Kiwiblog

NZPA reports:

Closing the gap with Australia and stemming the trans-Tasman brain drain is one of the Government’s main long-term aims but Labour leader Phil Goff said the reverse was happening.

“Australian employment figures have soared for the fourth straight month and the jobless rate has fallen to 5.5 percent, a full percentage below New Zealand’s unemployment,” he said.

“For the first time in more than a decade, Australian unemployment levels over the past six months are lower than New Zealand, with Treasury forecasts that New Zealand’s unemployment will continue to grow.”

Now it is true that unemployment is now higher in New Zealand than Australia, and this is not good. Unemployment is a lose-lose. Having able bodied people not working means we don’t achieve as high economic growth as we could, and it is bad fiscally as it means less tax paid, and higher welfare payments.

But unemployment tends to rise when economic growth falls away. Not straight away but normally with a lag of six to 12 months or so. So let us look at economic growth between NZ and Australia.

So why does Australia now have lower unemployment? Because New Zealand went into recession, and Australia did not. And no this was not a post credit crisis recession. New Zealand’s economy started shrinking in the first quarter of 2008, and kept shrinking until the second quarter of 2009.

Now people may be wondering who was responsible for the economy in the first quarter of 2008. Well a Phil Goff was an Associate Minister of Finance. So when Phil wonders why Australia now has lower unemployment than NZ, he doesn’t have to go far to ask how come.

Just. Stats have growth of 0.1% for the June 2009 quarter. At the beginning of the year the assumption was we would be in recession for all four quarters of 2009.

So the recession lasted five quarters – four of them in 2008 and one quarter in 2009.  Of course unemployment will not turn about for some time, as firms that have been losing money and laying off staff will want many months of growth before they are confident to expand.

And the US may still implode, and drag other countries down again.

The deficit in the Crown accounts will still be with us for some time, but with an early exit from the recession it is possible the Half Year Fiscal Update in December will be less doom and gloom than in the budget.

There is now nothing “technical” recession. In the first three quarters of Labour’s final year in office, the economy shrunk 0.9%, with the third quarter contraction being a large 0.4%.

Agriculture is keeping us going with 6% growth last quarter. However fishing and forestry declined by 6.6% and construction by 1.2%. Govt Admin went up 0.6% however!

Will the 4th quarter also extend the recession? I’d say it probably will.

With no economic growth, less tax is paid. With less tax revenue, there is less money for stuff such as schools and hospitals. Remember this the next time the Greens rail against economic growth.

Lloyd Morrison has proposed a goal for New Zealand – to be in the top ten countries in the world by 2025 for GDP per capita. He writes:

New Zealand lacks a common purpose. No one knows exactly what we want. We hanker for a return to the times when we were one of the wealthiest countries in the world. We want everyone to be better off, knowing that individual wealth does not result in freedom from crime and the social fallout of excessive disparity. However, there is no clearly articulated goal we are pursuing and no solid plan of how we can get there.

As a result, there is no definition or accountability for policies or policy-makers. Policies are often clothed with loose positive objectives and ultimately ineffective aims. There is no co-ordinated accountability for these policies (or politicians) in terms of their ability to contribute towards a common measurable outcome. Consequently, we continue our steady decline. As the attached analysis shows, current forecasts have our GDP per capita slipping below Kazakhstan and Botswana by 2025.

I’ve been discussing this with colleagues and friends, and we believe that NZ needs to embrace a common objective that will provide the means to deliver what we are seeking as a nation.

Whatever the objective chosen, it needs to be simple, clear, measureable, understandable, aspirational and, most importantly, catalytic in terms of driving positive change that makes the outcome achievable.

We’d like to stimulate a broader discussion over what that goal should be for NZ. To kick-off the debate, here’s our starter for ten: NZ should aim to be back in the top 10 countries in the world based on GDP per capita by 2025. Not just the OECD, the world. Unachievable? No way. Ireland, Korea, Singapore and Taiwan all achieved the required level of growth over the last twenty years. It will take real collective commitment and more creative thinking about our economy – but that’s exactly what an ambitious goal will generate.

I’m hoping you’ll participate in a broader discussion about an aspirational, measurable goal for New Zealand. Please read the attached document. Pass it on to your friends. Participate in the debate by emailing measurablegoal@hrlmorrison.com or contributing to the forum on www.blog.nzx.com. If you agree with what we’re proposing, show your support. If you don’t, please share your ideas for a national goal. Together, let’s take the first step in defining and delivering a better future for New Zealand.

Lloyd has out together this (a-measurable-goal-for-nz-short-2) presentation that is worth reading and also an FAQ – a-measurable-goal-for-new-zealand-_2_.

If you don’t like Lloyd’s goal, then suggest one of your own.

Stats NZ confirmed today the New Zealand is in recession for the first time since the Asian crisis in 1998.

The economy in the last two quarters is around $300 million smaller than the last quarter of 2007.

But the worst may yet be to come. The second quarter drop was 0.2%. And expectations for the third quarter are now as bad as a 0.5% drop. That would be a 1% drop over nine months.

Dr Cullen has told the Finance and Expenditure that he beleives the economy shrank in the first quarter of 2008. NZPA reports:

Dr Cullen told the finance select committee today that economic data since the May budget was far more gloomy than Treasury predicted.

“It is now quite clear that the quarterly GDP figure for the first quarter (of the 2008 year) almost seems inevitably to be negative,” Dr Cullen said.

A recession is negative growth over two quarters, so if this is true then the June 2008 GDP figures may put NZ into recession. The March 08 figures are out on 27 June so the June 08 figures should be out at the end of September – likely to be the beginning of the election campaign.

Paul Walker blogs on the benefits of economic freedom, and mentions Hong Kong and Cuba:

An interesting point of comparison is that in 1958 Cuba’s per capita GDP was $3,170 while Hong Kong had a per capita GDP of $2,924. Since then these two countries have followed very different development paths in terms of economic freedom . Today Cuba is one of the poorest countries in Latin America, very different from today’s Hong Kong.

So in 1958 Cuba had a higher GDP per capita than Hong Kong. And today?

Hong Kong is US$41,944 (PPP) compared to around US$4,500 for Cuba.

Cuba has a state which is basically 100% of GDP. In Hong Kong it is under 20%. In NZ it is 42%.

The Dom Post reports that there it is forecast that there will be 2% annual growth over the next three years. This is labelled as good news.  It isn’t.

To start closing the gap with Australia we really need to put in place policies which will get a 4% average growth rate. A 2% growth rate will see fall further in relative terms.

People don’t get very excited about 2% vs 4% so what does that mean in real dollars.

GDP as at September 2007 was $171 billion.  At 2% growth it would be $181 billion in three years. If 2% growth continued for say nine years (three terms) then GDP would hit $204 billion.

And what if one managed 4% growth.  Well in three years  GDP would hit $192 billion. And in nine years it would be $243 billion.

So NZ would be $10.9 billion better off in three years if it could get 4% growth instead of 2%. And over nine years it would be $39 billion wealthier if it could make 4% instead of 2%.

And what does that mean for the average family? Well while GDP growth doesn’t automatically translate into cash in the hand, the extra national wealth per household (just under 1.5 million in the last census) would be $7,300 after three years and $26,000 after nine years.

Now even if one says hey we can never make and maintain 4%, even the gap between our usual 3% and 2% is significant.  An average $3,600 per household after three years and $12,500 after nine years.

So the only person who should be saying

There was some good news – the economy is expected to keep growing by around 2 per cent a year for the next three years.

Should be the Australian Minister of Immigration as he welcomes people in.