While the government sends parliament into urgency to pass stale bills, its response to the global financial crisis is about as urgent as a tortoise

Advent is the season of expectant waiting and reflection, the word derived from the Latin word for "coming". Yet since it began at the end of November, world governments have been busier than Santa's elves acting to staunch the economic wounds opened by the world financial crisis. Waiting hasn't been an option and the words "stimulus package" have become part of the daily news lexicon.

America led the way with its $700 billion bailout, but other countries have rapidly followed suit. In less than two weeks stimulus plans have been announced every couple of days. Around the Pacific Rim, especially, there has been frantic action. Last weekend it was China revealing plans to spend $568 billion to spark its economy. Late last week Kevin Rudd in Australia announced a second package, following one in October. Together they amount to US$20b. Soon after, Japan committed over US$400b to its recovery.

Elsewhere, over the weekend European leaders said the EU would share US$265b amongst its 27 member-countries and India, struggling with an already large deficit, committed a more modest US$4b to its economy.

So where is New Zealand's response? Because we had tax cuts ready to go from October 1, it was safe for the parties to get through the election campaign without any sense of panic or missed opportunities. Some stimulus was already in play. But the government's mean in place a month and there's been nothing new, nothing to suggest that this crisis is changing and evolving by the day.

National has promised a package some time this month, which Finance Minister Bill English has said will be worth about $7b, or four percent of our GDP. How does that compare to other countries?

With the vast numbers being promised, it's fascinating to do the maths to see just how those numbers stand as a percentage of other countries' GDP. The $33b committed by France, for example, is less than two percent of its GDP, much smaller than the promised package here. What about the other countries I've mentioned?

  • Australia's US$20b is a little under three percent of its GDP.
  • India's $4b is just half a percent of its GDP.
  • Japan's spending a whopping ten percent of its GDP.
  • China tops them all, promising a stimulus package worth nearly 20 percent of its GDP to keep its economy afloat.
  • And the promise being promised by Barack Obama for February? At $500b, it's around four percent of America's GDP. Of course that's on top of the $700b already spent.

So is New Zealand being too cautious? I don't feel qualified to answer that. On one hand our economy – especially national debt and employment – is in better shape than most. On the other, our neighbours seem to be out-spending us and we don't want to be caught a few steps behind when the global economy finally begins to turn.

Treasury reckoned in its advice to the new government that we didn't need further stimulus now. But, having a quid both ways, it added:

“Should additional fiscal stimulus be used in the short term, it will need to be timely, targeted and temporary.”

For now at least, English's four percent plan seems reasonable, as does its focus on infrastructure. Roads, railways, schools and so on are hugely expensive. In the building boom of recent years, we taxpayers have paid a premium. In a recession, contractors will be willing to cut margins to get the work, so it's a perfect time to build. And build. The government mustn't miss this opportunity.

National is also expected to pass its $42m relief package of those made redundant during this recession. We don't have any details, but it's a start.

Nevertheless, the questions remains about why the government isn't acting faster and with greater concern. While the world faces the greatest economic crisis for half a century, parliament has been in urgency passing laws to... fine truants more. It's been six weeks since the NZX and New Zealand Institute issued the second version of their Economy on the Edge paper, stating, "This is not a time for incremental steps". While I don't agree with all their prescriptions, it's proof that the ideas and urgency exist in some quarters.

So where's the government's urgent response? Why are our politicians repealing old laws and passing stale, fringe legislation, rather than debating creative new policies that could rescue us in our time of need? (And before you reference the 90-day probation bill, don't bother. That's two year-old legislation, not a new idea for the times).

Rod Oram made a similar point in his Sunday Star-Times column yesterday, saying that the speech from the throne had only "a few perfunctory paragraphs about the global crisis."

All the speech offered was a bit of fiscal stimulus via tax cuts planned long before the crisis hit and some totally vague promises about the likes of transitional help for people made redundant, more infrastructure spending, better education standards and attempts to improve the bureaucracy. It was a speech for a time and conditions that no longer exist.

In the US, there's an energising sense of urgency. There's talk of major bridge repairs, visionary rail networks, greening the economy and more. There's a recognition of both a desperate crisis and a once-in-a-lifetime chance to rebuild. The only thing staying the new administration's hand is the transition period. Come February, it will be a blur of laws, funding plans and packages.

How different this government's first month. John Key made a lot of noise about leadership during the election campaign, especially financial leadership. This is what he's meant to be good at. Now he has the opportunity and the duty to act decisively. So where's the plan? Where's the real urgency and inspiration? As advent drags on and the rest of the world acts, we're still waiting.

