The New Zealand Economics Forum is an annual gathering of economists, politicians, journalists, and policymakers, to map out the big fiscal challenges over coming years and decades. While these can often feel like a closed-door echo chamber, having just come back from the conference I'm keen to lift the curtain on this year's discussions.
The message this year was pretty clear all around. New Zealand is sleepwalking headlong into a fiscal reckoning, that tiny tweaks and political slogans aren’t going to fix.
As usual, the politicians were ducking and diving questions. But if taxpayers have any allies in government, Treasury Secretary Iain Rennie is clearly among them. He once again delivered a damning indictment of the Willis-Robertson spending agenda, adding to the long list of warning sirens he's been sounding this year.
In simple terms, New Zealand needs to boost our stagnant growth while simultaneously forcing our government debt trajectory downwards.
New Zealand’s on for a 'shocker'
Firstly, said Rennie, New Zealand needs to be prepared for shocks. We’re always going to face hard luck at some point, but we’ve blown our safety net. Responses to shocks like COVID, the Christchurch earthquakes, and the Global Financial Crisis have required around 10 percent of GDP every decade since the late 1980s. The finances have always been fixed up after disasters before, but it’s just not happening now.
As recently as 2018, Net Core Crown Debt as a share of the economy was 19.5 percent. The Willis-Robertson approach to public spending will see it rise to 41.8 percent by June this year, with Willis barely planning to reduce it to below 40 percent by the end of the decade. Without paying this down, we haven’t got the headroom we need to deal with whatever shocks are coming next.
Nicola Willis was keen at the conference to frame this year’s election debate around her own Government’s quote-on-quote “fiscal credibility” and Labour’s “fiscal indulgence.” But both parties are leaning on sugar-hit economics to try to have their cake and eat it.
Back in September, Rennie and the Treasury pointed out that with the Finance Minister’s current spending agenda in place, debt would hit 200 percent of GDP by 2060. In that light, a tiny toe-dip into surplus in 2029/30 doesn’t really cut muster.
Productivity: The missing piece of the puzzle
Two themes ran through the whole conference. The first was that New Zealand’s productivity remains in the stink.
Rennie calls this the ‘Human Capital Paradox’. New Zealand has highly skilled workers and high labour market participation, but remarkably poor returns on those skills compared to other developed countries. We work longer hours, invest highly in education, but produce less for it.
Systemic change is needed. Because without productivity growth, New Zealand will not have the economic growth it needs to pay for an aging future.
The Finance Minister was quick to sing the praises of ‘Investment Boost’ - an accelerated depreciation (i.e. partial capital expensing) scheme introduced in Budget 2025. And rightly so, in that it clearly has somewhat increased investment.
But participation rates remain low, and the extra investment is certainly not enough to close the productivity gap with the OECD average. Nearly half of firms intending to invest over the next 5 years at least partially credit Investment Boost for that decision, but most firms still weren’t aware of the policy.
Here at the Taxpayers' Union, we have for a long time vocally called for Full Capital Expensing (full, as opposed to Investment Boost's 20 percent), but we also need to see wider reforms. Slashing red tape, green tape, overly onerous employment law, and tackling our ludicrously high corporate tax rates would be a start.
Iain Rennie was very keen to make clear this isn’t just theoretical. New Zealand’s capital intensity is only around 50 percent of the developed world average. We’re well behind, and the gap will only get worse without a serious rethink.
Weathering the 'silver tsunami'
The other constant throughout the forum was that New Zealand's aging population means we need seriously thinking about what we can afford long-term.
From immigration debates, to discussions on defence, and of course Superannuation reform, the question was ‘what do we need to do to keep affording the things we can’t do without?’
The answer, quite simply, is that we won’t be able to keep doing what we’re doing. In 1970, there were 7 working age people to every person over the age of 65. By 2030, that’ll be 4:1. By 2060, the dependency ratio will be 2:1. That’s not a problem you can tax away.
There was consensus across the aisle, including from Labour’s former revenue minister David Parker, that a move away from Super as a benefit has to happen. A move to an Australian-style ‘save-as-you-go' scheme (like a beefed-up KiwiSaver), possibly with compulsory contributions from the day someone starts working, means Kiwis will still be able to look after themselves in old age.
Despite the consensus, neither of the two party finance spokespeople would touch the issue.
Delaying isn't free
Despite the consensus, neither of the two party finance spokespeople would touch the issue.
The Treasury boss’ message was exactly the same at the conference as it was at Treasury’s long-term briefing back in September. And long may Iain Rennie keep speaking truth to power.
The sooner we start the reforms, the less painful they’ll be. And the more options we’ll have.
All that politicians are doing by kicking the can down the road is making it much much harder for generations that follow. And, not coincidentally, avoiding tough questions before election time.
All in all, the mood at the New Zealand Economic Forum was much gloomier this year than it has been previously. Everyone is increasingly clear that we can’t carry on like we are, but it’s the solutions that still seem beyond reach. Finding those solutions is our job here at the Taxpayers’ Union.
