26 Sep 2023
This is the most difficult moment for New Zealand’s economy since the Global Financial Crisis – and arguably since well before that.
Real wages have experienced their most significant period of decline since records began.
Inflation has outstripped wage growth for the last eleven quarters in a row.
Over the last three years, the buying power of your wages has dropped significantly – the equivalent of an average family being around $7,000 a year worse off.
Over the last six years, food prices are up 25 percent and rents are up $175 a week.
With interest rates rising rapidly, repayments on a $500,000 mortgage fixed just two years ago are up $700 a fortnight.
I’m up and down this country every week. Behind that data is the reality of the tough choices Kiwis are being forced to make.
In the family who had to stop sending the kids to swimming lessons just so they can afford the grocery bill.
In the solo dad who had to take on a second job, and so isn’t seeing his kids anywhere near as much as he’d like.
In the first home buyers who now have a house worth less than their mortgage, and yet see interest rates more than doubling.
Life shouldn’t be this tough.
HOW WE GOT HERE
Let’s be clear about how we got here.
There is a view that it’s all international factors – whether that’s Covid or the war in Ukraine.
Yes, they have had an impact. But over the last 12 months, Covid and the big international factors have fallen away. Oil prices, for example, are well below where they were a year ago.
According to Treasury, New Zealand has been less affected by international factors than many other countries.
Australia is boasting a growing economy, lower interest rates than us and a return to surplus, while the US, Canada and Singapore all have lower inflation than we do.
Meanwhile, the domestic component of inflation in New Zealand has continued to rise – hitting an all-time high earlier this year.
Those domestic factors are the difference between inflation starting with a six, and inflation starting with a three.
And because they are domestic, I don’t accept the fatalist position that there was nothing the Government could have done.
There are three major drivers of this domestic inflation:
Extraordinary monetary policy, economic blockages, and record government spending.
On monetary policy, it’s fair to say the Reserve Bank has given the country whiplash.
Between printing tens of billions of dollars, artificially cheap lending for the commercial banks, and taking an axe to the Official Cash Rate, New Zealand had the 5th largest monetary response in the world during Covid.
New Zealand was flooded with money, asset prices exploded, and inflation soared.
Over the same period, obstacles for businesses increased.
Restrictive immigration settings meant inflation became embedded as labour shortages plagued whole production chains.
In the case of food prices – which are rising at their fastest rate in 30 years – we saw the absurd situation of $500 million of kiwifruit lost last year, even while Kiwis left supermarkets hungry and frustrated, and 50,000 people received the Jobseeker benefit.
Broken financial regulations like the CCCFA distorted credit settings.
And the part of New Zealand historically responsible for pulling us out of tough times – the rural economy – has been strangled by red tape.
And over the same period, we saw very loose fiscal policy.
Government spending rose in response to Covid. But instead of falling as lockdowns ended and wage support measures became less intense, spending continued to climb – both in absolute terms and as a share of the economy.
Incredibly, government spending this year will be $20 billion higher than in either 2020 or 2021. There is a very real risk the Government will operate a larger deficit this year than at the height of Covid.
It’s one thing to be spending heavily and operating deficits as you revive an economy with high unemployment and stagnant inflation – as the automatic stabilisers of welfare spending rises and tax receipts fall.
But that hasn’t been the scenario this time. Unemployment is half what it was in the aftermath of the GFC, and inflation is just driving the tax take ever upwards.
Responsible governments cool fiscal pressures at the top of the economic cycle – but we’ve seen exactly the opposite here.
Higher inflation, record interest rate hikes, and a looming recession are the result.
NATIONAL’S PLAN FOR THE ECONOMY
Today, I want to outline the two pillars of National’s economic approach: repairing New Zealand’s engine for economic growth and restoring fiscal discipline.
REPAIRING THE ENGINE OF ECONOMIC GROWTH
When it comes to growing the economy, there’s a lot in New Zealand’s favour.
We are filled to the brim with hard-working, innovative people.
Kiwis who get up early to milk the cows, or head to work, or make the school lunches – because they want the best for their families.
And we are part of the Asia-Pacific – with a rapidly rising middle-class and all the opportunities for growth, collaboration and partnership that should bring.
We also have some great fundamentals - arable land, a temperate climate, respect for the rule of law, and little to no corruption.
But despite those conditions, New Zealand’s economy is shrinking, with economists now only debating when – not if – we will enter recession.
The country recently recorded its largest current account deficit on record at almost 9 percent of GDP. Meaning as a nation we’re spending far more than we earn.
And we’re world beaters at it. We have the largest current account deficit in the OECD.
And now credit agencies have warned of a ratings downgrade if we don’t start to pay our way in the world – meaning even higher interest rates on our debt, which has ballooned from $5 billion to $80 billion, and heading towards $90 billion by the end of next year.
Spending our way out of this hole isn’t an option.
More spending, more borrowing, and more printing of money –while ignoring the economic fundamentals – will just take us back to where we are today.
An economy in decline, rapid inflation, and Kiwis falling further and further behind. That can’t be the answer.
