Labour leader Chris Hipkins has told the Queenstown Business Chamber the economy is not recovering, and more spending is needed to get the settings right.
Hipkins and several of his MPs are in the city ahead of a caucus retreat in Christchurch this week, aiming to speak to South Island communities.
In Thursday’s speech to the Queenstown Business Chamber, he said the Government’s strategy for growth was not tackling the underlying economic problems.
“While there are pockets of positivity around economic growth, overall the country is not in the economic shape that we need it to be.
“Despite a lot of talk about economic growth, actually the most recent indicators are pretty concerning for us – they’re suggesting that New Zealand’s economy isn’t recovering and if anything we may be going in the other direction.”
He said Government policies were contributing to rising costs and leading to a “two-speed economy” where those worse off were ending up much worse off.
“Rates, which councils primarily influence but central government actually has a role in… things like car registrations, public transport costs, even things like insurance levies which government is contributing to through EQC levies, electricity prices which government contributes to through transmission charges – all of these things are now made one of the major contributors to inflation in New Zealand.”
It was more than just mining which had seen Australia leapfrog New Zealand economically in the past 40 years, he said, pointing to higher rates of savings, infrastructure investment including schools, hospitals and energy generation.
“Let’s be really frank — and I know that this is huge in Queenstown — we have an over emphasis on the housing market… We can’t get rich as a country just by buying and selling houses from one another, we need to invest in the productive economy, and our over emphasis on the housing market as our primary source of investment has meant that we haven’t been.”
The comment hints at a capital gains tax policy Labour has long been rumoured to be working on, having promised a tax policy of some sort by the end of the year.
The party has had an on-again-off-again history with the policy which taxes a portion of profits gained from selling assets that grow in value, but it appears to have some support from voters – depending on the settings.
One argument for the tax is that it would decrease the incentive for people to put their wealth into housing, making other forms of more productive investment more attractive.
“Simply reinflating house prices and growing the population through further inbound migration might mask some of the problems that we see, but it’s not going to deal with the underlying ones and some of those underlying ones will get worse if that’s our strategy for economic recovery,” Hipkins said.
“The sort of innovation that we’re seeing in New Zealand is really exciting, some of the best in the world, but our challenge is to scale that — it’s to continue to grow that. All of those businesses talk about the shallowness of our capital markets when it comes to innovative companies and startups.”
He also criticised the Government’s decisions on curbing spending for schools, hospitals and transport.
“Reviewing transport projects against a new government policy statement meant a lot of just the basic day to day ongoing upgrade of our transport infrastructure stopped for about a year and a half. It’s starting again now, and that’s really encouraging, but we don’t want to repeat that cycle.”
Answering questions afterwards, Hipkins said New Zealand’s self-imposed debt limits made it one of the most fiscally conservative countries in the world, making an argument for more direct government investment.
“It’s based on a narrative that says that government spending should be constrained to 30% of GDP … that puts us as such an international outlier around the world and it makes us one of the most fiscally conservative governments in the world.
“Government spending as a percentage of GDP in a small economy like New Zealand needs to be able to fluctuate, so in a period of economic crisis or in a significant shock like a pandemic you need to be able to increase government spending to get through it – the question is, what you spend that money on?”
He said the current strategy was an ambulance at the bottom of the cliff approach.
“Government spending needs to be focused on areas of investment rather than kind of subsidising day-to-day activity and I think that that’s where this government have got the analysis wrong… by saying they want to spend less, they’re spending more in the areas of subsidy, because the more people you end up with on a job seeker benefit, the more money you’re spending on day to day consumption.”
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