all that really changes is the tax cut thing,
and slightly lower debt repayments are slower debt repayments. And now,
(24:36):
of course, if you're if you're putting together a fiscal
plan twenty twenty six, both parties are going to struggle
to actually offer anything good because they're just you probably
you can't wait you you might be able to put
you it'd be hard to take significant amounts of money
from saying well, we'll just have slightly larger deficits and
the slightly lower debt repayment. That's you're kind of pushing
(24:57):
against the limits of what Treasury is currently saying. It's advisable.
Maybe maybe that's fine. You could obviously you've got the
text thing that you guys, are you know that the
Labor leader's been, you know, been quite open about I'm
looking at a progressive text policy. But you know, there's
not a significant depending on the text policy, there's not
a huge amounts of Hyman you need to be found
there either. Like, it's just it's harder at the moment right, oh,
(25:21):
where you go.
Speaker 2 (25:22):
It's very hard. I should probably preface this by saying
I'm not Labor's finance spokespersons, and they know, you know,
and Bob Edmans you know, would be able to give
you chapter in verse on this. But certainly my experience
is someone advising finance spokespersons and finance ministers. This is
always hard. You know, we spend as the government around
(25:43):
one hundred and twenty billion dollars a year and you're
scrubbling around for one hundred million dollars somewhere to pay
for something because every dollar has someone's name on it.
So it's always difficult and you're always dealing with things
at the margins. Now the right now we have operating
allowing is going out the forecast at HIGAFUID about two
(26:03):
h four billion dollars, but actually the majority of that
is already spent. You know, the majority of that is
already going to be spent on health, inflation, on education,
you know, because we have more trildiden they require more seats,
more classrooms, and once you pay for that, there's actually
remarkably small amounts of money remaining. That's why if you
(26:23):
do big tax giveaways that become quite so expensive to
deliver because there isn't spare money to cancel to then
make that then turn up. The challenge here, of course,
is then compounded by the fact that if you want
to deliver something, you want to deliver something new. If
you've just come from a government that's cut quite a
lot of public sector workers, it's cut a lot of
(26:44):
the public sector capacity to do that, you need to
rebuild it and that costs more money as well as
being you know, sort of causing difficulties for the population
in the short run because they then find working with
or access in the government more difficult. So you're right,
it is quite challenging is to see where, you know,
where money for big election giveaways would come from, and
(27:10):
so that's why it's also it's much about saying what
would you stop, what would you change? There are plenty
of non fiscal things in the regulatory space and the
legislation space that can be done that don't cost large
amounts of money, and so growth is important to help
(27:30):
deliver some more fiscal space. But certainly the evidence that
I've seen, or certainly the forecasts that I've seen, don't
suggest a huge turnaround in growth over the next twelve
to eighteen months, which becomes important for the election cycle
because that's the data you'll have to work with and
part political parties will have to work with at the
(27:52):
next election.
Speaker 1 (27:53):
Right about the two point four billion dollars figures, so
and you know, in real terms, that is at the moment,
I think that's about the level of sixteen seventeen budgets.
And yet we've got an older population, a sec of population,
and a bigger population. So those things, you know, obviously
super and benefits are automatically justice, so you don't have
to worry about them, but you need more money, not
(28:14):
just in real in real terms, but and even even
more money to tread water on those core services of
health and education. And we're recording this. The Director General
of Health it's just resigned this week. We've had a
last couple of weeks, we've had a rafter of resignations
and health. I think we're spending as a proportion of GDP,
(28:34):
we are spending a large amount on health than we
have done in years. Are still barring I think twenty
twenty two and it quietly it seems it's very hard
to sort of land on definitively, but it does not
seem to be enough. But then you do get to
twenty twenty six, and where do you find within a
two point four billion dollars allowance additional money for health?
I mean, obviously, you know the progressive parties are probably
(28:55):
going to run on more tax and then you can
add that. But but you know, it sort of seems
like you.
Speaker 2 (29:01):
Well, so you know, at this point, Tomas, I feel
legally obliged to say you don't start by big tax giveaways,
because if you need more revenue, giving your money away
is in a great place to start. So you know
that the tax cuts that have happened to day aside
talk of further tax cuts makes that problem harder, not better,
(29:22):
So you know, and and also if you're all going
to do tax cuts, how do you do those tax
cuts in a way that is the most that delivers
the economic goals that you want to see.
Speaker 1 (29:32):
Well, I think tax rises is probably what what twenties
three in sex would be about.
Speaker 2 (29:35):
Whether I was in and again, how do you then
do that and why and where and where? Because it's
it's I think it's it's important that it's important for
public confidence that voters can see real clarity as to
how political parties plans are going to be paid for.
But two that if there are tax changes, those tax
(29:57):
changes can be seen. You get TA X and you
get service Y. There's a link between whatever is being
whatever's being asked for, and what's being delivered. Because that
way you can you can see you can have the
choices now clear it's A or B. In twenty seventeen,
(30:17):
that was one of the real benefits of the tax
cut by Stephen Joyce just before the election. It was
twenty dollars on average per person per week and it
was so you can have that, or you can have
the winter energy payment, or you can have best Start,
or we can tackle child poverty, or you can lift
working for families, or we can spend money on the
(30:39):
health service. And it creates a point of difference, and
that I think is going to be one of the
key things in the twenty six election. It really is
where all there's little points of differences where you can
see actually really where the political parties differ.
