We all must help pull NZ out of the crap

July 23, 2009

Brian Fallow in the Herald is a recommended read today.

No, he’s not very cheery. But he has done a good job of putting us in the picture about “the hard word delivered to the rest of the public sector, in a pointedly public way, by Treasury secretary John Whitehead this week…”

He also reminds us we all have a part to play in pulling NZ out of the economic crap.

You only have to look at the spending track, past and forecast, in the Budget to see that some serious belt-tightening is expected.

Over the past four fiscal years annual spending grew by $17.5 billion, or about 9 per cent a year.
Over the next four years spending is forecast to grow $11 billion, less than 4 per cent a year or 1 per cent at most in real per capita terms.

But that would still, on the Treasury’s forecasts of economic growth and revenue, see a cumulative $35 billion in operating deficits, driving gross debt from 25 per cent of GDP now to 39 per cent in 2013.

Whitehead noted that the government is a large part of the non-tradeables sector, which over the past five years has grown by 15 per cent. The tradeables sector, where the country earns its living as a trading nation, contracted by 10 per cent.

“To help New Zealand compete internationally and lower costs to exporters we have to raise the quality of public spending and ensure the lion’s share of increased national resources goes not to the public but to the private sectors,” he said.

“In other words the public sector has to raise its productivity – provide more for every dollar spent – and grow more slowly than the private and export sectors, to rebalance the economy.”

This was likely to be echoed in the work of the taskforce led by Don Brash which has been asked to recommend policies to achieve the goal of closing the income gap with Australia by 2025, Fallow pointed out.

But then he noted:

* We need to be realistic about how compressible Government spending is in a democracy.

* The message about living within straitened means applies as much to the household sector as to the Government.

* And the message about raising productivity applies as much to the business sector as to the public sector.

A major rebalancing is needed – less spending and more saving by households, more investment and a stronger export focus by the business sector, and a tight rein on Government spending. But this won’t happen automatically or easily.

Couldn’t agree more.

Budget monitors are a discredited bunch

May 25, 2009

They were discredited during the sub-prime mortgage crisis in the US and the financial shenanigans that followed around the globe. But the buggers will be watching what the Government does on Budget Day, their calculators at the ready and their pencils sharpened to tick down our credit rating if they don’t like what they see.

Alf refers to the credit rating agencies that wield huge power in the domain of international finance.

The Herald tells us today:

The Government needs to get its books out of the red within five years, says one of the three men who will decide after Thursday’s Budget whether New Zealand’s international credit rating will be downgraded.

The Treasury has told Finance Minister Bill English that with no changes to spending policy, New Zealand would have recurring operating deficits of more than $10 billion a year and borrowing would be about $135 billion by 2023.

Standard & Poor’s analyst Kyran Curry said the group was looking for New Zealand to reach a stable position soon.

He is one of three S&P executives in New Zealand this week to decide whether to take the country’s AA+ rating off negative watch and back to stable or to downgrade it.

A downgrade would increase the cost of international borrowing.

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