My views on the 2012 budget

Gareth MorganEconomics

Video Transcript

Interviewer: Gareth, the government’s budget is coming up on 24th May and they’ve said it will be their second consecutive budget with no new spending. Is there an argument in times like this for the government to actually be spending more, not less?

Gareth: I don’t think the path to nirvana comes by spending money you haven’t got necessarily. And New Zealand’s not in a recession, it’s just in slow growth, so spending for spending’s sake, I would definitely not advocate that. I just want to see a quality appraisal of their spending and why they’re prioritising some spending over others, and why the students have got to pay more. Give us an explanation of what your holistic objective is here, rather than saying 10% cuts across the board.

I tell you what I think, I think they’re under so much pressure from the Christchurch event, and they’re worried sick about getting credit downgrades going through this economy – and so they should be – and their tax take isn’t great because the economy is so slow, so if your tax take isn’t great, well we better cut expenditure on the other side. How do we cut that? What are the programmes we don’t like? Or just do cuts across every department; by definition they must be inefficient, let’s just chop some heads. As I say, it’s not actually showing much leadership.

Interviewer: Does the government actually need to be so concerned; we’re in much better shape compared to countries like Greece, Spain and Italy?

Gareth: The economies that are really up against it are the ones that the world recession has hit, but their government books are in total disarray, so thegovernment’s got no ability to borrow more, like Italy, Greece obviously, and Spain, and so on. The New Zealand government is not in that position, New Zealand government books aren’t that bad in terms of their debt levels. The country’s books aren’t that great, we have a very high level of external debt but most of it is private. That doesn’t mean to say it’s great because it’s not government, but the solution to our debt problem is to have the country growing, have it productive, have it efficient, have it exporting things people want, all that sort of stuff. And I think that’s why the quality of the government’s policies to sort of facilitate capital flows into export endeavours instead of into housing, all that sort of stuff that they’ve gone on about, is really important.

Interviewer: Is the government’s goal of reaching surplus by 2014/15 achievable?

Gareth: It’s all dependent on the growth in the economy. So with Europe obviously in a slump now and America showing signs of having hit the roof and slowing off, and China also showing those sorts of signs, commodity prices… I mean, we’re a one trick pony here, right? We sell commodities, and they’re coming off quite quickly, so that means a slower New Zealand and therefore a lesser tax take. And so the problem you’re talking about – getting us into surplus – becomes that much harder because of the tax take. So that’s why productivity issues, the quality of the government’s spend is so much more important than just going around slashing and burning. You just go into an austerity spiral if you do that stuff, it’s dumb.

My views on the 2012 budget was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.