Speaker 1 (30:52):
They're in austure. I was looking at those text cuts
the other day. They were an interesting one because they
sort of focus on the middle brakets rather than the
whole you know, the recent lot adjusted the whole system,
and so that's quite wasteful when you do everything apart
from the top rate, whereas that one, you know, it's
(31:13):
it reminded me of how tightly thought that election was
because as far as like tax cuts are inherently untargeted,
but as far as tax cuts go, that was quite
a targeted one. And then Labor's Labor's policy was even
more targeted at specific people with specific needs. You know,
it's very it's a brutal knife fight between two text
policies that that that often you know, very similar intervened
(31:35):
or very interesting interventions in the same people's lives, and
the trade off between what was what was what I
guess there's a really interesting debate happening in the progressive
Last question, I promise on progressive economics at the moment
relating to New Zealand around the extent to which the
current debt levels are too high or unsustainable, and whether
(31:56):
the OBBA gal track is a massive problem that we
should be you know, that that we should actually be
making well being trade offs to solve saying, look, look,
our present health system is bad, but in the interest
of the future health system, we should continue to put
pressure on it spending you know this fiscal sustainability will
mean poor hoal systemlah blah blah. I guess my blunt
(32:17):
question is, and you know, in ready of the speech
this morning said you know, we are a medium debt
country and basically said that that that restoring the fiscal
buffer's lower net core ground debt was one of his
as a Treasury sexualary, one of the goals that he
thought was important. So, I guess my blunt questions to
you is like, is there an argument that we had
about a higher you know, a slightly later return to
(32:40):
surplus or even you know, running small deficits for a
very long time, And how is there an argument that
we have had about that twenty seventeen strategy, which was
a slower reduction in debt.
Speaker 2 (32:53):
The responsible thing to have as a conversation about is
about physical responsibility and seeing you're going to be physically
responsible and that doesn't just seem you mean that you're
going to be a physical hawk. When I'm asked this
an audience, is one of the one of the stories
I say to the people is, let's assume you had
a net debt ceiling. If the US has the expenditure ceilings,
and you said, right, we're not going to spend a
(33:14):
dollar more than this amount, and this will lead us
to this debt level, and this is how we're going
to pain us. Great, Let's assume we got to that
point and I could spend a dollar more and I
could get huge beneficial outcomes for a community or a
place or something else. What I spend that dollar or not?
The honest sense is, of course you would. Of course
(33:34):
you're going to do that. No economist on the planet
would say that central This is to be an absolute
physical you know, in this space right, because it's bonkers, right.
So being physically responsible means actually taking into account sort
of are we investing in health and education, hasing enough
to make sure we're actually delivering the outcomes that we
want to in that space? Are we investing enough in
(33:56):
housing so that actually we're reducing the problems we see
in has because again, like health and education, we store
up very expensive, long term problems by underinvesting consistently. The
environment water a huge energy craaky. You know, we generate
about as much electricity gig what ours electricity this year
(34:18):
as we did ten years ago.
Speaker 1 (34:20):
Right, Yes, that's long stermy missive issue.
Speaker 2 (34:22):
Massive issue, and that generates long term, expensive problems. So
the question is actually one of how do you use
investments to deliver the best value for money? Because it's
that best value for money argument that actually is one
you should be using rather than arbitrary fiscal levels of A, B,
C or D because you know, if you can't have
(34:46):
an argument to say, well we will return to serpents
in the long run, great, But if you're returning to
service in the long run, you can have an obigal
deficit and debt still falls because the obigail deficit is
going up less than the economy is growing in as
a PERSENTI of GDP, debt is falling. You can have
(35:08):
more debt, but you also have more assets on the
other side, which are actually growing the economy faster. Be
that in the form of public transport, that the form
of housing that form, and so on and so on
and so forth. So it's a very complicated and quite
sophisticated analysis that's needed, not just simply we shall return
to obergall x or obergal whatever obergall X's you know,
(35:30):
surplus at a point in time. It's much more about, actually,
how do we make sure that there you know, people
have security of health services, security of education services, that
they know the government's investing alongside, you know, the economy
to make sure we're delivering good jobs in the future.
Speaker 1 (35:49):
So there's an argument to be heard about, you know,
sustainable operating balance and that could mean actually sustainable, sustainably
small deficits if they were small enough that the deep
part wasn't growing unsustainable levels of debt, which which you
know would would PEPs growing nominal terms fall on GDP terms,
and the investment on the other side was worth it.
I mean, and I guess you know that there's that
(36:12):
the fiscal Ruth Richister's fiscal responsibility stuff that lives on
inside the Public Finance Act. Would you need to chat
about that, but you know that is yeah, I mean,
that would be quite a departure from the I guess
thirty since the since ninety ninety four that it'd be
quite a departure from the way that we've done things,
but a small one. Well it is.
Speaker 2 (36:30):
I mean, the funny thing is is that we used
to have a net debt ceiling. So we used to
assume that debt net core crondebt had to be between
twenty and thirty percent of GDP, and you try to
get it down to twenty percent of GDP, so will
give you a ten percent GDP buffer in case of
an earthquake or a disaster or something else. And ember
in the first term, we asked the Treasury, where did
(36:52):
that figure come from? Where did that that calculation come from?
It is it? Is it an international calculation? Is there
some kind of to the credit rating agencies? Say no, no, no, no,
it must be here, came from nowhere. It was just
made up. So and it's one of these things sort
of you know that there are a lot.
Speaker 1 (37:10):
Of very story. Could you could repeat it with so
many different rules of government.
