‘How we mend society is the million-dollar question’

This week’s Budget is set against some of the toughest conditions in years as low wages, spiralling petrol and food costs, rising interest rates and unaffordable housing make some New Zealanders question whether life in ‘‘Godzone’’ is getting too hard.

Low wages, spiralling petrol and food costs, rising interest rates and unaffordable housing make young Kiwis question whether life in New Zealand is getting too hard.

“It feels like you can’t settle down, and you can’t buy a house. What are you meant to do?” Annabella Gamboni, right

‘‘A divided society is unhealthy, both socially and economically. How we mend society, on so many levels, is the million-dollar question.’’ Cameron Bagrie

‘‘Ifeel so jaded with New Zealand,’’ says Annabella Gamboni, a 29-year-old Wellington professional with two university degrees who sees overseas as the best option for the life she wants.

‘‘I know it’s not exactly easy overseas, but why would you struggle here when you could struggle in Melbourne or London?

‘‘I think most people in my position have looked at what things are like . . . and thought ‘Why am I here?’

‘‘What appeals most is going overseas. And that’s really not to say I have done anything concrete about it at all. It’s just something that is becoming more appealing by the day.’’

Gamboni says that is not uncommon, as more and more people her age try to think creatively about how they want to live their life. ‘‘It’s kind of like an implicit understanding that New Zealand is really hard work.

‘‘It feels like you can’t settle down, and you can’t buy a house. What are you meant to do?’’

Rising living costs, rising house prices and wages that are failing to keep up with other countries have left the young and even middle-aged members of the workforce vulnerable to the promise of an easier life overseas.

Couple that with labour force shortages in specialist areas and falling immigration, and New Zealand is looking at a long road to recovery from the Covid hangover.

Economist Cameron Bagrie says there are two forces pulling at New Zealand right now. ‘‘One, we’ve got a very divided society. And a divided society is unhealthy, both socially and economically. How we mend society, on so many levels, is the million-dollar question.

‘‘You’ve got the gap between the haves and the have-nots. The whole debate over Three Waters and ownership control etc. It is just a recipe for division. And decisionmaking that polarises.’’

The second force pulling at New Zealand was ‘‘the reality check of sugarcane economics’’ starting to hit home.

‘‘And it’s hit home in the form of a cost of living crisis. You cannot spend and print money as a way to economic prosperity and wealth creation. You need to have some substance.

‘‘And what we’re now starting to see is that more and more variables are starting to pop. And basically tell us ‘we’re not on the right path’.’’

Those variables were inflation (now at 30-year highs); the current account deficit (now $6.5 billion) and the mismatch between rising benefit dependency – despite the strongest labour market in 30 years – versus the unemployment rate.

Inflated house prices, and law and order were the other two variables that had ‘‘popped’’ in the post-Covid environment. And the sixth variable was education. ‘‘The Ministry of Education came out in 2020, at the start of the year, and said, the decline of school attendance was looking like a systemic trend. Now, over two years later, what have we done?

‘‘The answer is goddamn nothing. And the best barometer of where New Zealand is going to be 30 years down the track, is the education system today, particularly across the primary sector.’’

New Zealand was now in a period of ‘‘the three R’s’’, Bagrie said.

‘‘Reality is sinking in. we’re going through what’s called a reset, because we’re now starting to see asset prices have fallen, and we’ve got some real hard work ahead of us.’’

That was going to require a big pivot away from seeing spending money as the answer to New Zealand’s problems, Bagrie warned – and that would cause pain for many.

The only way out of the inflation cycle was a period of lower growth, falling house prices and higher unemployment.

Otherwise, the pain of high inflation could linger much longer.

‘‘We need to do a David Lange and stop for a cup of tea.’’

Being younger and trying to get ahead has been difficult since the global financial crisis in 2007-2008. When Covid hit, younger workers found themselves more vulnerable than others, as they were over-represented in the industries most affected, or employed on temporary or fixed-term contracts.

Polling shows an attitude shift, as young people worry more about day-to-day problems, such as living costs, than future

problems, like climate change.

In April, the Taxpayers

Union Curia poll found Labour’s support had fallen to 34% among younger voters.

The top three issues are cost of living (20%), economy (19%) and housing (6%).

It’s not surprising that food costs weigh heavily; prices were 6.4% higher now than a year ago, and rent was up a similar amount.

And while inflation is a worldwide problem, it seems to be biting here harder. For instance, shoppers are paying almost double the Australian price for the same block of cheese at the supermarket.

