Oil crisis: Why New Zealand needs a ‘kamikaze Cabinet’ to fix the economy – Bruce Cotterill

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OPINION: Use this oil crisis to cut bloated government and rebuild real resilience.

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We’re getting ourselves quite worked up about oil prices. And it’s probably fair.

Despite three decades of climate mumbo jumbo warning us that we need to abandon fossil fuels for the sake of the planet, the events of the last few weeks have highlighted that we’ve made little such progress and we are still heavily reliant on the black stuff.

We’ve seen a little bit of panic buying, thankfully not too much. The odd gas station has run out. But it hasn’t been too bad. The national airline is cutting flights and ferry services have been curtailed. I heard this week that an earthmoving firm had parked up their machines. Not because they’ve run out of work. But because the price of diesel makes running them uneconomical for the time being.

Donald Trump’s on-again off-again approach to the war in the Middle East is creating massive uncertainty across the world. The financial markets are experiencing substantive swings, after – and sometimes before – every announcement. Entire economies are hanging on every press conference. Even our bulletproof mates across the ditch are looking wobbly.

For us, the timing couldn’t be worse.

But the can-do has seemingly become the can’t do. And we’ve run out of places to hide.

Our national balance sheet is overburdened by debt. When times were good we underinvested in infrastructure and the result is that our bridges, roads and hospitals are all less than we need.

Our exchange rate will tell you that our purchasing power in the international marketplace is at least 20% less than it was just a few short years ago. It’s great for our exporters. But it’s a double whammy when you’re buying increasingly expensive oil with a weak dollar.

What we didn’t need was an oil crisis. Not now.

It’s easy to blame Trump. Perhaps you’d prefer to blame Israel. But that’s not going to help us.

Here’s the thing that no one is talking about. The oil crisis has brought a stark realisation into the sharpest of focus. It has highlighted just how ill-equipped New Zealand has become.

So we need to help ourselves. We need to build resilience in our economy where there is currently none. Helping ourselves means making some tough decisions. We’ve proven not to be good at that.

As former Government minister Nick Smith recently said in a Facebook post, “Government is easy and fun when the coffers are full and there are the funds to expand services or take less in taxes.”

But the coffers aren’t full. The debt is too high. The tax grab is already as high as people can afford. And right now, being in government isn’t easy anywhere.

Our problems start with the size of our Government. Simply put, it is costing us too much to run the country. Here’s a couple of facts. For the year ended June 30, 2024, New Zealand’s total government expenditure reached $180.1 billion, or 44% of GDP. On the other side of our nation’s profit and loss, the total tax collections hit $115.4b or 28%.

It’s not that we’re collecting too little tax. The problem is that we’re spending too much money.

That shortfall is primarily met by increasing debt. In a sense we’re no different to a struggling small business or even a household. We have two choices. Increase revenue or cut spending.

To be fair, the current Government sees this and they’ve focused on growing the economy. As positive as it is to hear the Prime Ministerial passion for “growing the size of the pie” through better trade outcomes and increased productivity, that takes time and it’s likely not enough. Besides, it’s no good growing the income if all the additional revenues go down the drain labelled “wasted government spending”.

Simply put, if we are going to rebuild the resilience in the economy, in a reasonable timeframe, we have to get the national cost base down to a level that enables us to deliver surpluses, repay some debt, and start investing again.

There’s an old saying that’s trotted out whenever there’s major economic upheaval. It says “never waste a crisis”. If ever there was a time for that saying to become a mission, this is it.

Kamikaze Cabinet

We need a kamikaze Cabinet. A collection of highly capable Government ministers who care more about fixing the place than they do their re-election chances. Because we need optimal decisions, rather than decision-making on the back of the politics of compromise.

A kamikaze Cabinet should only need three years and some clear plans. Here’s a few ideas to get them started.

The last time I looked we had 41 government departments. Singapore has 16. We have 78 government portfolios. We have to take a knife to the bureaucracy. Why not aim to cut 20% of our total government servants? Given that the last Labour-led Government put 16,000 additional people on, that should be achievable. We should aim to do so without impacting frontline education, healthcare or police workers and instead look to the nation’s back offices for savings. Look for technology and AI solutions to assist with productivity of those who remain.

While we’re at it we should freeze government salaries for three years. This week’s release of the Taxpayers’ Union Bureaucrat Salary Leaderboard showed that public service salaries have increased by 21.4% over the last five years. Those salaries now run at $17,600 per year more than people in the private sector.

It might sound harsh, but you have to remember something: we’re broke! Our government debt is growing by almost $60 million per day. Sooner or later someone has to stop the rot.

When you drop people, you’ll also drop the costs they carry. Office rental is a massive cost. That goes down if you have fewer people. Flights is a big one. Meetings and associated catering is another. Meetings shouldn’t require more than eight people and they don’t always need coffee and morning tea. Meetings with 20 people or more are not meetings; they’re communication forums. They don’t need coffee or catering either.

While we’re at it, we can’t afford to spend money on kūmara patches, whale noises or singing lessons for government employees either.

Our kamikaze Cabinet should also do the stuff that countless governments have been afraid to do. The retirement age is one. From Treasury to those international credit agencies we increasingly fear, most observers will tell us that we can’t afford to continue with a retirement age of 65. We need to progressively push it up by two years every decade for the next 40 years. We’ll get a few grizzles, but our kids will have better futures as a result.

Fortunately we’re a country that people want to come to. But we need to sort out immigration. The key focus should be on bringing in people whom we need, rather than people who want to come here. It should be a simple fix. But it needs someone with the nerve to make the call.

And by the way, we need every Kiwi, including companies, trusts and tribes to pay their way. No more tax-free status or rates relief. We need all hands on deck.

In fact, there are only two groups of people who shouldn’t be asked to front up. There are those who genuinely can’t help themselves. We have an obligation to do the best we can for those people.

Secondly, retirees have paid their dues and many will rightly think that their lifetime of hard work should leave them better rewarded than they are.

Elsewhere we need every person on board. Helping. Contributing.

Capacity. Productivity. Cost reduction. Efficiency. Resilience. These should be the words we hear from our politicians in the lead-up to the election. But we won’t.

Our current Government is slowly making progress. But I wish they were bolder.

Those in Opposition have already decided that, if elected, they will return to borrowing, increasing taxes and spending more. You can probably guess how that will turn out.

Sooner or later we have to stop digging the hole!

Bruce Cotterill is a professional director, speaker and adviser to business leaders. He is the author of the book, The Best Leaders Don’t Shout, and host of the podcast, Leaders Getting Coffee. www.brucecotterill.com

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