In my last post I indicated that I would be doing a series of posts on growth and jobs, reflecting my portfolio work in economic development. Here’s the first – and I want to begin with the Government’s results (or lack of).
By way of context, as a country we need to create and export value in order to pay for imports and good wages. Sustainable economic growth is not at odds with social democracy, but a necessary component of making it work. Growth is not an end in itself but a means to families and communities getting ahead. For modern social democrats, it should occur within a framework that ensures good social and enironmental outcomes.
The trouble is, despite repeated promises from the current government that economic growth is “just around the corner”, it just hasn’t happened.
After Budget 2011, I posted a graph showing how the economy had actually performed under National compared to the growth forecasts since they came to office. With the latest downgrading of the growth outlook in the recent Budget Policy Statement, I’ve received a few requests for an updated version, so here it is:
(sources: Treasury Fiscal and Economic Updates, and Stats NZ GDP series)
What do we see? Well, under National the economy has under-performed each set of growth projections since they came to office by a long way. The sole exception is BEFU 11, which assumed an immediate GDP hit from the Canterbury earthquakes that didn’t eventuate. It raises the question, is the problem with Treasury’s forecasting models or with National’s economic management?
Take a closer look at the 2 oldest sets of projections.
DEFU 08 came out immediate after National become government, at the height of the global economic crisis. It predicted that the economy would now be over 6% larger than it is – that’s $12 billion a year.
BEFU 09 came out with Budget 2009 – this was Treasury’s ‘doomsday’ predictions written at the peak of the Great Recession (although, ironically, it was released after the recession officially ended). BEFU 09 saw a further two questers of recession that didn’t happen and a gradual return to slow growth.
In the jargon of finance, it’s called a “hockey stick” – a graph that always starts by going down in each set of forecasts, but is always predicted to curve up in the future. If ”NZ inc” was a company with accounts like these, the board would be asking hard questions of the managers.
In fact, look where the economy should be now according to that ‘doomsday’ scenario. That’s right, ahead of where it actually is. The recession didn’t get as bad as Treasury thought in BEFU 09 but the recovery under National has been so anaemic that we are now below the level of GDP forecast at the gloomiest period of the Great Recession and falling further behind every day.
Here’s how over-optimistic each set of predictions has proven:
There is a huge mismatch between what Treasury predicts and what National delivers.
So, what needs fixing: Treasury’s forecasting, which serves as the basis for government and opposition policy decisions, or National’s economic growth agenda and “120-point plan” ?
Both are the responsibility of Mssrs Key, English and Joyce.
More on why the Govt’s 120-point ‘laundry list’ is not a real plan, and what a real economic growth plan ought to look like, in future posts.