A Countdown-branded 1kg block of tasty cheese sold for $18.50 here; in Australia, the same size block was selling for A$9.90 (NZ$10.88) at Countdown’s parent company, Woolworths.

A 500g block of Mainland cheese, a Fonterra brand, sells for $14 in New Zealand and $8.25 in Australia. Yet wages in Australia are higher; the median weekly wage is $1209 across the Tasman, compared with $1093 here.

All of that adds up to a potpourri of potholes in the road ahead.

Net migration is very low; if skilled migration is low, severe skills shortages will persist and long-term growth in productivity and GDP per capita are likely to be lower.

Inflation has soared but is likely to decline as shocks to energy markets pass, and the Reserve Bank tightens monetary policy.

While house prices are now falling – down by around 4% in six months and expected to fall further – high living costs, especially for housing, reduce the attractiveness of New Zealand as a place to work.

‘‘We’re likely to see higher emigration in the next few years,’’ Professor Francis Collins, a University of Waikato professor, says. ‘‘And we’re likely to do so because of this confluence of high house prices, high interest rates, [and] higher cost of living. ‘‘In effect, that means that even if people have reasonable jobs, they are going to struggle, and they are going to struggle to see decent economic opportunities for their family.

‘‘We live next to a large economy in Australia, where people can literally hop on a plane and get employment the following day if they are New Zealand citizens. ‘‘There’s a perception things are better there, and they may be for many people.

‘‘So that that sits there, that opportunity. My expectation is we’ll see a return to higher levels of emigration, that we haven’t seen in the last five years leading up to Covid.’’

The net loss of 7300 citizens in the year ending March 2022 – when borders were effectively closed – was the lowest net migration for a March year in a decade. The record net gain was 91,700 in the March 2020 year.

So is there the risk of a brain drain? Yes, Collins says, yet the risk is broader than just the highly educated. ‘‘Certainly, that’s a risk and that has been the anxiety in the past, when we’ve had high emigration – many more educated people, but perhaps also those in the prime of their working lives, really. ‘‘That’s the other dimension of it, people in their mid-20s, 30s and 40s tend to move. That’s obviously a key part of the working population.

‘‘If immigration reduces and emigration increases, labour skill shortages are going to become more and more significant,’’ Collins says.

One in four nurses are overseas trained, with the same proportion in hospitality. Construction, administration and support, agriculture, fishing and forestry are other industries with higher than average levels of foreign-born workers.

Simon Bridges has the same fears as Collins, and more. At 45, and on his first day out of Parliament after quitting as Tauranga MP the former National Party leader says he tries to look at the problems from the perspective of a 25-year-old.

He sees ‘‘a real and growing risk’’ of decline in the New Zealand economy.

‘‘More than there has been before,’’ he says.

Some of those just out of university or trade academy, or those who haven’t managed to do their OE, would be looking elsewhere, he said.

‘‘Australia . . . for any kind of occupation you can think of, there’s higher pay, a cheaper house – unless they’re in the CBDs of Sydney or Melbourne – and a lower cost of living,’’ Bridges says, adding that the same applies to the Northern Hemisphere.

New Zealand was more closed off and spent more public money per capita fighting Covid than any other country, bar the United States, he says.

He argues that it’s time for a ‘‘serious stocktake’’ of the country’s economy.

‘‘We’ve got significant long-run issues that have been exacerbated by Covid; educationally, technologically, economically, productively, and infrastructurally.

‘‘My worry is the incrementalism of the last 20 or so years isn’t going to cut it to keep young New Zealanders, but also new New Zealanders, and the skilled middleaged here.’’

Economist Anthony Byett, a former ASB Bank chief economist, says Covid gave us the chance for a breather, and a rethink about where New Zealand was headed, and where it wanted to go.

‘‘What we’re going through now, is really a reset in a lot of ways.

‘‘Hopefully, we start to take more seriously the (household) debt that’s accumulated over the last 20 years and the house price situation that goes with that.

‘‘It’s pushed the economy along and house prices along for the last couple of decades – in particular, in the last couple of years – but we need to wean ourselves off that drug, and get back to a situation where house prices and the volume of houses is more in line with the number of people and the incomes of people.’’

New Zealand had never fully recovered from the global financial crisis, Byett says. Tourism and the dairy industry had needed to readjust, prior to Covid landing.

‘‘The pandemic effects become, sort of, a trigger point or a catalyst, but it’s not the underlying issue.’’

The Ministry of Business, Innovation and Employment oversees the