Liam Dunn: Don’t let talk of recession stop us from tackling the big challenges | Daily News Byte

OPINION:

With the Reserve Bank now targeting a significant recession in 2023, should we patch up the doors and stop thinking about the long-term future?

I hope not. That would be a disaster for
New Zealand’s economy and ensure we continue to dip in and out of recession for generations to come.

The problems facing this country are far greater than some persistent post-pandemic inflation and economic downturn designed by the Reserve Bank to solve it.

It’s worth noting that nothing really changed last week except for the outlook of the Reserve Bank.

Most economists were already expecting much higher interest rates and a recession, or at least a significant economic downturn, in 2023.

We need to stop inflation and minimize damage to the labor market, but the big issues highlighted in the Herald’s Rebuilding Better series won’t wait.

Climate change, poverty, education, immigration, infrastructure, productivity and investment in technology are critical to creating a strong economy for our children and grandchildren.

These issues should be the main and center of the election campaign in 2023. We should expect a bold, clear and achievable policy from both main parties.

Over the past few weeks, the Rebuilding Better series has considered positions on a number of these issues from a range of commentators with a surprisingly high degree of consensus.

It starts with the next generation

Almost everyone agrees that to build a better economy, we must invest in young people.

Prime Minister Jacinda Ardern, when asked what she would invest in if there were no political and financial restrictions, decided on early childhood education.

“One of the things that I know has a long-term impact on children’s lives is their access to early childhood education,” she said.

And he is right, of course.

When we think about education, things like NCEA achievement standards are important.

But by the time the most vulnerable children enter secondary school, it is often too late.

For children with the most difficult family lives, stability and learning from an early age are certainly key.

The Prime Minister made such a good case, I’m left wondering why she didn’t advocate for it more aggressively.

We can find billions for natural disasters like pandemics and earthquakes, so why not this?

As Oliver Hartwich of the NZ Initiative noted, children need to be well educated in order to live full and rewarding lives. We owe it to them.

But we also want them to lead the economy in the future and to be equipped with skills in areas where New Zealand can lead the world.

Labor shortages are likely to be with us for some time to come, no matter how tight the Reserve Bank gets.

Monetary policy and interest rate increases simply remove demand from the economy. Less demand means we need fewer workers because there are fewer jobs.

That is no way to solve the labor shortage.

The bottom line is that we are an aging population. Covid or not, we have to solve the problem of our future workforce.

This means that we need to consider more carefully new ways of working – a four-day week or more from home.

Or flexible attitudes that allow older people to stay in the workforce longer.

We know we are not investing enough in the research and technology that will ultimately enable Kiwi workers to be more productive.

There are also some big decisions to be made around immigration.

To be fair, the Labor government had a plan. The policy of restricting low-skilled immigration was intended to encourage greater investment in productive capital and ultimately higher wages.

But Covid derailed it. Closed borders created a short-term crisis.

Now we have to find a new way.

Joint plan

“It all comes back to planning,” says Infometrics Chief Economist Brad Olsen.

“I would like to see a national skills plan that sets out the framework and asks what kinds of skills and qualifications we need, so that we can target them, but also see what the short-term parameters might be.”

“What could they be?” Is it 8000 nurses, 80,000 nurses or is it 800 nurses?

That way, when we open the borders, our policy choices on immigration won’t be driven by a short-term political campaign, he says.

That would then give us a much clearer view of what our infrastructure needs will be.

But as a starting point we know that we are already late with infrastructure investments.

Decades of underinvestment in infrastructure have left us with a significant infrastructure deficit – about $210 billion, according to Michelle McCormick, director of policy at Infrastructure New Zealand.

Today, we spend about 5.5 percent of New Zealand’s GDP on building public infrastructure.

To meet the identified infrastructure deficit, this would need to increase to nearly 10 percent of GDP or $31 billion annually. So what’s holding us back?

McCormick argues that we are too afraid of risk and that it is costing us. She is right. Putting off big decisions doesn’t save money, it just costs more the longer we wait.

She also says we need to get over our fears of private funding. I agree.

Public-private partnerships open up new avenues of financing to accelerate construction. A toll road or bridge does nothing.

A green opportunity

Another area where investment will be needed is climate change – both the transition to a lower carbon economy and the challenges posed by the damage that has already been done.

If we’re smart, this could actually be an opportunity to boost economic growth.

Sustainable Business Council CEO Mike Burrell said the business community has heard the call.

“The international context is moving rapidly as boards, executives and investors realize the scale and immediacy of the challenge and begin to prioritize the allocation of capital to climate and sustainability actions,” he said.

“Ultimately, this is the direction the market is heading globally – and unless we transform our economy, Aotearoa-New Zealand risks being left behind and losing its competitive edge.”

Burrell said the world is moving toward what is called “stakeholder capitalism,” where corporations serve the interests of all their stakeholders to deliver long-term value for their shareholders.

“And that puts those companies that are moving ahead of the curve in terms of their competitive advantage.”

Hopefully.

Fewer cows, not less milk

How we transition our agricultural sector to a more climate-friendly model has been a major area of ​​contention over the past two decades.

But again, there are opportunities for economic growth if we embrace them.

For example, a reduction in the national cow population does not mean that dairy products cannot grow as an industry.

DairyNZ CEO Dr Tim Muckle sees new opportunities in naturally grown crop and free range animal production.

Like other leaders in the sector, he believes the value created by new products, different dairy mixes and advances in science and technology will offset any decline in milk production – and help meet the challenges of climate change for agriculture.

Cows will be bred to be more productive and efficient, grasses will change in some regions with a greater range of forage crops, farming systems will adapt to provide regional resilience and calving patterns will change (autumn calving is already on the rise, especially in the North Island).

That’s a future most New Zealanders could get behind. We must focus on the potential and get behind the science and technology needed to make it happen.

A more inclusive economy

A better recovery will shift the focus to social issues in the coming weeks, but they must also be part of the economic equation.

There is a large segment of the population that is economically weak.

We should deal with it because it is the right thing to do. But also, economically, we all gain if we can reduce reliance on social welfare and increase the wealth of our poorest people.

There are some specific issues and areas of conflict around how we encourage Māori economic performance.

There is no shortage of grim statistics that we must turn around.

But there is also good news, especially if we look at the picture at the ivi level. The Maori economy has grown from $16 billion to $70 billion in 20 years, and with projected growth of 5 percent per year, it is expected to reach $100 billion in assets by 2030.

Ultimately, though, we must ensure that no one is left behind.

This will mean solving housing issues and reforming social protection. There is political will on both sides of the spectrum to do this, but a big divide on how it should be done.

It’s fine. So we discuss and discuss and discuss. But as we enter an election year, let’s do it intelligently on those big issues.

Let’s leave the petty things behind. Let’s make some of those tough choices.