The economy, shall we say politely, is facing some difficulties. The global financial crisis (combined with a drought) sent us into recession; but we had zero net crown debt, so the government was ready for lean times, like the squirrel with nuts stored for winter.
With a National government there was no plan as to how to weather the economic storm. Those nuts that were squirrelled away were spent on a tax cut for the already wealthy; John Key broke his promise not to raise GST to balance out tax cuts for the rest.
What would have been better would have been a stimulus. The cycleway is not so much the wrong idea as (by only employing a couple of hundred people) just far too small. Government spending should be counter-cyclical – spend when times are bad and save when times are good – to balance out the rest of the economy. The government is not a business, but instead sets the macroeconomic tone.
There was plenty that could have been spent on. There was a housing shortage before the Christchurch earthquake, with 15,000 state homes needed. There is a massive chance to invest in Public Transport in Auckland and elsewhere. Hospitals need upgrading. Plenty to get the economy going again and to have allowed us to recover ‘aggressively’.
Jobs are created directly, but also indirectly – all those new railway and hospital builders have a bit more cash and will spend it, and those businesses that benefit will do so in turn – the wheels of the economy wind back into life.
If you were determined to do your stimulus by tax cut, you would give money to the poor, who’ll spend it – perhaps by creating a tax-free zone at the bottom of the income tax scale. You don’t give the extra money to the rich, who’ll inevitably save it, completely failing to stimulate the economy. No jobs will be created.
You should take the opportunity to invest in skills, so when the recovery comes we’re ready to take advantage. You don’t cut apprenticeships and tertiary training, pushing more onto the dole. As it is we have building firms going to the wall, with virtually no apprenticeships and skilled tradesmen heading to Australia at precisely the time we need to be gearing up to fix an acute housing shortage.
This is also not the time to attack the public service. You cut the fat in the good times, when the private sector will pick up the spare workers. As it is there is very little fat (as global ratings agencies agree), so Bill English intends to cut muscle. There was a promise to ‘cap not cut’ the civil service – with 2000 jobs gone already and more on the way this is yet another promise that has been shredded (along with the one not to restructure the civil service – as National merge all the departments they split in the 90s).
Cutting the public service at this point not only adds to very long dole queues but deflates the economy further, as seen now in the UK (0.5% GDP drop in the last quarter) and in the 90s here after the Asian crisis. Those added to the dole queue don’t have the cash to spend to keep the private sector going through harsh times.
And so with all this growth has halted. The small amount of stimulus Labour put in before the 2008 election has done its dash at the end of 2009 and in 2010 we saw below population-rate economic growth – a decline per capita. Wages rose 1.9%, but the high inflation was more than double that, so on average we all got poorer.
And National still don’t have a plan.
Their only thought in 2008 was ‘tax cuts’, a mantra they’d been repeating for 9 years and now had to implement, appropriate or not. In 2011 they’re left with ‘asset sales’, an idea that failed in the 90s and will fail again now.
New Zealand has one of the largest disparities between Gross National Income and Gross Domestic Product in the OECD, at around 7%. The difference? Money that heads straight overseas to foreign owners and lenders.
What will asset sales do? Just expand that difference. Whilst John Key wants to sell to ‘Mum & Dad’ investors, Contact shows how quickly those shares will head overseas. And with it, ever more of our economic sovereignty, our real wealth, our ability to control what happens here. It will not benefit New Zealand in the long term, just give the government a short sugar rush of cash, before moving more of our economy offshore. Once again National go in for short-termism and quick profit at the expense of the economy like all those pre-GFC bankers.
A real plan for the economy would involve investment in skills and education, to foster the next generation of inventors, scientists, entrepreneurs. It would involve looking at what we can do to help those in the productive and exporting parts of the economy, those in the inventive or hi-tech areas – ie those who actually create wealth for this country. You wouldn’t cater to the (Australian) banks and the speculators, but rather weigh fiscal and monetary policy in favour of the producers. You look at encouraging savings (KiwiSaver, New Zealand Super Fund and more) and using those savings to invest in New Zealand innovation, not housing that just leaves us all more beholden to those overseas banks.
Of course after National left the cupboard bare with their tax cuts and then we had the earthquake, any future government does face hard choices. The government books aren’t dire, but there’s not cash-to-flash either. So plans can’t be for the big stimulus that would have been great, but rather just have to look at re-structuring our economy as outlined above. There are a number of other things too – not least reducing our dependence on oil, and the general greening of our economy to make sure we can survive the future – but that might have to wait for another post…
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