Everywhere he can, John Key is busy raising the canard of our economy being as indebted as the PIIGS countries (Portugal, Ireland, Italy, Greece, Spain) that are in trouble in Europe. He’s talking about net foreign debt, and he’s suggesting lowering government debt (by hocking our inherited family silver off) is the solution.
But New Zealand’s debt problem is not a government debt problem like the bailed-out countries of Greece and Ireland. We do not face the risk of bail-out as JK deceitfully suggests, as we are a long way from the government being unable to pay its bills. While NZ’s net foreign debt position is 85% of GDP, net public debt is forecast to peak at 30% of GDP in 2015 (edit: currently 18.8%). Compare this to the current situation of Italy (115.2%), Portugal (76.9%), Greece (126.8%), Spain (53.2%), and Ireland (64.8%).
National arrived in office with zero net Crown debt, but through the recession and tax cuts for the rich in 2009 and 2010 we are now gathering debt – including $120 million/week for those tax cuts. But it is still only a small part of the problem.
The problem is personal debt. At the moment it’s improving – without asset sales – no doubt partly because the Government is socialising the debt of the wealthy through those tax cuts.
So asset sales won’t solve a non-existent government debt problem, will it help with the personal debt problem?
No.
If we sell to foreign investors we lose the profits overseas. Prices go up (and/or spending on new infrastructure goes down) as they demand a bigger return on their investment; New Zealanders’ costs go up and so does our debt.
If we sell to “mum and dad investors” the assets they already own (also known as extortion if it’s done by the mob), they will currently need to borrow (from overseas…) to pay for their shares. Or they reduce their other investments – starving the pool of money that is funding our productive exporters that we need to pull us into recovery.
This is another reason why businesses in the productive economy will be supporting Labour this year, along with their fiscal and exchange rate policies. Where National’s asset sales will starve the investment into our productive economy, Labour’s revitalising kiwisaver, re-starting the NZ Super Fund and other measures to increase saving will grow the sector; instead of National’s starving R&D, Labour knows innovation is the key to future growth and will help fund it.
So if we want to reduce foreign debt we need to introduce measure to encourage savings, not flick off assets. It the wrong solution to the wrong problem John.
Powered by WPtouch Mobile Suite for WordPress