Is New Zealand enroute to becoming a failed country?
Smoke without flames
The current coalition government has completed a third of its term. The smouldering pessimism is slowly giving way to a more frightening prediction about the country’s future, or lack thereof.
This quarter, we escaped entering technical recession, by the narrowest margin possible. Economics however is very malleable. The previous government told Kiwis that NZ had the best post-COVID economic recovery. As the government changed, NZ entered a recession. Where the truth lies, and where the truth lies, is hard to distinguish.
Recession, depression, technical recession or escaping recession. People are feeling the pinch. Businesses are shutting, and unemployment is up. The reality is more palpable than any figure might suggest. This is also the case with the country — it’s more fragile than any facade would suggest.
In my view, as a citizen, 4 factors determine the socio-politico-economic future of a country: money, responsibility (spending), democracy, people.
Money
I’m not an economist. Economics is anyway for politicians. As a citizen, I judge NZ’s financial capability by two questions: is the government making enough money (via tax) and is our borrowing under control.
One of the Deputy PMs told that the tax take is healthy.
As for borrowing, the current coalition came to power on the allegation that the previous government had borrowed unsustainably and squandered it. As far as I know, so far NZ’s credit rating has not gone down, so there is no evidence of any unsustainability. In terms of squandering, if it happened, the last government deserves blame. However, if the current government cannot pinpoint where the alleged $120b (or whatever) was spent, then their claim is also not very credible.
Also, if money crunch is the issue, why not find ways to increase revenue? Recently the CEO of a major bank suggested that NZ consider a capital gains tax (CGT). This was a major indictment on the current government which promises to never entertain a CGT.
Housing in New Zealand is unaffordable. The median for the country is $908,000 and for Auckland, NZ’s largest and most important city, a whopping $1.26m. This is well over 10x the average income for a person. If the government can charge 15% GST on $1 item, why does it take $0 from a transaction that will almost always be over $1m? A CGT or similar, makes a lot of sense. It increases revenue and can put some dent in house prices, which beyond demand-supply issues, are inflated because residential property (rental) is also the main investment in NZ.
The PM replied saying that ‘’we don’t tax our way out of a recession’, but spend our way out of it’’. It would’ve been a good counter-argument, had it been true. The current government has cut funding for lots of things, and reduced 1000s of jobs in public sector, but not committed to any major spending — unless we count the reinstatement of interest-rate tax deduction for their core lobby (landlords), which the previous government had removed, as “spending”.
Seeing what relatively poorer countries and cities have done with their limited budgets, I think NZ has enough money. It’s just not being allocated judiciously or sincerely.
This leads nicely to the next section — responsibility.
Responsibility
Governments are in the business of spending people’s money. People elect a government and give it authority to collect tax and use that money for the benefit of the country. Spending is the core job of a government. Fiscal prudence is required but that’s different from austerity. The current government has so far only cut things (to apparently counter-act the overspending by the previous one). NZers did not vote for austerity. If they did, they would’ve elected a bank to run a government.
Beyond the facade of being an OECD country, NZ’s infrastructure is not fit for purpose. It’s crumbing, or has crumbled, and is wholly inadequate for even the current population, let alone any future growth.
With an ageing population, more NZers are exiting the workforce than entering. For various other reasons, many jobs are also unfulfilled. Immigration is being relied upon to fill these gaps (at cheaper rates). Immigrants will need houses, transport, water, electricity — and in new areas. This is assuming immigrants will be in ready supply; many 3rd world countries that supply immigrants, are modernizing, and have better infrastructure and economies that NZ.
Despite the obvious red flags, no government has taken infrastructure seriously. The previous Labour-Green government announced major initiatives, but a large part of the spending would be on bureaucracy and a gravy-train to benefit ethnic vote-banks. The current National — ACT — NZF government simply has no intention to build anything beyond roads, which benefits their core lobby (roading).
Rail, water, electricity, health, public transport, a second harbour in Auckland, inter-island ferries — we are not going to see anything meaningful there.
