Hi Friend,

Yesterday’s shocking GDP figures are nothing short of wake up call. While our trading partners get richer, New Zealand isn’t just falling behind, we’re literally going backward!

So as we head into the weekend, I want to paint a picture of contrast between how New Zealand has dealt with this challenge before and the approach of the current Government.

And while Nicola Willis is trying to blame Trump's tariffs, New Zealanders will see right through it.

The Government's plan is not working.

The negative 0.9 percent headline figure is bad enough, but it hides the real story.

When you adjust for population growth (over time, GDP per capita is the only thing that matters) we are 1.1 percent poorer in just one quarter.

Since June 2023, per-person GDP is down by 3.9 percent!

How should it be fixed?

Since the figures were released yesterday, we've been thinking about the two contrasting approaches of how to fix over-spending government, high borrowing, and a shrinking economy.

The 1990s 'Short and Sharp' approach

In 1990, Jim Bolger’s Government inherited an economy in serious trouble.

Let's paint the picture:

• Inflation was sky-high (6.1 percent)
• debt was ballooning (the previous Government had agreed to bailout the BNZ, but hadn't tell the public),
• and the economy was in a recession.

But, rather than tiptoeing around the issues, the 1990 newly-elected Government got their hands around the issue, took tough, decisive, and bold action to reform and transform the fiscal accounts so that New Zealand lived within its means.

And while certain politicians (I'm looking at you Chris Hipkins and Nicola Willis 👀) claim it 'failed', by 1993 the results were clear. In just three years:

• growth was an eye popping 6.4 percent,
• inflation had dropped to 1.3 percent,
• the country was back in budget surplus with debt coming down.

Make no mistake, it wasn't easy. It required tough decisions (and tough leaders) to cut spending and dramatically reduce the size of the public service so that government lived within taxpayers' means. It arrested what, at the time, looked like a fiscal black hole of spiralling debt and deficits.

The experience shows that tightening fiscal discipline doesn't just pave the way for fiscal stability, it gets the government out of the way of the productive economy.

The hard choices led to an economy that was more competitive, productive and growing. It set up New Zealand for a period of growth and prosperity that would last for decades.

Less government, means more growth.

Nicola Willis's 'Slow Burn' approach

Fast forward to today, and we see a very different strategy being rolled out by Nicola Willis.

Having been elected to cut spending – and with our polling showing that a majority of the voting public want the Government to go harder in cutting back the last Government's excess – Nicola Willis has taken a deliberate 'softly, softly' approach.

Her budget 'savings' haven't been used to reduce the deficit, overall spending, or pay down debt. In fact, overall, Nicola Willis has continued Grant Robertson's approach of increasing government spending, just at a slower rate.

Right now, despite all the political rhetoric about 'cuts', there are more bureaucrats than at the time of the election.

And then there is the borrowing. By the end of the year, government debt will hit $300 billion – that's $145,000 for every household. 

The Government says it is on-track to 'balance the books'. But, the independent Treasury forecasts shows that OBEGAL (the measure used by every Minister of Finamce since Ruth Richardson) never gets into surplus.

The Government has had to literally invent a new measure (to exclude a blowout in ACC) to create a laughably small "OBEGALx" surplus in 2029. 

But even that is now blown to bits with these GDP numbers.

And I do not need to outline the results. The economy is shrinking. Willis is needing to borrow $75 million per day just to keep the lights on. And the Government is behind in the polls.

Our approach: it's the policies that matter, not the personalities

Friend, as you can imagine, over the last 24 hours the Taxpayers’ Union has had journalists calling us up wanting to know whether we’ve ‘lost confidence’ in Nicola Willis, or whether we agree with others calling on her to be sacked.

We’re not going to participate in those discussions because it doesn’t serve to further the lot of those we serve: you, the taxpayer. But, the short point is that the Government's approach has not worked. And it does no one any good to ignore it, or continue down a path to nowhere.

Listen to how our Chair, Ruth Richardson, explained our position on Heather du Plessis-Allan Drive tonight.

The long and short of it is that we don’t care who is the Minister of Finance, so long as they step up to the very real challenges facing New Zealand.

It’s not about attacking the Government, it’s about fighting for course correction and getting the Government’s foot off the neck of the economy.

We’re not going to join in on a personal pile-on of Nicola Willis, but nor are we going to pull our punches in our fight for balanced budgets and fiscal responsibility.

With an election just 12 months away, rescuing the economy will rescue the electoral prospects of the Government.

Because if Willis doesn't act now, she will hand the next election to Labour, the Greens and Te Pāti Māori.

What the Government should do

The GDP figures warrant a course correction and urgent response. There is time before next year's election, but it cannot wait.

Earlier today, we called for a ’Spring Statement’ or ‘mid-year mini budget’, similar to what the Government did in December 2023 right after it was first elected. Next year's May Budget is too far away for it to have meaningful economic effects prior to the election.

You can read the media statement here: MEDIA RELEASE: Taxpayers' Union Chair, Former MoF Calls for Spring Statement to Reset Government's 'Go for Growth' Plan.

We've also been highlighting to media our report published back in May on how the Government can cut wasteful spending, fix the economy, and get back to surplus – A Pathway to Surplus. It's our oven-ready formula to get the Government out of the way of economic growth.

The dangerous path

On a personal note, I moved here from the UK where I worked for the Conservative Party under Boris Johnson, then Rishi Sunak. There I saw exactly what happens to good MPs - good people - when the Government kicks the can on necessary decisions to fix the economy and public finances.

That is why I'm so sure that to fend off the Opposition and put themselves in the box seat to win next year, the right thing for the Government to do is be bold to fix the economy.

Because if Nicola Willis and Christopher Luxon won't take action, voters will look for alternatives.

And if that means a return to the Ardern-era policies that first got New Zealand into this mess, things will get worse. We can't let that happen.

Have a good weekend, Friend.

Tory Relf New Zealand Taxpayers’ Union

Ps. Ruth's interviews from today really are worth listening to. She explains not only the position we're taking, but the solutions we're presenting. There are two - one on Newstalk ZB, and one on RNZ - available on our YouTube.