In Prime Minister Christopher Luxon’s recent State of the Nation speech, economic growth was placed at the forefront. However, much of the ensuing debate has narrowly focused on reducing regulations rather than exploring the deeper, more complex origins of New Zealand’s economic growth in the 21st century. This oversimplification risks overlooking the necessity for a transformative shift in our growth model.
The concept of economic growth, especially after the 2007-09 global financial crisis, has increasingly been framed by the growth model framework. This framework delineates countries like Germany, which rely on export-driven growth through wage restraint, from those such as New Zealand, the UK, and the US, which are primarily consumption-led in nature. Thus, New Zealand’s economy, characterised by a domestic demand focus and a booming service industry, fits squarely within this consumption-led paradigm.
Despite the reality of our service-dominated economy, there is a persistent national narrative portraying New Zealand as an export powerhouse or a burgeoning knowledge economy. Political leaders shy away from expressing pride in our consumption-driven model, and this disconnect illustrates systematic failures over recent decades to pivot towards a more productive growth model that aligns with our aspirations.
The political landscape presents considerable barriers to changing our growth model. The combination of short electoral cycles and a lack of a strong social partnership tradition limits longer-term policymaking. Power remains concentrated within the ruling government, leading to policy instability and significant shifts in ideology with each new administration.
Furthermore, entrenched economic interests resist change, as seen in the struggle to implement a capital gains tax. While there is notable public support for such a tax, its introduction remains politically elusive. This situation underscores the absence of consensus-driven institutions that facilitate widespread support for transformative policies, highlighting the urgent need for an expansive coalition to realise a new economic vision.
Prime Minister Luxon’s State of the Nation highlighted economic growth but sparked debate predominantly focused on regulation reduction. An examination of New Zealand’s growth model reveals a consumption-driven economy that faces political and structural barriers to transformation. Effective change necessitates forging broader consensus among societal groups and overcoming resistance from vested economic interests, particularly in implementing significant tax reforms.
To foster genuine economic growth in New Zealand, a shift from a short-term, consumption-driven model towards a more stable and diversified approach is essential. This requires overcoming political barriers, consolidating a consensus across varied societal groups, and challenging entrenched economic interests. Only by broadening the base of support and allowing the government to act autonomously can we navigate towards a future that embraces stronger, resilient growth.
Original Source: theconversation.com
