What does 2018 hold in store for NZ?

February 22, 2018

A leading economist says New Zealanders will have to wait until later in the year to see where the needle settles on the government’s ‘superficial change v substantive change’ spectrum.

Dr Ganesh Nana, chief economist at BERL, says either way the longer-term case for change, along with external influences, will continue to question the strength of the foundations of New Zealand’s recent charmed economic ride.

Dr Nana will give a keynote presentation at a NZ Health IT (NZHIT) event in Auckland next Tuesday, February 27. He says the new government has styled itself as the government of change. But, will it be superficial or substantive?

“For businesses in the health sector, the shift beyond GDP (as a measure of prosperity) means access is also important. Suggested measures incorporate a four capitals approach where inclusion is part of social capital. Is there trust and are there institutions enabling communities to enjoy as well as contribute to broader wellbeing?

“Are communities able to access services, or are some excluded? Will the much-vaunted technology advances maintain, enable and improve broad access to health services, or improve services for select proportion of the population as others experience depleted services?

“The capability and capacity of homecare and aged care workforce prompts similar questions as to whether services are inclusive or exclusive to groups in the community.

“In other sectors the overall case for change is clear, though not widely accepted. While New Zealand’s economic growth story has been enviable at the headline level, the sustainability of the drivers - dairy, tourism and immigration - was always questionable.

“The side-effects of deteriorating water quality in rivers and streams, strained regional tourism infrastructure, and housing shortages have increased the prominence of these questions.

“The affordability of maintaining local infrastructure in the face of static or declining ratepayer base, accentuates long-term sustainability questions.

“Workforce numbers and skills continue to dog the economic story, with productivity and per-capita growth noticeably less impressive. The concentration of the distribution of prosperity has strained some social indicators.

“Ageing demographics call into question the long-term viability of government finances then there are external influences such as geo-political instability, such as BREXIT, US, China, Korea, Russia, Persian Gulf, trade barriers; climate change, robotics and synthetic foods.

“The fundamental economic strategy based on low inflation and low wages, with an increasingly large safety net required by government is not delivering the results desired by many.

“The new government has signalled changes in the form of larger transfers to lower income families, higher minimum wage, regional development boost, research and development incentives and house building. These appear more of the same, but perhaps superficial rather than substantive changes in economic framework or strategy.”

Dr Nana says changes around monetary and tax policy remain in the wait and see category. Potentially substantive changes lie in the performance indicators associated with the Living Standards Framework to be incorporated in forthcoming Budget announcements.

Measuring economic performance via indicators beyond GDP growth have the potential to require more balanced investment and policy actions.

Treasury drafts favour a four capitals approach – financial/physical capital, human capital, natural capital and social capital, he says.

“While in line with including child poverty targets in the Public Finance Act, the extent of and appetite for incorporating the ‘4 capitals’ approach into the NZ economic and policy framework will determine whether this is substantive or superficial.”

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