New Zealand's Rudderless Economy

Helen Clarke’s nu-Labour government now appears to be bereft of ideas on economic development.

The government is siting on a substantial surplus but has no strategic plan about how to spend it. It is also making no attempt to help the struggling farming sector, which is suffering from the high dollar.

As Colin James points out, the government has talked of increasing research and development spending but has done little in practice. In the last budget, just $25 million in new funding was allocated for scientific and industrial research while $2.2 billion was directed into social spending. Similarly, Michael Cullen’s incentives for increasing national savings are half-hearted at best.

To help exporters the government also needs to do something about the country’s persistently high interest rates, which are the main factor behind the overvalued New Zealand dollar.

However, after three and half decades of middle class welfare it is now very difficult to help the productive sector without causing serious inflation. If the country had fewer middle class welfare recipients, then perhaps it wouldn’t have such an inherently inflationary economy.

The first big mistake was made by Robert Muldoon, when he irresponsibly promised to raise pensions in the mid 1970s. He also refused to reform the country’s overly generous superannuation system when it became increasingly unaffordable in the early 1980s. This has effectively tied producerism to the elderly welfare lobby. Subsequently, we now have a situation where the “producerist” New Zealand First party depends for its support on generous welfare promises to elderly superannuants and affluent pensioners.

The centre-right National party is more fiscally responsible in terms of welfare spending, but is still hesitant to introduce Australian style means testing for pensions and benefits. Furthermore, in terms of economic development, National is just as bad as Labour. It is disinterested in increasing spending on research and development and is even more apathetic about introducing savings incentives.

About the only glimmer of light at the end of the tunnel is Don Brash’s recent exit from politics. This means that a workable National- New Zealand First coalition becomes a more likely possibility.

However, for such an alliance to work, New Zealand First would have to accept means testing for welfare benefits while National would have to take serious steps to boost savings and investment. This seems unlikely unless the economy takes a serious nosedive or the business sector finally loses patience with the status quo and initiates a campaign to join Australia.

Such a campaign might be enough to shake the three main political parties out of their present complacency