public debt

The just published PREFU, Treasury’s assessment of the economy, raises more important questions about our fiscal stance than what the election is talking about. Have we the right borrowing strategy?

 

It was amusing how the Minister of Finance, Stephen Joyce, had to present the PREFU (Pre-election Economic and Fiscal Update) as both an optimistic account of how well the economy was doing, and yet caution that it was not doing so well that the opposition parties could spend or cut taxes big.

The policy dimension of the election appears to be about the concerns with past restraints on government spending and the consequential social failures. But whatever the rhetoric, implementation of campaign promises is going to be much harder.

Last Saturday, the Minister for Social Housing, Amy Adams, admitted her government had a poor record on social housing but promised to do better. On the same day, the Prime Minister said the government would (might?) spend $1.2billion on the Dunedin Hospital which was a similar admission of poor past performance on capital funding for DHBs.

Much of the commentary on the budget was shallow. What is really going on is that the changes are small but they reflect a particular political perspective. The financial threat was hardly discussed

Allow me to be irritated by the trivial discussion which surrounds the government’s annual budget. The budget is simply the government setting out its spending, revenue and borrowing plans for the year, as required by legislation and as has been a fundamental part of the constitution for three centuries.

Managing the government’s fiscal deficit need not mean cutting social expenditure.

An economic Austerian is someone who advocates cutting government spending, particularly social expenditures, in order to eliminate a government’s fiscal deficits. (The name is a portmanteau of ‘austerity' and ‘Austrian' from the neoliberal ‘Austrian School of Economics'.)

A major preoccupation of the budget was preparing for the next major financial crisis. To do so it is reducing government spending relative to GDP. Where do tax cuts fit in? 

Our politics reminds me those weekly serial movies where each week the heroine ends in an impossible situation but next week she miraculously escapes and the action moves on to the next impossible situation.