With the news that Treasury are already disavowing their forecasts a whole 2 weeks after the Budget, you might wonder where some better economic advice might be found. One that doesn’t predict that any National budget will create 170,000 jobs (and then have to change its mind).
The CTU’s Economic Bulletin shows some clear thinking. Here’s its Summary:
The 2011 Budget was a victory of story-line over needs. The story was that the New Zealand
government has a debt problem. When confronted with the fact that government debt is not a
problem by world standards – one of the lowest in the OECD – the government acknowledges
that the real problem is private overseas debt. But it says rating ratings agencies “increasingly
lump private and public debt together when looking at sovereign ratings”. Maybe so, but that
is a long term issue. Does it mean that the government should cut spending sharply when we
have not yet got out of recessionary conditions? The question is not “should we reduce debt?”
but “how soon?” and “which debt – government or private?”
It is much too soon. As we said in our pre-Budget commentary, the biggest immediate danger
to New Zealand as a whole is the ongoing recession – an economy with only fragile signs of
recovery and continuing high unemployment. The government still has a vital responsibility to
ensure through economic stimulus that the economy doesn’t go downhill again and to bring
down unemployment. The cuts the government has made to spending mean that the stimulus
has suddenly been withdrawn, which risks continuing high unemployment and even return to
recession. Meanwhile, overseas investors are queuing to lend to the government. When
weighing up the risks between a high likelihood of continuing high unemployment compared
to a low probability of trouble with creditors, the answer seems clear.
The Budget has no plan to put right New Zealand’s social and economic imbalances, and does
little to start cutting back the overseas private debt. It seems to be relying heavily on
reconstructing Christchurch, catching up with backlogs in investment built up during the
recession, and leaky building repairs to get the economy moving. The Budget of a thousand
cuts put debt and deficits ahead of people’s needs and a plan for the future.
It’s interesting that the Government – with their concern about debt – has put in a budget that even in the rosy Treasury forecasts saw net (public + private) debt start rising again in a few years’ time. If it’s debt they’re worried about and trying to alarm everyone about – why aren’t they putting in savings policies that will do something about it?
The whole CTU report is interesting, showing unnecessary concern about government debt, National’s lack of economic plan, growing inequality, and dangers of possible high unemployment or even double-dip recession.
It comes out monthly and if you want to know the economic state of the nation, it’s worth a read.