Prominent commentator Shamubeel Eaqub, chief economist for Simplicity delivered a stimulating presentation last week on NZ’s economic prospects … looking well beyond tomorrow. His remarks were quite pertinent to Hawke’s Bay’s demographic profile.
He spoke as guest of Friends of Hastings District Libraries to a full house at the Havelock North Community Centre. Eaqub’s career has seen him contribute his expertise at leading institutions, including ANZ Bank, Goldman Sachs, JBWere, and NZIER.
Although the title of his presentation was ‘Rebuilding NZ: Why the future can be better’, and he did his best to outline a viable way forward, I suspect many in the audience – including myself – were left thinking … we’re screwed!
Eaqub outlined a rather chilling big picture:
- New Zealand could be on a path to the social division, political polarisation and very nasty turmoil we see today in the US and much of Europe
- This “fraying social cohesion” driven by the increasing gap between ‘haves’ and have nots’
- Caused in major part by the inability of governments to pay for necessary core services
- Fueled by evaporating trust in government and lessening personal wealth/income, and therefor less willingness to pay taxes, rates, etc (a classic negative feedback loop)
- Exacerbated going forward by certain worsening demographic realities confronting NZ (including HB), and
- Myopic politicians unable or unwilling to take a long view on the changes needed now to deliver that “better future”. Eaqub terms this a “failure of imagination”.
Depressed yet?
Of course, we might argue about any of those assumptions or assertions, which Eaqub supports with compelling graphs and charts, but for me these two in particular illustrate NZ’s conundrum.
The first depicts NZ sorry state when it comes to investing in labour productivity and business technology. We’ve losing our ability to generate more value from and income for our workforce.
The second shows how fewer and fewer workers in NZ (those aged 25-65) will be earning the incomes needed to pay for the public services required by the two cohorts of our population that will grow – the old and the young – along with their costs. Think childcare, education, health care for the elderly. This will require ~50% increase in labour taxes on future generations, say Eaqub.
In fact, Hawke’s Bay is a leading-edge example of this demographic future.
Now are you depressed?
Eaqub’s ‘good news’ is that NZ can avoid this scenario IF our politicians act now to:
1) force (he doesn’t use that term) higher savings – ‘KiwiSaver 2.0’ established for every person at birth, mandatory employer contributions at higher rate (he notes that undoing compulsory Super has left a $762 billion shortfall in what could have been accumulated retirement savings on hand today), and
2) invest more of the public monies (e.g., ACC, Super Fund) now almost entirely invested in overseas listed assets instead in NZ-based businesses and NZ infrastructure.
Know any politicians ready to embrace that good news?
Here are Eaqub’s presentation slides.
Regardless of the solutions there’s a lack of political backbone throughout national and local government so there’s nobody prepared to think beyond the next election and the chances of re-election. It’s been that way forever and is unlikely to change – so prepare for the standard of living to drop further, for less jobs, less facilities, less health care and so on ad infinitum!