- Date published:
8:45 am, July 23rd, 2018 - 152 comments
Categories: business, class war, debt / deficit, economy, Economy, grant robertson, jacinda ardern, labour, monetary policy - Tags:
But the rules are being criticised as being too restrictive and preventing the Government from taking the steps that it needs to take to repair the damage from the past decade of indifference.
The government’s being warned it has no chance of fixing run down public services unless it ditches its self-imposed spending rules.
Jacinda Ardern’s Labour-led coalition promised to loosen the fiscal straitjacket of the previous National administration to rebuild public services, and pledged in the Budget to spend an extra $24 billion more over the next four years.
Under its budget responsibility rules, the government pledged to keep spending at 30 percent of GDP, and reduce net debt to 20 percent of GDP by 2022.
But the government’s efforts have fallen short of the expectations of some, who argue it’s not nearly enough.
“If we stick to those caps for anything more than the next couple of years then we won’t get anywhere near solving the infrastructure deficits that we’ve had across this country, built up over the last couple of decades,” BERL chief economist Ganesh Nana said.
“There’s a lot of catching up to be done.”
Salvation Army social policy analyst Alan Johnson said there was a real danger that the crisis in mental health, social housing and well-being of older New Zealanders would become ingrained.
“One of the things with those caps is that they were literally straight out of the National Party rule book, which was disappointing that both the Greens and the Labour Party signed up for them even before the election.
“They are unnecessary and they could be relaxed I think without a massive impact on our credit rating, and the cost of capital and borrowing,” Mr Johnson said.
The cap on expenditure to GDP is very conservative. This table compiled by the OECD suggests that the 30% cap is much lower than most overseas nations.
The top five nations, all with figures over 50%, are in a variety of different shapes. Greece is one of them, but the others include Belgium, Denmark, France and Finland. Australia is at 36% and the UK is at 42%. Our 30% figure appears to be excessively cautious.
The Net Core Crown Debt to GDP figure is also very cautious. Again from OECD figures suggest that our proposal is very conservative. Australia is on 64%. Most nations are on 50% plus.
There is plenty of wriggle room. Helen Clark and Michael Cullen left the accounts in outstanding shape and National’s parsimonious nature has kept debt relatively low.
But we have a major problem and we have urgent infrastructure that needs to be built.
Labour’s caution is motivated by political concerns rather than economic concerns. But we live in times where conventional rules should be disregarded.