Budget 2012 lays the ground for the battle of the narratives that will decide Election 2014. Yes siree, the campaign begins now, with the blame game

No-one will argue this week that Thursday's zero Budget is a good thing – not out loud, anyway. A necessary thing, a sensible thing, even a wise thing, but not something you'd take home to show your mum. Some will, however, argue that this budget amounts to a failure, and this battle over the narrative behind the numbers is the first big battle of the 2014 election campaign.

Times are tough, and have been since 2007, at least. There's little sign it'll get much better before the next election. So the crucial question is who people will blame for their travails.

That's why Greece is suddenly on everyone's lips at the moment.

Although it means nothing in Athens, of course, the failure of Greek parties to form a government is another piece of good luck for National. Who says beware Greeks bearing gifts? Not John Key and Bill English.

So long as headlines of Eurozone crisis keep appearing New Zealand voters will be reminded of two things: First, we're lucky to be in New Zealand and not in Europe because it could be worse. Second, it's all those American banks, Greek politicians and Euro-fools who are responsible for the global economic downturn, and New Zealand's own troubles are an unavoidable result of that.

In that light, National has done pretty well saving us from the worst of it, haven't they? And there's certainly a case that English's conservative economic management has taken the edge off the recession. Having learnt the political lesson of the past generation, he's resisted any temptation to follow a Richardson- or Douglas-like prescription. His cuts have been round the edges, he even used stimulus in his early years.

You can argue against where he's cut and the tools he's used for stimulus – as I have – and you can point out that he still led us to a credit ratings downgrade and sod all growth. But as many voters feel, it could have been worse and some useful savings have been made.

That's why John Key has been talking about Greece the past few days – nothing to do with economics per se, but everything to do with politics and the 2014 election. As long as voters keep blaming the Greeks, they're not blaming National.

Better still for National, the worse the situation looks now, the more triumphant will be its cry when it returns to surplus in 2014/15. Labour argues that a child could return us to surplus in the next couple of years; Key argues the Euro crisis puts it all at risk. Those are tea leaves I don't pretend to be sure of, but let's keep it real.

We rely on Asia, and Asia in part relies on Europe and the US. So in this ultra-connected world the risk of more global recession remains. On the other hand, it's no coincidence that National thinks its heroic efforts to rebalance the economy will bear fruit in 2014/15 – just in time for the next election.

Funny how the economic targets fit in so well with National's electoral goals.

Opposition parties have finally twigged that the only way to dent National's poll numbers is to pin some of the economic blame on them. Which is why David Parker's pre-Budget speech this morning was titled: Change nothing and nothing changes – Don't blame Greece!

And it's why the Greens commissioned a report designed to point the finger at National and Russel Norman is stressing that:

"The National Government has dug itself into a hole with poor economic management and poor choices; asset sales would only make it worse."

In other words, it's not the Greeks, it's this lot. And there is an alternative. Whereas the austerity line now being followed by National has done nothing to solve Europe's problems, the more stimulatory approach used in the US has proved more successful – and Europe's leaders seem to be conceeding on that front.

As the mood elsewhere turns away from austerity, Labour and the Greens will try to hitch New Zealand's wagon to that 'we need growth, not cuts' narrative.

It's this debate that will mow the grass, paint the lines and roll the pitch on which the 2014 election will be played. So who do you blame? Them over there? Or them in the Beehive?

Comments (17)

by Andrew R on May 22, 2012
Andrew R

Wow!  You got through a whole article without reminding us why comparing New Zealand to Greece is such a factual nonsense.  The major difference is that we have our own fiat currency, Greece does not.  And our private debt is much higher than public debt.  And we sort of pay our taxes (although the national cuts to top earners and increasing gst is some of the more notable economic stupidity that we have seen under the bumbling cross your fingers and hope approach of Key/English).  Oh and why do we continue to waste so much money on roads of national significance that fail the usual benefit cost critieria for public spending?  And providing such large corporate welfare to heavy industry and farmers (e.g. via not being part of the ETS scheme)?  This government has options other than austerity and flicking our public assets to their mates, they just choose to ignore them.

by barry on May 22, 2012
barry

What next! Do we thank Bill English that we have not got as bad as Haiti yet?

by Tim Watkin on May 22, 2012
Tim Watkin

Andrew, I fear readers may be getting bored with me stressing the difference between private and public debt; if that's what you want to read, you can have a look at any number of posts I've written about that! Your other points, however, are good examples of the alternative narratives that will get a wide airing in the next two years.

