Coherent economic story needed
The IMF has given the government’s economic management a great big tick.
According to its boffins, current macroeconomic policy is “appropriate” and has “played a key role in delivering macroeconomic stability and enhancing the resilience of the New Zealand economy.”
The government’s fiscal consolidation path “strikes a balance between the need to limit both public and external debt increases while containing any adverse impact on economic growth.” The fiscal stimulus of recent years is being withdrawn “at the right time”.
The financial sector, the report goes on, is “sound and well capitalised”. “New Zealand’s fundamentals have improved since the global financial crisis (GFC); household and business balance sheets have strengthened and banks have reduced their use of foreign funding.”
The Christchurch rebuild is gathering pace, inflation is subdued, while growth has strengthened and should “converge to a trend rate of about 2.5 percent.”
New Zealand, it says, is well-placed in the event of economic shocks like a slowdown in China or a commodity crash, with the government and Reserve Bank having “monetary and fiscal policy space” to respond.
The Reserve Bank, having not reduced the OCR towards zero, has “scope to lower interest rates and loosen monetary conditions to help buffer against a downside scenario.” The free-floating dollar, which the IMF agrees is over-valued, “provides an additional cushion against external shocks” while “New Zealand’s modest public debt gives the authorities scope to delay their planned deficit reduction path in the event of a sharp deterioration in the economic outlook.”
Highlighting challenges, the IMF worries about the drought, inflation driven by earthquake-related reconstruction, and rising houses prices as a result of “supply bottlenecks”.
These are, of course, exactly the issues concerning the government. On house prices, the IMF could have noted the Auckland Council’s recent move to increase supply, by expanding urban limits and lifting height restrictions.
It could also have noted that New Zealand unemployment has remained low by world standards and is falling again.
Significantly, the positive IMF outcomes are exactly what the government said were its objectives when taking office nearly a year into a domestic recession and a few months into the GFC.
Through 2009, it said wanted to protect New Zealanders from the sharp edges of the recession, by not reducing spending on welfare, education, health or law and order, and to keep debt under control by addressing the then horrific long-term fiscal forecasts.
Broadly speaking, the IMF says the government has achieved these goals.
Nevertheless, the same day the IMF report came out, pollsters Roy Morgan reported its New Zealand Government Confidence Rating was down sharply, while its party-vote numbers indicated National would have no means of holding out Labour/Green, except in coalition with Winston Peters.
The growing gap between the government’s economic record and its political prospects suggests a communications failure by its economic team.
It has arisen because of the different personalities and emphases of the three senior economic ministers.
Unusually, this prime minister’s background means he cannot help but be seen as the government’s chief economic spokesperson in a way David Lange, Jim Bolger and Helen Clark never were.
John Key can charm any audience – face-to-face or through soft media – and skilfully disarm whatever daily political bomb is thrown at him by the press gallery or opposition.
The downside is that his skill with the immediate audience or issue overshadows any consistent story about the future and the path towards it.
In contrast, the finance minister’s messaging is more consistent but, notoriously, Bill English has always failed to connect.
In any case, the down-to-earth Southlander probably doesn’t even believe in rock-star finance ministers in the mould of Sir Roger Douglas, Ruth Richardson, Paul Keating or even Sir Michael Cullen.
Life for him is not about bold visions to excite the Queen Street crowd but getting through each year a little better than the one before and putting something aside for plague or pestilence.
Mr English’s philosophy is about “getting the right balance” and the IMF indicates it has been at least as effective as some of his predecessors’ promises of nirvana.
The economic development minister is more into grand plans through his new Ministry for Business, Innovation and Employment (MBIE).
Its bureaucrats have published millions of words in support of his Business Growth Agenda (BGA) and all can be read here.
Insofar as there is good work within the morass of BGA “work streams,” “progress reports” “and so forth, the turgid bureaucratic prose obscures it.
Worse, each time MBIE bureaucrats publish a new BGA report they invariably recommend establishing yet another officials committee.
A random example: “The Government has hosted a discussion with major international and New Zealand food firms to develop a strategy to encourage the international food industry to develop advanced foods using the capacities of New Zealand researchers. A working party of MPI, MBIE and MFAT officials are now working with those companies and the research community to advance the agreed strategy.”
The reality is that while MBIE was meant to be business-facing, few government agencies have ever been more bureaucrat- or Beehive-facing. Even some of the major businesses cited as case studies in BGA documents have had no contact with the process.
That may also be true of the rest of the cabinet: ministers seldom refer to the BGA when meeting business.
The government has had an awful 15 months. Re-election appears improbable. It would help if its economic ministers could tell a single story about its record and programme as compelling as managed by the IMF.