Instead, we must earn our way out of recession.
We must get New Zealand’s economic engine humming again.
It’s not about the economy for the economy’s sake.
And, much as I hate to say it to a Chamber of Commerce, ultimately, it’s not about businesses either.
It’s about people – it’s about lifting incomes, creating new jobs and being able to afford the public services that hard-working Kiwis deserve.
It’s about better health care, and an education system that equips kids for success.
A strong economy and strong businesses deliver that.
National has a plan to kick-start New Zealand’s economic engine.
We will provide income tax relief, because hard work should be something to encourage, not something to tax.
We will grow the skills to create the workforce we need – fixing broken immigration settings and getting the education system back to basics.
We will build infrastructure - delivering the projects Kiwis need to get to work, and businesses need to get their product to market.
We will encourage technology and innovation to create higher-value Kiwi products and services to sell to the world.
We will be ambitious on the world stage – we are an open trading nation in the heart of the fastest growing area of the world, and the opportunities are massive.
And National will get Wellington out of business.
Let me tell you a bit more about what I mean.
ROLE OF GOVERNMENT AND BUSINESS
A strong economy requires genuine collaboration between government and business.
Each has an important, but unique role. Governments should get the settings right, and then get out of the way so business can do what it does best – investing, taking a risk, employing staff, and lifting wages.
But recently, we’ve seen the Government totally confused on its part in that equation – and its confusion is leading business astray.
The Government is so keen to intervene and set new rules that major companies increasingly look to Wellington for direction, before developing their own investment plans.
It’s created an unhealthy dependent relationship that is depressing the spark and innovation for which Kiwis have historically been famous.
That must change.
I want to bring trust back to the relationship between business and government – a healthy relationship on an equal footing.
I will lead a government that genuinely listens – not as a risk management exercise or as a way to get CEOs off our back – but to understand what you need from us to go faster and compete harder on the world stage.
It will be a relationship where you feel comfortable demanding change to regulatory settings that are holding back growth.
But with that trust, I expect business to come to the table. I want everything you’ve got.
I want your creativity, I want your vision, and I want your entrepreneurial drive to take New Zealand up a gear and get our economic engine humming.
Talk will not deliver results. That’s why National has been releasing specific policies designed to get New Zealand’s economic fundamentals on the right footing.
Renewable energy will be a huge part of our future, as we move towards our commitment to reach Net Zero by 2050. But under National, delivering on our climate commitments will not mean stifling future prosperity.
That’s why I announced Electrify NZ – National’s plan to make investing in new renewable energy much faster and much cheaper. We’ll slash consenting times and extend their duration, reducing the cost and uncertainty of new investment. And in return business will play their part and invest $30 billion over 25 years in new renewable projects.
We’re also working to ease long-term skills challenges.
I constantly hear from businesses that their employees just don’t have the skills they need on the job. And if they are not literate or numerate, skilling them up feels impossible.
That’s part of why earlier this year I announced Teaching the Basics Brilliantly. We’ll require schools to teach an hour a day of reading, writing, and maths – so kids arrive at high school ready for extension.
Where our rural economy historically drove the economy out of tough times, farmers and growers have been under huge pressure.
Open hostility from Ministers has resulted in a range of new, unworkable regulations, layering on costs and making new investment impossible.
I trust farmers. I trust them to do their jobs and I trust them to deliver environmental excellence.
That’s why recently I announced National’s plan for Getting Back to Farming – nineteen actions to tear down the barriers holding farmers and growers back from their potential and supercharging the rural economy.
And I know as a small, trading nation, our economy only thrives when we’re building new connections and partnerships with the world.
That’s why I announced our commitment to achieving a Free Trade Agreement with India – not because it’ll be easy, but because when the lifeblood of your economy is trade, breaking open new markets should be a top priority.
Australia has a trade agreement with India, the UK is about to achieve one, and both Canada and the EU are closing in on negotiations. I will not have New Zealand left behind.
That’s only a short list – but in the coming weeks and months, I will have more to say on how we will bring trust back to the relationship between business and government.
But my message is clear.
I will do my job to break down the barriers and unleash opportunities for those Kiwis who want to go out and beat the world – but I expect you to do your job and harness all of the potential New Zealand has to offer.
RESTORING FISCAL DISCIPLINE
I also want to talk about the other pillar of strong economic management under a National government I lead – fiscal discipline.
For the last six years, taxpayers have been abused by this Government.
It is spending a billion dollars more every single week than when it came into office.
And the only thing to show for it is a massive increase in both debt levels and the tax take.
Net Government debt has increased from $5 billion to $80 billion in just a few short years.
The IRD is collecting $100 million more in tax every single day compared with just five years ago. That’s $17,500 more tax, on average, for every Kiwi household this year.
There’s no acknowledgement that every single dollar the Government spends has to be earned by someone, perhaps slogging their guts out in harsh weather, doing their job and paying their tax.
In fact, the only reports we’ve seen lately from this Government on tax have been thinly veiled efforts to gin up support for even more taxes.
