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.