Michael Cullen has released the latest economic and fiscal update, the one Key commented on in today’s papers but which he refused to reveal the details of to the public. Basically, it’s pretty bad news. How Key is responding or, rather, not responding to this first test is even worse news.
Since the Pre-election economic and fiscal update less than two months ago, the Treasury’s forecasts for economic growth in our top 20 trade partners have plummented – for example, next years’ projection has gone from 2.8% to just 1.8%. Commodity prices and export demand is expected to be hit significantly, leading to lower growth and a higher current account deficit. Unemployment is now predicted to hit 5.7% not 5.1% as in the PREFU and wage increases will be lower, perhaps below inflation. Lower tax revenue will see government debt blow out by another $5 billion on top of the so-called ‘decade of deficits’ projected in the PREFU.
The global financial crisis is not National/Act’s fault, just as it wasn’t the Labour-led government’s fault. But they do have a choice as to how they respond. National/Act’s plan seems to be to carry on as if nothing has happened, pushing through the same agenda that they announced months ago without modifications for changed economic situation. It’s worth noting that the cost of National’s tax package additional to Labour’s is about the same size as the increase in projected debt over the same period. In other words, National could prevent this debt blow out by cancelling its tax cuts for the rich. It won’t do so, of course. National should make the creation of useful jobs a priority, as Labour intended to do to keep benefit numbers and crime down, and income and tax revenue up. But it won’t do that, either.
We said it before the election and bears repeating now. It is not just the declared policies of a party that matter but their underlying ideology, the set of principles which shape their response to emerging issues. National might have presented that ‘Nice Mr Key’ facade and some appropriately moderate policies but underneath he is rightwinger leading a conservative party. His response already looks like being a typical conservative response – bury your head in the sand and hope everything turns out OK in the end. That is not the response we need right now.
Key’s ‘no worries, folks’ response to this latest update also makes me wonder if Key really has bitten off more than he can chew. Does he have the strength to disappoint his supporters when it is in the longer-term interests of New Zealand as a whole to do so? Does he have the leadership skills and courage to actively steer New Zealand through these difficult straits or will he grimly stick to the pre-laid course as the storm hits us? So far, he has tried to downplay the issue, he evidently hopes it will just go away. Well, it’s not just going to go away and if Mr Key is not up to the job of confronting it that is not just a problem for him, it is a problem for all of us.