In the past six months, two earthquakes have shaken the very fabric of New Zealand society. We have witnessed death and destruction on a scale unprecedented in our short history as a nation. The effect of these quakes, following closely on the back of the largest financial meltdown in a generation and the financial ruin of several sovereign nations around the world, have resulted in some serious questions being asked about the stability of the New Zealand economy. Regular readers will well know that I tend to look past the doom-sayers and focus on the positive – having noted previously that society appears to be on a path of continuous advancement. Was I wrong? Is New Zealand on the verge of collapse or will 2011 bring about a much needed recovery?
To understand our current situation we need to cast our eye back 4 years to late 2007. After a decade of strong growth, the first murmurings of problems in the financial markets were started to come through from the United States. Across the Pacific, however, one thing came to dominate every single conversation around the country – the price of milk. While this might sound rather innocuous to many, in New Zealand it is always a big deal. And when it goes up, it generally means that trouble is not to far away. No-one knew at the time, but during the fourth quarter of 2007, New Zealand became the first country in the Western world to fall into recession. Yes, many recognise the United States as being the catalyst for the massive, world-wide recession that hit during 2008, but it’s effects were felt here first – and well before the likes of Bear Sterns or Lehman Brothers fell.
Why was this the case? It was a perfect storm really. Our economy is heavily dependent on agriculture and soaring food prices and a drought during the summer of 2007/2008 combined with the early declines in the real estate sector to return our first recessionary period of decline since the Asian Shock of the late 1990s. As the financial crisis developed, and then imploded, during 2008, our economy continued to sink lower and lower. As Government revenue from taxes fell, long term Government surpluses turned to long term deficits because of our large health, education, and welfare commitments. There was no slack built into the system in the event of an economic downturn. As tax revenues increased during the mid-2000′s, the Government’s welfare policies expanded. Any surpluses were then pumped into a Sovereign Superannuation Fund and locked away for a generation. We had saved for a rainy day, yet when the rain came we were unable to access the funds to see us through. As 2008 was an election year, both major political parties lacked the intestinal fortitude to scale back the inflated welfare state. To quote the opposition finance spokesman, we were staring at a decade of deficits.
The incoming Conservative Government played true to form in 2009 and changed very little. Taxes were cut, some minor changes were made, but their first budget reflected very much a business as usual approach. We did not follow the Keynesian approach adopted by the United States whereby large sums of money were pumped into the economy, nor did we favour the ‘slash and burn’ approach undertaken by the Fourth Labour Government in 1985 in response to a then stalling economy. There was no ‘Black Budget’, nor was there ‘Mother-of-all-Budgets’ (kids, ask your parents, or grandparents) to deal with the ever-increasing Government, burgeoning debt, and an economy going backwards at a rate of knots. The attitude was very much that we will ride this out so now is not the time to do anything drastic.
It appeared to work. Growth was slow during the second half of 2009 and into 2010, but the economy did start growing again. Confidence started to return, the unemployment rate started to track downwards. It was a slow recovery, but considering that we were often spoken of in financial circles in the same breath as Greece, Ireland, Iceland, Spain and Portugal – small growth was a good thing. Our dependence on unproductive property investment was slowly being addressed, and the official policy was moving from that of welfare to that of productive employment. Talk of a double-dip recession occasionally made the headlines, but was quickly dismissed as a fantasy by many. Like in the United States, the economic fear-mongers seemed to have one thing in common – they occupied the opposition benches.
And then disaster. The first earthquake to strike Canterbury in September 2010 may have destroyed vast parts of the province but, miraculously, no lives were lost. The big one had hit and after the shock wore-down, the fine people of the Mainland set about rebuilding their lives. We knew it would come at a cost, but that was secondary to the impact that it had on the people down there. Whatever it took, the Government committed to rebuilding what needed to be rebuilt, and to provide financial assistance to those in need. That is, after all, one of the core tenants on which New Zealand was built – no matter how bad things are, we will look after those of us in need.
