15 economists from across the country have written an open letter to Prime Minister Christopher Luxon and Finance Minister Nicola Willis due to the “heightening concern” over the government’s approach to fiscal policy.

A letter released this morning calls for an urgent meeting with the pair to discuss the “immediate and long-lasting harm that [their] Government’s approach to fiscal policy is creating”, in the view of the economists.

Until that meeting has occurred, they are demanding:

• The government immediately suspend all directions for further reductions to departmental and agency spending and/or further delays in infrastructure spending.
• The government request further advice from officials, including convening private and community sector advisors, to ensure that Budget 2025 provides a clear economic rationale for fiscal policy that will assist
• growth in the scale and resilience of the business sector
• reductions in private-sector debt
• investing in infrastructure
• strong employment growth in good jobs
• so that the New Zealand economy can be fit for the future needs of the people and communities of New Zealand.

In the letter, the economists highlighted four key areas of concern.

Reduced spending

The first was the government’s current fiscal policy, which they described as “needlessly exacerbating the current recession.”

They criticised the policy of reducing spending, stating that “the economic rationale for this approach is unclear.”

Over the past year, the coalition government has implemented widespread cuts, ranging from key infrastructure projects to public service jobs.

The letter emphasised that “this is substantially worsening the contractionary effects on the economy of the Reserve Bank’s use of the Official Cash Rate to contain inflation.”

The economists attributed the intensified economic recession to the government’s recent fiscal tightening.

“These accumulating shortfalls put the nation in a poor position to improve its long-run economic resilience and to prepare for future challenges.

“If nothing is changed now, this under-funding simply passes the burden of adjustments, and investment spending, to future generations.

“Failure to correct this course will lead to higher economic scarring, with the costs borne by those with the least ability to pay, as has been demonstrated repeatedly in New Zealand’s history,” they said.

Over-dramatising govt debt

The second issue raised by the economists was the current government’s focus on reducing its debt, which the coalition blamed Labour for. However, the economists argued that there is no actual debt crisis to address.

“International comparisons of government debt in comparison to GDP remain in New Zealand’s favour. Credit rating agencies continue to view the government’s debt situation without concern.

“Bluntly, there is no government (or public) debt crisis in New Zealand.”

Instead, the economists are saying it is the private sector debt that is the ongoing problem, blaming the government’s fiscal policy for the rise.

“Standard economics shows the relationship between public and private sector financial balances. When total domestic saving (both public and private) is insufficient for domestic investment (both private and public), the gap needs to be filled by drawing on foreign funds.

“With the banks acting as intermediaries, the resulting increase in liabilities is reflected on both the private and public sectors’ balance sheets.

“There is little explanation of how fiscal policy focussed on reducing government spending would reduce New Zealand’s external deficit and total external debt. Consequently, fiscal policy is adding to the vulnerability of economic activity and exposing New Zealand to inevitable global shocks,” said the economists.

The scars left after cuts

Thirdly, the economists expressed concern about the long-term negative impacts of job cuts and the economic hardships faced by many New Zealanders on Aotearoa’s future.

“Prolonging the current cyclical downturn in this manner means that these costs result from a policy choice, rather than being an economic outcome.

“The erosion of the already low psychological and financial reserves of the poorest will be hard – and socially and fiscally costly – to repair. We note that the consequent erosion of the tax base will also impair the government’s balance sheet."

The economists also pointed out that many skilled workers are leaving New Zealand to work overseas, causing a shortage of workers in important areas like health and education.

“The loss of this capacity and capability becomes increasingly permanent the longer the downturn is prolonged.

“Arising from this situation is the long-lasting scar of the loss of entrepreneurial aspiration in our communities as the cyclical downturn is unnecessarily prolonged”

Fiscal policy and export targets conflicting

In the final concern, they pointed out that the government’s fiscal policy and goal to double the value of exports contradict each other.

“New Zealand’s historical reliance on volume-driven commodity growth and mainly low-value exports requires significant structural shifts for the returns from exports to be doubled.

“Without investment in key infrastructure, resilience building, business capacity and capability, human capital, and entrepreneurial endeavour, the necessary structural shifts will not occur. The current fiscal policy settings undermine the required investments to facilitate such shifts.

“Consequently, your Government’s aspiration for the export sector will itself continue to be an aspiration due to a short-sighted fiscal policy stance, rather than the attainable goal it could become,” they said.

Who are the 15 economists who signed the open letter?

• Dr Ganesh Nana - Economist and former Productivity Commission chair.
• Toby Moore - Former adviser to former Finance Minister Grant Robertson
• Andrea Black - Former Senior Ministerial Advisor for Minister of Economic Development (Under Labour)
• Jarrod Haar (Ngāti Maniapoto and Ngāti Mahuta) - Dean’s Chair in Management and Maori Business Professor
• Professor Matthew Roskruge (Te Atiawa, Ngāti Tama) - Massey University economist
• Associate Professor Susan St John - University of Auckland
• Honorary Dame Suzanne Snively - Independent Economist
• Dr Geoff Bertram - Victoria University of Wellington economist
• Dr Bill Rosenberg - Visiting Scholar to Victoria University
• Rob Campbell - Former Chair of Health New Zealand
• Craig Renney - Policy director and economist at the Council of Trade Unions
• Dr Girol Karacaoglu - Ex-Chief Economist at the National Bank of NZ
• Associate Professor Stephen Poletti - University of Auckland
• Dennis Rose - Research economist
• Edward Miller - Researcher at the Centre for International Corporate Tax and Accountability Research.