The hard yards: New government faces challenges of a changing world

After the landslide come the pressing questions of how to adapt to a changing world – and when we’ll have our freedom back. By Jane Clifton, New Zealand Listener.

Freedom and democracy have a long, difficult history, but our newly elected government may be the first modern administration to face as its most urgent question: when can we set our citizens free? Equally pressing, and not at all Iron Curtain-chic either, is: when can we let others in?

Jacinda Ardern’s Labour landslide in no way makes the decisions easier about when and how to reopen our border. If anything, the mandate to govern alone risks being taken as confirmation of the public’s globally conspicuous patience with the Covid-wrought curbs on their freedom, and therefore permission to extend them.

However, without the earliest possible restoration of mobility – both of labour and tourists – this country will struggle to restore economic growth, let alone make progress on Labour’s flagship “well-being” reforms.

Though our globally unusual “elimination” strategy has been a matter of both pride and success, it remains possible the new government will have to dial it back to a “living with Covid” approach, either because of new discoveries about the virus’ nature or simply because that’s what most other countries are doing and our economy cannot survive as a fortress.

It’s a massive mandate but also a fragile one. Christmas- and summer-holiday travel restrictions, while inevitable, will deplete public goodwill. Unless people have a slate of restored freedoms to look forward to, the movement to change our rather pedestrian national anthem is likely to settle on Engelbert Humperdinck’s Please Release Me. Meanwhile, the Opposition parties, freed from the grimness of their “I don’t love you any more” campaign mode, will have more scope to challenge any prolonging of controls – the more so now that creative ideas are emerging.

Reopening the border

Australia is moving towards reducing controls outside “hot spot” areas where the coronavirus is dangerously rife. The UK has imposed a multi-tier system, after backing off a see-saw experiment with opened and closed borders with other countries. The Scandinavian experience suggests that given widespread public compliance with social distancing, people can be trusted to mingle safely at large, once the R-curve – the contagion rate – has flattened. We’ve had comparable levels of compliance to those countries. We can, surely, be trusted.

Learning from the mistakes and successes of other countries, the new government could progressively reopen the border to get in the labour and skills we need, as well as the tourists, without risking the spread of Covid-19. Tiered entry status according to other countries’ domestic containment of the virus should be possible swiftly. Negative tests before departure and upon entry should ensure very low risk from countries such as Taiwan, where Covid has been well controlled. The quarantine duration of two weeks could be reassessed.

Although the arrival of a vaccine is still more hope than expectation, the speed of testing is being improved.

Tourist operators could reorient their pitch towards those very wealthy foreigners who can afford to hole up for two weeks’ luxury quarantine – both here and later in their home country, if necessary – in order to revel in our high-end tourist attractions.

There’s now no shortage of empty cruise ships and barely filled hotels to serve both as quarantine facilities and accommodation at all levels of budget and comfort.

The underlying political question is whether Prime Minister Ardern can move out of her – globally feted – Covid comfort zone and embrace the inevitable, if calculable, risks.
For the average itchy-footed New Zealand traveller, the “hopefully by Christmas” procrastination over Australian state “bubbles” and a bubble with the Cook Islands will pall quickly, the more so if accommodations with other countries don’t quickly follow suit.

The debt monster's legacy

The basics of Labour’s post-Covid economic strategy are well understood by voters and now firmly mandated: accelerated infrastructure building and concentrating on projects that support housing or regional export growth. That spending – essentially the Provincial Growth Fund on fast-forward – will increase government debt and keep the acid on the Reserve Bank to maintain low interest rates. The idea is to ensure debt financing stays cheap, along with the New Zealand dollar, thus keeping our exports competitive and remunerative.

Naturally, other countries have the same idea. Plus they have the same concomitant problems. Having spent unprecedented amounts on health and lockdown job and business support, we all have less to spend on imports – while we’re all frantically trying to export more to one another. International credit-rating agencies are obviously going to have to do constant reassessments of debt-servicing ability, in which countries’ debt profiles will be a prime sheep-from-goats sorter.

Despite National and Act’s tireless rarking up of the future debt burden on the campaign trail, New Zealand is a restrained borrower compared with other developed countries. Rather, it has in recent years copped orthodox economic criticism for being priggishly averse to borrowing, even at times of increasingly affordable debt servicing.

The Muldoon Government’s debt monster of the 1970s and 80s seems to have watermarked our politics with a fear of government debt, when within the right parameters, debt can be critical to economic health. What counts is how easily serviced the debt is, and these times are a far cry from the perilously overreaching Muldoon years.
Household debt is a different beast, but many voters probably equate the two. Ours, at 95 per cent, is considerably higher than most comparable countries’, which average 72 per cent. Economists may have nagged us ceaselessly about this for decades, but New Zealanders still overinvest in housing and over-borrow for it and other consumables such as cars.

Government debt, however, has been prudently managed over recent decades. Even in the wake of the global financial crisis, when the balance sheet was already depleted by the Canterbury earthquakes, the Government’s debt-servicing costs were proportionately much higher than today’s. The country’s net debt is expected to rise to 28 per cent of GDP this financial year, but the interest cost will be about $2 billion, or just 0.7 per cet of GDP.

