The fact that this week’s budget will do no
more than mark time should come as no surprise. We now have getting on for three years’ experience
of a government whose idea of managing the economy is simply to wait to see what turns up.
Some of what has turned up has not been very helpful. The
Christchurch earthquakes, in particular, plus the collapse of a couple of dozen finance companies, have not made things any
easier. The government, of course, has seized on these factors to explain why their do-nothing policy has
not produced better results.
But other developments
have been very advantageous. World commodity prices – and prices for our commodities in particular
- have soared to record levels. Our major export markets – Australia and China – have been
the two economies that have best been able to shrug off the global recession. Our Australian-owned banks,
while having to grapple with the higher cost of international borrowing, have ensured that we have been largely insulated
against the global financial crisis.
And, as independent
agencies like the IMF and Standard and Poor’s have made clear, (and has been conveniently ignored by media who prefer
to focus for their own reasons on the government’s deficit) our public finances are – both historically and comparatively
– in a reasonably healthy state, reflecting the prudent management and repayment of public debt carried out by earlier
These factors should surely have
meant that we, too, like our two major trading partners, were able to rebound from recession and resume a rate of growth that
would restore something like full employment and – with higher tax revenues – achieve an immediate improvement
in the government’s accounts. But, disappointingly, having fallen into recession before most other
countries, we are still bumping along on the bottom.
are robust things. You can kick them, neglect them, starve them, but sooner or later their natural buoyancy
will bring about a recovery of sorts. But that recovery will be longer delayed, and will be from a lower
base and less strong and sustainable than it should have been.
The failure to get the economy moving is in other words not a cost-free dereliction of duty. Over
a three-year period, the failure to move forward could well have cost us up to $20 billion in lost national income and will
mean that growth, when it does resume, will be from a lower base and on a lower trajectory – penalising us for years
Many remain without work, many more are worse
off, our public services are underfunded, our investment in our future is undermined, our ability to protect our environment
is weakened, all because recession continues to hold us in its grip.
We can ill afford such a loss. Little wonder that Australian living standards continue to outpace
ours (as the current disparity in the value of our respective currencies makes clear) and that the exodus across the Tasman
is again gathering pace.
One does not need to support
Act to have some sympathy with Don Brash when, faced with government by inertia, he accuses the Prime Minister of taking no
action to grapple with our problems – which is not to say that the good doctor’s prescriptions would not make
matters a good deal worse.
We may be grateful that the
Prime Minister declines to follow Don Brash’s advice but why does he not bestir himself of his own accord?
It is partly a matter of political calculation. The Prime Minister no doubt reasons that he continues
to do well in the opinion polls without doing anything, so why take the risk?
But it is also a matter of experience and temperament. Many voters will have concluded,
when John Key became Prime Minister, that the economy was in safe hands. A self-made millionaire would
certainly know a thing or two about what makes the economy tick.
But experience in the frenetic and short-term world of the foreign currency trader - a world of snap judgments and
overnight deals - is not necessarily the best preparation for managing a whole economy at the macro level over a long period.
That requires something very different.
Key has another characteristic, which he shares with my former colleague, Tony Blair. His basic pitch to
the electorate is that he is a nice guy who can be trusted to take the pain out of politics – and, to some degree, the
politics out of politics. A winning smile and a telegenic personality – both possessed in large
measure by both Blair and Key – will get you a long way; but that advantage is put at risk when hard decisions have
to be made and people are disappointed.
We need a budget
this week that faces the tough issues, that sets us on course to save and invest, to reduce our national indebtedness, and
to improve the competitiveness of our productive sector – and to use the comparative strength of the government’s
finances to help us achieve these goals. It seems unlikely that we will get it.
This article was published in the NZ Herald on 17 May