Speaker 2 (37:15):
Unset assumptions, and you've got toe pick these unset assumptions
that actually then drive and deliver the outcomes, you know,
sort of like say, because without them, we rather than
you know, unthinkingly you know, deliver lower debt and we're
actually under investing in you know, in in health or
education or somewhere else, and we're just hoping the future
(37:36):
pays for the liability we're not paying for today to
hit a physical target that's actually fairly meaningless.
Speaker 1 (37:43):
Well, Craig, it's very interesting and thought to leave it
on then, thank you very much for your time. It
was Craig really the chief economistic the see you joining
us to discuss growth that was on the tiles for
another week. I'm your host, Thomas Coglan Ethan Stills as
the producer. You can find us on our Heart Radio
wherever you get your podcasts, and there'll be more on
(38:03):
next week in your podcast feeds. Thanks for listening.
Speaker 2 (38:07):
H
Hello and welcome to on the titles the New Zealand
Heralds Politics podcast. I'm your host EPD, political editor of
the Herald of Thomas Codlin. With me today is as
Craig Rennie. He is the chief economist at the CTU,
Grant Robertson's former Ministerial Advisor and is currently on the
Labor Policy Council. For your finger in Mini Pies, Craigs Craig, Hello,
(00:26):
how are you? I'm are you managed to get a break? Well?
Speaker 2 (00:29):
I did. I had some some lovely gardening opportunities in
what sort of past for summer during Christmas here in Wellington.
But right now we all seem to be benefiting from
a scorching summer, So no conflidants from me.
Speaker 1 (00:40):
I feel the Wellington summer when it comes is will
we say it's worth? It's it's nice.
Speaker 2 (00:47):
And every I'm from Newcastle in the UK and currently
it's about minus two, so every day is a pleasure
here and well.
Speaker 1 (00:54):
The reason and the reason we've we've got you on,
Craig is the government sort of started the year with
a big scenes here. This year is the year of growth.
Growth is probably going to heaven this year anyway, the
economy shrink last year and the Reserve Bank is cutting
interest rates. So you know, one would I speak to
economic growth, but the government wants what's more growth once
(01:15):
sustainable growth, growth, growth, growth in all its forms, you
put some sort of muscle on the bone. I guess
this week with a going for growth policy document setting
out competition, it's repackaged a lot of it's deregulation, kind
of thrust, the ministry regulation, the Regulatory Standards Bill, repackaged,
it's fast Trak repackaged, it's arime reforms as all part
(01:36):
of all of the stuff is already happening, but it's
repackaged at all as a part of a growth agenda.
I mean, let's just get some general thoughts from you
on that. What do you what do you think of
it in general?
Speaker 2 (01:46):
Well, me, in all governments, I can't think of a
government who hasn't wanted economic growth. So all governments want
economic growth, regardless of whether they're national led, labor lad
anyone lead. The challenge is actually how you get there
in what difference it makes for New Zealanders, because at
the end of the day, we don't just have growth
for growth's sake. We have growth so that we deliver
(02:06):
better jobs, we deliver better incomes. The government has more
tax revenues so we can deliver better health and education
and other services. And that's the idea, is that growth
will deliver those good things. It's the kind of the
elixir or the panacea of all problems in government. The challenge,
of course, is how you get there, and what we've
(02:27):
seen from the government doesn't really seem to be a
plan to have growth. The Growth Plan, the Going for
Growth Plan that was delivered, has eighty projects in its
many of which have been completed already, so it's more
sol of eighty bullet points of things they're doing. But
there's no sense of what our good economy looks like.
(02:47):
There's no sense of how we're going to get there
and what kinds of investments are going to get us there.
It's very much more a case of the government seeing
how we're stepping further back from the economy. We see
less of a raw for government in many places, and
how we support their sort of businesses to grow. And
that's characterized very much in the in the Next Steps
(03:11):
and how We Get involved section of this report, which
says economic growth is ultimately driven by business owners who
take risks to invest. Economic growth is driven by workers, communities, government, exports, imports, regulations,
a range of things. So it's quite a it's quite
a narrow focus of a of a growth doc.
Speaker 1 (03:32):
I suppose I'm finally just a sort of point of history.
I remember when you were, when you were in government,
and I was. I was on the Prist Gallery and
international international media were quite interested in their well being
budget kind of approach. And there was some international commentary
that New Zealand had given up on growing the economy
and was more interested and well being, and I'd get
a lot of sort of queries about this. Nice. No,
(03:53):
there's still very much consumed, very much still, everyone is
still growing the economy. But it's it's a different it's
a it's a it's a different way of of I guess,
redistributing the fruits of growth, rather than turning one's back
on growth and redistributing what already exists. I suppose to
sort of to draw in your own experience of government.
Is that is that sort of what is is partly
(04:14):
there two pieces? I guess what it was partly missing
there is is this seems to be focused very much
on the business, the role of capital. I guess if
you had to use that sort of economic language and
growing the economy, there's less of a focus on on
on the other legs, which are government and labor. And
then in terms of you know, when when the economy
(04:36):
does grow, it will grow this year and there's potentially
this sort of there doesn't seem to be much of
a focus on ensuring that everyone enjoys the fruits of
that growth, which I guess is where the wellbeing stuff
came in. You know, the economy grew in those in
those three years pre COVID, and that was about ensuring
that economic growth were you know, people enjoyed it proportionally
to their input to the to their growth.
