Five economic issues for the new National leader Chris Luxon to tackle
OPINION: New political leaders can bring with them vastly different visions of the future.
China’s tech entrepreneurs and mega property developers found this out a few months ago when President Xi Jinping mentioned the phrase “common prosperity” 15 times in one speech, signalling an embrace of slower economic growth and poorer economic prospects for them.
For National, which has historically styled itself as the party of responsible economic management, Xi’s statement is just one of a host of challenges it will have to tackle if it wants to claw back some of the political ground it has lost in the past two years.
By some economic estimates, New Zealand is already heading for a technical recession simply due to the amount of time Auckland has spent in lockdown.
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Post-lockdown life will be full of uncertainties. Economies opening up again overseas have not seen spending on services return to the levels seen before Covid-19, meaning a sharp bounceback in economic activity for hard-hit sectors like hospitality is not assured either.
In short, new National leader Chris Luxon will likely have to come up with policies and strategies to tackle immediate economic headwinds in five areas: a slow economic bounceback, immigration, a slowing China, tourism, and inflation.
There are big question marks over what difference an easing of border controls might make when it comes to Immigration. National has stepped up its advocacy on immigration in recent months but, like Labour, it never took a real immigration policy to the last election.
Even if managed isolation becomes a thing of the past, that doesn’t mean the border will be managed any differently when it comes to immigration.
Normally immigration is more of an issue for the rabble-rousers who want to pretend the country doesn’t need any of it, but worker shortages are intensifying in certain key sectors, like information technology.
It is far from certain companies will be able to bring in highly skilled workers. Rush Digital chief technology officer Danu Abeysuriya says his company ended a worker’s contract last year because they couldn’t make it through the border. The company paid the employee a full year’s salary as compensation.
Now it is hiring a new set of employees remotely, and giving no assurances that they will ever be able to move here.
Which seems like a sensible thing to do, but also means a big chunk of his workforce may end up never paying tax in New Zealand.
Push this too far, and it may ultimately prove easier for some knowledge-intensive companies, the type more reliant on the world’s most highly-skilled university graduates, to relocate closer to markets that produce large numbers of those graduates.
A slowing China is a problem because high-growth China was a real boon for Australia and New Zealand coming out of the global financial crisis.
Not this time, Xi’s vision of common prosperity is ultimately one of a lower growth China.
Geopolitical tensions will also surely continue to complicate the economic relationship next year too.
Tensions between China and the United States were reportedly still high during Apec 2021, and there is growing pressure for New Zealand to make its moral stance more explicit in ways that could well see China take retaliatory trade action at some point.
And while New Zealand deals with a slower-growing China, two of its large export industries will be out of commission: tourism and international education.
Tourism operators in the South Island, especially close to big centres like Queenstown, are nervous about a year when even Australian tourists may be unable to visit.
Alongside these issues are growing concerns around inflation. The Reserve Bank is adopting one of the most hawkish positions of central banks around the world, but it could well be a lot of pain for not much gain if prices continue to rise due to global supply chain issues.
You would think Luxon’s career as chief executive of Air New Zealand might help him bring some fresh insights to the supply chain situation, yet earlier in the year he was strangely silent on the whole issue, despite holding a portfolio that covered it.
Then again, silence might be a tempting option, as rising inflation does not bode well for the Government’s continued popularity.
Hopefully, though, we don’t see questions around inflation devolve into debates over government debt.
Conservative parties tend to link big government spending plans to rising inflation, but if National promises to spend less now they may also lose a rare opportunity to take on lots of cheap government debt to fix major infrastructure issues.
The era of cheap government debt won’t last forever, and with other problems piling up they would be wise to not turn down some of the opportunities too.