Thoughts on National’s change of heart

By Bill Kaye-Blake 27/01/2013

Blogging is often just mouthing off in public. Informed, well constructed mouthing off, to be sure. Which means that the accuracy is about that of all forms of mouthing off — hit or miss.

So it is with pleasure that I report that the Government finally agrees with me.

Two years ago, I explained that Government policy was divided in two. Austerity for most of the country, and a generous, insurance-funded rebuild for Christchurch. The two parts fitted together. Although the economy wasn’t strong, the Government could back its zero budgets because of this other pot of money.

It was like a trust-fund kid, ‘living off’ the meagre wages from an internship, except that the car and apartment were provided by the family.

It wasn’t a bad plan, really. The financial position of the Government was strongly dependent on how the rest of the world reacted, which suggested a cautious approach.

However, it relied on getting the rebuild going. By forming Cera and making Brownlee the Minister for Saving Christchurch, the Government set the rebuild to one side, as something running in parallel to all the other functions. This approach masked the importance of the rebuild spending for the rest of the economy. The two parts of the economic plan — austerity plus rebuild — had to run in tandem.

But as I pointed out, it wasn’t working. Each quarter, the numbers suggest that Christchurch is providing a small boost, but nothing like what was needed. We had austerity without the trust fund. We discovered that living within our means in a worldwide recession isn’t that much fun after all.

Friday, the Government announced a few measures. The 10,000 to 14,000 apprentices is clever – injecting money into the economy while addressing jobs and the rebuild all at once. But the main thing was Key’s comment that they were knocking it off with the zero budget thing. That was the signal that the Government is looking beyond austerity and thinking about what it might really take to build a strong economy.

And that’s a good thing. Nice to see them coming around to my way of thinking.

0 Responses to “Thoughts on National’s change of heart”

  • Expansionary fiscal policy, or at least less contractionary. But what of RBNZ? They see current rates as stimulatory; they worry about medium term return of inflation as Christchurch gets going. Doesn’t a more expansionary fiscal policy just mean that RBNZ tightens more quickly or fails to reduce rates when it otherwise might?

  • The issue with the delays to the rebuild in terms of demand was that the RBNZ didn’t respond as much as they would have if they knew the rebuild would be delayed.

    We aren’t in a zero lower bound world in New Zealand, so I’m not sure that framing changes to government spending as austerity is quite the right sort of way at looking at it – as long as they are running a cyclically adjusted balanced budget, they can focus on the direct supply side impact of their policies. Which is also how they should communicate them in this case.

    • No disagreement. But if there are parts of RBNZ worried that we’ll be hitting price inflation due to quake rebuild, and that within the next year or so, then an additional fiscal push by government could yield RBNZ offsetting action.