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Dr Don Brash
27 May 2012
the days since the Minister of Finance presented his fourth
Budget, there has been extensive debate about the details of
the Budgetís growth projections (will New Zealand achieve
growth of 3.4% in the year to March 2014?), about whether the
governmentís accounts will be in surplus of 0.1% of GDP by
2014/15, and about whether more should have been done to help
got a view on all those questions (of which more later), but
they are actually relatively trivial questions.
The real questions which should be being debated are:
What will the Budget do to accelerate our long-term
What will it do to reduce our heavy dependence on the
savings of foreigners?
And what will it do to resolve our long-term fiscal
acceleration of our growth rate is crucially important.
Over several decades, our productivity growth (which
ultimately drives changes in living standards) has been slower
than that in most other developed countries (a brief period
following the reforms of the late eighties and nineties
Over the six years to 2011, productivity grew on
average by just 0.2% annually, comparable to the productivity
growth achieved by Portugal and Italy in the decade prior to
the Global Financial Crisis.
As a consequence, our living standards continue to
drift down relative to those in other developed countries, and
more and more Kiwis leave for greener pastures abroad.
Key Government made a commitment to have New Zealand incomes
match those in Australia by 2025 when it was first elected in
Four years have gone by, the gap between incomes in
Australia and those in New Zealand is bigger than ever, and
the Prime Minister doesnít talk about that goal any more.
boldly assumes that productivity growth in the years ahead
will be 1.4% annually Ė but there is precious little
evidence to justify that optimism.
Itís positive for economic growth in the longer term
that the Budget attempts to constrain government spending over
the next few years (though core Crown expenses will be almost
6% higher in the year commencing 1 July than they are forecast
to be in the year ending at the end of June, only partly
because of earthquake-related spending slipping from this year
to next), and thereís a bit more money for science and
But there is nothing which will radically increase our
about our dependence on the savings of foreigners?
Government debt at this point is low by international
standards Ė largely thanks to the 1994 Fiscal Responsibility
Act, one of Ruth Richardsonís enduring legacies to New
Zealand Ė but as a country we have borrowed heavily from
foreigners over many years to finance the purchase of imports
of goods and service we havenít earned.
The Budget projects that to continue.
Despite the best export prices in a generation, and
relatively slow growth in import demand (related to the slow
growth of the economy in recent years), we didnít get close
to a balance of payments surplus over the last couple of years
Ė and the deficit is projected to increase over the next
If the Government hoped the Budget would help that
trend, it clearly falls a long way short of even stabilising
our net indebtedness to foreigners.
At the moment, that net indebtedness is one of the
highest in the world.
The Governmentís own figures suggest it is going to
keep on rising.
there is no sign that the Government is willing to tackle the
long-term fiscal problem.
The OECD recently argued that New Zealand has a bigger
challenge to keep its government debt below 50% of GDP by 2050
than any other OECD country except Japan Ė very largely as a
result of our failure to do anything serious to address the
fiscal implications of our ageing population.
The most obvious thing to do is to flag the need to
raise the age of eligibility for NZ Super, as even the Labour
Party now recognises.
But John Key says that wonít happen while heís
is an enormous tragedy that this Government failed to grasp
the nettle when it first came to office in late 2008.
They had a strong mandate for action; they could
legitimately blame the Clark/Cullen Government for the
explosion in government spending which had taken place in
Labourís final term of office; the international crisis was
obvious for all to see.
Instead, they tinkered, and all New Zealanders will pay
the price for that timidity for decades to come.
and no, we wonít manage growth of 3.4% in 2013/14 and the
government wonít achieve a surplus in 2014/15.
But although getting the immediate fiscal deficit under
control is an important objective, the really important
objectives are to increase our growth rate (thatís by far
the best way of helping those on low income, and those unable
to get a job), to reduce our dependence on the savings of
foreigners, and to signal a clear intention to get our
long-term fiscal deficit under control by flagging the need to
increase the age of eligibility for New Zealand
Judged by those criteria, the Budget was another missed
column is based on a speech given to the Institute of
Chartered Accountants, 25 May 2012. For the full text click
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