When times are easy, it is possible to have lots of fat and get away with it

and remind us how much fat English’s special taskforce found? Good lord, John Key’s already blown the previous record hip-hop tour budget.

If we are not careful we could end up like Greece

well if Brash’d had his way (2005, or of course now…) we might well have ended up like Ireland and Iceland, the darlings of the right only a couple of years ago… Wasn’t Brashes plan to cut taxes and borrow while the things are good? Wasn’t Key’s line that he’d be pretty much like Brash just with a different tone. Then wasn’t it pretty much like Labour, but with a different tone…

My perspective is that the reason for government should be to provide services that are not economical or possible to provide on an individual basis (e.g. hospitals, roads etc), maintain law and order, and foster international relations. Other than that, I don’t really see much further use or point of government.

Given that perspective, its probably not surprising that we tend to disagree.

Secondly, govts aren’t established in order to be profitable, it’s not their reason for being. A fairly good precis of what they are for can be found in the US Declaration of Independence. I don’t think profitability even makes sense when talking about a govt. that’s why I think the analogy to a company fails most obviously, but I can accept that we may have to agree to differ.

Thirdly, govts simply don’t face the same market pressures as companies do. Their creditors are a lot more forgiving for one thing as they know that govts can tax etc. There is no indication that our creditors are worried. The threatened downgrade didn’t eventuate, and the guy I heard after the budget from the sole credit rating co that was concerned, said his fears were allayed when the tax cuts were cancelled, (nothing to do with the cullen fund holiday).

Which is what the current government is trying to do without impacting on benefits etc. Hence, the only way left to bring expenditure under control is to look to reduce the size of government.

I agree that the previous government managed to repay debt. But they could have done a lot more given the boom time they functioned in. When times are easy, it is possible to have lots of fat and get away with it. However, obviously, the level of previous expenditure is unsustainable given the new environment.

What will result is similar to what has happened with many companies. They are forced to cut deep, and eliminate any waste or low priority expenditure. When growth resumes, companies that have taken these hard steps find themselves much more profitable. It will be the same with the current government if they prune expenditure sufficiently.

Sure NZ has a low debt level at the moment. However, I can tell you, that from my business experience, the fixed costs will kill you very quickly if the income isn’t sufficient to cover them. It will be the same for NZ if we continue to run huge deficits.

Take a look at Greece, as I mentioned earlier.

You could even throw in Kiwisaver contributions as well, which in particular would make the current numbers a bit better. That’s a bit dicey though, because while the cullen fund has a track record of out-performing, kiwisaver performance has been a lot spottier, so the government might not be getting good value for money from that ‘spend’. It starts to become a slippery slope though – are you also going to start discounting health and education spending because they have net positives in the future from a healthier/more educated workforce, etc.

But they didn’t set their ‘cost structure’ for the best economic environment in decades. At least not in the way that you imply. They paid back lots of debt for one thing. That was setting their cost structure for the best economic environment in decades. Obviously when the economic environement changes, they, ta da, change their ‘cost structure.

There isn’t some optimum setting that will best suit conditions for any given economic climate. When the economy nose dives, private sector demand dries up, if it’s a global crisis, demand from exports dry up. That only leaves the govt. If they dry up, it’s spirals downward a go go. The task of govt during the good times is to make sure they are in a position to take up that slack. Which is nothing like a private business at all.

If during the good times, a govt treated surpluses as ‘overtaxation’ and cut taxes blithely assuming that debt can be carried at similar levels to what a private sector company might find prudent, as some (cough brash cough) would have had us do, that’s when you get in the poo.

You have pointed out a very good parallel between government and business, Marty. A company that sets its cost structure for optimal business conditions is likely to suffer or fail if business conditions deteriorate. In a similar way, a government that sets its cost structure for the best economic environment in decades, as the last government had, is likewise going to run into major problems when those conditions suddenly change.

The current government is simply trying to adjust expenditure to match the new environment. IMO they could be going a lot further.

If we are not careful we could end up like Greece:

http://www.ft.com/cms/s/0/8de7393a-e399-11de-9f4f-00144feab49a.html

It’s 30% of the economy, ts, and tha’ts just the core Crown not including local government and SOEs. That means it has macroeconomic effects on a scale no company can come near.

of course spending goes up with GDP. You want more spending on roads and transport don’t you? You don’t think healthcare is as good as it could possibly be do you? How about education? Crime? People want to government to do more – as the capacity of the economy increases, so does government spending.

But you will notice that when growth was at its strongest, govt spending/GDP was falling, because govt spending was growing as fast. That’s good fiscal policy – don’t pour fuel on a hot economy, but spend when the economy is in to doldrums, like now.

Sorry, Red, but in many ways the Government does have many parallels to a company.

The argument being made, as I understand it, is that as GDP goes up, government spending will increase as well. Thus, the argument being made here is that Labour’s spending figures are being misrepresented.

However, it seems to me that Government expenditure should decrease in percentage terms, and perhaps even in nominal terms, when GDP increases. This is because, as GDP increases, it is reasonable to assume that resources are being used more efficiently. Thus, unemployment will probably be lower, and people will need less state support.

Thus, on this basis, there seems to be little basis to argue that increasing GDP is an excuse for increased government expenditure.

Seems accurate to me – could you show where it’s wrong?

I don’t recall commenting on Mr English’s truthfulness, just gitmo’s grip on the day.

Or are you stuck in some sort of loop where you can’t stop typing the same thing over and over until someone gives you some attention?