Liam Dann
Photo: Eleanor Dann
New Zealand Herald business editor-at-large Liam Dann believes the swingeing public sector job cuts are just the beginning – and we could see up to 30,000 jobs go across Aotearoa in the next year.
With 25 years of business reporting under his belt, Dann recently released BBQ Economics: How money works and why it matters.
He told Saturday Morning’s Susie Ferguson that the news didn’t come as a surprise – economists have been talking about rising unemployment for months.
“The interest rates go up, the economy gets squeezed and you’ll see businesses basically focused on costs and cutting back.”
New Zealand had gone through a period of historically low unemployment, bottoming out at a near-record low of 3.2 percent in June 2022 before rising to around 4 percent now.
In contrast, unemployment went up to about 11 percent in 1992 following the reforms and cutbacks of Ruth Richardson’s Mother of All Budgets. That combination of public service cuts and “really deep recession” at that time was “really, really tough and we are in a phase [now] where the transition is [going to be] quite painful”, he said.
For some time, he said, economists had been forecasting unemployment rising up to 5.5 percent, “which means we’re less than halfway through this process of tightening up the economy, basically.
“And unfortunately it means that tens of thousands – maybe 30,000 – more jobs are going to go in the next year. So it’s kind of a case of brace yourself for a bit.”
Paper money a fading memory?
The RBNZ recently said it was investigating government-backed digital currency. So is this the death of paper money?
The bank is “definitely trying to save paper money – they don’t want it to die, they know that people like it,” and situations like Cyclone Gabrielle show it can be important when the system dies down.
But the bank is also looking toward the future.
“It’s not imminent – it’s something like 2030 they’re aiming for.”
It could cut the banks out of the equation, though, with people keeping currency in their own digital wallet possibly.
“But it would be backed by the New Zealand government.”
“It’s going on around the world, central banks are looking at this.” Cryptocurrency hasn’t really taken off in the real world but that could change fast, Dann said.
There’s still a lot of questions about how digital currency could work, he added.
Tax cuts controversy
Dann had been vocal about not being a “fan” of the government’s planned tax cuts.
“I think there might have been scope further down the line, but I think [the government] would be taking a fiscally conservative approach anyway. [The tax cuts] just make their job harder. I’ve said it’s like trying to tighten up the economy with a hand tied behind your back.”
Most economists believed this approach would merely delay the return of government’s books to surplus, he said.
“Even Eric Crampton at the New Zealand Initiative – who you’d call a free-market, right-leaning economist – has said this is not a good idea while we’re in deficit. He’d probably say cut more jobs, but that’s the nature of the political spectrum.”
Dann did not spare the previous Labour government from criticism, either. “It’s a shame that the last government didn’t get this process underway a bit earlier – we could see it coming.”
The looming job losses and persistently high interest rates would have a recessionary impact on the economy, he said.
The idea of austerity had “gone out of fashion” and this government would argue their reforms were moderate.
“After the GFC [Global Financial Crisis] in Britain, for example, they cut back, [whereas] the idea is that really you should push the other direction… So when the economy is shrinking, you should do a bit of stimulus and boost it.”
This had been stymied by the previous government’s response to Covid-19 lockdowns, he said.
“We’ve just come through a large period of stimulus with the pandemic and that’s caused all this inflation…
“The timing is rough because … we’ve still got the tail end of that inflation [and] the recession is actually doing the job of getting that out. It’s removing demand from the economy – people save more and don’t spend as much – and it restricts the money supply… But it’s been quite a slow process.”
The proposed tax cuts would only maintain that inflationary pressure, Dann said.
“I understand that the government is arguing that hard-working people need a break. But that’s kind of the same as some of the breaks that the Labour Party gave, [but] delivered in a different way: tax cuts on petrol and and family credits and things.
“You can balance it all out with the job cuts and say we’re fiscally neutral, but the impulse is still inflationary. You’re still putting money into the economy at a time when we’re trying to get money out of the economy. So it kind of works against itself.
“I just think the timing isn’t right, personally.”
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