New Zealand has turned from a nation of squirrels to one of nutty spenders, yet there's still little debate about just how the global recession will change our behaviour

At 86% of GDP, New Zealand’s national debt is the highest among all developed nations – except Iceland. And Iceland’s banking system has collapsed.

It may be because Scottish blood swirls within my veins but I am not at all comfortable knowing that New Zealanders are so close to not being able to pay their way.

Let’s be clear, as a nation we are in the enviable position of owing very little. As a nation, public debt is relatively low even after efforts to counteract the international economic crisis. The Government has been able to call on a sizable surplus and public debt can, in fact, be allowed to rise in accordance with Keynesian principles to allow for some counter-cyclical stimulus.

As a nation, therefore, we can pay our way and be reasonably optimistic about steering a course through the current international crisis.

Our problem is private debt. New Zealanders are up to their eyeballs in it. ABN Amro Craigs has called it "unsustainable". We make American consumers look abstemious, with our household debt to income ratio at 163 percent. America's is 130 percent. We borrow from overseas sources to buy houses and we seem prepared to buy everything on credit.

This is not the New Zealand where I grew up. At the risk of sounding like something out of Monty Python, when I was a lad we had a Squirrel Post Office bankbook. We were taught the importance of saving and the risks of getting ourselves into debt. I still carry an alarm-bell in my head which goes off whenever I think of buying something for other than cash (I do it, but feel guilty for days).

Since those days long past, we have had the Douglas revolution of the 1980s and the consequent steady development of a consumer culture. The belief developed – and took hold – that saving money and being debt averse was a bit pathetic: akin to an adult insisting on wearing water-wings in the swimming pool. 

The sickening sound of capitalism hitting a brick wall this year in the United States and Europe has brought the party to an end. Economic problems have spread around the world. In New Zealand we are like bathers on the beach waiting for the tsunami to hit. We are not quite sure how to behave.  

I am not sure we are coming to the right conclusions. Since the world economic meltdown, governments, including ours, have been busy propping up one business after another and protecting the individual taxpayer. This has minimised personal impact. Certainly, some businesses have shut their doors and jobs at others have been cut but, for most New Zealanders, the problem is someone else’s; it’s something they see about in the media but haven’t yet experienced.

Experience is a good teacher. In the past, the full impact of the economic collapse would have translated into massive job losses, massive business closures and the full horror of depression.

Let us hope nothing like that is visited upon any nation in the world. But we do need to learn. It would be a sad outcome of this global economic collapse to work through the problem and simply return to the habits that got us here in the first place. Some might say it was not “Main Street” that got us into this situation; it was “Wall Street”. That’s true, but only to an extent. Main Street was behaving much like Wall Street but on a smaller scale. We all thought the good times would never end.

I am still waiting for a debate to begin in earnest on how we will behave differently once this recession is over. Governments must put in place a new regulatory environment within which capital will operate. Within that model, business will need to focus on how to live with longer term, as opposed to very short term, gain.

Individuals can help set the tone of this debate by reconsidering the merits of constant consumption and debt. A focus on saving, paying down debt and investment in areas that will lead to long-term prosperity will go a long way to ensuring the problems we have today do not return.

This is not a bad way to behave. The events of the past year have taught us again that fundamental truths do not change. Each of us has to be able to pay our way – individual, family, business and community.  Value has to be based on something real.

Understanding these fundamentals needs to start immediately. Christmas is just around the corner and all manner of inducements are being offered to encourage a last minute buying spree. 'Tis the season to think twice before buying something we can’t afford.

Comments (2)

by stuart munro on December 09, 2008
stuart munro

Don't make me laugh Steve - New Zealanders have stopped saving because their reasonable earnings expectations have fallen through the floor.

It is no coincidence that NZ home ownership has declined by 25% during your political career, and New Zealander's average age at marriage has gone from 23 to 33. This is an economic phenomenon, the invisible hand working with all its Mathusian implacability.

These are the statistics you would expect from a society entering a fatal decline, but you, and all your odious colleagues on both sides of the house, prefer to pretend that New Zealand has been enjoying some kind of economic Indian summer.

Wake up! You've wrecked the place. And Key isn't likely to put it right anytime soon. What were you thinking? And how do you think ordinary New Zealanders can save amid the ruins you have made of our society?

The truth is, New Zealand has never had a real government. For most of our existence our nominal leaders simply cribbed policy from the UK, and more recently they have been doing the same with the US. But the US weren't a very good model, even had our economies been sufficiently alike to make a comparison instructive.

So you have flushed away the wealth of post-war New Zealand, and now you want the people to rebuild it for you.

I think the irresponsible leaders of the last two or three decades deserves a round of firm punishment first.

by Henry Barnard on December 15, 2008
Henry Barnard

New Zealand's current account deficit is 8-9% of GDP.  This can be rooted home to the ACT government sales of New Zealand assets to foreign capital in the mid 80s.  The most recent government has take steps to try and turn this around by buying back state assets, investing in social infrastructure, and most recently by encouraging the growth of private savings on the back of a record employment rate.  However, I feel it could have done more by damping down the housing boom by making it more difficult for people to buy `investment properties'.  By not dealing with this issue they particpated in allowing a housing bubble to develop which was also partly responsible for the growth in private debt - both in terms of the fact that people entering the housing market had to borrow huge sums of money and by ecouraging those who owned their own homes to think that the seeming rise of equity in their homes was sufficient safeguard for borrowing for other purposes and also a form of savings for their retirement (which it wasn't).

So, in terms of dealing with savings, I would like to see real savings which could go toward capital investment in this country. Not fake investment in rental properties which are only ways of trying to avoid paying tax.  Removal of the tax breaks on this kind of investment would be another step forward alongside things like Kiwisaver. 

 

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