My point today wasn't to argue who's right or wrong, but to talk about the tactics at play.

barry, not Haiti of course... but that raises an interesting point. Who do we contrast ourselves with now that Europe is a single zone and a munted one at that? Australia's done better, most of second world Asia (as opposed to third world) has done better (growth wise), America is really its own planet, and no other countries really fit the bill.

by stuart munro on May 23, 2012
stuart munro

"A necessary thing, a sensible thing, even a wise thing, "

No, none of those. A crude and stupid act, a desperate and despairing act, and ultimately an ineffective act, the kind of act we have come to associate with a government without the sense to come in out of the rain, or to hold onto a few good earning assets rather than blow the money. You know when you start mistaking a complete plonker like Bill English for a wise fellow that it's time to take a stress pill and a couple of mental health days.

Having reduced our economy to 2007 levels, what prodigies of austerity will he come up with next? I suppose hair shirts and whips are onthe cards - maybe even the human sacrifices from Flaubert's Salambo - wonderfully austere. Maybe he'll even do the world a favour and embrace martyrdom.

But as with most thaumaturgical approaches to economics it won't work. We need growth. Growth occurs in benign environments, not hostile or inimical environments. This is why New Zealand, with a cryptofascist government and no prospects does not grow, while Australia, which is culturally and demographically not dissimilar grows handily under a more generous and less ideologically hidebound regime.

by Chris Trotter on May 23, 2012
Chris Trotter

As things now stand, Tim, I suspect your right. But I'm not certain the global economic situation will remain the same. In fact, if this http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9263196/World-edges-closer-to-deflationary-slump-as-money-contracts-in-China.html 

by Ambrose Evans-Pritchard from The Daily Telegraph is correct, the situation in 2014 could be worse by several orders of magnitude. What happens then: whether people opt for the devil they know, or reach out for something - anything - that offers them some hope, remains to be seen.

How many of us, in 2006, correctly anticipated the state of the world in 2008?

by AIC on May 24, 2012
AIC

Tim - you mention the 'austerity line' being taken by National.  Are you able to provide a little more clarity as to what you consider to be austerity? 

When I look at the numbers, I see a National Party that is acting in a relatively Keynesian fashion, and is running sizeable deficits.  They have cut at the margins, but left most of the automatic stabilisers in the economy unchanged.  No doubt National is trying to sell themselves as a party of thrift, and there are a few reforms playing to the base, but you need to look past the narrative to their actions.  To me, if reflects a bit of the same laziness I see in the media, drawing artificial dichotomies between austerity and stimulus in order to make a point.  IMO, we won't really know what way National will head until they release their next two budgets.

by Tim Watkin on May 24, 2012
Tim Watkin

Chris, Evans-Pritchard has at the gloomiest end of finance writers and was predicting Europe would fall over years ago. Of course he may have been early rather than wrong, but the facts are he hasn't been right yet. We'll wait and see, but as you know there are huge vested interests there to try to stop the worst happening.

Thing is, though, if things really could get as bad as all that, doesn't it rather give weight to English's argument? He's pushing like buggery to get debt down now – although not as slashily as a Ruth Richardson – because he wants NZ to be ready and resilient for the next crash. Those of us arguing for a little more stimulus could well end up on the wrong side of history if it gets that bad, because stimulus here in NZ will make sod-all difference if the rest of the world starts melting.

AIC, I think you can judge a government's path after four budgets, without waiting for another two. Having said that, you make a reasonable point – many on the left don't give English enough credit for the surprisingly keynesian bits in his economic management, as I hinted at in the post. I'm planning to post more on this when I get a minute. But no, obviously I don't agree I'm creating lazy dichotomies etc. The point of the post was less economic, more political. Voters typically get presented with competing visions as parties try to accentuate their points of difference and it's that political contest of perceptions I was writing about.

 

by DeepRed on May 24, 2012
DeepRed

There's both austerity and stimulus, but both are wildly uneven. For the most part austerity seems to lean towards the lowers and middles, and stimulus towards the uppers.

The moves to close tax loopholes was one of the better announcements, but it still doesn't address the pork being dished out - how the Roads of National Significance slipped through Treasury largely unnoticed boggles the mind. Who was it that exposed Think Big's overruns and had it discredited? That person needs to signal red alert on the RoNS, and not before time.

by Richard Aston on May 25, 2012
Richard Aston

Its a good point about the red herring of Greece or Europe . Our economy is far more linked to Asia, Aussy and the US, none of whom are in reccession to the level europe is.

I was at a conference speach Bill English gave a few weeks back , lots of talk about the shit storm brewing in Europe then an implied linkage to times are tough there is no money we need to tighten belts etc etc .Felt like spin.

I am no economist but wasn't that the reason the great depression was so ... depressing , world governments went on an austerity bender cutting back on everything and in the process depressed the economy even further, for longer?

Others are calling for stimulas or at least more imagination , I'd like to hear more about that approach. If we really don't need to fear the impact of a euro crisis then why are we so focuses on "balancing the books" at what seem like the expense of imaginative approaches to ... I don't know.. our growing unemployment problem , housing affordability issues in Auck to name a few.

Also , "balancing the books" feels like spin to me - good emotional phrase that most people will link to their personal finainces but what does it really mean at a govt level.

