Can Labour compete with National on economic grounds?

Can Labour compete with National on economic grounds?

Andrew Little sets a pro-business direction for a new look Labour party but its still unclear whether they have the ideas to improve an already strong and growing economy


In his state of the nation speech in Auckland, Labour leader Andrew Little cemented Labour’s commitment as the party of jobs – not just for the traditional worker base, but for wealth-creating business and entrepreneurship.

“I want the public of New Zealand to understand that we are serious about their issues – serious about jobs, about economic growth”, Little said.

Embedded in his speech was the ambitious promise to return New Zealand to the lowest unemployment rate in the Western world – which would have to trump South Korea’s current rate of 3.4 percent.

Mr Little underscored how small businesses, those companies with fewer than 20 employees, are the bedrock of wealth creation and ultimately job growth. Rather than outlining specific policy plans, his speech focused on setting a direction.

“This was about setting priorities and values because I think people should get a pretty clear message that we are serious about jobs and we’re serious about engaging with the business community in terms of sound economic growth and development.”

The ‘rock star’ economy?

In recent years, the National administration has campaigned on a platform of economic stability and strength. A quick survey of New Zealand’s current economic position and outlook lends evidence to National – at least on a fairly superficial basis.

For starters, the unemployment rate has been on a downward trajectory since July 2012, where it currently sits at 5.4 percent. On a global scale, this is impressive as New Zealand has the ninth lowest unemployment rate in the OECD – edging out countries such as Australia, Germany, Belgium and Sweden whilst miles ahead of the still debt-burdened and unemployment-ridden PIGS (Portugal, Ireland, Greece and Spain).

However, an arguably more telling measure of employment is the labour force participation rate because the unemployment rate fails to consider those who have permanently stopped searching for work. Again the current administration is statistically impressive, with a 69 percent rate which is just under the highest on record of 69.2 percent.

In terms of annual GDP growth, the economy grew at 3.2 percent in 2014, building on solid growth rates since the Global Financial Crisis of 2008. Last year was a particularly good year for growth as New Zealand outperformed Australia.

So growth rates are high and employment rates are encouraging, but how much are Kiwis actually earning and is income inequality rampant?

Over the past four years, the average wage increased from around $49,500 to $55,000, which is on the back of relatively low inflation rates post-2012. Average ordinary time hourly earnings growth was only 2.5 percent in 2014 and the Treasury expects wage growth to rise to 3.5 per cent over the next four years. Wage growth has been weaker than expected, partly because of the rise in net migration which has pressured wages downward to a degree.

The latest figures from the Household Incomes Report by the Ministry of Social Development best explain the trends in income inequality. The reports summary states that income inequality today is no different to what it was in the days of Jim Bolger.

“Over the three decades from 1982 to 2013 different income groups fared differently over different periods. The net gains over the last two decades from the mid 1990s to 2013 were similar for all income groups. Because of this similarity in net gains, income inequality in 2013 was similar to what it was in the mid 1990s.”

Therefore, wages have increased but not as much as expected and income inequality – contrary to popular belief – has remained similar to 20 years ago. But hasn’t New Zealand bounced back from the GFC on the back of an explosion of public debt and what about welfare dependency?

In 2008, on the eve of the GFC, New Zealand’s government debt to GDP ratio stood at 17.4 percent where most of the debt held in the early 1990’s, 62.4 percent at its peak, progressively diminished. Since the global contraction, New Zealand’s debt has steadily increased to 35.9 percent.

As long as this trend starts to decrease, which it did in 2014 from 37.5 percent to its current ratio, then it can be argued that New Zealand did not ride out of the GFC on an out of control Keynesian wave. In stark contrast is the United States with 101.5 percent, the UK with 90.6 percent and Greece with a staggering 175.1 percent.

National set out to reduce welfare dependency and the numbers do show a slight reduction. There were 345,000 people on the benefit at the end of December 2009 and today there are just fewer than 310,000 – which GFC considered is not bad going.

In terms of economic freedom, New Zealand has a relatively low and flat tax regime and is one of the easiest and best countries in the world to start a business. Although not a utopian economy, it seems National have nurtured a strong and stable one. But should we expect more and could Labour provide something extra special?

Room for improvement?

It was true that New Zealand once boasted the lowest unemployment rate in the OECD, which provides a legitimate basis for Little’s employment promise. It’s also true that there exists a niggling atmosphere around the gains of wage growth for the middle-class, which Little is sure to pounce on.

However, thus far it is unclear what innovative policy ideas Labour carries that could transition a strong and growing economy to a truly world-class one. The tired, rigid and worn out scripts of unionism, welfare and class warfare left Labour and David Cunliffe with a historic election defeat last year.

Credit to Andrew Little for, at least, recognising the potential and importance of small business, start-ups and entrepreneurship in the modern age. To compete with National economically, Labour must provide fresh, innovative and inspiring economic policy ideas before 2017 – ones that draw from the successes of Silicon Valley and Hong Kong rather than 1970’s England or current day France.

Photo by Hagen Hopkins/Getty Images



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About the author

Cameron is a Freelance Columnist who works for a non-profit surgical company in the heart of London. A recent political science graduate, Cameron has a strong writing background in all things political, economic and foreign affairs. His writing style is a blend of the cold hard facts with a dash of opinion and personality. Cameron writes weekly political columns for the New Zealand Times and is intending to broaden his writing repertoire to include topics such as travel, sport and food & drink.

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