Former National Party Finance Minister Ruth Richardson has called on her successor, Nicola Willis, to pass an emergency austerity budget by Christmas in response to the June swoon.
Willis would do well to ignore her. Doctor (honorary) Richardson made up her mind 35 years ago and would prescribe the same medicine regardless of the symptoms.
Her 1991 budget intensified a downturn for over two years. Unemployment surged to 11%, poverty levels shot up and never fully recovered, protestors took to the streets, and New Zealand's social fabric frayed.
She would argue the fiscal situation was so serious that this pain was unavoidable and strong economic growth between 1993 and 1996 had proven it all worthwhile. She may well be right.
But let's not overstate the case. Much of that growth was making up for the years of recession, the global economy was in an upswing, and the New Zealand economy had freshly liberalised.
Today the situation is very different. Public debt is a third lower, while servicing costs and the operating deficit are roughly half what they were in the 1990s. New Zealand has a near-perfect credit rating with a stable outlook, compared to being at risk of its third downgrade back then.
Richardson inherited an economy which had just been radically liberalised. It was not just spending cuts which built confidence. It was also an independent central bank, a floating currency, and a true market economy flourishing for the first time.
Setting aside the ethical debates about deregulation, there simply isn’t much low-hanging productivity fruit for politicians to pick and the Coalition is already reforming what it can.
What would New Zealand gain by slashing spending? It would not improve our credit rating, attract any foreign capital, or give households and businesses more confidence.
It would simply prolong the economic downturn while greatly improving the chances of the Labour Party winning the next election and immediately reversing the austerity measures anyway.
New Zealand is not Argentina. There Javier Milei has had some success with radical neoliberal reforms and spending cuts. But he is only trying to get his country ‘in cooee’ of what New Zealand already is: a successful, liberal, solvent economy.
Slashing spending today would undoubtedly delay economic recovery. Richardson will argue it is worth it in the long-term but, everyone say it with me, in the long run we are all dead.
14 Comments
Raising the pension age would be a much better option. Make it 66 now and increase it by 1 year every 3 years or similar.
Not fair if someone has zero notice of having to work for another year, what if you have just told your boss you are leaving at Xmas?
All indications are that Richardson has had Willis' ear since before the election and this is simply an attempt to ensure she dosn't backtrack now.....with the rush of public support and obfuscation from certain quarters the sense of threat is evident.
Willis has borrowed 15b this year about 11 next planned etc, $3 bil of that is interest deduction restore.
Easy Peezy 3bil fix, just revert it... see has virtually no space to borrow more to stimulate so needs RBNZ Cuts.
A 3-5% reduction in government staffing would impact front line but is maybe required. Can you imagine the education health, police strikes if this was attempted here.... Labour would have a field day.
IMHO she has to hold the line do nothing, hope like hell things approve. lux and Willis will be rolled Q1 if things do not approve, they are basically at the whim of international markets turning south.
"... see (sic) has virtually no space to borrow more to stimulate so needs RBNZ Cuts."
Really? She has ample room to 'borrow' for sensible projects though after having cancelled so much and with the time delay a reversal now wont save them in time but it may give them a talking point for the election...nor is it likely further rate cuts will produce a result in time for them.
Asset holders of course will be as vocal as possible for an OCR reduction.
"in the long run we are all dead" - it was easy recommend spending other peoples money when there was a increasing supply of grandchildren. Grandchildren at a TFR of 1.56 with zero natural population growth past 2040 notsomuch.
Good opinion piece Dan. Ruth is off her head.
But please remember that Milei has changed the dial temporarily thanks to a massive IMF loan (giving him the US dollars he needs to service debt in dollars) and a chunky swap line with China. It's a completely unsustainable approach and the harm his domestic policies are doing is grim.
Great article Dan. I'm not a lefty or greenie but neoliberalism must die. It is a bankrupt ideology and it has sucked the marrow from younger generations in NZ. We have many under-employed people and way less govt debt as a percent compared a Singapore. (using debt to buy good investments). I offer a suggest - have a tax cut for export companies & manufactories based in NZ. ( yes let's slay another scared cow - level playing fields are BS, eg. more manufacturing = increased supply = good fight of inflation = more jobs). Also relook at Kate's article for other suggestions https://www.interest.co.nz/public-policy/133744/what-do-you-get-when-yo…
Supportive for Alliance or similar meat producers perhaps but not necessarily farmers, who are not going to increase on farm employment if you cut taxes by 10-20%, even then reducing tax here does not increase export demand. But are these firms demand constrained or ability to supply constrained?
Both National / Labour will pick different winners, and this will mean a flip flop of investment with associate uncertainty
I prefer broad macro changes to promote investment
1991 austrity budget was a turning point. The beehive utterly embraced neo liberalism to our continued detriment. Ruth Richardsons part in that has a very special place in my bag labeled most disgusting.
But she was always sorted.
From memory Labour did not reverse it.....
Exactly.
When you are a hammer, everything looks like a nail. I think RR would have had an austerity budget every year since the 90s and likely the economy would be an absolute basket case.
Can RR name a place where austerity has worked since the 90s? I asked ChatGPT if there is any case where austerity has worked after the neoliberal budgets of the 1990s. Its answer is:
Since 2000, there are examples where countries implemented large fiscal consolidations and later saw bigger economies or higher GDP per person (Estonia, Latvia, Iceland; Germany and Ireland are more complex cases). But in every case the positive outcome was conditional — not a simple causal law that “austerity alone makes an economy bigger and more productive.” Most credible research finds success requires complementary policies (bank repair, reforms, favourable external environment) and good timing.
I then asked how many it didn't work in:
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About 25–30 OECD and EU countries attempted some form of austerity since 2000.
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Of those, only ~5–6 (Baltics, Iceland, Germany, maybe Ireland) can be called relative “successes.”
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So in ~20+ cases, austerity failed to deliver higher sustained GDP per capita or productivity — at best leaving stagnation, at worst deepening recessions.
Unless the government is about to get very bold and introduce a raft of other changes, its not going to work here either. Richardson is simply not aware of her ideological blinkers.
No harm in listening to Ruth Richardson. Who here believes that the RBNZ is more accurate or productive with its increased head count? Is MOE improving school or student performance with its increased headcount?
I appreciate that this site has its bias. But I don't necessarily agree with it.
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