One take out from today’s budget says it all.

The government thinks that the net fiscal impact on the economy will be contractionary.

Here’s what Bill English says in his Fiscal Strategy Report for the budget:

“Having been stimulatory during the recession, fiscal policy is expected to exert a mildly contractionary effect on the economy throughout the forecast period.”

In other words, John Key and Bill English believe the economy will grow too quickly in the next four years and therefore government spending needs to be deployed to lean against inflationary growth. 

This is the party that at the height of the economic cycle wanted to reduce surpluses and speed the economy up. And now with the economy in the doldrums, thinks its growing too fast. It  thinks our biggest risk in the next few years is inflation. I’m gobsmacked. Our biggest problem is lack of growth and our ballooning current account deficit. We need more export-led growth, but there’s nothing meaty in this budget for the productive economy. Just a few crumbs for science and research. So wages will remain weak and don’t expect any decent new jobs.

While the government pats itself on the back because its on track for a government surplus in 2014, the truth is there’s a much bigger fire raging somewhere else. Our debt as a country.

We are spending more than we earn by a greater proportion than any developed country anywhere in the world - even Greece. 

Every year our country gets poorer by ten billion dollars a year. This is net extra debt the economy as a whole takes on - the total difference between what the economy spends and what it earns. 

There’s nothing in this budget to fix that. It's a 'business as usual...nothing to see here' budget, with a few token shout-outs to middle New Zealand who worry about poverty and housing affordability. 

In contract, have a look at this graph which shows that the US is now on a trajectory to grow its economy, while the UK and the EU zone are still struggling. What’s the difference? The US has prioritised stimulus over austerity. They have 0% interest rates and have chosen quantitative easing to support their exporters. Government spending has been used to fund projects to keep people working, support the productive sector and oil the wheels of the economy. It’s working.

This isn’t a budget of austerity, true. But it is a budget that accepts the economy is contractionary. That amonts to the same thing in the end. There is no yellow brick road to growth under this government. It’s a ‘give up, no hope, accept our fate’ budget.

National have got our economic settings seriously wrong. 

Comments (3)

by Matthew Percival on May 17, 2013
Matthew Percival

New Zealand is (to my knowledge) the only country in the Western world on track to make a surplus with an economy growing around 3% without having to print money. You would think we might be doing something right.

Unemployment is trending down slowly. 6.2% at last count and manufacturing, contrary to opinion is doing well http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10884050 

The mixed ownership model has brought new investors into the sharemarket and new companies looking to list and expand New Zealand products http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10883674

The free trade agreement with China, opposed by the Green Party, has seen our exports to China increase by a factor of 3-4 since the signing of the agreement.

Every economy has its challenges but there is plenty to be positive about in New Zealand at the moment. It may just be that slow and steady wins the race.

by stuart munro on May 17, 2013
stuart munro

Ignoring the balance of payments deficit, like fudging the inflation figures by excluding housing, is the height of irresponsibility. So too are fraudulent employment figures achieved by calling 2 hours a week employment, or making Winz so draconian the unemployed migrate to sickness benefits or kill themselves.This government can only be described as fiscally responsible or economically competent by the crooked or the self-deluded. A jail cell awaits Key and  English for the asset theft and economic treason the moment we get an honest government.

by stuart munro on June 20, 2013
stuart munro

0.3% economic growth. Masterful! These Gnats really know what they're doing eh!

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