Kiwiblog tips Nats win

kiwiblog interpretation of the latest poll results - is that Labour are in deep trouble and have little chance of winning the 2011 election. However, the recession is not over yet and a lot can change in politics in a short space of time. On the horizon are looming challenges - for whoever forms the next government. The chronic balance of payments and current account deficits feature large in any external assessment of New Zealand's economic condition. Having said that - right now National have a handy lead in most polls.

Political parties will need to persuade the public that they have solutions for the thorny and intertwined issues of overseas indebtedness, overseas ownership and lack of NZ savings (in things other than housing).  Eventually these underlying constraints on sustainable prosperity will bubble to the surface of popular opinion and the party best prepared to resolve those concerns will be in a strong position. For now though credit card allowances, movie rentals and old sheds on Auckland's waterfront appear to be the focus of fourth estate scrutiny.

We cannot go on borrowing our way into a hole

New Zealand has had three decades of current account deficits.  These deficits have piled up since Britain entered the EU in 1973.  As a nation we have spent more on imported items than we earn from exports.  We have borrowed to make up the difference.

Selling assets for cash has also been used as a short term palliative by the NZ government in the 1980s.  But this tends to mean that we end up having assets in NZ owned by overseas investors.  The dividend outpayments on those investments then become another overseas cost we have to meet and is usually added to the country's overseas debt. The culprits have tended to be NZ households and the private sector.  Asset sales are not a long term answer to resolving our indebtedness problem. With the right controls and given sufficient domestic capital savings they may be a useful vehicle to grow local shareholding ownership.

Foreign investment can certainly play a positive role in a country's economy - especially when local residents do not or cannot afford to invest.   But if we end up with most of the economy owned offshore then we would need to call into question the meaning of national sovereignty in such a context.  To turn it around we need to steadily build a much larger pool of domestic savings here in NZ.  Enhancing full participation in Kiwisaver would help towards an effort to re-New Zealandise the economy by having local families and companies buy shares in those organisations that own the productive assets of our economy.  I'm not a great fan of tariffs and import substitution because it tends to hurt low income consumers and it hides inefficient companies from more efficient competitors. A solution would be to do more to promote high value premium exports to markets around the world.  Increased focus on technology, innovation and improved productivity are all part of the solution to this major structural challenge.