Category: Economy

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National: cutting their way into the recession

At Pundit Nicky Hager has an article up about National’s “spending” plans. Based on leaked material he shows that, having started to realise the gravity of the recession, English has increased capital expenditure by no more than an additional $250 million of capital spending a year: in terms of government spending that’s nearly nothing. As Hager concludes:

As the country heads into the worst recession of our lifetimes, John Key and Bill English have decided against any significant economic stimulus package. As other countries acknowledge the magnitude of the crisis and spend, our Cabinet will be putting their energy into finding places to cut.

At the same time the National cabinet is taking a knife to operational spending: 10% here, at least 500 jobs there, 30 more over here. These cuts of operational cuts will very quickly add up to $250 million, not to mention poorer services for all New Zealanders,

So National’s plans to get us out of the recession are… exactly what their plans always were: cut, cut and cut. Less service, less support, and what money there is will be redirected to the private sector labelled “infrastructure investment” and “improved competition”.

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Short not-sharp shock

NatRad’s PCR Jane Patterson on Nine to Noon this morning characterised the government’s counter-recession plan as “drip-feeding”, opposed to Obama and Rudd’s “big bang” approach (audio). But drip-feeding would imply a long-term commitment, and Key doesn’t believe the recession will be a medium or long-term problem.

Rather than either of those metaphors, I would characterise the front-loading of already-planned expenditure and development into the coming six to eighteen months as a short sharp shock; however, given the relatively small amount of expenditure and development in the plan, it’s not even very sharp. Of course, there’s the argument that the government doesn’t have any more money to spend, but Key has bet on a short recession, and that implies short-term debt. I would think that if one was betting on a short recession, one would do everything in one’s power to ensure it was a short recession.

If it turns out to not be a short recession, Key (and English) will have to return to the drawing board, and that will very likely mean another short (perhaps sharper this time) shock, rather than introducing a strategic counter-recession plan mid-term and mid-recession. DPF raises (in some jest) the idea that Key might emulate his hero Muldoon on another matter, but to me it looks like this track could lead to economic micro-management of a very Muldoon-like nature. And the broadband plan is very Think Big.

L

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Freedom?

The right-wing fringe think-tank, the Heritage Foundation, has scored NZ slightly higher on its yearly Index of Economic Freedom. NZ comes in at number 5. Rankings here.

This despite a Labour-led government being in charge at the time the data were collected.

According to the Heritage Foundation, the increase–from 80.6% to 82%–was due to improvements in trade, investment and property rights. The Herald notes that, “Freedom from corruption declined but remained high at 94 per cent, and labour freedom fell but was also high at 89.65 per cent”, but doesn’t tell us that the “labour freedom” score declines with higher minimum wages, protections against arbitrary dismissals, etc. It doesn’t mean freedom for workers. Still, with December’s stripping of low-end workers’ protections against arbitrary dismissal (barring provable discrimination), NZ should score even higher on this “freedom” next year.

Interestingly, NZ came in just behind Hong Kong, Singapore, Australia and Ireland, and just ahead of the United States and Canada. What do all these countries have in common? A clue… Britain came in at number 10. Yep, the English-speaking, common law countries–all ruled by Britain at some point– share a predilection for light regulation of business. (This is borne out in the rankings of the right-wing Fraser Institute as well.)

It will be interesting to see how the Anglo-American economies and their Asian cousins fare compared to the rest of the world over the next couple of years.