One cause could be a 3-year term. A government which starts something may not be around to cut the ribbon on big projects which take years. This is a false reason because in NZ, since MMP, so far, there has never been a one-term government. 6–9 years is more likely. A bill proposing to extend the term to four years has garnered multi-party support. However, there is no multi-party consensus to support core infrastructure building?
Already, you are starting to get the picture. Things that are meant to happen, are not, despite there being no logical reason for them to not happen.
Democracy
Now we need to get into deeper causes. Is the fault in our democratic system. The answer here is also Yes, and No. Let’s cover the latter first.
NZ has pristine democratic structure. Election every 3 years, 100% fair, transparent. The MMP system ensures proportional representation and, by design, usually leads to coalitions, so that one party cannot get away roughshod (NZ has unicameral legislature).
The structures are there, but the candidates are not. NZers are realizing that they have merely gone from the fire to the frying pan. They emphatically voted out an extremely unpopular Labour government, only to get the current 3-headed monster.
The primary loyalty of every party is now openly towards their lobby, and not the country. Nothing illegal, but is it ethical? Is this what democracy is about? The two largest and ostensibly centrist parties are influenced disproportionately by their much smaller and right and left leaning coalition-buddies. Polar agendas get voters worked up, we end up with a situation where the cart drives the horse.
There is no corruption in NZ but insincerity and ineptness from politicians is arguably an even worse problem to have.
The democratic system is working as designed, but not as intended. This leads us to the final factor — people.
People are exasperated. They just don’t know whom to vote for as everyone ends up being the same.
Following Ardern’s tenure, there has been a rise in political awareness. However, the discussions often focus on broad, emotionally charged topics such as social justice or economic issues like interest rates, which do not directly impact a household’s capacity to provide basic necessities. Larger issues continue to be met with indifference. This is exactly where politicians want the discourse to be: perpetual unsolvable topics.
There are fundamental issues, that no party wants to address sincerely.
People
May be influenced by the isolated geography of the country, NZers have a big flaw — they are shortsighted. Combine that with the sense of nationalism that has been progressively eroded, we get a community that is self-serving. It’s all about securing their immediate future without any thought for the wider picture.
People oppose CGT for example because if/when they sell their rental property, they might have to pay a tax. What they ignore is that if a measure like CGT is not brought in, recessions will be more severe, and the value they lose on a rental will be greater than a 5% tax they would’ve paid on a sale. Similar story with farmers wanting the country to continually subsidise their externalities (waste, emissions) instead of taking responsibility or embracing innovation to address these challenges.
Self-interest also easily morphs into apathy. With an ageing population, many will get superannuation after a certain age. There is also the ability to move to another country. NZ has record emigration this year.
Due to self-centrism, apathy, or being distracted by emotional issues, the public is unable to put concentrated demands on the political system.
Politicians respond by passing time for 3 years, knowing that at a minimum, the PM will get knighthood, and others plum roles. The exasperated public keeps oscillating between the major parties in the hope of seeing an improvement, only for it to be dashed.
The analogy is like that of a pot, which is structurally sound (money, democracy) but with the wrong recipe (responsibility) and insufficient fire at the bottom (people).
“The price of apathy towards public affairs is to be ruled by evil men.” ~ Plato
For a small OECD country like New Zealand, whose resources are more than sufficient for its people, there should be no excuses. It has the perfect demographics for trying not just conventional but also innovative ways to reach prosperity. Yet, here the country is on the brink of failure.
To achieve this, NZers must take action. They must:
- vote for people or parties that solve the problems instead of either perpetuating them for political gains or pretending to solve them in a way that only benefits their lobbies.
- demand that core infrastructure be built, starting now.
- trial policies like Universal Basic Income (UBI) or introduce Capital Gains Tax (or equivalent) to give NZ a foundation for future growth and also a shelter from future recessions
NZ is driving on a scary road and objects in the mirror are closer than they appear. NZers must arise from their apathy and take action.
