web analytics

Don’t fear the reaper

Written By: - Date published: 12:05 pm, April 27th, 2009 - 20 comments
Categories: budget 2009, economy, national/act government - Tags:

The Government’s response to the recession so far has been to curl up in a ball and hope it will go away. Incredibly, while the economy is shrinking, the Government is destimulating it further by cutting public services.

The excuse they give is that if the Government doesn’t reduce its borrowing, the credit ratings agencies will downgrade our rating, meaning raising new debt will be (slightly) more expensive. That’s the wrong way to go we should be spending more, even if it means a temporary downgrade.

Sure, in an ideal situation we wouldn’t run a fiscal policy that put our credit rating at risk and we would be accumulating net financial assets, not running up more debt. But the situation is far from ideal. Least bad options have to be chosen and the least bad option is to borrow now to get the economy moving again rather than letting it shrink more.

Of course, if we’re going to borrow, we should only do so to spend wisely – not for frivolities like tax cuts. We should spend the money building better, more sustainable infrastructure – the spending will help us out of the recession and the infrastructure will help us grow faster.

The credit ratings agencies look at debt/GDP ratio, so if they see we’re not borrowing irresponsibly, that we have a plan to bring deficits down in the medium term and the debt we are taking on now will boost our GDP then they are unlikely to downgrade our credit rating. Likewise, if the Government presents no plan to grow the economy that could lead to a downgrade.

Even if they downgrade us, spending is still the best option. Other countries (like Ireland) have opted for a slight increase to the cost of borrowing because the other path, the one Bill English seems determined to take us down with his ideological opportunism, is a kind of death spiral – ‘oh no, the economy is shrinking, debt to GDP to is rising, must cut spending, oh no that’s destimulatory, the economy’s shrinking, must cut back more… save me Superman!’

Yeah, we would save a few tens of millions a year on interest payments from avoiding a temporary credit downgrade but the recession will be longer and deeper and the costs for New Zealand’s economy and society will be greater.

Ultimately, the credit downgrade is just a bogeyman. The real reason the Government is cutting public services is ideological.

20 comments on “Don’t fear the reaper ”

  1. lprent 1

    The one that I find totally ludicrous is that they are currently talking about cutting WINZ staff. It is hard to see a more fundamental denial than that – what do they think is happening to employment? That it is rising?

    • Chess Player 1.1

      Well, let’s think about it…

      When unemployment was falling, the number of staff at WINZ increased, so presumably now that unemployment is rising, the number of staff at WINZ should decrease.

      Or is it just that the number of staff at WINZ should always be increasing?

  2. BLiP 2

    Classic Tory strategy – eeeek, there’s a depression coming, quick get rid of social welfare and access to justice before the people realise they need it.

  3. rave 3

    Cutting public spending is not Tory ideology, its capitalists acting in their class interests when their system goes into crisis. The ideology kicks in when they try to get us to agree to pay for their bonuses out of our pockets in order to save “the system”. It is too big to fail, they say. TINA. Bullshit! But that alternative is not Keynesianism.

    Why should they stimulate consumption to restore profits when they can restore profits directly by massive global theft of workers future taxes and real wages eroded by inflation? Who needs job schemes for the poor when they can have job schemes for the rich called bailouts?

    I say the system is too sick to survive. I object to having my blood transfused into its rotten veins in the name of keeping Zombie capitalism and all of its bloodsucking banskers alive.

    The French workers are telling us something. Sarkozy is bailing like mad but the workers answer to closures and layoffs are occupations and bossnapping, not praying to the image of Keynes.

    As one ex PM said, “There could be a revolution” – version 2.0

    • BLiP 3.1

      I stand corrected. Thank you.

    • The Baron 3.2

      Wow, and what a revolution it will be. Kidnapping people because they were the boss sounds awfully similar to other revolutions… Cambodia anyone? Next stop, the killing fields… nice glasses.

      You know why there won’t be a revolution? Because everyone knows that the previous revolutions have been utter nightmares once they got started. Why would this one be any different to the “great” socialist experiments of the 20th century?

