Luxon vs Milei: Contrasting economic reforms in NZ and Argentina

NZ Herald

3 days ago

Argentina's situation was dire. When Milei took office, inflation was running above 200%. The economy was in recession, foreign reserves were nearly exhausted and the country was once again dependent on an IMF bailout – its ninth default.
New Zealand's inflation stood at 4.7%. The economy had contracted, debt was rising and Treasury projected years of deficits.
Neither leader holds a parliamentary majority. Luxon heads a three-party coalition. Milei's Libertarian party has no majority in Congress. Both face resistance from entrenched bureaucracies, militant unions, the political class and a mostly hostile media.
Once, New Zealand and Argentina shared similar roles – pastoral producers for Britain – and both were among the world's wealthiest nations after World War II. Since then, New Zealand has declined slowly. Argentina fell off a cliff.
Luxon favours incremental change through '90-day action plans'. Milei has pursued radical reform that makes Roger Douglas look like a moderate.
Despite National's rhetoric, government spending and borrowing are still increasing. In contrast, Argentina has balanced its primary budget before interest payment.
New Zealand has 81 portfolios, 28 ministers and 43 core public organisations. Nicola Willis has ruled out abolishing any ministries, saying it would be 'too expensive'. Instead, two new ministries have been created.
Milei has abolished 10 – including the ministries for Women, Youth and Culture – reducing Argentina to just eight ministries for 45 million people.
Argentina has lifted many foreign investment restrictions. We are still debating the OECD's most restrictive regime.
We've set up a Ministry for Regulation that cut red tape for barbers. Meanwhile, the modest Regulatory Standards Bill – limited to publishing non-binding reports – faces hysterical opposition.
In his first 100 days, Milei unleashed sweeping deregulation.
While our Reserve Bank Governor is on a short-term contract, Milei has declared central bank independence and announced plans to abolish it altogether in favour of the US dollar.
There are now 16,000 more civil servants than when National last held office. Image / Jacques Steenkamp, BusinessDesk
In New Zealand, there are more than 16,000 more civil servants than when National last held office.
In Argentina, the public sector has shed approximately 48,000 staff. Employment is increasing, with 245,000 jobs created in the informal economy, albeit with lesser conditions.
Our GDP growth is 0.3%. The IMF expects Argentina's economy to grow 7% this year – a rate New Zealand has never achieved.
Our inflation is 2.1%, though food prices have risen 4.6% in the past year. In Argentina, annual inflation has dropped to around 118%, and monthly inflation has fallen from 25% to 2.4%.
We run structural deficits. Argentina has a small primary fiscal surplus. Our debt-to-GDP ratio is rising. Argentina's is falling.
In New Zealand, the Ministry of Housing reports homelessness is increasing.
In Argentina, Milei has not denied the social cost has been high: rising poverty, wage erosion, pensioner protests. Milei says that curing a century of economic mismanagement requires short-term pain for long-term gain. It appears he is correct. Extreme poverty has dropped from 18% to around 8%.
Our Treasury projects unbroken deficits – an unsustainable path. The OECD says that if Argentina stays its course, it will achieve sustained growth above the Latin American average.
Politically, both leaders face protests. In New Zealand, the latest Taxpayers' Union–Curia poll has Luxon statistically tied with Hipkins at 19.7%. Sir John Key warns National faces a difficult re-election.
In Argentina, Milei is a polarising figure. No New Zealand politician has his approval rating, between 47% and 54% the highest of any politician. His party is forecast to gain seats in next year's midterms.
Commentators credit Milei's popularity to courage and clarity. He's a trained economist and a believer in markets. At Davos, Milei said: 'The state is not the solution; it is the problem … Don't be afraid of freedom. Trust in the superior morality of free markets.'
We have no idea what Luxon believes. Nicola Willis has said she's no Ruth Richardson, preferring Bill English as her model.
But English followed Michael Cullen, who delivered nine straight surpluses and created KiwiSaver and the Super Fund.
English enacted no major reform. He failed to lift productivity or tackle our structural problems. Tinkering won't fix the problems this Government inherited.
What Luxon and Willis have yet to grasp is that small change that solves nothing only prolongs controversy. High-quality reform ends the debate.
Milei is popular not just because his reforms are needed but for his stand against corruption and the political class.
Twenty years ago, I spoke in Buenos Aires about New Zealand's reforms. The Argentinians were incredulous. They said such reforms would never work in Argentina.
To those who now say Argentina's reforms would never work here, I say the same thing: 'Yes, they can.'