Comments (6)

by Chris de Lisle on December 16, 2008
Chris de Lisle

The sheer size of these bail out packages astonishes me. Between them the nations of the world must be pooring actual trillions of dollars into their economies. And yet, it dosen't seem to be averting anything.

I'm no economist, but I suspect that the expectation of economic collapse has now become a self-fulfilling prophecy. The bailouts can shore up industries before they actually do collapse, but they don't seem to be able to encourage new investment and expansion, because individuals and companies see that its a recession and thus it's best to consolidate their holdings and wait it out.

In the end the bailouts are just patching up the holes in an overflowing dam- They may stop that particular leak, but they aren't going to stop it from bursting.

National seems to be trying to hold out incentives to companies to expand through this 90-day bill (granted, as you say, its old, but I suspect there will be similar sorts of things to come) and thus get the dam to strengthen itself (hmm... analogy dosen't work so well there...).

It might be the right move at this stage- I don't think the recession has really sunk into the corporate psyche here in the same way it has in America, and if they can business to start expanding now then they might get up enough momentum to lighten the impact when things get really bad.

Whether it actually works, relaxing restrictions to encourage the market to fix itself would definitly appeal to the economic liberals in National and ACT who shudder at the idea of state intervention.

Additionally, as soon as they start taking aggressive action and bailing things out, the idea of recession will sink in and there will be a much smaller chance of getting companies to take any action.

At the end of the day, how this crisis effects us is dependant more on how it effects Australia, America and China. No matter how stable we get our dam it wont matter at all if the big ones upstream burst- and in that case, we might as well save our money for disaster relief.

As I say, I'm no economist, but that's my take on it, anyway.

 

by Adolf Fiinkensein on December 16, 2008
Adolf Fiinkensein

It might have something to do with the fact that NZ doesn't have the same sort of internal economic problems that other nations such as the US have e.g. massive sub-prime exposure and massive social welfare liabilities sending car manufacturers' broke.

Interesting that you criticise National for not acting decisively while Uncle Tom Cobly and all the other lefties are screaming blue murder about the use of urgency.

I'd be interested to hear what you propose yourself by way of bright ideas.  For my money, I think Messrs Key, English and Co are on the right track by focusing on a fast turn around in business confidence which is the foundation of recession reversal.

Any 'spend ups' in the meantime should be aimed at no more than buying time for people until businesses stoke up their own investment and employment.

 

 

 

 

 

by Tim Watkin on December 16, 2008
Tim Watkin

Thanks for the comments guys. Like Chris, I'm no economist, but I think infrastructure is an obvious and good option that the government's taking. We'll get more bridges for our buck right now and we'll have built capacity - and therefore potentially productivity - by the time the economy improves. I would have thought the government should be encouraging the same strategy in business, incentivising them to invest through tax credits and the like. Thinking long-term, using the benefits of a recession (lower costs, time to re-tool, etc) is wise in both the public and private sectors. Y'know, asking what things we're going to wish we had when we look back in 10 years? More schools? More rail? Better broadband?

Which is why the R&D tax change still mystifies me. Maybe they have a replacement option planned...

I was talking to a business consultancy co. this morning and they were saying many companies are using this time to think about sustainability and greening issues. The US government seems to be doing the same, as is Detroit. Shouldn't we? Given that, isn't the Greens $1b home insulation plan worth considering?

What ideas do you guys have?

As for urgency, for me it's a question of propriety. You only use it when the need is, well, urgent. If you haven't even got bills properly framed or national standards written, then the law can hardly be urgent, can it? But the financial crisis is urgent, that's the proper use of urgency, so why isn't it being used?

by Rob Hosking on December 22, 2008
Rob Hosking

One very big point you've missed:  the Reserve Bank.  Our high interest rates mean a lot of the stimulus can come from monetary policy.  Few other countries have the same monetary 'headroom' we do.

 

by Tim Watkin on December 27, 2008
Tim Watkin

It's a good point Rob, but are you arguing that the government can afford to sit on its hands because the Reserve Bank has cut interest rates? Business journos are always so quick to remind us that the OCR is a very blunt instrument, and if there was ever a time for some subtle, long-term thinking it's now.

by Andrew P Nichols on July 23, 2013
Andrew P Nichols

The above is all pretty irrelevant because of the vast private and public debt owed by NZ The stuff out of a cow's udder and tourism will not be sufficient to pay it off. When the credit gets turned off because NZ cant flog off any more assets (Fonterra is about all that's left) then the reckoning will come like it did for Uruguay in the 1930s (once one of the world's wealthiest nations now a museum of early 20th C architecture) NZ needs to face this fact and make the necessary adjustments to enjoy a less materially wealthy but probably more healthy and sustainable lifestyle.

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