      • Ag 3.2.1

        So some French workers detaining their bosses is comparable to a mass forced evacuation of all urban areas, the slaughter of intellectuals, and making everyone live and work on farms?

        I can tell you one thing. A New Zealand revolution wouldn’t result in the slaughter of intellectuals, because the National Party doesn’t have any.

  4. vto 4

    It constantly amaxes me how so many people consider the state’s finances to be more important than an individual household’s finances. Evidenced by those who continually call for increasing taxes to improve the govts coffers when times are bad. At the expense of the taxpayer.

    To me it is the most arse-about philosophy about.

    • Ag 4.1

      It constantly amaxes me how so many people consider the state’s finances to be more important than an individual household’s finances.

      It amazes me how many people don’t. What are you smoking, seriously?

      • vto 4.1.1

        That is a clever argument you put forward Mrs Ag.

        What you advocate is like the King in his counting house at the top of the slowly deteriorating castle demanding bricks from the lower levels to keep his own bricks looking like new.


  5. The Baron 5

    This is all well and good Eddie, but a better fiscal strategy would be to do all that spending without taking on all that debt.

    Unfortunately, Cullen botched that option with the massive spend up that was Budget 08, and the decade of deficits that he left for the national government.

    Your cries of responsible government are hollow when you compare it to that act of outright economic sabotage, done by a man who was more interested in keeping the baubles of power than actually doing the right thing for the economy and the country.

    For shame Eddie. If anyone is to blame for this current mess, and for any resulting downgrade, its the guy who was at the helm for 9 years – not the guy who has only had it for 6 months!

    • r0b 5.1

      Unfortunately, Cullen botched that option with the massive spend up that was Budget 08, and the decade of deficits that he left for the national government.

      Uh huh. And yet according to Treasury, the IMF, and oh even National, Cullen and Labour left our economy well placed to face the current crisis.

      If anyone is to blame for this current mess, and for any resulting downgrade, its the guy who was at the helm for 9 years – not the guy who has only had it for 6 months!

      The guy at the helm for 9 years left us well placed. The guy there for 6 months went on holiday, ignored consensus and advice, and is now trying to ignore the problem. Key can’t be blamed for the crisis, he can be blamed for his totally inadequate, in fact non existent response.

      • BLiP 5.1.1

        Its more Farrar shit stirring that’s contributing to this example of ignorance amongst the punters. This time casting blame for National’s promise breaking in relation to the tax cuts . . . like they ever intended n handing them out.

      • ak 5.1.2

        Not quite non-existent r0b – the first sound-bite out of Biketrack Boy the other night was “the public’s not blaming National for this global problem”

        “It wasn’t me mum!” No Johnny, as you say, it’s all the fault of that big bad Uncle Sam. That’s right, the freedom-loving home and embodiment of your “less regulation” Tory ideology.

        Expect a lot more of this cowardly Pilatesque PR hand-washing as the worry lines deepen – backed up by the press of course (and I see their granny organ is now running pieces by Timmy Ellis and wait for it….Michele Cabiling! Regular standardistas will recognise these paragons of impartial analysis…)

    • sean 5.2

      yeah, Cullen should never have made the biggest element of new spending in his 2008 budget – the tax cuts. The governemnt’s finances would be in much better condition if we hadn’t had two reounds of tax cuts in six months.

      I’m still trying to see the part where Eddie blames English for the state of the Government’s finances. I think it’s the response that’s being criticised.

  6. Greg 7

    Ah, the old trap.

    Attack the person, not the argument.

    For the record ‘that bozo’ is widely recognised as one of the best economists in the world at this time. His textbooks practically make him the Samuelson of modern economics.

    And there’s also one or two other economists that agree with him.

  7. Nick C 8

    “Of course, if we’re going to borrow, we should only do so to spend wisely – not for frivolities like tax cuts.”

    This pretty much sums you guys up for me. Why on earth would we let people keep more of their own money and spend it on what they want when we can spend it on what politicans think people want? I cant imagine.