I am sick of taxpayers being treated like a bottomless ATM, to be raided at any time, for any reason.
National will respect taxpayers and bring fiscal discipline back to Wellington.
There is a perception that fiscal discipline just means spending less money.
Governments do have a responsibility to control their spending.
But they also need to be laser-focused on whether that spending is delivering value for money.
And – putting aside the sheer increase in spending – that’s where I believe the Government has truly failed.
Despite spending a billion dollars more every week, there is very little to show for it.
Education standards have slipped, with young Kiwis falling well outside the top 10 in the world for English, maths and science.
The health system is in a rolling crisis – with record workforce shortages and major blow-outs in emergency department waiting times, specialist waiting times, and immunisation rates.
Crime has soared – with violent offending up 33 percent. Retail crime – like the thefts and robberies plaguing communities across the country – is up 40 percent in just the last two years.
And yet there is almost no focus in Wellington on whether the money government spends on behalf of taxpayers is actually delivering results.
Performance is an afterthought so millions of dollars continue to be wasted on projects that don’t work and achieve nothing.
I’m upfront that I’m not a career politician –I’m still new to the way things work in Wellington.
But in my former corporate life, that approach to managing money would be unthinkable.
There’s no way a responsible CEO would spend millions of dollars of shareholders’ money on a new programme, only to never check whether it worked.
But in Wellington, it’s business as usual.
Government isn’t a business – but Wellington could do with some commercial discipline.
RESTORING FISCAL DISCIPLINE
That’s why today I’m announcing National’s plan for restoring fiscal discipline in Wellington.
National will make three major sets of changes to restore discipline to government spending and stop waste.
Treasury Initiative Monitoring
First, National will introduce new requirements for Treasury to report on the performance of major spending initiatives, alongside the annual budget documents.
I won’t put up with pouring more money into broken programmes that don’t work – even while we need more funding for frontline services like health and education.
But to get that right, we need the right information.
Agencies should monitor programmes, collect data, and measure performance. It is something the Auditor General has been frustrated by, raised consistently and been calling for, for some time now.
That’s why National will amend the Public Finance Act, requiring Treasury to work out whether existing programmes are achieving results.
As part of that, Treasury will be required every year to outline the effectiveness of spending in key areas – like health, education, and social development.
Under a National government I lead, every dollar of spending in those portfolios will be directed to its best possible purpose.
Second, National will make much more information available to taxpayers on how their money is being spent.
Too much financial reporting is impenetrable.
Unless you’ve worked in the machine in Wellington, or you’ve trained for years in accounting or economics, it’s impossible to work out just how much money the Government spends, and where it all goes.
That’s why a government I lead will introduce new requirements for financial reporting to taxpayers.
Each year, IRD will produce a “taxpayers’ receipt”, received by every taxpayer, when their tax returns are finalised.
It will break down how much money they’ve paid and received in the last year – including any Working for Families and other benefit payments.
It will also break down where their taxes have been spent, including on education, health, welfare payments.
And National will direct Treasury to produce an annual “Report Card for Taxpayers”.
That report card will break down headline statistics like tax revenue, spending, and debt on a ‘per household’ basis, published alongside the Budget each year.
It is your money – and you deserve to know what it is being spent on.
Finally, National will re-introduce and expand performance pay for senior public servants.
Executive pay should be linked to achievement.
When National was last in government, public sector chief executives’ pay was determined – in part – by their performance.
But in 2018, Chris Hipkins scrapped that - eliminating motivation for extraordinary achievement.
It’s no surprise that since that decision, there has been a hollowing out of public sector performance.
A culture of high performance and accountability needs to be created in Wellington – and that starts with rewarding people based on outcomes.
That’s why National won’t just bring back performance pay for Chief Executives – we’ll expand it to the next tier down with Deputy Secretaries also having their base pay determined – at least in part – by their performance.
Finally, there’s a Budget this Thursday – and I’ll be looking for three things.
First - evidence of a return to disciplined spending. And despite the small savings announced by Grant Robertson last week, I’m not expecting much success there.
Second, I want to finally see a plan to get this economy moving again - although I don’t expect to see much progress there, either.
Third – it’s well past time for Kiwis to see some tax relief. Record inflation means Kiwis are paying more tax than ever before, but any growth in incomes has been quickly eaten up by the rising cost of living.
I think there’s a real chance Labour will deliver something on tax. But it’s likely to be too little and too late and offered only in an effort by the Government to secure a third term.
Regardless, I’m confident that with a fresh approach, New Zealand has an incredibly bright future.
It’s impossible not to be optimistic when you’re lucky enough – as I am – to see incredible innovation across the country, every week.
There’s an entrepreneurial spirit that ripples right across New Zealand, driving new ideas, new businesses, and new partnerships.
A Government I lead will encourage the go-getters to beat the world, because when Kiwis succeed, New Zealand succeeds.
In five months’ time New Zealanders will decide whether their country goes backwards for another three years, or embraces the opportunities that are out there if the government, businesses and community sector lift their sights and work together.
I know which side I’m on. Thank you.