 

 

by Richard Aston on May 25, 2012
Richard Aston

On a tangential note - I notice the the Vote Internal Affairs section of the budget the amounts for Former Governors-General  , $435,000 annuities and Former Prime Ministers $430,000 annutities and domestic travel . Thats $860 grand to former leaders, Why? I mean they are not going to be short of money, work offers or speakers fees.

I also hear from a good source that Helen Clark still uses the above fund when she comes back to NZ or flys her husband to New York.

Yeah yeah I know its not a lot of money but ....

 

by AIC on May 25, 2012
AIC

Tim - I understand you are coming at this from a political angle, but to me, this whole "contest of perceptions" is something the media should be trying to cut through, not accentuate. 

National have had four budgets, and have run considerable deficits.  I find the idea they are 'austere' unsupportable, unless you are running a different definition.  They have made some cuts, but in a macro sense they are running a stimulus.  You may want more stimulus, or a different stimulus (for example less roading and tax cuts), but on the numbers I don't think your analysis stacks up.

Now, National have stated they wish to come back to surplus in two budgets time, and if the economy doesn't rebound, and then they still try to reach that target, I think you have a case.  But at the moment, their projection for surplus isn't overly austere: if one was to criticise it, it would mostly be around the rosy growth projections that support it.  English and Key are nothing if not pragamatic, so while they may be spinning hard on debt right now, I think it remains to be seen what will happen if the numbers don't improve.

Richard - our link to Europe is not spin.  The problem is finance.  If Europe descends into shit storm, most countries are in a lot of trouble.  The banking system is massively interconnected, and if there are widescale defaults, a chain of dominoes will fall.  The Asian countries are all heavily exposed in Europe, where they have been parking their excess savings.  The big US banks are also heavily implicated.  If Europe goes tits up, the global banks will all retrench, business confidence will crater and NZers will likely see a fall in export revenue.  Because we also don't save any money as a country, we are also quite exposed to a dry up in liquidity.

To be honest, I think there is a good chance things will get worse.  One of the key problems in Europe is not that governments like Germany want austerity.  I think if Germany was in trouble, they would be happy to spend.  They are just not prepared to dig as deep as is required to bail out retired Greek hairdressers, which is a reflection of how poorly designed the Euro was.

by Tim Watkin on May 27, 2012
Tim Watkin

Richard, I agree re the depression. Of course it's not cut and dried – borrow way too much and you end up like Greece. But we're nothing like that level of debt, we're not tied to a join currency, we do pay taxes... Fact is if the private sector's not spending and the public sector is cutting, well, a downward spiral it is.

But I wouldn't be quite to dismissive of Europe's problems. We're all so interconnected these days. Yes, we're more tied to Asia, but Europe is China's biggest customer and the US and the EU do huge business. So if Europe keeps cutting, the US and China sell less, they get poorer and buy less from us.. and so on. That spiral again.

by Tim Watkin on May 27, 2012
Tim Watkin

AIC, you seem to be determined to disagree with me, even though you're repeating some of my own lines (eg you may want different stimulus, but English has undoubtedly used stimulus).

You my not like talking about pecerptions, but they kinda matter in politics. Sometimes I try writing things that try to cut through and lay out the facts behind the spin, but sometimes it makes sense to address reality and how it's being spun! Indeed, you've got to see the perceptions and lay them out if you're going to challenge or critique them.

by AIC on May 28, 2012
AIC

Tim - sorry if I come across that way.  I suspect you have been getting some undeserved flack from my general dissatisfaction with the present economic debate in this country.  National are being very expansionary at the moment, I think that should rightly be the starting point for any critique of their policy. 

One point I would make though is that NZ's private debt levels are very much relevant, because they limit the government's ability to raise additional revenue (given people are quite squeezed trying to make debt repayments) and increase the likelihood of government socialisation of losses (a point made when NZ's credit was downgraded).  NZ is in very difficult waters at the moment IMO - if the economy does not rebound, and the government's finances continue to deteriorate, we will see our options progressively narrow (much like the UK, which is more indebted, as is trying to juggle recovery and very high debt levels).

by AIC on May 28, 2012
AIC

Sorry, meant to say we are a few years away from being in the awkward position faced by the UK. 

by Tim Watkin on May 28, 2012
Tim Watkin

Yeah, good points AIC. We agree on mcuh, I suspect. But I'm not sure I buy the 'expansionary' line. I'm not entirely sure what you mean by that word, but while I accept they've maintained some relatively high debt and spending this far, that's changing.

Rather than go on in these comments, I might get around to writing the post I've been meaning to write on this topic for sometime, which has been reinforced by the Budget. Le's talk again then.

by AIC on May 29, 2012
AIC

Tim - their fiscal policy is expansionary (in the macroeconomic sense), as they have been spending considerably in excess of revenue (70 odd billion or so).

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