Sleepwalking To Oblivion

Gareth MorganPolitics

Gareth Morgan, Director of Gareth Morgan Investments

As soon as it was released, the budget was recognised by informed opinion as fiscal malfeasance. By condemning a future government to dipping further into debt markets, and/or raising taxes, Labour continued the appalling record on expenditure, and signalled further crowding out of private sector investment. The market’s reaction was totally understandable- they sold.

Now, with the benefit of hindsight, Caygill’s fiscal farewell can be adjudged as more than retrograde. In combination with the impact of adverse international market trends, confidence in the business community has now reached suicidal proportions-they are trapped under the weight of horrendously high real rates for the foreseeable future. This would present a politically astute Minister of Finance with an opportunity to turn his period of stewardship from one of budget botch to one which at least moves NZ forward rather than back. Politically there are advantages to be earned and we’d all be saved the present pathetic spectre of a Cabinet too gauche to save itself.

What could he do? Not relax the inflation target, not yearn for a weaker nominal exchange rate, not seek to assist industry with a raft of assistance measures, and not tinker marginally with welfare and labour markets. The time for marginalism has passed. Government should drastically reduce expenditure, signalling lower taxation, once the expenditure cuts are secured. Such a move, would leave National having to either agree, or, enter government again as the Party of ‘Think Big” government outlays. If the latter, then they would spend the next three years defending political cowardice that was prolonging Ni’s sentence of minimal growth and mounting debt.

And how would you cut government expenditure ? – Remove all universal benefits rapidly over 5 years, the major one being National Superannuation. Replace them by tightly targeted, last resort, and minimal, support.

And what would that do ? -Make us all save like hell, lower real rates, spur investment and force industry to focus on selling abroad. They’d be little spending at home.

But some of us can’t afford to live, let alone save ?- How many is “some”? If we don’t raise saving now, then many more than “some’ will have serious affordability problems.

And what about those who can’t save? – They get their welfare directly from others in their family, or voluntary agencies. Would you let your mother starve?

But if there is no family support ?- Then minimal care from the government; food and shelter.

It seems very tough – No, its easier on the great majority who want to work, save, and who value the family, rather than the State as the core unit of society. Consider the alternative; an economy that cannot perform because of the pressures big government places on investment and its rewards.

So could a NZ government provide the leadership required for such fundamental reform ? -Read the candidates’ policy offerings, reach your own conclusions- Caygill, Palmer, Bolger, Burdon, Birch, Peters? Is market confidence suicidal or simply finding the appropriate country risk premium?

Sleepwalking To Oblivion 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.