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MAR 12

Briefings falling on deaf ears

Government agencies have weighed in on where the economy is going after the 2011 election and where the policy problems lie. There is a consensus between the Ministry of Economic Development and the Treasury that lagging international competitiveness is the problem, and in their own bureaucratic way, they have implored the Government for some changes.

The message is that the problems do not stem from weakness elsewhere but comparative disadvantages caused by economic policies in New Zealand. This is a view that resonates with firms here, particularly those in the tradable sector.

The Treasury commented on the problems they have witnessed over the past decade showing that inflating labour costs and exchange rate overvaluation have hit hard:
“growth in New Zealand’s labour costs exceeded productivity gains (ie, unit labour costs have increased) by more than for many of our major trading partners since 2000. This has exacerbated the negative impact on our international competitiveness of the high nominal exchange rate.”

The Ministry of Economic Development for its part came to similar conclusions:
“Unbalanced growth has been unhelpful. The housing boom and associated elevated exchange rate has put pressure on exporters. This was an intensification of a situation that had existed for many years, as evidenced by persistent balance of payments deficits.”

The reports raise a couple of questions:

1. Why do we not hear from these organisations more often and publically? and
2. Where is the Government’s response?

First, there is little point burying the reasons for economic underperformance in the middle of an elongated briefing. This should be up for public discussion; after all it is taxpayers that pay for these agencies and therefore the information needs to be presented in a way that engages the public.

On the second point, if the Government disagrees with these conclusions it must say so and explain why. Is simply ignoring the advice sufficient? 

We clearly have some serious issues around the balance of our economy. Policies skewed towards sheltering our domestic economy are harming growth in the traded sector by persistently overvaluing our exchange rate; the result is a structural and ever increasing current account deficit. It is not enough to observe this problem; there must be discussion and a serious quest for workable solutions.

tags: treasury, ministry of economic development, exchange rate
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