20 May 2020
This isn’t a letter I ever thought I’d have to write. It’s about your inheritance. Not the one your father and I hope to leave you and our unborn grandchildren but the one Grant Robertson outlined for you and future generations in the 2020 New Zealand Budget last week. The news is not pretty – an economic legacy of massive and mounting debt.
We’re certainly living in exceptional times. Things we have taken for granted like travel and social gatherings are changed forever thanks to a devastating micro-organism that has left the world in shock. The effects will be felt for years. At least, here in New Zealand, most are still healthy and hopefully that will continue. Lockdown has shown us new ways of interacting and work on a vaccine offers hope for a return to the freedoms that others fought and died for.
It’s easy to blame the coronavirus for our current situation. Truth be told, things weren’t great for a lot of Kiwis or the NZ economy before the pandemic hit and the impact of COVID-19 has been especially devastating for them.
By way of explanation, this is why I am sorry about your inheritance. Debt is what you have to look forward to and growth will take some time to return. In the short-term, New Zealand is facing a large rise in unemployment, predicted to peak at nearly 10 percent before falling back to 4.6% in 2022 (optimistic I suspect). Government debt will explode to more than 53 percent of GDP, up from 19% now. To lighten the tone a little, don’t forget George Bernard Shaw’s quote that “statistically speaking, most people who take up the habit of eating eventually die.”
Not all debt is bad of course. It often allows you (and countries) to invest wisely in areas that will be of benefit later, but I fear the lack of vision and planning associated with the government borrowing an additional $160 billion means ‘wisely’ isn’t part of this equation. Vision and hope are important for people. We need to know where we are going – what the end game looks like and that the pain is worth bearing because a better life awaits. Hope too, is important. People will endure a lot if they have hope. I’m afraid I saw neither in the Budget last week. There was lots of talk of jobs, and lots of picking winners but not much in the offing for those already struggling and those who will inevitably lose their jobs when businesses go under.
Figures are tricky things. If you say them quickly, especially the billions, they don’t sound so bad. Most people can imagine what they could spend a million dollars on. Billions are a different kettle of fish. Many of us have to stop and think, how many 0’s in a billion? When figures are inconceivable, people give up trying to work out what they mean. After all, the politicians will look after the money side of things, won’t they? I hope you realise that is very dangerous thinking. To start with it’s not the government’s money – it’s yours and mine, hard earned and handed over to the government for custodial purposes. We hope it will be spent wisely on health, education, social welfare, but after we’ve voted every three years, we don’t have any say on where it goes.
Beware of those saying we can afford to borrow this much money. Just as when we borrow from the bank to buy a car or house, when government’s borrow, repayments must be made and this limits the amount in the pot for spending in extra areas. The state of our economy is your inheritance: to contribute to your tertiary education, to educate your future children, to provide medicines and hospital treatments when you are sick, to help those who for whatever reason have no income. A mountain of debt places the prosperity of your children in peril.
Picking winners is dangerous too. Government’s love picking winners, especially in an election year. Election year budgets often resemble a lolly scramble with media reporting the “winners and losers”. The simple fact is when you confer advantage on one group everyone else is automatically disadvantaged. Giving to the vulnerable is understandable but private industry winners are not. As an example, those who had been promised Keytruda (last year) to treat their lung cancer only to have that rug whipped out from underneath them now must be devastated to see the racing industry handed $74 million to build/rebuild horse racing tracks around the country. Flogging a dead horse instead of funding up to date medical treatments is folly and unfair in a humane society.
I know fairness and equity are important to you all. Your generation has a more egalitarian outlook on life. Partly I think this is because you have not experienced real poverty and why New Zealand’s debt doesn’t bother you as much as it does me.
I have recently read two excellent writings by people I respect and I want to share them with you. The first is a report written by Sir Roger Douglas and two colleagues called “The March towards Poverty”. It talks of the parlous state of our economy and the additional impact of COVID-19. The report talks about the real problems our country faces and how the government should be reacting. It is to the point and an easy read, and as is typical of Roger’s writings he concludes positively that it’s not too late to retrieve the position we are in.
The report concludes “ For too long, we have lived with the fiction that we are doing well, lulled by successive governments into believing we truly do have a ‘rock star’ economy. Nothing could be further from the truth. Starting with Grant Robertson’s post-Covid budget, we must admit to the problems facing our economy and begin to deal with them. Otherwise, current inequalities will remain entrenched, we will continue to fall further behind our OECD partners, and the prosperity of our younger generations will be placed at peril”.
While I’m on the topic of legacies, the second article I want to share is by Chris Finlayson, Attorney General in the Key/English Governments for 9 years starting when I was also a Minister. I’ve been worried about the legality of many of the impositions we have experienced since the country was plunged into lockdown. I know you sometimes think all this theoretical stuff isn’t that important, but in a well functioning democracy how the law is made and enforced is central to an orderly society we can have faith in. Chris has eloquently described these matters much better than I can in his opinion piece on the rule of law:
“Some readers will no doubt respond that this rule of law stuff is all very interesting for the legal profession and retired politicians but is hardly of any practical impact given what New Zealand has just avoided.
I disagree. The former Chief Justice, Sian Elias, once said that if only judges and lawyers concern themselves with the rule of law, New Zealand is in trouble. She was right. Adherence to the concept of the rule of law would have helped avoid some of the basic failures of the past eight weeks – failures that should give all New Zealanders pause for thought.”
I’m afraid it’s too late to put Ardern’s debt genie back in the bottle. I apologise on behalf of my generation and older that you and your kids will carry this debt for all of us. My advice to you is to do what this government should have done. Cut costs and minimise your liabilities. Spend only on the essentials and invest in assets that will produce a safe dividend. Perhaps most important of all, stay engaged in our democracy and encourage your friends to do the same. If COVID-19 has taught the world anything it is this: politicians need to be closely scrutinised at all times but especially in crises like these.