At the New Zealand Economic Forum, we found ourselves included in a government announcement about Investment Boost. It was a bit surreal to see our business used as an example of national economic policy in action.
I actually wrote most of this last month, and then the world changed when America hit Iran and suddenly we were talking about fuel shortages and supply chains again. But on reflection, I think there are parallels in how we think about policy and government spending.
Not all government spending is the same. Some policies help people spend more today. Others help businesses invest so the country earns more tomorrow.
Cash handouts make people feel better this year. Investment policy aims to make structural changes that last decades.
I actually think the government is in a very difficult position. The easy thing to do would be to cut fuel taxes, hand out payments and make everyone feel better quickly. That might even help win an election.
But it would also keep inflation higher for longer, and make living more expensive.
Thinking back to 2019, the Provincial Growth Fund grants were in full swing. It was a bit of a lolly scramble, and we were lucky enough to receive a $500,000 grant.
A big requirement of those grants was to demonstrate how many new jobs would be created, as the biggest concern at the time was rising unemployment.
So we did what the incentives encouraged us to do. We grew, we hired, we expanded. Incentives matter. People and businesses respond to the rules in front of them.
A year later Covid hit, and by then we had a lot more staff and a lot more overhead. Thanks to the wage subsidies and government-backed working capital loans we managed to hold on to everyone through the lockdown period, and at the time those subsidies were absolutely necessary. Without them many businesses would have gone under.
But here’s the kicker. In hindsight I now understand the "temporary" narrative when it comes to government support. We carried too much cost for too long, and when the market eventually found its feet again, they were much smaller feet than in 2019.
In many ways it created a false economy: businesses could operate as if the world was going to go back to normal. They held on, waited, carried more staff and more overhead, thinking things would bounce back. But the reality is, the rules changed.
We weren’t waiting for a recovery. We were waiting for a past that wasn’t coming back.
That period nearly undid us. And I suspect it’s what has undone many businesses recently.
It hasn’t just been one bad month or one bad decision, it’s that it’s been too hard for too long, and many businesses are still carrying debt they took on just to survive Covid.
Ironically, pumping debt cash into a business to help it survive is sometimes what undoes it later. It keeps things alive, but it doesn’t necessarily make them better or more productive.
That’s not sustainable for a business, and it’s not sustainable for an economy.
So in hindsight, what the wage subsidies and working capital loans really did was take the cost off the government’s books and put it on to business balance sheets. Who carried the debt, interest, and risk for the following years.
What ultimately matters for a country isn’t just employment numbers, it’s productivity. We actually have fewer staff now than we did in 2020, and yet the business is about 25% larger. That didn’t happen because we worked harder. It happened because we invested in better equipment, better systems, and became more productive.
Which brings me back to policy.
Policy is often quiet and structural rather than loud and exciting. Investment Boost is a good example. Accelerated depreciation sounds incredibly boring, but it changes behaviour. It helps businesses invest in equipment and technology that improves productivity over time.
A serious piece of manufacturing technology takes time. There’s commissioning, software integration, training and bedding it into the wider operation. It can take a year or more to reach full productivity, so cash flow timing matters.
Investment Boost isn’t the only lever we’ve used either. Over the past few years we’ve stacked levers using export support, R&D incentives, private investment and bank funding that understands manufacturing doesn’t turn on overnight.
There isn’t one silver bullet. It’s a bunch of small levers working together.
That’s what good policy looks like to me. Not a lolly scramble, but a framework that gives businesses the confidence to invest, grow and employ people over the long-term.
We’re heading into an election year, and I’ll be honest, wholesale policy resets every three years are exhausting, for everyone.
I’m absolutely not suggesting any one party should stay in power forever, but I do think we need to start asking whether there are areas that are simply too important to keep changing direction on every election cycle.
Things like healthcare, education, infrastructure, productivity and economic development should be long-term national strategies, not political footballs.
Maybe the real challenge for our two major parties is not how different they can be, but what they can agree on.
What would New Zealand look like if economic strategy was a 20-year project instead of a three-year tug of war?
• Sarah Ramsay is chief executive of United Machinists.
