Matthew Hooton: Money doesn’t buy happiness but debt buys misery

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THREE KEY FACTS
Matthew Hooton has more than 30 years’ experience in political and corporate communications and strategy for clients in Australasia, Asia, Europe and North America, including the National and Act parties, the mayor of Auckland and the 2025 productivity taskforce.
OPINION

The report card is in
on the disastrous last years of the Ardern-Hipkins regime.

From 2021 to 2023, according to the “wellbeing” measures Grant Robertson trumpeted, the average New Zealander’s life satisfaction remained fairly high, at 7.6 out of 10, down a whisker from 7.7.
However, given we were locked down in 2021, it’s extraordinary we were no happier two years later.
Despite Labour’s promises, those feeling housing was unaffordable rose again between 2021 and 2023. Those reporting having to cut back on fresh food and vegetables doubled. New Zealanders felt less safe in 2023 than in 2021, and trusted others less.
Our wellbeing falling was also despite Robertson borrowing more than $50 billion cash in 2022 and 2023, and net debt rising from $95b to $136b, or from 28% to 34% of GDP.
It seems money indeed doesn’t buy happiness. Yet debt will certainly deliver misery.
In Queenstown yesterday, Treasury unveiled its latest assessment of the long-term fiscal crisis it first warned about formally in 2006.
There’s some good news. More baby boomers are working for longer than Treasury thought.
In 2006, Treasury assumed only 38% of 65 to 69-year-olds would remain in taxpaying employment in 2023, but it turned out to be 49%. For those aged 70-74, Treasury thought 19% would still be working in 2023 but it was actually 27%.
Treasury suggests this may relate to superannuation not being means-tested. Effective marginal tax rates on those aged 65+ remain the same for everyone else. While universality makes superannuation more expensive, that might be worth it if it keeps more baby boomers and Gen Xers paying tax for longer.
The population is also bigger than Treasury previously projected, especially among younger people. In 2006, Treasury assumed annual net migration of 10,000 a year. It was nearly five times higher over the past decade, and the whole population is now 10% bigger than expected.
While bad news for GDP per capita, that keeps nominal GDP higher than otherwise.
That’s the end of the good news.
Despite Treasury’s dire warnings since 2006, successive governments have let the side down by spending and borrowing much more than forecast.
In 2006, Treasury assumed governments would run surpluses over the following 20 years, so debt would remain under 20% of GDP today, as shown by the black line on the graph.
Governments failed, so the outlooks in 2013 and 2016 worsened, as shown by the green and blue lines. (The 2009 outlook is excluded on the graph. Treasury may have panicked that year, picking net debt of 50% of GDP in 2023 and 100% by 2034, the only time its projections were outside the narrower band shown in the graph.)
The 2021 projections suggested an improvement, as shown by the red line. But they too were based on Robertson and Nicola Willis running surpluses through the 2020s, when instead this risks being another decade of deficits.
The upshot is Treasury warns its next full projections, in 2025, will be worse than those in 2021, which already had us hitting debt of 50% of GDP in 2035 and passing 100% in 2049 – assuming the bond markets would fund it.
The massive unexpected borrowing since 2006 has been for groceries like health, education, welfare, defence and law and order. Worse, governments since 2006 have reverted to the 1975-1990 practice of borrowing when crises come along, rather than battening down the hatches.
As Treasury outlines, New Zealand had almost no debt in 1975. But, in response to challenges like the UK joining the EEC, the 1970s oil shocks and the 1987 sharemarket crash, debt rose under the Muldoon and Lange-Palmer-Moore Governments to around 50% of GDP.
The Bolger-Shipley and Clark Governments spent around 15 years paying it back, not being tempted to borrow even after the 1997 Asian financial crisis, the 2000 dot-com crash or 9/11, all of which we survived.
Treasury thought that meant politicians had learned the debt lesson.
In fact, just as the debt approached zero, the Key-English and then Ardern-Hipkins Governments reverted to pre-1990 type, borrowing up large after the 2007/8 global financial crisis, the Canterbury earthquakes, Covid and the 2023 floods.
Despite her much-needed cuts to the Wellington bureaucracy, Willis does not forecast a cash surplus until 2028/29 at the earliest, with net debt set to keep rising. After its atrocious management from 2020, Labour is bizarrely suggesting it would want to borrow even more than the National-Act-NZ First Coalition if returned to power.
Ruining the books has been a bipartisan effort since 2008, with little sign either main party plans to reverse the trend.
Beehive strategists say they are fully cognisant of the looming crisis but doubt ever-more elaborate depictions of the data will galvanise action. Willis is said to be impatient for Treasury to focus less on the problem than on policy recommendations to drive faster productivity and economic growth than its fiscal models assume.
Among other things, she wants advice on much bolder overseas investment settings, tougher competition policy, more intensive capitalisation of firms, and how to catch the productivity wave from artificial intelligence.
Willis also recognises her savings so far are ultimately peanuts compared with the scale of the fiscal challenge. She wants advice on how much greater social and economic returns can be achieved for every dollar of spending. She hopes smarter government procurement, including social investment, will improve things.
More broadly, Willis indicates she wants the bold, outside-the-square policy advice Treasury gave in 1935, 1984 and 1990 – whether “left” or “right” – but for which it seems to have lost its confidence to offer in recent decades.
That’s all very well, but the Prime Minister makes clear he will reject any “left” proposals like major tax reform as suggested again this week by the IRD and ANZ.
Nor will National consider “right” solutions like those outlined by Don Brash and David Caygill’s 2025 Taskforce in 2011 and still pushed by Act. National strategists sneer at such approaches as “rip, shit and bust” that could cost them office.
Yet were there politically safe, incrementalist options to radically boost productivity and growth, someone would surely have identified them by now.
One hope is that National has built some voter trust by delivering its manifesto promises, even when counter to the long-term outlook, like median-voter tax cuts.
With that political capital in the bank, Christopher Luxon and his ministers have an opportunity to pivot to the longer term and outline the difficult steps that must be taken urgently to avoid the calamity Treasury has warned about this week yet again.

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