Speaker 2 (04:56):
Yeah, I mean certainly right now, we all hope that
there's economic growth coming. All of the forecastles predict economic
growth returning, and you would expect so we're in quite
a steep recession at this point in time, and so
you would expect some form of bounce back, particularly as
interest rates start to fall quite quickly. The challenge is
(05:16):
what kinds of economy then comes out of that mix
of policies, Because if you just simply rely upon interest
rates falling, you're more likely to return to the kind
of pre twenty seventeen economy where you see very rapid
house price growth. We all sell houses and coffees to
each other and hope for the best, and we hope
that the wealth effect of rising house prices induces some
(05:39):
kind of consumption. We're also hoping for a return to
much higher levels of tourism, which essentially was one of
the growth drivers in the past, and that dairying and
fruit and agriculture again deliver export growth. The question is
did we think in that period leading up to twenty
(06:00):
seventeen and even a little bit afterwards, that that was
delivering the kinds of outcomes that we wanted to see
in New Zealand in terms of better housing, fewer homeless people,
more equitable growth, where we saw wages rising at the
same time, and the challenges that doesn't seem too much
agenda there. There's a lot of agenda about creating competition.
(06:21):
There's a lot of agenda about reducing regulations. There seems
to be quite a big gender about encouraging overseas investment.
And overseas investment is great, but it doesn't itself create growth.
It needs to land in an economy that growth can
occur in, and that means having a skilled workforce, it
(06:41):
means having the infrastructure in New Zealand, and all of
those things need to happen alongside that.
Speaker 1 (06:48):
In word investment, there were an interesting point. So I
just want to raise some which I think speaks to
what you were just saying. As a lion of Nicola
Willison speaks. She so to the New Zealand Economics Forum
and Wykato, which said, it's not hard to look back
on the past few decades and see complacency where once
there was an assumption about the inevitability of economic growth
(07:10):
are given to be traded off against a host of
other values. That stance now seems blissfully naive. And it
is interesting because that does seem to be the tension
that you know that the kind of political battle maybe
over the last of two decades is that you know,
we have demographically and in terms of the way that
we have, as you said, Juice, the sort of housing
market to to to rely on kind of consumption driven growth,
(07:34):
and then we've we've had a sort of demographic tail wind.
We've had an expert ton of tailwind from China. We've
had tourism, Tourism obviously playing a role to the point
where probably probably prior to the twenty seventeen election New
Zealanders we're thinking we're kind of reaching the upper limit
of what we can sustain here. That during I think
during those those three years, the last three years of
(07:56):
that that last national government, the political debate really was
around there seems to be large degrees of satisfaction with
the economy as it was, but also large degrees of
ankst about what was being traded off environmentally, socially to
sustain it. And now that the trade offers switched to,
people seem to that well they certainly the government thinks
that people are behind trading off those other things for
(08:17):
economic growth, but that doesn't you know, one imagines if
this plan gets implemented and you know, in a couple
of years time, one would imagine that the angst about
the environment rising house prices, it returns. You're not really
changing anything. You're just sort of you're you're you're, You've
you've tried one economic you're switching model that you're switching
back to another one. So we do you know, there's
a long winded question, but so the question is it
(08:39):
seems we're really struggling to find a sustain you know,
an an economic growth model that that is sustainable visa
of e tourism that is sustainable, visa B house prices
that are sustainable, redairing. You know, it's hard.
Speaker 2 (08:50):
I think you you've you've sort of you've touched on
a really sore point in sort of New Zealand economics
for a really long time, which is none of us
actually agree with what good looks like, and we move
growth models from what you may call easy growth. It's
really easy to grow the economy by two percent when
the population is growing by two percent because there are
two percent more consumers by stuff, right, But it's actually
(09:14):
much harder to grow good, long term sustainable jobs. And
it's really hard to do that, particularly in places where
you've had you've seen big job losses or long term
job losses in regions of New Zealand that have been
you know, economically depressed for some time. But I mean,
if you look at you know, GDP from tourism, it
(09:36):
generates about just shy of four percent of our GDP,
but it has around two hundred thousand jobs. That that
tells you that each of those jobs is contributing a
much smaller part to GDP because that's roughly about eight
percent of all of the jobs in the country. So
(09:56):
these are creating quite low paid, low output jobs. Do
we want higher output jobs in that sector? How do we?
How do we One of the things we learned from
both COVID and from cyclone Gabrielle is that our supply
chains and that our economy is structurally quite weak. You know,
if we have a if something gets knocked out, we have.
Speaker 1 (10:18):
A big problem.
Speaker 2 (10:19):
So how do we How are we building resilience in
the economy, How are we building security in the economy.
There's very little in what the government that I see
that the government has put forward that builds resilience, builds
that future prosperity. It seems to want the sugar rush
of how can we reduce some settings to create some
(10:40):
more demand, rather than having any kind of longer term
focus on growth.
Speaker 1 (10:45):
So to that tourism example, just sort of saying, you know,
obviously that's a lot of jobs important, but but but
there are other sectors of the economy where your GDP
output poer worker is high and it wouldn't be the
worst thing in the world if we could find a
way of directing some of that tourism workforce into those jobs.
Speaker 2 (11:06):
DA for the economy, well, certainly that New Zealand has
a crowding, chronic long term productivity problem, and if we
create lots more jobs in sectors that respond very poorly
to productivity, then that's going to just exacerbate that particular problem.
Whereas if we deliver growth in sectors where there's actually
much higher where productivity improves much more quickly in terms
(11:29):
of investment, advanced manufacturing, pharmaceuticals, you know, in other areas,
then actually we can go okay, we can build long
term sustainable jobs, improve our overall productivity, and improve the
resilience of the economy to future change.
