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Muddling through makes problems worse

Written By: - Date published: 10:40 am, October 12th, 2011 - 8 comments
Categories: business, debt / deficit, Economy - Tags:

We’re witnessing, once again, the results of a government whose disaster management is focused on keeping blame off itself, rather than acting. It bears remarkable resemblance to their approach to economic management. National didn’t cause the natural and economic disasters it faces but its handling of them has inevitably made them worse.

Take South Canterbury Finance. The Auditor-General has reviewed Treasury’s handling of the company within the retail deposit guarantee scheme and found there were a number of instances when the government could have acted to minimise the cost to the taxpayer. (now well over a billion dollars , despite National’s promise it would be a few hundred million).

National’s response to this has been to blame Labour for instituting the scheme. In a rather bizarre display last week, Key responded to every question about his government’s handling of SCF by citing an article written by John Armstrong ab0ut how clever Labour had been in rushing through the retail deposit scheme before the last election. He missed (or refused to acknowledge) the point that, for all the schemes faults, it did give the government the power to act to minimise the taxpayer’s risk and stop people taking advantage of the guarantee. (it’s worth noting that this incidence along with the throat-slitting, the S&P lies, and the 5 day no-show in Tauranga are part of a wider context of Key losing the plot politically since the downgrade)

The AMI bailout is tracing a remarkably similar path to SCF. This is a government that doesn’t learn its lessons. As with SCF, AMI has breached its bailout agreement. That gives the Crown the right to suspend the agreement or to take over AMI. Instead, it has done nothing. Inevitably, that will mean higher costs when the thing does go under.

Finally, there’s the deficit of $18.4 billion announced yesterday, as government net debt surged through $40 billion (up from $2 billion when National took office). Yes, about half of the deficit is due to the earthquakes. But what about the other half?

Most of it’s due to economic underperformance and the cost of additional debt (the government now spends $1.5 billion a year more on benefits and $1 billion more a year on interest costs than when National came to power). And National, of course, will argue that isn’t their fault.

The problems keep piling up, and this government is running out of other people to point the finger at.

But some of it is undeniably their fault. The tax cuts that National passed last year cost $2.7 billion in the last financial year. Now, these were meant to be ‘fiscally neutral’ thanks to an offsetting increase in GST. But additional revenue from the GST hike was only $1.6 billion. The $1.1 billion short fall had to be borrowed.

The government is undeniably borrowing for tax cuts which flow overwhelmingly to the most well-off (and Bill English is now trying to quietly drop his ‘fiscally neutral’ promise).

8 comments on “Muddling through makes problems worse ”

  1. Lanthanide 1

    ” (and Bill English is now trying to quietly drop his ‘fiscally neutral’ promise).”

    He repeated it this morning on Morning Report, saying it would be fiscally neutral after the 4 full years.

    • Draco T Bastard 1.1

      Which it won’t be. Tax cuts for the rich (which this was) are never ‘fiscally neutral’ even after time. The cut will never produce enough growth to cover the income lost even if it produced growth which it never does.

  2. Draco T Bastard 2

    As at 11:10 this morning there was, effectively, no confidence in the economy (Stuff online poll).

  3. marsman 3

    Andrea Vance thinks ‘Steven Joyce is a safe pair of hands in charge of the Rena oil spill’. Would they be the pair he was sitting on while the Rena oil disaster unfolded?

  4. Beardedgit 4

    Only $9 billion of the $38 billion public debt increase under National is due to the earthquake, not half. And they have increased the deficit this quickly without contributing to the Cullen fund. Supposedly they are better at running the economy than Labour. Laughable.

    Goff/Cunliffe/Parker would be a solid team on the economy if given the chance-all very smart.

    • Afewknowthetruth 4.1

      ‘Goff/Cunliffe/Parker would be a solid team ‘

      You are being facetious, aren’t you?

      Parker was the ‘idiot’ Labour Minister of Energy who ignored all the warnings about Peak Oil when there was still time to do something about it. Now that we are falling off the cliff he is still in denial.

      The last thing NZ needs as we face economic and environmental collapse is an idiot like Parker back in power again. The same for Goff, of course.

      ‘all very smart’ compared to the average 12-year-old.


  5. randal 5

    This national government is not a proper government. they thought they would have a walk inthe park till the election then sell off the rest of the states assets before they vanished back overseas.
    Well it it isn’t that easy and now they really dont know what to do now their game plan has been smashed by events.
    The crux of the matter is that they are not fit to govern.

  6. mik e 6

    114,000 more unemployed in UK last month those numbers are big when measured against US jobs situation dire in fact Tory policies are damaging UK economy

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