Planning to Fail

"Going for Growth" is a slogan – not a plan

This week saw the launch of the “Going for Growth” document from the Minister of Finance. I was inspired to have a look at it by my friend Bernard Hickey’s excellent analysis in his Kaka publication today – please go a have a look (at the end of this obviously).

It’s not a long document at only 44 pages. It sets out five pillars for action. It has lovely pictures of New Zealand. But, er, that’s about it. It fails the first test of being a plan – which according to the Cambridge Dictionary is “a set of decisions about how to do something in the future”. It’s a very good document about setting out what the government would like – but not actually how it is going to get there.

Take for example innovation. The government is very keen to develop artificial intelligence – saying “AI offers enormous potential for New Zealand’s economy through efficiencies and the freeing up of resources. The response to this opportunity? “The Government is developing an AI strategy”. Oh good! Perhaps some of the money from the 500 fewer people working in government science can help pay for it. Or the decision to cut $500 million from planned science infrastructure and $30 million from key research funds at the last Budget might help.

Or let's take infrastructure. The report states that “The Government will continue to invest heavily in infrastructure in its budgets, including a record investment in Budget 2024 across a range of sectors”. Only the diagram after this line shows government funding for Infrastructure falling every year. They have sneakily put in a line to make you think that are responsible for the record year. Actually - the tallest column is the last year of the previous Labour Budget.

Going for Growth states “New Zealand’s infrastructure deficit is limiting productivity and higher living standards”. And the key means by which we are going to tackle this problem and deliver the infrastructure is to cut investment. Bravo!

Productivity is seen as an important thing in the report. It’s mentioned 29 times in the report. What isn’t mentioned much are practical ways in which it could be improved in the long-run. Some things are proposed that might take it backwards. Take tourism for example. “Increasing international visitor numbers back to 2019 levels is an immediate focus for the Government to support economic growth”. The report goes on to say “Tourism is New Zealand’s second largest export earner bringing in nearly $11 billion in expenditure each year, directly contributing around 3.7 per cent to GDP and creating nearly 200,000 jobs.

200,000 jobs is 8.4% of all filled jobs in New Zealand. So roughly speaking, each job in tourism is producing less than half the output of the average job in New Zealand. So growing tourism jobs on the current basis will make productivity worse. Indeed the entire documents plan for labour productivity is confused. The report states some reasonable if limited reasons for low labour productivity in New Zealand:

- New Zealand’s small population and distance from large economies means businesses face weak domestic competition, struggle to achieve scale and are often poorly connected to international markets

- New Zealand has very low rates of capital investment by business in plant, machinery and technologies

- New Zealand businesses are comparatively slow to adopt productivity-enhancing innovations.

Okay. What is the government going to do about that? Its first response? “To arrest this slide in growth and productivity, the Government needs to be focused on delivering the policy agenda to enable economic growth. This means low inflation and government spending that is focused on value and removing waste”. So waffle and more cuts?

Overseas, countries have grown successfully because they have had a plan –backed by government support and funding. The Going for Growth document cites Denmark and Singapore as favourable examples it wants to explore further. Singapore has had significant government-directed investment in Industry Transformation Programmes, helping to drive growth in new sectors. The same ones in New Zealand were just cut by the new government.

Denmark has a long and honourable tradition of working in tripartite agreement, where workers, businesses and government help set policy. It means that economic development settings are created with a shared understanding of what is going to be delivered and why. It delivers long-term policy stability. Here, as one of its first acts the government ended the Future of Work Forum, which was doing exactly that work.

There is so much more. The report highlights that it wants to reform health and safety so that the regulatory burden is lower. We are a country that kills 17 workers a week as a consequence of their work. Our fatality rate is 60% higher than Australia and over 500% higher than the UK. There is nothing about investing in health to support people into work, despite Jobseeker Support - Health Condition or Disability claims rising by 44% over the past 5 years. There is nothing about lifting wages. The word wages isn’t mentioned once in the plan.

The Going for Growth report seems to be based on a very old idea. Remove the role of the state. Allow competition to flourish, and let markets deliver growth. That’s great in theory, but not much use in reality. It’s a bit like claiming that you want more supermarket competition. Great! – but then you need to do a little more than say “I’m opening the door. I’m saying let’s do a deal”. There wouldn’t have been a government in the past 30 years that wouldn’t have welcomed a new supermarket entrant – nor facilitated its growth. Does the Minister think overseas supermarkets don’t know we exist?

At the end of the report is the most telling section. It states “Economic growth is ultimately driven by business owners who take risks to invest in the growth of their company, creating jobs, higher incomes for New Zealanders and a stronger New Zealand economy”. In reality, economic growth is driven by everyone – workers, businesses, consumers, investors, governments, exporters and importers. All playing their part. It doesn’t work if they don’t cooperate and work together.

The idea that only businesses are important here is cemented by the next line of the plan. “The Government will be reaching out and prioritising engagement with the business community to hear views and ideas on how to lift productivity and drive economic growth. These engagements will inform current and future Government actions to enable economic growth, including through regulatory reforms”. If you don’t own a business – you therefore aren’t important. Your voice or your opinion doesn’t count. You aren’t part of the economy.

This isn’t a plan. It’s 80 bullet points telling us what the government has done and is doing. If the policy prescription was working, then why is the country in its steepest recession since 1991 (outside COVID)? If it was working, why has it just relaxed the child poverty targets, so more children can be in poverty? If it was working, then why are record numbers of people migrating away from the country? If it was working then why does half of New Zealand think that it’s not working?

There is no mention of working people in this document. There is no mention of unemployment. Of child poverty. Climate change gets one tiny mention in passing – in a section about using fast-track planning to bypass environmental concerns. Low incomes aren’t discussed, nor is economic insecurity discussed at all.

The government came to office saying its’ plan was to get New Zealand ‘back on track’. When that slogan failed, we now have a slogan saying we need to ‘go for growth’. We need more than slogans when there are 156,000 people unemployed – nearly 50% more than the entire population of Dunedin. New Zealand needs a better plan than this – not another slogan.