Pundit

Paul Krugman described behavioural economics as the most important innovation in the economics discipline for half a century.[1] Three decades ago, I reviewed The Winner's Curse: Paradoxes and Anomalies of Economic Life by Richard Thaler which reported behaviour which appeared anomalous according to the economist’s standard model of ‘rational economic man’. Anomalies are at the heart of scientific progress.

There is a case that the government agency which has contributed most to New Zealand’s economic growth is the Ministry of Foreign Affairs and Trade. New Zealand is a tiny economy in international terms. Its economic prosperity is dependent upon specialisation for it cannot make everything. Rather, its exports earn foreign exchange to pay for imports which it cannot make or which are inefficient for it to make.

Understanding its history helps understanding where it is going. The ideas which underpin Kiwisaver entered into the New Zealand political dialogue in the late 1960s when the Labour Party, then in opposition, was looking at how to progress the welfare state. It observed that many European nations had occupationally based, earnings-related retirement pensions funded by contributions made during a working lifetime into a personal fund which was invested and paid out at retirement.

The column focuses only on the business activities of Ron Brierley Brierley’s main impact in New Zealand was in the 1970s and early 1980s, which was a strange time for the New Zealand economy. Its business was far from dynamic; it was said that the most successful New Zealand entrepreneurs at that time were those who ran ‘Mr Asia’, an international drug smuggling operation. Many businessmen I met had inherited their firms from their fathers but had failed to inherit any paternal business talent.

Apply the golden fiscal rule and invest prudently. A lender is greatly disadvantaged compared to a borrower. The borrower gets the cash immediately. In exchange, the lender gets a promise that the borrower will repay the loan (plus interest) at some time in the future. No matter how honourable the borrower is, the lender knows the loan may not be repaid and so has no certainty that the full deal will be completed.

The Minister of Health is one of the toughest jobs in Cabinet. In comparison, being Prime Minister or Minister of Finance is easy. Recovering from an emergency operation, unable to move with all the tubes stuck in me, stomach in turmoil, unable to sleep, I thought the Prime Minister had asked me to be Minster of Health. My maiden speech.

If there is a major shock, New Zealand has not got a lot of fiscal room to move. In late 2008, there was the Global Financial Crisis. New Zealand’s orthodox response was a fiscal expansion with a deficit (OBEGAL) of $3.9b in the June 2009 year compared to a fiscal surplus of $5.6b in June 2008. The deficit for the 2010 year (for a full year, rather than a half one) was $6.3b.

The proposal to reduce the number of public servants is not well worked out. Announcing the reduction of 8700 jobs for public servants during the runup to the 2026 election suggests the economy is in a fragile state. The Iran War is generating global stagnation and inflation; even worse – if oil and related products are in short supply. The expected New Zealand economic upswing has been delayed – the budget forecasts assume by about a year.

One of the hardest decisions politicians face is the choice between today and tomorrow. How much do you spend on and invest in the needs of citizens right now? How much do you borrow to meet their expectations? And how much do you ask people to sacrifice now so that we have savings for a rainy day or so that our children carry less debt? Any finance minister preparing a budget has to decide, do I look after the now? Or the then?

The outlook is gloomy. The Treasury economic forecasts for May budgets are usually settled in April to feed into the fiscal forecasts and, critically, the borrowing program. They can be changed in the interim six weeks if anything happens.