Speaker 1 (11:44):
Around the foreign investment settings and around some of them
irma changes. I'm in fast trakers obviously a massive political
ground at the moment. What I always find an interesting
question I always sort of asked myself, any we need,
you know, we need need? Government does in Chary just
how is the excissor? Government always has the always says
the question do we keep it, do we change it,
(12:04):
do we repeal it? And it's always interesting to see
how the government choose to do that. I was surprised.
I surprised the current government got rid of the RMA
changes that the previous government made of all, you know,
they were done, the consultant money had been spent. Keep
it surprised as well that they got rid of the
clean car stuff. It is always, you know, it's it's
very interesting to see how how different governments play the game.
(12:28):
Another surprise, I guess they've kept the top text right.
I think just an acknowledgement there will be a long
time before any government, even a right wing government, can
actually afford to get rid of it, even if they
really want to, which this government clearly very much does.
Do you think that any of these changes are you know,
compatible with a future left wing progressive government.
Speaker 2 (12:49):
I think one of the challenges there is that we're
going to need to see to what extent they're actually
able to actually embed any of these changes over the
next few years before we get to an election, and
to what extent any of them are actually bearing any
fruit in terms of actually delivering the things that they're
claiming to deliver. New Zealand chronically needs better long term
(13:09):
settings and things like RM reform. It needs better long
term settings and things like water infrastructure. It needs better
long term settings in workforce planning, because we're actually terrible
at workforce planning. So hopefully it's not as simply a
case of seeing that was done by one side, go up,
must be bads and therefore we must.
Speaker 1 (13:28):
Chuck it out.
Speaker 2 (13:29):
It's a case of, actually, how do we deliver better,
longer term deliver settlements in these places. One of the
bits I would say that that's actually true of right
now is that there's been a lot of proposals or
a lot of talk about how we change potentially corporate
tax settings or how we deliver tax incentives to companies
(13:51):
to grow. There's very little evidence internationally, virtually non that
corporate tax changes drive foreign direct investment or drive better
outcomes for firms inside developed countries. But there is good
evidence about things like R and D text credits, There
is good evidence around other incentives to invest. But how
(14:15):
you can develop company structures. I mean, mister Luxelan was
very keen to talk about Denmark in his how he
was going to talk about, you know, delivering New Zealand's
growth future of some of the Denmark's biggest firms are
actually not for profit charities set up in a very
(14:35):
specific way in order to encourage the most amount of
R and D and to encourage development ecosystems that exist
inside the firm, to grow the next firm, to grow
the next thing. So there are plenty of things that
we can.
Speaker 1 (14:47):
How would you change the seatings in New Zealand to
encourage so.
Speaker 2 (14:51):
For example, we already have a large number of cooperatives
in New Zealand. So are the settings right there that
are actually encouraging R and D and innovation in the
in the in those places? To what extent are do
we do we do? Do we have the R and
D tax credit settings right to actually maximize development here?
(15:12):
Overseas locations use things like patent boxes, for example, where
if you develop a patent in a country and exploit
it in our country, you can lock up the tax
consequences for that for a period of time in our country.
So and also one of the things you don't do
at that point of timp is you know, is you
don't say too because in the Growth document talks about
(15:36):
using innovation to deliver growth, which is fantastic, you don't
do that at the same time as radically reform. How
you do R and D inside the government's system, You don't,
you know, we've lost around five hundred scientists in the
in this round of changes to the from the previous budget.
None of that is helping the sort of long term
stability of delivering that kind of growth, because delivering growth
(15:59):
is a long term challenge. It's not something you do
in the short run. Well, you can ask Liz Trust
what happens if you're try and deliver growth in the
in the short term.
Speaker 1 (16:08):
One last question before we take a quick quick air break.
During your time working in the government, and obviously now
in the in the unions that the previous government when
it tried to make economic changes it was quite fond of.
They often used the word tripart tripard consensus. There was
a tripartite future of work for them. There was the
(16:29):
UH of course, there was another fear pay agreements and
and the social unemployments. One was with the big ones
and then were there was there a union voice on
the business Advisory group? Was that there was that was
that was just it was just the business. But you know,
it's sort of and and they obviously business obviously the
business business side of the three legands at all fought
(16:54):
very hard against fear pay agreements and and that kind
of consensus broke, but that they the consensus are fragile.
Admittedly fridgeile consensus survived for a long time around the
social Unemployments and Insurance scheme, which which you know might
have actually had labor been related, been implemented later in
(17:14):
the term. This government's taken a very different approach. There
has been very little a team that seems to building
a consensus between labry and capital, do you you know,
and it seems like that that potentially is also a
risk seek for at least lasting kind of consensus.
Speaker 2 (17:29):
I think that's the whole point of taking a triparthite
approach is to try and build both consensus about change,
consensus about where you make investments, consensus about how you
may grow and who benefits from that growth. And it
does two things wanted. It builds in a little bit
more long term outcomes that you hope as part of
the process. And that's why international organizations like the International
(17:51):
Libor Organization, you and an others have tripartite bodies built
into you know, their structures. But also you look at
the juris dictions that have seen much better growth than
the New Zealand over the past thirty forty years. They
tend to have more tripartite type structures built into their
domestic economic development delivery structures and mechanisms. Again, Denmark has
(18:13):
had tripartism since the Great Depression. Germany France has you know,
more tipartit basics. You know, in French workers are amongst
the most productive in the world, you know, so there's
you see real benefits from from tripartism and and it
really is a bit of a shame that that that
that tripartism has been lost because it's actually about just
(18:36):
communicating with each other, learning actually what each other's priorities are,
and then working together on what a solution might be,
rather than hoping to force it on somebody and then
assuming that you win and lose, because in the long run,
if you flip flop, no one who all. The only
people who win are the lawyers who get to redraft
(18:56):
the legislation over and over again.
