Simon Louisson recently made a post on the Standard about National’s profligacy, and all of the debt they have racked up.
Yes, National was profligate. Yes, Bill English’s budgets did run six consecutive deficits. Yes, nominal government debt has nearly quadrupled. Yes, New Zealand’s debt-to-GDP ratio has nearly tripled.
No, National should not have balanced the books. No, Bill English, should not have attempted to pay off the debt he racked up.
Let’s face it: the economy was in recession for quite a while due to the GFC. And sure, it was – on paper – growing again by 2010, around two years after going into recession. But the economy wasn’t back to normal by then – we were not operating at capacity. Unemployment peaked at around 170,000 in 2012. This was two years after the recession officially ended. Keep in mind that in 2007, only 70,000 people were unemployed. At the time of writing this, about 140,000 people are still unemployed. Of course, the labour force has expanded quite a bit so we can look at the overall unemployment rate: it’s around 5.9 percent. If we look at the period from 1999 to 2008 where there was solid growth each year, the unemployment rate was, on average, below five percent. We’re much closer to that number now.
Should National have attempted to balance the books by 2012, when unemployment peaked, four years after the GFC began? Based on the numbers, as any good Keynesian would, I’m going to have to say no. As far as debt as a percentage of GDP goes, we’re still in a pretty good position. We have one of the lowest debt-to-GDP ratios in the OECD, and we are far below the average. Greece has a debt-to-GDP ratio of nearly 180 percent. We shouldn’t make up a crisis where none exists.
This brings me to profligacy. National can’t escape all of the blame. They were profligate. National handed the top ten percent a big tax cut – from 38 to 33 percent. They also reduced taxes on the lower brackets which, again, as any good Keynesian would say, was justified as tax cuts for low- and middle- income people stimulate the economy. But cutting taxes for the wealthy – partially compensated by a GST rise – is not just bad for the economy, it was bad for the budget.
Deficits and debt are not the problem. What National did do wrong, though, was increase the deficit and debt by cutting taxes for the wealthy when there was no reason to, it was not good for the economy based on any form of Keynesian logic, and it increased debt. Perhaps if they hadn’t done that, we could have instead borrowed to stimulate and diversify the economy via investment in new industries, or perhaps, we could have borrowed less and seen the books balance a year ago.
National’s economic mismanagement is the problem – not the fact that Bill English hasn’t produced a surplus yet.