For further perspective, it’s worth comparing Covid-wrought borrowing with the exponentially scarier effect of our population simply getting older. New Zealand’s future health and superannuation costs will make the Government’s Covid binge seem almost trivial.

Belt and braces

The key accelerator the Government has been keeping its foot on is trade. With foreign tourist income withered indefinitely, exports – particularly food products – are the economy’s life raft.

With little public fanfare early during Covid’s onset, Trade Minister David Parker incentivised Air New Zealand to keep its China, Singapore and US routes open with cargo-only flights so food exports could continue.

That global goods supply chains, for food in particular, did not grind to a halt has made Covid stringencies more bearable, notwithstanding some panic buying. As the Economist reported, food security has proven reassuringly resilient during the pandemic. Four-fifths of the world’s people depend on imported food to some degree.

However, New Zealand faces new challenges on this vital economic front. The world has gone from debating Belt and Road global pathways to contemplating a return to belt-and-braces localism. Other countries are now dabbling with the idea of more domestic self-sufficiency in food. That, on top of having Covid-depleted coffers to fund imports, is a threat to our outward-facing economic model.

While experience and common sense suggest New Zealand’s agricultural efficiency should allow it to retain its competitiveness and its ability to get a price premium for high-quality produce, new currents of protectionism and hard-nosed bilateralism are challenging this.

A mind-focusing example is the US’s insistence on being excused from British food standards if the two countries do a trade deal. The poster baddie for this skirmish is chlorinated chicken. Prince Charles, chef Jamie Oliver and petrol-head broadcaster-turned-farmer Jeremy Clarkson are among those urging Prime Minister Boris Johnson not to give way. They say the UK’s food, environmental and animal welfare standards must not be undermined for other countries’ benefit.

The corollary, however, is cheap, mass-produced food, which after fears about Covid-duration food security, will have political appeal in many countries – particularly given the likelihood of lingering recession.

The implications of regressing standards and/or a surge in cheap, chemical-ridden food competition could be serious for New Zealand, which is striving to produce sustainable, additive-free produce. The geopolitical crosswinds are also unpredictable, and there are signs the Government is already taking defensive action.

During the campaign, Ardern for the first time acknowledged dangers in our relying too heavily on trade with China – a significant reframing of our foreign policy to date. Over-reliance on China was Foreign Minister Winston Peters’ frequent refrain last term, a view rued by traders and officials and seemingly ignored by Beehive colleagues. However, growing unrest and human rights issues in China and mounting alarm at Chinese debt-trap aid in the Pacific and elsewhere have forced a rethink.

The resilient wealth of China’s Asian competitors, including Taiwan, Korea and those in Southeast Asia, looks set to form a major new focus for New Zealand exporting.

World turning

Then there’s the added spur of making New Zealand less vulnerable to the sort of trade retaliation China is meting out to Australia, whose cotton exports are the latest to be threatened by new tariffs, after Chinese crimps on its meat, wine, barley and coal exports. This is chiefly a riposte to Australia’s call for a full independent inquiry into the origins of the coronavirus, to which China has taken great exception. More broadly, it’s a pour encourager les autres, designed to stoke fear in countries questioning its human rights, environmental and territorial stewardship, not to mention the global access rights of its Huawei tech behemoth.

China appears to be in more robust recovery from Covid’s privations than other countries, but its appetite for our dairy exports is likely to tail off. Economists are predicting dairy exporters will make new inroads into the Asean-6 countries: Malaysia, Indonesia, Thailand, Singapore, the Philippines and Vietnam.

A recent Rabobank report predicted their combined markets would grow from around 13 billion litres of milk to 19 billion within the decade. New Zealand exporters have the benefit of “a cocktail” of trade agreements through the region, but unless timely investment is made, foreign competitors already more active there could retain their edge, the bank said.

There are also continued efforts within the forestry sector to find ways to increase local wood processing, after failed efforts by New Zealand First.

Concurrently, the Government has been working on ways to “transition” surplus staff – and, if remotely possible, capital and infrastructure – from the hospitality and tourism sector to the productive sector. This may be the biggest sectoral upheaval since the deregulations of the 1980s, with the proviso that no government could now get away electorally with letting so many people fall by the wayside. It’s not a government decision that’s decimating the sector, but unlike farming, no amount of added leanness, meanness and keenness is going to restore its previous levels of prosperity. Global travel is on ice, and its eventual thaw will be glacial.

Perhaps the crucial sales job the new Ardern team must do is, whatever measures it has in store, to remain scrupulously open with the public. The major goodwill outages under lockdown came whenever people suspected – sometimes correctly – that politicians and officials were withholding facts and details.

Whatever else this landslide victory shows, it’s proof that trusting people with the facts, however unpalatable, is essential to winning their co-operation in coping with crises. This is a long-tunnelled crisis, and the lights need to be on not just at the end of it but all the way through.

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