March 7, 2008 2:11pm by David Farrar

2% growth

The Dom Post reports that there it is forecast that there will be 2% annual growth over the next three years. This is labelled as good news. It isn’t.

To start closing the gap with Australia we really need to put in place policies which will get a 4% average growth rate. A 2% growth rate will see fall further in relative terms.

People don’t get very excited about 2% vs 4% so what does that mean in real dollars.

GDP as at September 2007 was $171 billion. At 2% growth it would be $181 billion in three years. If 2% growth continued for say nine years (three terms) then GDP would hit $204 billion.

And what if one managed 4% growth. Well in three years GDP would hit $192 billion. And in nine years it would be $243 billion.

So NZ would be $10.9 billion better off in three years if it could get 4% growth instead of 2%. And over nine years it would be $39 billion wealthier if it could make 4% instead of 2%.

And what does that mean for the average family? Well while GDP growth doesn’t automatically translate into cash in the hand, the extra national wealth per household (just under 1.5 million in the last census) would be $7,300 after three years and $26,000 after nine years.

Now even if one says hey we can never make and maintain 4%, even the gap between our usual 3% and 2% is significant. An average $3,600 per household after three years and $12,500 after nine years.

So the only person who should be saying