Speaker 1 (18:58):
It's an interesting like it's an interesting because like Key
kind of famously opened the government with the sort of
a job someone I think it was called the fourth
Labor government had a sort of similar similar technic I think,
and that was controversial the time. Helen Clark, however, we
sort of went I don't think she started the war,
(19:20):
but obviously had a battle with businesses during the verse
her first term. It's like, it'll be an interesting when
when the history of this government has written in decades
into the future, I think people will remark on the
fact that they decided to not go for the adn
Key approach of trying, at least at the beginning to
build consensus, knowing of course that that labor and national
(19:42):
are on different sides of the capital labor equation. And
but but both of those prime ministers did try to
build some form of consensus around what they were doing,
and this government has just not.
Speaker 2 (19:50):
I think you got right. There's this government certainly hasn't
been as open to that dialogue as previous governments have been,
even the John Key bil English governments. And what we
I've seen then is a lot of legislation in a hurry,
changing things like ninety day trials, giving rid of fair
pay agreements. We've seen attacks on things like a sickly
(20:11):
holiday pay. There's been a range of things where actually
the absence of a worker voice in that space is
meant that there hasn't been the consideration of issues that
workers and working people might consider being really important. We've
seen that quite narrow focus on delivering our regulatory changes.
Regulatory Standards Bill is arguably the ultimate, you know, expression
(20:34):
of that where which puts the delivery of economic growth
or puts the delivery of some kind of a removal
of the crown from from a place where it might
have an interest and the hope that delivers have better economy.
We're still an economy that you know, kills seventeen workers
(20:56):
a week as a consequence of you know, their work.
Speaker 1 (21:00):
It's a large forestries are still forest.
Speaker 2 (21:02):
Is a big is still not a great place to work.
But it's it's forestry, it's it's construction. It's a whole range.
Speaker 1 (21:09):
Of different that still ranks quite poorly.
Speaker 2 (21:12):
Yes, that would be that would be double the rate
of fatalities as you would find in Australia, five times
the rate of fatalities in the UK. Right, So you
know there are consequences to these things and we just
want to make sure an engineered stone is a real
example of that.
Speaker 1 (21:30):
Australia moved very fast on the Australia very fast.
Speaker 2 (21:33):
You can't buy engineered stone in Bunnings in New Zealand
because it's part of the Australian supply chain, but we
haven't banned it in the same way. We're currently consulting
on various bit on best profits. But you know elsewhere
in the world that sort of thing done very quickly.
Speaker 1 (21:52):
Well in Australia seemed like someone did a TV investigation
on it and then it was banned by the within days.
Speaker 2 (21:58):
Yeah, and then going to hear and and again. That's
what that lack of that engagement delivers because those sorts
of issues don't come to the fore in the same
way as you know we see in in this growth
document there are plenty you know, we talked about health
and safety as being an impediment to growth.
Speaker 1 (22:18):
Just for listeners. The engineered stones. Again, I think that
the creation of engineered stones common for kitchen being shops,
religious particles that are dedly how many people, it's lots.
Speaker 2 (22:30):
Worse than us best us as a product. It creates
a disease called silicosis of the lungs. And you see
very young, you know, very young workers who you know
were exposed to that dust and becoming very ill, very quickly.
Speaker 1 (22:43):
We're just going to take a quick break. I mean,
we'll be right back with Craig win Hello, and welcome
(23:04):
back to On the Tile, the Heralds Politics podcast. I'm
with CCU chief Economist Craig Winny. Just as another part
of the growth growth story, there will other sort of
hat on when you're not doing a job. You're sort
of a recreational fiscal whole finder. Listeners will be aware
of Craig's passion for public accounting and mistakes. One of
(23:26):
the other parts I think of growth is that it
makes economic growth makes life easier for the finance minister.
You have money to spend. And I was sort of
looking through some historic fiscal plans budgets the other day
because i'm you know, as Church because you sometimes I think,
and I was looking at your fiscal plan from twenty seventeen,
which you were involved in and kind of helping to
drow up. And you were with labor then and then
(23:49):
the first budget and when there was when there was
growth in the economy, and I guess it was there
was actually growth in twenty twenty up with a bounce back.
You it was a if you're a progressive party, you
can with that fiscal plan. It was a very clear
offer of saying, look, we'll have a slower debt track,
(24:11):
slightly smaller surpluses, will cancel the tax cuts, and all
of a sudden, you've got it's a straight trade off
to voters. You say, look, yep, less money. You're not
going to get the tax cuts, less money from that,
but here are the services that you can fund, and
all that all that really changes is the tax cut thing,
and slightly lower debt repayments are slower debt repayments. And now,
(24:36):
of course, if you're if you're putting together a fiscal
plan twenty twenty six, both parties are going to struggle
to actually offer anything good because they're just you probably
you can't wait you you might be able to put
you it'd be hard to take significant amounts of money
from saying well, we'll just have slightly larger deficits and
the slightly lower debt repayment. That's you're kind of pushing
(24:57):
against the limits of what Treasury is currently saying. It's advisable.
Maybe maybe that's fine. You could obviously you've got the
text thing that you guys, are you know that the
Labor leader's been, you know, been quite open about I'm
looking at a progressive text policy. But you know, there's
not a significant depending on the text policy, there's not
a huge amounts of Hyman you need to be found
there either. Like, it's just it's harder at the moment right, oh,
(25:21):
where you go.
