So, today is Budget day. The big stuff has all been pretty well signposted, tinkering with KiwiSaver, Working for Families, and student loan eligibility. The devil will be in the details of all the cuts that get made to try and limit the damage in health and education.
I was going to do a roundup of the best pre-budget punditry, but I find there isn’t much need to go beyond two excellent pieces by Gordon Campbell and Tim Watkin. Gordon Campbell writes:
On the lead-up to the Budget
Throughout his government’s first term, the role of Prime Minister John Key has been to be the bringer of good news, the guy who carries the ‘times are tough but the future is rosy’ message – while Finance Minister Bill English has been the bad news bearer, underlining the need to tighten our belts, for eternity.
Hopefully, both of them remember the last time that National launched an austerity Budget, and Ruth Richardson sent the economy into a near-death spiral. Evidently, Don Brash retains no memory of seeing “The Mother of All Budgets” before, and he’d like to play it again and see how it ends.
The Key vs English contrary impulses are set to collide on Thursday when the bad times are to be painted as being so dire as to justify cutbacks in some big ticket public schemes (Kiwisaver, Working for Families) and require further job losses among public servants – but without snuffing out the recovery that Key keeps telling us is just around the bend and beyond the hill once the combo of high commodity prices, Rugby World Cup spending and insurance money for the Christchurch rebuild begins to work its magic.
Interesting that none of the elements of the magic combo are any of National’s doing.
Key is used to decking the same objects in wildly different garb, depending on context. Routinely, the level of government debt is touted in overseas contexts by Key as one of the jewels in the crown of the New Zealand economy at only 34% of GDP while – domestically – the same figure is portrayed as a scandal that needs be pared back below 30% as soon as possible.
In essence, Thursday’s Budget will be a collision between ideology – its always a good time to shrink central government and try to drown it in the bath – and a reality that doesn’t square convincingly with the austerity message. …
On one level the changes [to KiwiSaver] are likely to entail a 180 degree reversal of the cuts to employer contributions that the same government recently introduced. How can this zigzag possibly be rationalised? Simultaneously, Key hinted at this week’s press conference that employers may be able to treat Kiwisaver contributions as being at least partially in lieu of wage increases to employees. In other words, the changes are shuffling the shells under which the government is hiding a shrinking number of beans.
And from Tim Watkin:
It’s the end of the world, and I feel fine
So, in two days time Bill English will announce that we have the largest deficit EVER by a New Zealand government. All round the world folk have seen stories of how our deficit will be $15-17 billion. Cue wailing and gnashing of teeth.
Certainly, no-one will want to sit back and admire such a deficit. Both National and Labour are inclined to lead the breast-beating, for opposite political reasons. National wants to justify cuts to government spending, Labour wants to damn the government for its economic mismanagement.
So the message has been that our economy is in dire straits and drastic action (cuts or a change of government, depending on who’s spinning) is required.
But is it really that bad? We’ve got our biggest population ever and we’ve just been through – or we’re arguably still at the tail end of – one of the largest economic crises the world has known. So you’d expect the government to have spent more. …
Thing is, we’re not. Like Greece, that is. The government debt has never been a problem; indeed it hit historic lows under Michael Cullen. We bottomed out in 2008 with a public debt that was just 20% of GDP. (There are several sources for this, each slightly different. But here are the OECD figures as one example).
Watkin then looks at historical government debt, finding it as high as 248% of GDP in 1933, and remaining up to 95% as late as 1951.
So yes, it [debt] has climbed again. But that borrowing has kept the economy ticking over, which is what a responsible government with a low debt should do in tough times. It has stimulated a flat economy and carried the private sector. …
As I’ve written before, much of the supposed National-led government stimulus was in fact started under Labour; that which wasn’t was essentially some roads and the extra tax cuts. And those tax cuts were just about the most scatter-gun, favour-the-rich form of stimulus any government could have chosen.
My worry now is that the government seems to be signalling that its stimulus days are over. John Key’s pre-Budget speech left the impression that the government’s heavy lifting is done and it now reckons it’s time to stop spending and let the private sector take over. The PM repeatedly mocked Cullen’s stewardship during the 2000s and praised the growth and economic management of the 1990s.
We can all remember the unemployment, wage stagnation and cuts to public services that passed for “growth” in the ’90s, not to mention the lack of savings and higher public debt. And I’m not yet convinced that the economy is healthy enough to take the strain. It seems risky to me to whip the crutches away so soon. …
I think Watkin is giving the Nats a bit too much credit. How much has tax cuts to the rich really “stimulated” the economy? The money could have been much better spent.
Anyway, in a few hours, Bill English gets to deliver his third budget. Let’s hope, for the good of the country, that it is his last!