Only time will tell whether last months earthquake will cripple our economy. After a brief respite during 2009-2010, the exodus of our best and brightest to Australia and beyond has resumed. Many young, educated New Zealanders are being drawn to resource-rich, and economically strong Australia. Despite high unemployment, there is even talk of large companies failing to find enough qualified staff to fill their ranks. Wages are rising, but it has been decades since we have been able to compete with what is on offer in Sydney, London, New York, Hong Kong or Dubai. Talk of a double-dip recession, due to the increased cost of rebuilding after last months quake (the current estimate is $16 billion), is being seriously considered as an entire province of close to 500,000 people (1/9th of total population) look on as lives are lost and business unable to function. The effects are being felt across the country. Major infrastructure projects, aimed at increasing productivity in the Auckland (the economic capital) and Wellington, face delays – further reducing the prospects of a return to growth any time soon.
As life slowly returns to normal (for those of us living outside of Christchurch anyway), the economic reality of this disaster is slowly becoming apparent. International credit rating agencies are starting to ask questions about our financial stability and, having only staved of a credit downgrade last year, the prospects are not good this time around. With our Government borrowing $300 million each week in order to stay solvent, the prospects of a credit downgrade, and a corresponding rise in interest repayments, will be another unwelcome visitor to our shores this year.
And it is not just the economy that has the potential to wreck havoc with New Zealand this year. Our social cohesion, and the true state of race relations is going to be put to the test. Currently passing through Parliament is the controversial Takutai Moana Bill – designed to address the ongoing debate over who owns the foreshore and seabed in New Zealand and, in true political style, the focus of the debate is over issues which the Bill does not actually deal with. And while this is definitely a topic for another article, it is suffice to say that segments of both the Maori and Pakeha populations are trying to make more of this then it is in an attempt to push their own agendas. Of bigger consequence, however, is the potential re-writing of New Zealand’s history by the Waitangi Tribunal. Sometime this year, the Tribunal is expected to report on a claim by hapu of Nga Puhi in Northland over the true meaning of the 1835 He Whakaputanga o Nga Rangatiratanga o Niu Tireni (The Declaration of Independence of the Maori Chiefs of New Zealand) and Te Tiriti o Waitangi 1840 (The Treaty of Waitangi). Having attended several of the hearings into these two foundational documents of the Nation-State of New Zealand, I can state here and now that all the evidence points towards a much different version of events than is commonly reflected in the history books. For the first time in 170 years, every New Zealander is about to find out for the first time exactly why Maori are discontented with the way we have been treated by respective Governments and our insistence that the New Zealand that exists today is vastly different from the one which Maori envisaged when they signed Te Tiriti o Waitangi in 1840.
The challenges facing this country are clear for all to see. The economy and race-relations look set to take centre-stage this year on a scale never before seen. A rational, reasoned approach to both issues will see New Zealand continue to develop as a liberal, caring society in which all New Zealanders – Maori, Pakeha, and new arrivals – can be proud to call home. But if, as it often transpires, the debate turns ugly then a massive breakdown in social cohesion threatens to engulf our country. We already see threats of occupations and protests from Maori and Pakeha alike if they fail to get their way on the foreshore and seabed issue. There is potential for Auckland to grow resentful of the large sums of money being diverted away from much needed infrastructure projects to aid the rebuild in Christchurch; Maori, minorities, and immigrants can expect to be targeted as political parties turn their attention to the November General Elections; and there is the small matter of the Rugby World Cup being hosted on these shores in September/October of this year. Another poor showing by the All Blacks, and who knows how the masses will respond.
I cannot profess to having the answers to the challenges we face. It is perhaps true to note that there are no correct answers – we simply have to try something and hope that it works. Both sides of the political spectrum will be pushing their own agendas as the path to salvation – it is election year after-all. In true Our World spirit, I hope we end the year hanging around the camp-fire holding hands and singing “Kumbaya”. My fear is that this could be the year it all falls apart. There is little stopping us from becoming the next Iceland, Greece or Ireland, except for the spirit of New Zealanders. This past month has brought out the best in all of us and never before have I been prouder to call myself a New Zealander. There has been a massive outpouring of grief, and love, and support to all the people of Christchurch. However, the signs are stating to show that this period of goodwill is slowly coming to an end. If we all approach each day in the same spirit that we have this past month, the our country will end 2011 in a very strong position. Revert to type and we face a long period of regression. Which path will we choose? Where will our economy take us this year? I do not know. All I know is, that prior to last months earthquake – the conversations around the country were dominated by one thing – the price of milk.