Speaker 2 (25:22):
It's very hard. I should probably preface this by saying
I'm not Labor's finance spokespersons, and they know, you know,
and Bob Edmans you know, would be able to give
you chapter in verse on this. But certainly my experience
is someone advising finance spokespersons and finance ministers. This is
always hard. You know, we spend as the government around
(25:43):
one hundred and twenty billion dollars a year and you're
scrubbling around for one hundred million dollars somewhere to pay
for something because every dollar has someone's name on it.
So it's always difficult and you're always dealing with things
at the margins. Now the right now we have operating
allowing is going out the forecast at HIGAFUID about two
(26:03):
h four billion dollars, but actually the majority of that
is already spent. You know, the majority of that is
already going to be spent on health, inflation, on education,
you know, because we have more trildiden they require more seats,
more classrooms, and once you pay for that, there's actually
remarkably small amounts of money remaining. That's why if you
(26:23):
do big tax giveaways that become quite so expensive to
deliver because there isn't spare money to cancel to then
make that then turn up. The challenge here, of course,
is then compounded by the fact that if you want
to deliver something, you want to deliver something new. If
you've just come from a government that's cut quite a
lot of public sector workers, it's cut a lot of
(26:44):
the public sector capacity to do that, you need to
rebuild it and that costs more money as well as
being you know, sort of causing difficulties for the population
in the short run because they then find working with
or access in the government more difficult. So you're right,
it is quite challenging is to see where, you know,
where money for big election giveaways would come from, and
(27:10):
so that's why it's also it's much about saying what
would you stop, what would you change? There are plenty
of non fiscal things in the regulatory space and the
legislation space that can be done that don't cost large
amounts of money, and so growth is important to help
(27:30):
deliver some more fiscal space. But certainly the evidence that
I've seen, or certainly the forecasts that I've seen, don't
suggest a huge turnaround in growth over the next twelve
to eighteen months, which becomes important for the election cycle
because that's the data you'll have to work with and
part political parties will have to work with at the
(27:52):
next election.
Speaker 1 (27:53):
Right about the two point four billion dollars figures, so
and you know, in real terms, that is at the moment,
I think that's about the level of sixteen seventeen budgets.
And yet we've got an older population, a sec of population,
and a bigger population. So those things, you know, obviously
super and benefits are automatically justice, so you don't have
to worry about them, but you need more money, not
(28:14):
just in real in real terms, but and even even
more money to tread water on those core services of
health and education. And we're recording this. The Director General
of Health it's just resigned this week. We've had a
last couple of weeks, we've had a rafter of resignations
and health. I think we're spending as a proportion of GDP,
(28:34):
we are spending a large amount on health than we
have done in years. Are still barring I think twenty
twenty two and it quietly it seems it's very hard
to sort of land on definitively, but it does not
seem to be enough. But then you do get to
twenty twenty six, and where do you find within a
two point four billion dollars allowance additional money for health?
I mean, obviously, you know the progressive parties are probably
(28:55):
going to run on more tax and then you can
add that. But but you know, it sort of seems
like you.
Speaker 2 (29:01):
Well, so you know, at this point, Tomas, I feel
legally obliged to say you don't start by big tax giveaways,
because if you need more revenue, giving your money away
is in a great place to start. So you know
that the tax cuts that have happened to day aside
talk of further tax cuts makes that problem harder, not better,
(29:22):
So you know, and and also if you're all going
to do tax cuts, how do you do those tax
cuts in a way that is the most that delivers
the economic goals that you want to see.
Speaker 1 (29:32):
Well, I think tax rises is probably what what twenties
three in sex would be about.
Speaker 2 (29:35):
Whether I was in and again, how do you then
do that and why and where and where? Because it's
it's I think it's it's important that it's important for
public confidence that voters can see real clarity as to
how political parties plans are going to be paid for.
But two that if there are tax changes, those tax
(29:57):
changes can be seen. You get TA X and you
get service Y. There's a link between whatever is being
whatever's being asked for, and what's being delivered. Because that
way you can you can see you can have the
choices now clear it's A or B. In twenty seventeen,
(30:17):
that was one of the real benefits of the tax
cut by Stephen Joyce just before the election. It was
twenty dollars on average per person per week and it
was so you can have that, or you can have
the winter energy payment, or you can have best Start,
or we can tackle child poverty, or you can lift
working for families, or we can spend money on the
(30:39):
health service. And it creates a point of difference, and
that I think is going to be one of the
key things in the twenty six election. It really is
where all there's little points of differences where you can
see actually really where the political parties differ.
Speaker 1 (30:52):
They're in austure. I was looking at those text cuts
the other day. They were an interesting one because they
sort of focus on the middle brakets rather than the
whole you know, the recent lot adjusted the whole system,
and so that's quite wasteful when you do everything apart
from the top rate, whereas that one, you know, it's
(31:13):
it reminded me of how tightly thought that election was
because as far as like tax cuts are inherently untargeted,
but as far as tax cuts go, that was quite
a targeted one. And then Labor's Labor's policy was even
more targeted at specific people with specific needs. You know,
it's very it's a brutal knife fight between two text
policies that that that often you know, very similar intervened
(31:35):
or very interesting interventions in the same people's lives, and
the trade off between what was what was what I
guess there's a really interesting debate happening in the progressive
Last question, I promise on progressive economics at the moment
relating to New Zealand around the extent to which the
current debt levels are too high or unsustainable, and whether
(31:56):
the OBBA gal track is a massive problem that we
should be you know, that that we should actually be
making well being trade offs to solve saying, look, look,
our present health system is bad, but in the interest
of the future health system, we should continue to put
pressure on it spending you know this fiscal sustainability will
mean poor hoal systemlah blah blah. I guess my blunt
(32:17):
question is, and you know, in ready of the speech
this morning said you know, we are a medium debt
country and basically said that that that restoring the fiscal
buffer's lower net core ground debt was one of his
as a Treasury sexualary, one of the goals that he
thought was important. So, I guess my blunt questions to
you is like, is there an argument that we had
about a higher you know, a slightly later return to
(32:40):
surplus or even you know, running small deficits for a
very long time, And how is there an argument that
we have had about that twenty seventeen strategy, which was
a slower reduction in debt.
