A group of 15 economists, spearheaded by former Productivity Commission chair Ganesh Nana, has expressed concerns regarding the New Zealand government’s recent spending cuts.
“We write to express our heightening concern at your Government’s approach to fiscal policy, and our alarm at the consequences for the people and communities of New Zealand,” the letter stated.
In the letter, the economists argue that these cuts hurt not only the individuals but also the economy’s long-term growth potential.
It also stated that the termination of essential infrastructure projects and reductions in public service funding were exacerbating the contractionary impacts of the Reserve Bank of New Zealand’s (RBNZ) implementation of the official cash rate to manage inflation.
The economists noted that there is substantial evidence indicating that government spending, especially on infrastructure, has significantly lagged behind what is necessary to accommodate population growth and demographic shifts.
They referenced the Infrastructure Commission’s estimates indicating a $104 billion infrastructure deficit, warning that this situation would deteriorate further if current spending levels persist.
They said that if no changes are made at this time, “this underfunding simply passes the burden of adjustments and investment spending to future generations.”
According to these economists, failure to adjust this trajectory would weaken the resilience of the private sector, especially exporters, and would hinder firms’ ability to expand.
The group’s criticism extended to the government’s emphasis on debt reduction. They noted that credit rating agencies remain unconcerned about the government’s debt situation. Instead, they identified private sector debt as the primary issue, which they argued is being intensified by the government’s focus on achieving budget surpluses.
The group also stated that extending the economic downturn could worsen the loss of skills as more New Zealanders seek opportunities overseas. They emphasised that the decline in workforce skills, knowledge, and expertise, as well as the willingness of investors and business owners to invest in equipment, machinery, technology upgrades, and expansions becomes irreversible the longer the downturn continues.
In the letter, they also noted that the government’s goal of doubling exports was at odds with its fiscal strategy. The authors pointed out that the economy’s historical dependence on volume-driven commodity growth and predominantly low-value exports necessitated substantial structural changes to achieve this export target.
Oliver Hartwich, a prominent figure from the NZ Initiative, recently commented on Prime Minister Christopher Luxon’s economic strategies. He emphasised that the current letter addressing New Zealand’s economic challenges accurately identifies critical issues such as infrastructure deficits, productivity concerns, and the need for economic resilience.
Hartwich proposed that New Zealand should focus on revenue-generating infrastructure financed by its users. He advocated for streamlined planning and consent processes, establishing strategic partnerships with the private sector, and conducting rigorous project prioritisation based on expected economic returns.
Meanwhile, Minister of Finance Nicola Willis addressed concerns regarding the recent letter from economists, stating that it aligns with the longstanding views of its signatories, many of whom were closely associated with the previous government. She emphasised that the current government recognises the necessity of increasing investment in frontline services and growth-enhancing infrastructure.
Willis reiterated the government’s commitment to delivering budgets that reflect these priorities while ensuring careful management of taxpayers’ dollars. She highlighted a determination to avoid repeating the fiscal mistakes of the previous administration, which she said contributed to a quick increase in debt, high inflation, and interest rate growth.