Little didn\u2019t pull any punches when it came to the need for serious tax reform.<\/p>\n
\u201cOn the fiscal side, there is both a short-term and a long-term challenge,\u201d he pointed out.<\/p>\n
\u201cNew Zealand has been running a structural deficit of around 1% of GDP [gross domestic product] on average per year since 2019, which means the Government is spending more than it receives in revenue, even after stripping out the effects of economic shocks and the business cycle.\u201d<\/p>\n
The short-term challenge was to close the structural deficit and bring spending and revenue back into line, Little said.<\/p>\n
\u201cThe sooner we can do this, the better equipped we will be to deal with the long-term fiscal pressures we are facing.<\/p>\n
\u201cThere is no avoiding the long-term fiscal challenge. It is demographic.<\/p>\n
\u201cWe have an ageing population. That means as time goes on, we will have an increasingly smaller working-age population to generate income and revenue and a rising proportion of retired workers to support.\u201d<\/p>\n
As of 2023, there were 828,600 people aged 65+ years, representing 16.6% of the population.<\/p>\n
By 2073, those aged 65 and over are projected to reach 1.9 million (28.2% of the population).<\/p>\n
Income tax is becoming less effective as a means of gathering revenue for the population as a whole.<\/p>\n
It also seems to be getting less fair.<\/p>\n
One of the big conclusions that Little draws is that it is not whether we will need to tax capital gains<\/a>, but how we do it.<\/p>\n \u201cThe overarching weakness of our current system is that we tax income, particularly capital income, in inconsistent ways, and the differences in tax treatment do not reflect a clear policy intent,\u201d he said.<\/p>\n \u201cThis distorts people\u2019s decisions about not only what to invest in, but how they choose to work and save. Our tax system incentivises putting savings into housing, penalises certain types of saving when inflation is high, and encourages work and saving through entities like companies.\u201d<\/p>\n I\u2019m not getting into the merits \u2013 or otherwise of \u2013 Labour\u2019s capital gains tax (CGT) plan here.<\/p>\n But I will say that I wish there were enough political sophistication in this country for the issue to be framed around the need to maintain the tax base.<\/p>\n The idea that extra money should be used to fund free doctors\u2019 visits seems to me to avoid the real problem the nation faces.<\/p>\n Little argued that we\u2019ll likely require a mix of policy measures, including reducing government consumption, reforming transfers and subsidies (welfare), using the government balance sheet more efficiently, and revenue measures and reforms to maintain the tax base.<\/p>\n \u201cNone of these choices will be easy, but delaying them will only mean taking more difficult decisions in the future.\u201d<\/p>\n He\u2019s sure got that right.<\/p>\n GDP and population growth<\/p>\n Q: Hi Liam,<\/p>\n Why isn\u2019t \u201cGDP per capita\u201d used as a key metric to force politicians to think more long-term than the current election cycle?<\/p>\n I really like the approach for a few reasons:<\/p>\n 1. GDP per capita is measurable, giving us something to target to improve over time (and would actually make a measurable difference).<\/p>\n 2. GDP per capita can be compared with other countries to show how relatively poor we are (26th-\u201crichest\u201d country in the world \u2013 our burning platform) and a target to improve against.<\/p>\n 3. I believe our current relatively low GDP per capita explains why Kiwis can\u2019t have the standard of living they see overseas and why we can\u2019t afford the latest cancer drugs etc.<\/p>\n 4. It is why our kids are moving overseas.<\/p>\n Really keen to hear your thoughts and if you have any opinions on this. <\/p>\n Brendan V.<\/p>\n Hi Brendan,<\/p>\n Talking (optimistically) about economic growth has prompted a few readers to remind me of the significance of GDP per capita lately.<\/p>\n Broadly, I share your enthusiasm that it is a more relevant measure than topline GDP<\/a> for measuring how people are actually faring in an economy and whether living standards are improving.<\/p>\n It\u2019s easy to flatter the performance of an economy with the GDP boost that comes from high immigration rates and a larger population.<\/p>\n This was a hot topic a couple of years ago when immigration was running at record levels.<\/p>\n But as I discussed with new UBS Australia & New Zealand economist Stephen Wu last week<\/a>, per capita GDP growth right now actually tells a different story than it did.<\/p>\n New Zealand\u2019s net migration rate \u2013 the sum of long-term arrivals minus long-term departures \u2013 has dropped dramatically in the past year.<\/p>\n Annual net migration<\/a> also peaked in the year ended October 2023, with a gain of 135,500.<\/p>\n Now it is running at a gain of just 12,000.<\/p>\n In Australia, it has fallen, but not by nearly as much.<\/p>\n Australia had a net gain of 468,390 in the year to September, down from the record 536,000 in 2022-23.<\/p>\n \u201cIf you look at just GDP and compare Australia and New Zealand, it\u2019s not really a life-like comparison because you\u2019re not getting a tailwind from population growth,\u201d Wu said.<\/p>\n \u201cIf you look at an outcome like household spending in real per capita terms, it doesn\u2019t look actually all too bad in New Zealand relative to Australia.\u201d<\/p>\n In other words, things aren\u2019t as bad here as they might look if we only consider topline GDP growth.<\/p>\n Ultimately, I think this just goes to the point that no one economic statistic should be treated as a definitive measure of economic health (regardless of how exuberant media coverage gets).<\/p>\n We should also be wary of those (usually pushing a political bias) who pick and choose between per capita GDP and topline GDP to suit the line they are pushing.<\/p>\n We get new GDP data for the September quarter on December 18. It will probably show some marginal growth, but will still be pretty ugly, reflecting the tough year we\u2019ve had.<\/p>\n There will actually be a lot of interest in revisions to the negative second-quarter data (it dropped a whopping 0.9%). There are expectations that this was exaggerated by a statistical quirk and will be revised up.