Looking at the graph the government used to claim our fiscal stimulus was the third biggest in the world prompts some surprising revelations...
I've finally gotten round to looking at Treasury's Budget Policy Statement from December. It's this document that prompted the government to claim – and keep claiming – that New Zealand has one of the world's largest fiscal stimulus packages.
The government has said we have the third largest stimulus package in the OECD. And there, on page 11 of the December statement, is Figure 4, the graph showing our ranking. Who do you think take first and second place? I was more than a little amazed to see that we sat third behind... Iceland and Denmark. Not exactly the countries that have been getting the stimulus package headlines in recent months. But let's come back to that.
First, I needed to understand exactly what the graph is measuring – fiscal easing. Economist Brian Easton has been kind enough to explain this to me using the metaphor of a car. As he describes it, there's a huge difference between acceleration and speed. When you put your foot on the gas, you pump more petrol into the engine and the car goes faster. For a while. Soon drag – say, a recession – kicks in. You're pumping in the same amount of petrol, but you're not accelerating anymore.
Same with an economy. What fiscal easing measures is the acceleration, Brian says:
Treasury is... talking about the extra fiscal injection not the total fiscal injection, that is they are talking about having put the foot down since 2007, not how far the foot is down.
Having got my head around that, it's the dates that worry me most. From the start, the government was spinning this thing hard.
First, the OECD figures measure fiscal stimulus from 2007-2010, as based on announcements prior to November 14 last year. That means we're not talking about stimulus packages responding to the global recession that began in 2008, we're talking about countries' fiscal policies that pre-date the recession by many, many months. In short, to imply that our fiscal response to the recession is the third largest in the world is plain wrong.
Second, the graph was based on all data available as of November 14. I've made this point before, but the world has changed markedly since then. While our fiscal response hasn't changed major stimulus packages containing hundreds of billions of new money have been announced in the United States, Australia, Japan, Germany, Canada and other countries. Our ranking will have changed markedly and the government knows that.
The footnote for the graph even includes the warning, The fast-changing nature of the global situation and policy responses across OECD economies means that these estimates are subject to change.
Sad the government wasn't quite as upfront. While it seems to have quietly dropped such comparisons this week, Bill English is still spinning the $9 billion stimulus package as the government's own Jobs and Growth initiative, something this website has proven to be simply wrong. At best count, this government's initiatives to "protect New Zealand from the worst effects of the recession" can be counted on three fingers: bringing forward some already allocated infrastructure spending, reforming business tax (with already allocated money) and adding $550 million a year to capital expenditure.
The point, as I've been making all along, is that the global economic recession has deepened since November when the government took office and those OECD numbers were collected, yet its policy response hasn't changed. Tax cuts for the rich, tax reform and, er, a few new roads. National's (and to some extent Labour's) fiscal response to the recession has been small and poorly targeted.
Until last night I would have written that the lack of new ideas to protect our economy was just as worrying as the lack of new money being promised. The rumour that the government is considering a four day week for some workers, however, could persuade me otherwise (as you'll see in my other post this morning).
But nothing has been decided nor any money spent yet, so I'll just wait and hope.