Michael Wood
Auckland, June 3, 2024
Editor’s Standfirst: This article was sent to us on May 23, 2024 for publication before the delivery of this year’s Budget on May 30, 2024. We apologise for the delay but the article is a good pointer to the government and hence published now with minor modifications.
It’s the Economy, Stupid.
It was former US President Bill Clinton’s 1992 campaign which used the phrase “It’s the Economy, Stupid” to remind its own team that while other issues can be important, it is the economy that underlies the wellbeing of people and their families.
Any government or campaign that forgets this, or mismanages the economy, will likely fall out of favour.
As we head towards Budget 2024, the government would do well to remember this.
Too often the economy gets talked about as an abstract thing that we are passive subjects to, but it’s not. The economy we live in is certainly shaped by large international forces, but it is also significantly driven by the decisions we make as a country, most significantly through government policies.
Those decisions have a real impact on families and communities – how affordable the basics of life are, whether people have a fair shot at a decent and affordable home, whether they can find meaningful work with fair pay, and whether the next generation feels that this is a good place to stay.
Unfortunately, current government policies are making New Zealand’s economic recession longer and deeper than it needs to be.
Unemployment ripples
We can see this in multiple ways. Unemployment is now jumping sharply. Of particular concern is a big increase in the number of young people out of work. This is a recipe for youth crime and social tension. Small businesses are doing it tough, with recent data on card spending showing a drop reminiscent of the Global Financial Crisis. One fashion retailer from a prominent Auckland main street recently told me that business has been worse than during Covid for him.
For ordinary households, things are very tough as well. I have been door-knocking in Mt Roskill recently, and the cost of living is the biggest issue raised with me. While this issue has been around for some time, people are now feeling the added pressure of less job security, and lower pay increases as firms tighten their belts.
Government policy to nudge the Reserve Bank towards keeping interest rates higher, and cuts to policies like cheaper public transport and free prescriptions have added just a little more pressure.
A vicious circle
Fundamentally, it is government policy that is creating a vicious circle in our economy and making these problems worse. As the government pulls back on investment across the economy through its programme of cuts (including thousands of public service roles, stopping significant infrastructure investments, and withdrawing support to households), people hold back on their spending. Less spending means tough times for businesses, who in turn shed jobs and hold down wages. These actions make life tougher for households, who hold back their spending further… and so on.
It does not have to be this way. Successive governments across Parties in New Zealand (including the Helen Clark, John Key and Jacinda Ardern administrations) and overseas governments like Australia and the USA have recognised that government can provide leadership through the trough of an economic cycle by supporting households and investing in job-boosting infrastructure.
These policies help move an economy through a recession more quickly and minimise the human suffering of increased unemployment.
Ideological fixations
Yet the current government believes it knows better. Driven by ideological fixations and coalition politics, their policies are making the recession longer and deeper than it needs to be. Just this week they have confirmed plans to massively reduce the number of new homes delivered by Housing New Zealand. Not only does this make our housing crisis worse, it will suck further confidence and jobs out of the construction sector.
The upcoming Budget was an opportunity for the government to show leadership and steer the economy through this tough patch with a focus on people and jobs.
Unfortunately, their primary focus appears to be on finding ways to fund $15 billion in unaffordable tax cuts. We’ll wait and see, but as Clinton says, “It’s the Economy, Stupid” and if the government forgets, the people will in time remind them.
Michael Wood is a former Labour MP and Cabinet Minister.
