The First Cut is the Deepest – or is it?

Last week I attended a lunch hosted by the Wellington Chamber of Commerce where Finance Minister and Acting Prime Minister, Bill English, spoke about the upcoming budget. I’d been to a breakfast presentation hosted by the ANZ National Bank the week before where their chief economist, Cameron Bagrie, had talked about the economy and how individuals in particular are going to be affected by the fallout from the GFC and the ensuing mess left behind after the recession officially ended.

The interesting (or should that read ‘scary’) thing is that the two presentations were telling a similar story. Apparently things are never going to be ‘normal’ again as the events of the last 15 years were not normal, but actually aberrations. As a nation we tend to measure everything on what is happening in the housing market, probably because most of us own our own homes, and even those who don’t are usually renting from ‘mum and dad’ investors, and so we’re all affected by mortgage interest rates and property values. Also most of our personal wealth is tied up in property values, which are still over valued and artificial and can see-saw wildly depending on the state of the economy, so this affects most of us too. Both speakers referred to the effects of the love affair Kiwis have with property quite a lot.

Kiwis are pretty hopeless savers on the whole, so many have been unprepared for the belt-tightening of late, and coupled with the fact that we spend on average 160 percent of what we earn we rely on credit to keep us in the lifestyles we’ve become accustomed to. The problem is that as a country we have to compete on the world market to borrow to fund the deficit and money has become very expensive and harder to get, though a country with a tight fiscal policy is naturally seen as a better risk than one that isn’t addressing its financial performance. Suffice to say we’re a long way from being out of the woods and I’m really glad I don’t work in the government financial sector – what a nightmare that must be.

One thing that Bill English said, which was not unexpected but still stung anyway, was that another 1.8 billion dollars was going to cut from the public sector in the upcoming budget as the National Government believed that the public service could still do more to be efficient and effective. It almost felt like they knew something that the rest of us didn’t. Maybe they do.

I recall being in the UK late last year and hearing that massive cuts were about to be made in the UK public sector – 600,000 jobs would be cut as a result – and while half of me gasped at the thought of what this would do to the workforce in Britain, the other half of me sighed in relief that we’d already experienced ours. Yeah right. Talk about naive!

So, while I don’t work in the public sector, many of our HRINZ members do, and living in Wellington, which is a predominantly public service city which has managed to be cushioned from the highs and lows of the economy thanks to having a stable work base of government departments and ministries, I’m more than a little worried about what these proposed cuts might mean to us.

On the one hand, it’s vital that we have a strong leadership which is prepared to make the tough decisions in order to create a sustainable economy and future for us, but on the other hand it’s really worrying to know that many jobs will go in order to make this happen. As Bart Simpson would say “You’re damned if you do and you’re damned if you don’t” so there probably isn’t much choice for our decision makers within government, but its cold comfort really, isn’t it?

So is it time to cross the Tasman to the so-called land of milk and honey, as happened back in the 1980s and 90s when we were faced with economic reforms, or stay and try to get New Zealand back on its feet, even if it hurts to do so? Where’s the crystal ball when you need it?

We were told that we needn’t waste our time looking to Australia as, or for, a solution. Apparently the proverbial is going to hit the fan for them in the next two years as they’ve been using really unsustainable means to prop up their economy in a bid to soften the effects of the GFC. We were reminded that water is going to be Australia’s key ‘head ache’ issue and thankfully New Zealand has it in abundance (probably too much if you live in the bottom half of the South Island at the moment).

Added to the wonderful quality water reserves we have, and the ability to get plenty more where that came from, we also have prime primary production in our agricultural and horticultural sectors to fall back on, and the type of top quality food that New Zealand can produce will always be in great demand globally. One of the speakers (I can’t remember which one) said that in particular we must invest in getting water sorted in the Canterbury region urgently in order to capitalise on this. I’m hoping that our central and regional governments are working on this as we speak – that would keep a few more people in jobs wouldn’t it?

So HR’s big dilemma at the moment will be working to create the best outcome for the least cost in order to meet the current and future economic conditions. Nothing new in that. But I think it’s dangerous to think that the problem is just in the public sector – whatever happens there will impact on all of us. The good news is that if all the reforms work we’ll be heading for a more sustainable economic future in the long term…as long as we can last the distance.