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.