The following page from yesterday’s budget illustrates the dismal economic trends of the past decade.

Click to enlarge

The text on the previous page elaborates on these charts:

Real GDP per person has not grown since 2004. The economy was in recession even before the global financial crisis. The downturn in economic performance coincided with:

  • a construction and housing market boom, with the prices of existing houses increasing 115% between 2001 and 2007. Household debt as a share of disposable income rose from 105% in 2001 to almost 160% in 2009
  • a significant increase in government spending. Core Crown expenses as a share of GDP are 6% of GDP (about $13 billion) above the 1994 to 2004 average
  • a sustained high real exchange rate, with the average level of the real exchange rate over the five-year period ending in 2010 being the highest since the 1960s
  • real export growth averaging just under 1.4% a year, compared with 5.4% in the previous 15 years, and
  • a decline in national savings, reflecting an initial steep decline in household savings, followed later by a decline in government savings. This was reflected in the current account deficit averaging 8% of GDP from 2005 to 2009.

In summary, the economy continued to perform relatively well in the first years of the decade aided by the economic framework established by the earlier reforms, a cyclical rebound after the Asian economic crises and a buoyant world economy.

From about 2004, however, the impact of the Labour-led government’s focus on income redistribution rather than economic growth, with ever-higher government spending and costly regulation, began to be felt.

The economy entered a recession in 2008, before the global financial crisis hit, and the government is still struggling to reverse these trends.

This was unquestionably the worst period of economic mismanagement since the Muldoon years.


  1. Interesting that the page on the Budget site is headed “What the Budget Will Address.”

    No it won’t, not by a long shot. As Matthew Hooton said in the Dimpost this morning, “When an axe was called for…they reached for a potato peeler.”

  2. Hi Roger,

    thank you for pointing these items out. I immediately went off to look at exchage rate data and then found the graph I was looking for in the same document. The real exchange rate has been high and seems to be a driving force on exports. My question is whether the rapid increase in household debt was the primary driver for the high currency? If so does this argue for more banking controls, which will then require greater domestic savings etc? Alternatively, how could we have reduced the speculation? There is lots of talk of a capital gains tax, but was the housing boom only cheap debt driven or are there more fundamental problems like land constraints, Resource Management Act etc? I would be interested in your views.

    Regards Neil

    • Good question Neil. It’s not always easy to explain movements in the real exchange rate. Plausible contributing factors to the trends in the budget chart include the reduction in US short-term interest rates in the early 2000s and the rise in real government spending in New Zealand from around 2004-05. The slump in productivity growth wouldn’t have helped.

      The capital gains tax debate seems a side issue. Theory suggests any impact would be largely one-off. Australia has had a house price boom despite having a capital gains tax (on second houses etc).

      • Thanks Roger. I need to look at capital gains taxes more. I assume they cause a one off shift in prices or expectations and then get factored into all future decisions.

        The tradeables to non-tradeables shift, is that the driver in lack of productivity growth, or is it more the ramp up in Govt spending?


      • Possibly in part: the traded goods sector is more exposed to competitive pressures. Other likely factors include government spending increases, re-regulation and the virtual absence of productivity-enhancing economic reforms.

  3. The fundamental problem is socialism – Pure and simple

    Labour undid almost all of Roger and Ruths reforms- nationalizing huge swaths I’d the economy (airnz, trains, kiwibank, broadband), whacking up benefit and super rates to be the highest in the OECD, vastly overpaying coil servants from streetcleaners to doctors to teachers, WFF, KiwiStealer the list goes on and on and on.

    NZ has been in recession for the last 6 years. What needs to be done is to repeat the Roger and Ruth reforms and to “finish the job” properly!

    Every competent economist knows this but Enush refuses to do even 1% of what is necessary – just carrying on Cullens ruinous policies and with a 16billion defect black hole and no real policies to fix anything.

    That’s worse than anything Cullen himself ever did.

    Literally the only thing between NZ and a really brutal IMF restructuring is the hole of a Brash emergency austerity budget after the election that will finally rid NZ I socialism. We all must do everything possible to make that happen

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