Speaker 2 (32:53):
The responsible thing to have as a conversation about is
about physical responsibility and seeing you're going to be physically
responsible and that doesn't just seem you mean that you're
going to be a physical hawk. When I'm asked this
an audience, is one of the one of the stories
I say to the people is, let's assume you had
a net debt ceiling. If the US has the expenditure ceilings,
and you said, right, we're not going to spend a
(33:14):
dollar more than this amount, and this will lead us
to this debt level, and this is how we're going
to pain us. Great, Let's assume we got to that
point and I could spend a dollar more and I
could get huge beneficial outcomes for a community or a
place or something else. What I spend that dollar or not?
The honest sense is, of course you would. Of course
(33:34):
you're going to do that. No economist on the planet
would say that central This is to be an absolute
physical you know, in this space right, because it's bonkers, right.
So being physically responsible means actually taking into account sort
of are we investing in health and education, hasing enough
to make sure we're actually delivering the outcomes that we
want to in that space? Are we investing enough in
(33:56):
housing so that actually we're reducing the problems we see
in has because again, like health and education, we store
up very expensive, long term problems by underinvesting consistently. The
environment water a huge energy craaky. You know, we generate
about as much electricity gig what ours electricity this year
(34:18):
as we did ten years ago.
Speaker 1 (34:20):
Right, Yes, that's long stermy missive issue.
Speaker 2 (34:22):
Massive issue, and that generates long term, expensive problems. So
the question is actually one of how do you use
investments to deliver the best value for money? Because it's
that best value for money argument that actually is one
you should be using rather than arbitrary fiscal levels of A, B,
C or D because you know, if you can't have
(34:46):
an argument to say, well we will return to serpents
in the long run, great, But if you're returning to
service in the long run, you can have an obigal
deficit and debt still falls because the obigail deficit is
going up less than the economy is growing in as
a PERSENTI of GDP, debt is falling. You can have
(35:08):
more debt, but you also have more assets on the
other side, which are actually growing the economy faster. Be
that in the form of public transport, that the form
of housing that form, and so on and so on
and so forth. So it's a very complicated and quite
sophisticated analysis that's needed, not just simply we shall return
to obergall x or obergal whatever obergall X's you know,
(35:30):
surplus at a point in time. It's much more about, actually,
how do we make sure that there you know, people
have security of health services, security of education services, that
they know the government's investing alongside, you know, the economy
to make sure we're delivering good jobs in the future.
Speaker 1 (35:49):
So there's an argument to be heard about, you know,
sustainable operating balance and that could mean actually sustainable, sustainably
small deficits if they were small enough that the deep
part wasn't growing unsustainable levels of debt, which which you
know would would PEPs growing nominal terms fall on GDP terms,
and the investment on the other side was worth it.
I mean, and I guess you know that there's that
(36:12):
the fiscal Ruth Richister's fiscal responsibility stuff that lives on
inside the Public Finance Act. Would you need to chat
about that, but you know that is yeah, I mean,
that would be quite a departure from the I guess
thirty since the since ninety ninety four that it'd be
quite a departure from the way that we've done things,
but a small one. Well it is.
Speaker 2 (36:30):
I mean, the funny thing is is that we used
to have a net debt ceiling. So we used to
assume that debt net core crondebt had to be between
twenty and thirty percent of GDP, and you try to
get it down to twenty percent of GDP, so will
give you a ten percent GDP buffer in case of
an earthquake or a disaster or something else. And ember
in the first term, we asked the Treasury, where did
(36:52):
that figure come from? Where did that that calculation come from?
It is it? Is it an international calculation? Is there
some kind of to the credit rating agencies? Say no, no, no, no,
it must be here, came from nowhere. It was just
made up. So and it's one of these things sort
of you know that there are a lot.
Speaker 1 (37:10):
Of very story. Could you could repeat it with so
many different rules of government.
Speaker 2 (37:15):
Unset assumptions, and you've got toe pick these unset assumptions
that actually then drive and deliver the outcomes, you know,
sort of like say, because without them, we rather than
you know, unthinkingly you know, deliver lower debt and we're
actually under investing in you know, in in health or
education or somewhere else, and we're just hoping the future
(37:36):
pays for the liability we're not paying for today to
hit a physical target that's actually fairly meaningless.
Speaker 1 (37:43):
Well, Craig, it's very interesting and thought to leave it
on then, thank you very much for your time. It
was Craig really the chief economistic the see you joining
us to discuss growth that was on the tiles for
another week. I'm your host, Thomas Coglan Ethan Stills as
the producer. You can find us on our Heart Radio
wherever you get your podcasts, and there'll be more on
(38:03):
next week in your podcast feeds. Thanks for listening.
Speaker 2 (38:07):
H
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