Prime Minister Christopher Luxon’s State of the Nation speech yesterday presents a clear shift towards economic growth. While familiar aspirational rhetoric featured prominently, his initiatives deserve support. However, the absence of fiscal discipline raises concerns. 

The speech’s centrepiece announcements make sense. A dedicated investment promotion agency could help attract foreign capital, following the model of Ireland’s highly successful Industrial Development Authority (IDA). This reform is crucial. New Zealand currently ranks as the most restrictive OECD country for foreign direct investment. 

The New Zealand Initiative has long advocated for such reforms, having studied Ireland’s approach first-hand. Reform of science funding and intellectual property rules might boost innovation and commercialisation. The proposed changes to intellectual property settings at universities could help turn research into commercial success. 

The Prime Minister’s examples of regulatory barriers highlighted real problems. Plans to expand the Port of Tauranga, vital for New Zealand’s export industries, have been delayed for years by complex planning requirements. Removing such obstacles could unlock private sector growth. 

Yet all these pro-growth policies rest on shaky fiscal foundations. The government’s recent claims about having got spending under control sound hollow.  

Government expenditure remains well above pre-pandemic levels highs. The structural deficit stands at 2.7 percent of GDP. Treasury forecasts show no return to surplus this decade.  

This fundamental mismatch between spending and revenue requires urgent attention. Running persistent deficits means more government debt, higher financing costs and fewer resources for productive investment. 

The Prime Minister’s vision for a more competitive economy needs a credible plan to address these fiscal challenges. Without one, any growth initiatives risk being undermined by continuing fiscal imbalances. 

Luxon’s speech rightly identifies regulatory reform as being crucial for growth. Replacing the Resource Management Act and streamlining health and safety rules could boost productivity. These reforms cost little yet deliver substantial economic benefits. 

Real economic growth requires increased business investment, enhanced productivity and improved infrastructure. Less marketing rhetoric and more such practical initiatives would strengthen the government’s growth agenda. 

The Prime Minister’s plan to reshape Crown Research Institutes into four public research organisations focused on commercialisation shows promise. However, restructuring government agencies requires careful planning and robust governance to deliver real benefits. 

Sustainable growth needs strong foundations. Until the government seriously addresses its structural deficit, New Zealand’s growth potential will remain constrained. The next step must be a credible plan for fiscal consolidation that brings spending back to sustainable levels.