Gareth Morgan, Director of Gareth Morgan Investments
Only two weeks after castigating Paul Keating and George Bush for considering an expansion of fiscal policy as an appropriate means to accelerate economic recovery, our own PM has returned to his roots launching plans for NZ to do the same. Under immense pressure from the imminent loss of one of National’s safest seats the PM has responded by indicating how he intends to spend other peoples’ money to spend New Zealand’s way rich.
The PM claims that tourism, transport, and education all are in need of infrastructural investment to meet their growth potential. The normal sequence of events in making an investment decision is that the supplier of the product first surmises investment is necessary to capture greater earnings. This conclusion is reached from analysis of consumer demand. The best analysis notwithstanding, when he commits a sum of his own funds, and convinces his bankers to advance the rest, he proceeds on the basis that he is exposed not only to potential gains but is prepared to suffer the consequences of getting it wrong. That is, there is a risk. This risk conditions the investor to control the quality and quantity of his investments.
Compare this with government-inspired investment decisions of the type Mr Bolger again yearns for. Firstly the government’s outlays can be made on the whim of a few in Cabinet who need have no commercial nous. Since it’s not their money being laid down who cares if it doesn’t return adequately. Accountability for the decision is practically zero since by the time the investment matures and its success can be judged, the transient protagonists have politically deceased. The last National government had a strong predilection for simply passing costs on to future generations. They still haven’t cleaned up the mess of Muldoon’s National Superannuation, their Think Big legacy haunts the government’s balance sheet still today, and now they crave to do it all again.
It is difficult to respect Bolger’s initiative for anything but a short term lunge for Tamaki votes, coupled with a long run yearning to have some major project with his name on the plate. For a government so indebted and with such an appalling record of investment the last time it had Bolger in its Cabinet, it will be difficult for creditors to react in any way but negatively to the PM’s plans. A negative reaction will ensure the private sector investment recovery which is seeding right now, will be crowded out as the reckless fiscal cowboys of the 1970’s ride again.
But who cares if bond rates rise? Certainly a government staring oblivion in the face anyway won’t. If a bevy of government investment initiatives is able to buy some short term activity and raise chances of re-election from zero, then it would be an obvious winner in a Cabinet concerned with clinging to power no matter what. What chance political rejection of his idea? Fat chance.