Links to post

Recent Comments

Recent Posts

  • Fast-tracked Northland water project will accelerate economic recovery
    The Government has welcomed the decision to approve a new water storage reservoir in Northland, the first of a number of infrastructure projects earmarked for a speedy consenting process that aims to accelerate New Zealand’s economic recovery from Covid-19.  The Matawii Water Storage Reservoir will provide drinking water for Kaikohe, ...
    BeehiveBy beehive.govt.nz
    1 day ago
  • Tokelau Language Week reminds us to stay united and strong
    Staying strong in the face of challenges and being true to our heritage and languages are key to preserving our cultural identity and wellbeing, is the focus of the 2020 Tokelau Language Week. Minister for Pacific Peoples, Aupito William Sio, says this year’s theme, ‘Apoapo tau foe, i nā tāfea ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • NZ announces a third P-3 deployment in support of UN sanctions
    The Government has deployed a Royal New Zealand Air Force P-3K2 Orion (P-3) maritime patrol aircraft to support the implementation of United Nations Security Council (UNSC) resolutions imposing sanctions against North Korea, announced Minister of Foreign Affairs Winston Peters and Minister of Defence Ron Mark. “New Zealand has long supported ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Pacific trade and development agreement a reality
    Pacific regional trade and development agreement PACER Plus will enter into force in 60 days now that the required eight countries have ratified it. Trade and Export Growth Minister David Parker welcomed the announcement that the Cook Islands is the eighth nation to ratify this landmark agreement. “The agreement represents ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Securing a pipeline of teachers
    The Government is changing its approach to teacher recruitment as COVID-19 travel restrictions continue, by boosting a range of initiatives to get more Kiwis into teaching. “When we came into Government, we were faced with a teacher supply crisis,” Education Minister Chris Hipkins said. “Over the past three years, we ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Border exceptions for a small number of international students with visas
    The Government has established a new category that will allow 250 international PhD and postgraduate students to enter New Zealand and continue their studies, in the latest set of border exceptions. “The health, safety and wellbeing of people in New Zealand remains the Government’s top priority. Tight border restrictions remain ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • First COVID-19 vaccine purchase agreement signed
    The Government has signed an agreement to purchase 1.5 million COVID-19 vaccines – enough for 750,000 people – from Pfizer and BioNTech, subject to the vaccine successfully completing all clinical trials and passing regulatory approvals in New Zealand, say Research, Science and Innovation Minister Megan Woods and Health Minister Chris Hipkins. ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • International statement – End-to-end encryption and public safety
    We, the undersigned, support strong encryption, which plays a crucial role in protecting personal data, privacy, intellectual property, trade secrets and cyber security.  It also serves a vital purpose in repressive states to protect journalists, human rights defenders and other vulnerable people, as stated in the 2017 resolution of the ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Ministry of Defence Biodefence Assessment released
    The Ministry of Defence has today released a Defence Assessment examining Defence’s role across the spectrum of biological hazards and threats facing New Zealand. Biodefence: Preparing for a New Era of Biological Hazards and Threats looks at how the NZDF supports other agencies’ biodefence activities, and considers the context of ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • New Approaches to Economic Challenges: Confronting Planetary Emergencies: OECD 9 October 2020
    New Approaches to Economic Challenges: Confronting Planetary Emergencies: OECD 9 October 2020 Hon David Parker’s response following Thomas Piketty and Esther Duflo. Good morning, good afternoon, and good evening, wherever in the world you might be. I first acknowledge the excellent thought provoking speeches of Thomas Piketty and Esther ...
    BeehiveBy beehive.govt.nz
    3 weeks ago
  • Kaipara Moana restoration takes next step
    A Memorandum of Understanding has been signed today at Waihāua Marae between the Crown, local iwi and councils to protect, restore and enhance the mauri of Kaipara Moana in Northland. Environment Minister David Parker signed the document on behalf of the Crown along with representatives from Ngā Maunga Whakahī, Ngāti ...
    BeehiveBy beehive.govt.nz
    3 weeks ago