VIEWS FROM OUTSIDE THE APIARY IAN FLETCHER
Here’s the brief that Christopher Luxon ought to be getting as he prepares to become Prime Minister. We know the context: National and its partners have won the election (subject to a bit of detail around New Zealand First). They have a manifesto, and enough early wins they can push through quickly to keep the media off their back through to around Waitangi Day next year. Then what?
The Economy
First, the economy. It’s slowing, and our trading partners’ economies are slowing too. Migration will keep the housing market buoyant, and the Labour Government’s decisions on public sector pay will keep the nurses and teachers off the streets. It won’t stop skills moving to Australia, but that’s a slow-burn issue. Construction is slowing, which will see some high-profile failures (and a lot of small ones), but that’s probably manageable (and if unemployed builders move to Australia, that might actually help).
The Farmers
No, it the farmers. National’s natural constituency. Rural businesses and supply chains are under pressure. Regulatory costs are high, and rural producers are starting to realise (as I’ve written) that Chinese demand is not going to come back anytime soon, if ever. So, it’s probably permanent. The Reserve Bank has started to focus on this challenge (good). But they can’t tackle the detailed work on innovation and supply chain competitiveness we now urgently need to prepare for a much poorer future than we’ve anticipated. The Ministry for Primary Industries (MPI) needs to lead that, with the Ministry of Business Innovation and Employment (MBIE). Having lost an hour of my life reading MPI’s 38-page ‘brief’ for an incoming government, I despair. Self-indulgent, complacent, and economically illiterate. As a taxpayer, I want my money back.
Taxes
Which is the next issue: taxes. National (and ACT) won’t be able to make the sums add up. There is immediate pressure on public services (especially health), an aging population and a growing population (a situation almost unique in the developed world – only France and the US share that challenge), and pressures on education, defence, police, prisons, roads, climate adaptation, infrastructure (water is the obvious example). If you cut spending, you can’t do these, and people want these things fixed. They want to live in a first world country.
Big countries (mainly the US) just borrow to have lower taxes and higher spending, and so far, it’s worked for them. But we’re not big, and we can’t just borrow. Taxes will have to rise at some point. While I’m sure that National and ACT will try to bluff their way through, the truth is that the sooner the incoming government levels with people, the less painful and more constructive the debate will be.
ACT has highlighted productivity as an issue. I agree. But they misunderstand the question, confusing productivity (output per unit of input) with profitability (the money firms have left over once today’s costs are met). Productivity means investment in skills, infrastructure, R&D, IT systems, and a positive environment for innovation (new ways of doing stuff) and invention (new stuff). Some of these are public goods (like roads and education), requiring public investment – so, higher spending. Some require incentives (targeted rules for tax and accounting). It never, ever involves just cutting government spending; indeed, good research (Mazzucato et al) shows that better productivity requires higher government spending. So, back to taxes.
The Public Service
As regular readers will know, I think improving the public service is the main task facing a new government. There’s interesting voting research that shows people don’t vote for policies; they vote for perceived competence. That’s almost certainly why Labour has lost. It means that the incoming government must take this issue seriously – slogans about cuts and show-off restructurings will just not cut it. Time to get serious. We deserve actual competence.
“Events, Dear Boy, Events”
And finally, events. The British Prime Minister Harold McMillan famously said that governments were fundamentally derailed by “events, dear boy, events”. At home, natural and man-made disasters are a certainty over time. Scandals are not certain, but over time they just get more likely. Stuff happens. High profile gang-related incidents look to be likely and to undermine moves to improve the sense of order on our streets. That matters.
Overseas, the last 20 months has seen three significant wars (Ukraine, Gaza and the one you probably missed between Azerbaijan and Armenia). China is in economic crisis, and we have already taken sides if there’s conflict between China and the US. War or a political crisis in China would be devastating for New Zealand’s exports (already depressed) and potentially for our wider access to markets for imports as well as exports if maritime trade is disrupted. I fear we have no plan for any of that. With the public service in its present state, I doubt that will improve quickly enough.
Throughout all that, we need the political discipline to keep onside with Australia, and avoid saying silly things about others’ crises. Our voice overseas actually doesn’t actually count for much, but we can annoy people easily.
So, Prime Minister, congratulations! It should all be plain sailing if you can only get the books to balance, fix the economy, rescue the farmers, sort out public services and hope that the Chinese, Australians and Americans can all get on. And let’s hope the weather holds and your colleagues in government don’t run amok! Then you can get on with your manifesto commitments.
What could go wrong?
Ian Fletcher is a former head of New Zealand’s security agency, the GCSB, chief executive of the UK Patents Office, free trade negotiator with the European Commission and biosecurity expert for the Queensland government. These days he is a commercial flower grower in the Wairarapa and consultant to the apiculture industry with NZ Beekeeping Inc.
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