<\/p>\n Regardless of how it all lands, I\u2019ll be sure to highlight per capita GDP growth and will make a point of looking at how it is tracking over the longer term.<\/p>\n Green shoots watch<\/p>\n A month has passed since I started this weekly feature<\/a>, looking for signs of economic recovery taking hold.<\/p>\n I\u2019m still getting a lot of negative feedback on the optimistic nature<\/a> of the whole thing.<\/p>\n The general theme of that feedback is that many people\/businesses are still struggling.<\/p>\n That\u2019s true.<\/p>\n So I want to (again) make the point that you can\u2019t eat green shoots.<\/p>\n What we are talking about here are promising signs of growth in our metaphorical garden \u2013 not a salad-ready crop of lettuce, tomatoes and cucumbers.<\/p>\n Most Kiwis aren\u2019t going to feel the salad days (so to speak) are here again for several more months.<\/p>\n We\u2019ll need the labour market to improve and wage growth to outpace inflation for a sustained period.<\/p>\n Given that wage growth can drive inflation if it is too elevated and rapid, we probably need a long, sustained period where it runs slightly ahead of inflation.<\/p>\n We might not get that long.<\/p>\n That\u2019s where structural reform to improve productivity (and the capacity of our economy to grow without causing inflation) comes in.<\/p>\n If we do get a decent period of stable economic growth, then it is crucial that we grab the opportunity to confront the big structural issues in our economy.<\/p>\n For now, though, after such a long, grim period of contraction, I refuse to be apologetic about a return to better economic conditions.<\/p>\n Here is some more evidence …<\/p>\n Keeping up<\/p>\n The number of Kiwis behind on their mortgage repayments fell to a near two-year low in October, according to new data from credit agency Centrix.<\/p>\n Centrix\u2019s latest Credit Indicator report<\/a>, out yesterday, showed mortgage arrears dropped to 20,900 \u2013 or 1.35% of the active population \u2013 the lowest level since November 2023 (1.33%).<\/p>\n The data also showed consumer arrears dropped to their lowest level since October 2023.<\/p>\n The number of people behind on repayments in October fell to 459,000 \u2013 or 11.83% of the credit active population \u2013 compared with 465,000 in the previous month.<\/p>\n It wasn\u2019t all good news. The same data showed October was the highest monthly total for company liquidations since 2011, with 327.<\/p>\n It\u2019s an unfortunate feature of economic downturns that some of the worst effects are lagging \u2013 in particular, unemployment and business failure.<\/p>\n Retail spending<\/p>\n Stats NZ retail spending figures, out last Thursday morning, showed a marked improvement.<\/p>\n \u201cRetail spending levels charged higher in the September quarter, with the volume of goods sold rising by a solid 1.9%,\u201d Westpac senior economist Satish Ranchhod said.<\/p>\n \u201cThat was much stronger than our own and market forecasts for a rise of around 0.5%.\u201d<\/p>\n Confidence boost<\/p>\n That was followed by an ANZ Business Outlook later in the day that showed confidence is now at an 11-year high<\/a>.<\/p>\n Obviously, we should keep that in perspective.<\/p>\n These surveys are primarily asking people if they think things are going to get better or worse.<\/p>\n As ANZ chief economist Sharon Zollner pointed out: \u201cThings are looking up! Out of a hole, admittedly \u2013 when interpreting questions about whether things will go up or down from here, base effects (\u201ccan\u2019t get worse!\u201d) are powerful. But even so, something has clearly changed.\u201d<\/p>\n The next day also saw the Roy Morgan Consumer Confidence survey on the up.<\/p>\n It was still technically negative but moving in the right direction for the first time in months.<\/p>\n Consumer confidence lifted six points (from 92.4 to 98.4) in November, to its highest level since June.<\/p>\n The proportion of households thinking it\u2019s a good time to buy a major household item rose five points.<\/p>\n Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. <\/p>\n To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz<\/a> and select \u201cMy newsletters\u201d. For a step-by-step guide, click here<\/a>. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz<\/a> or leave a message in the comments section.<\/p>\n","protected":false},"excerpt":{"rendered":"Terry A: Great idea Terry. Let\u2019s take another look at that speech last month by Treasury\u2019s chief strategist,…\n","protected":false},"author":2,"featured_media":165070,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[1443,14772,138,1288,14107,5782,14769,11774,10668,1951,219,14768,305,191,2944,296,14774,12514,14770,14776,6096,14771,130,5971,117,111,43,6042,139,69,9831,14773,16513,14777,14775,7806,544,199,7496,223,61,107964,686,6041,1845,1533,80],"class_list":["post-165069","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-about","tag-burning","tag-business","tag-capital","tag-click","tag-comments","tag-deeper","tag-dive","tag-economic","tag-economics","tag-economy","tag-every","tag-have","tag-here","tag-inside","tag-into","tag-intricacies","tag-leave","tag-leftfield","tag-liamdannnzheraldconz","tag-message","tag-missed","tag-more","tag-need","tag-new","tag-new-zealand","tag-news","tag-newsletter","tag-newzealand","tag-nz","tag-question","tag-quirks","tag-reason","tag-section","tag-send","tag-sign","tag-some","tag-take","tag-tax","tag-the","tag-to","tag-unavoidable","tag-week","tag-weekly","tag-welcome","tag-will","tag-zealand"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/165069","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=165069"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/165069\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/165070"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=165069"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=165069"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=165069"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Border control at Auckland International Airport. Migration and tourism are a key driver of the New Zealand economy. Photo \/ NZME<\/p>\n
Green shoots under the microscope. Quite literally. Photo \/ 123rf<\/p>\n