Gareth Morgan, Director of Gareth Morgan Investments
This week we’ve had two condemnations from our government of the fiscal expansions being considered by the Australian and US governments. The adoption of a “holier than thou” stance by both PM Bolger and the Minister of Finance on consecutive days has more to do with attempts to resuscitate their own electoral stocks than it has with any sincere commitment to fiscal constraint.
Clearly our government is out of favour with its electorate as the ongoing grind of recessionary conditions intensifies electoral disaffection. The gibes at the Australian and US governments are attempts by our politicians to point out to their own electorate that the glint of economic recovery is emerging because of the economic reforms that have been necessary. Unpopular though they have been, the politicians are claiming they are laying the foundation for a sustainable recovery, in contrast to the trends in the US and Australia to fiscal stimulus- a trend that’s generating bond market disaffection. Pity about the hypocrisy over fiscal management.
Comparison of our fiscal deficit shows it’s markedly worse than that of either Australia or the US, and has become worse because of the inability of the Bolger leadership to endorse sustainable fiscal commitments in the 1991 budget. Further, the financial market has punished us for fiscal beneficence by lifting our bond rates. Over the last two months our risk premium over the global rate has risen, ensuring the fiscal slippage will crowd out private sector investment. So who’s calling the kettle black here? Richardson even has the impertinence to claim financial market confidence has grown as the result of her balanced budget “commitment”. What commitment ? The NZ government has already achieved exactly what it is condemning the US and Australian governments for contemplating.
If not from their own experience then what is giving our leadership confidence to preach economic chastity to the US and Australia ? Despite the fact the fiscal filly’s bolted the New Year has once again heralded a determined effort to dream recovery. Certainly the export revival is substantial- now being evidenced in the macro data- and importantly was underway before currency depreciation. But the domestic scene remains dour and there is no reason to expect that its recovery is close. Despite ensuring no stone is left unturned in the search for evidence of upturn, and although confidence surveys and leading indicators are picking for the third time in as many years an economic upturn (they will get it right eventually), the case for continued GDP stagnation is strong- stronger thanks to the government’s success in raising long term real interest rates through their fiscal foibles.
Canberra and Washington won’t be shaking in their boots over the Bolger/Richardson sermon, and the audience that their salvos were really aimed at- their own disaffected electorate- has plenty more economic grind to endure. Interpreting the latest statistics as evidence of general economic recovery is no more valid than seeing them as evidence of a pause in the economic slide. The Bolger government’s fiscal contribution hasn’t helped.
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