The Country 19/08/25: Cameron Bagrie talks to Jamie Mackay

Independent economist looks beyond tomorrow’s OCR announcement to comment on where neutral is for the Reserve Bank. Plus, is the economy officially suffering from Long Covid where strong economic growth alone won’t be enough to get the Govt’s finances back on track? So is the solution more spending cuts or increased taxes?

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Episode Transcript

Speaker 1 (00:00):
He's an independent economist. Today we find him in the
beautiful township village. Well it's actually bigger than that of
Cambridge in the white gatto Cameron Bagri. Now tomorrow the
Reserve Bank will make its official OCR announcement. We know
we're going to get a twenty five basis point cut.
I guess the big question is beyond that Cameron is
neutral two seven five or two fifty.

Speaker 2 (00:23):
Well neutral, which is where there is zoop. Banks neither
got the foot on the accelerate for the break. It's
generally thought to be around three. So what we're seeing
so far as the Reserve Bank has taken the foot
off the break, the assumption that we get at out
of twenty five basis points are yet to ready push
on the accelerator. And I guess there's a bit of
a debate going on out there at the moment because

(00:45):
there's two big picture issues. Book one, the e kindomy
is still obviously spluttering spluttering. Quintament suggests you've got to
push on the gas. You push on accelerator, take that
efficient cash right below three. And that's what the market
is thinking at the moment here, Jamie, because the Reserve
Inc's gotten inflation number, and inflation headline at least is

(01:08):
starting to head back up. They won't get too caught
up and rising headline inflation, but we're going to keep
an eye on those core measures. Core inflation is still
coming down, why because films don't have too much pricing power,
because the economy is pretty weak. But full store, I
think you have a bit of crack and just a
reminder that headline inflation is moving up to the store

(01:28):
a little bit to keep an eye on.

Speaker 1 (01:30):
There's a really good column in the Herald today. I
don't know whether they've read it by Jan somebody and apologies, Jan,
I've forgotten your second name. But she's saying she's a
business correspondent. She's saying we're officially suffering from not just
a COVID hangover, but we're suffering from long COVID even
though Grant Robinson's obviously and denial there. And she's saying

(01:52):
strong economic growth alone won't be enough to get the
government's finances back on tracks. So she's basically saying, I
either need more spending cuts or higher taxes or a
broader tax space. What do you say, Yeah.

Speaker 2 (02:07):
So, if you look at the numbers. The government debt
net debt has gone from about twenty percent of GDP
the normal range now looks like it's going to be
up around forty to fifty percent of GDP. Now those
are not exactly bad numbers compared to international peers, but
you've got to remember that and New Zealand's a little
bit shaky. Natural disasters now we tend to see on

(02:30):
every sort of ten years, and you want to make
sure you got a little bit of cash in the
bank for the ploy. I use your balance to navigate
those tough times, is what we did with COVID, which
is what we did with the christ sort of quake.
So at this juncture, it's a strong argument for trying
to put a little bit more money back in the
thin I pay debt down. But the government at the

(02:51):
moment is obviously running some pretty big deficits. The projection
say we're going to go from deficit to surplus. I'm
not that camp. I think unless we see some pretty
big structural changes along the lines of ie containing the
element of expenditure, or get more tax coming in the door,

(03:12):
and then we're going to have a few physical challenges
going forward. Because I remember Jamie. We have yet to
really see the physical impact of an aging population within
the fiscal numbers, and Treasure is going to release a
piece of work in about three to four months where
they every four years they model draw attention to the
fiscal impact of an aging population. There's those number of

(03:32):
retirees A sixty five plus goes from nine hundred thousand
to two point two million. That puts a fair bit
of pressure on New Zealand superannuation. That puts a fair
bit of pressure on health care spending going forward, We're
going to a fair bit of work to do to
try to balance the box.

Speaker 1 (03:47):
Well, surely that would be the first place you would
look if you were looking at spending cuts. The cost
of super Rose and I'm quoting her here rose thirty
nine percent from twenty twenty to twenty twenty four. It'll
a rise another twenty eight percent by twenty twenty eight.
But here's the worrying stat or one of them, Cameron Bagriy.

(04:08):
In thirty five years time, twenty five percent of our
population will be over the age of sixty five. We're
currently sitting at sixteen percent. We are just lumbering the
next generation with unaffordable debt.

Speaker 2 (04:24):
We face some choices. And you know, if you look
at the combination of health and superannuation, expenditure is projected
to go from about eleven percent of GDP to about
twenty in the next thirty to forty years. Now, Now
that is a huge burden or cost on future taxpayers. Yeah,

(04:46):
so once again we've got to make some choices here,
and unfortunately, superannuation there's one of those things that no
one wants to make a hard choice on, but we
are going to need to make a hard choice on.
And it's not just because of the cost. With the relativities.
We now spend more on New Zealand's super inulation than
the operation we spend across the entire education sector. So

(05:06):
we're spending more on the gray horse, and we're spending
more than what we spend on the future workforce. And
I look at those sort of stats and that just
doesn't make any sense. And that's stepping aside from the obvious,
which is as the population ages, and it is agent
the population AH eighty five pass is projected to go
from one hundred thousand to about five hundred and fifty thousand,

(05:27):
So it's not the crippling up by factor of five,
so that impacts healthcare. And we need to find a
solution here and it's going to be across. It needs
to be bipartisans so we get agreement consistency going forward.

Speaker 1 (05:41):
And there's one big stumbling blocker's name is Winston peters Hey.
Cameron Bagrie, thanks as always for your time on the country.

Speaker 2 (05:47):
Enjoy your day in Cambridge, Great Rowan paratry Jami