The government's laid the table for a growth party, but business is failing to RSVP. So why is National acting as if everything's going to plan? Where's Plan B?

Just like Margaret Thatcher, Bill English isn't for turning. He seems determined to stick to his conservative orthodoxy, even in what he admits are extraordinary times.

One of stand outs for me in this year's Budget, was not this policy tweak or that cut, but the evolution of National's overall economic vision. When National gained power in 2008 it was a relief to see them carrying on -- even taking credit for -- some of the stimulus from Labour's dying days. Then came the tax cuts and infrastructure spend. Government debt rose from around $10 billion to $50 billion. As English pointed out in his Budget speech this year:
"That build-up in government debt has been the appropriate response to the triple shocks of a domestic recession, the Global Financial Crisis, and the Canterbury earthquakes. The alternative would have been to dramatically slash spending or dramatically increase taxes, both of which would have brought considerable pain to households and damaged the economy at a time when the recovery was still fragile.The Government chose to run larger deficits and absorb much of the impact of these
shocks on its own balance sheet to protect vulnerable New Zealanders and enable the economy to get back on track.
But, as we made clear at the time, this could not continue indefinitely." So while the government spending came in the very centre-right form of tax cuts and infrastructure -- which doesn't always get the most bang for your stimulating buck -- it showed some willingness to think outside its ideological tradition. Heck, at least it wasn't another Richardson or Brash attack. But those budget comments clearly showed that English thought that game was over and it's time to rein it in. What I can't understand is why. Yes, there has to be limits on debt, but for the next few years at least our government debt is small and manageable compared to most developed countries.And further down the track when it really blows out because of baby-boomer healthcare and super payments, the current trimming will make sod-all difference.If spending was right in 2008 because the world was stuck, surely it's still right now. The global economy remains broken and is recovering much more slowly than anyone hoped. Households are still at risk of "considerable pain" and the economy at risk of being "damaged".So why change the medicine when the disease hasn't changed? It's like Dr English is cutting off our anti-biotics before we've finished the course.

The problem for the minister and those of his mindset is the conviction that the best government can do is streamline the public sector and get out of the way so business can grow and create jobs. Which is all well and good, perhaps... IF the private sector plays ball.

But in this case National's bought out the punch, pointy hats and the good crockery, but business isn't coming to the party -- even Reserve Bank Governor Alan Bollard's talking of an "investment drought". So who's going to take risks, create jobs and spark any serious recovery without some extra incentives? Who's going to create confidence?It's time for a re-think. Instead, English is a stuck record -- 'there's no silver bullet', 'we need to shrink the government so the private sector can grow', 'Asian demand will save us'. Well yes, no and maybe to all that. But is it enough when no-one in the world is growing? Where's the creative response? We've gone from the cycleway to asset sales under this government, and it's starting to feel as if that's all they've got. There may not be a silver bullet, but it looks like National's happy to leave all its ammo in the box and muddle through this term without firing a shot.

Comments (5)

by nommopilot on July 01, 2012
nommopilot

" it's starting to feel as if that's all they've got "

this is the thing that worries me as one of the many totally opposed to the blind economic stupidity of asset sales.  Were National to reverse their decision what else could they point to next election as achievements meriting reelection?  meaning that whether they go ahead with asset sales or not they probably won't be re-elected so they may as well push them through as strongly as they can, John can take off for Hawaii and the rest of them can settle in for another comfortable decade on the opposition benches waiting for New Zealand to forget what a load of bastards they all are.

With any luck, public opposition will be so strong they'll be scared out of doing it...

by Rob Hosking on July 03, 2012
Rob Hosking

Bollard never said there was an "investment drought". He did say investment had been "subdued" which begs a number of questions. 

It was a rather odd comment. In the most recent 12 month period imports of plant and machinery rose 8.8% - businesses taking advantage of the high exchange rate.

 

 

 

by Tim Watkin on July 04, 2012
Tim Watkin

I wasn't there, Rob, whereas you may have been. But others there say he used that phrase. Interesting point though that some are making the most of the exchange rate.

Would you expect some productivity gain off that?

by DeepRed on July 04, 2012
DeepRed

There is most certainly a Plan B, and it's to distract the proles with Two Minute Hate.

by Rob Hosking on July 05, 2012
Rob Hosking

Others? Plural??  Name more than one.

All other things being equal, I'd expect some sort of productivity gain, yes. 

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