National claims its $9 billion stimulus package is one of the largest in the world and will protect New Zealand from the worst of the recession. But much of package is in fact old spending re-announced, including most of the previous government's 2008 Budget and the purchase of KiwiRail that National so vehemently opposed

News sites and radio bulletins today are full of the government's $500 million infrastructure spending plans, as part of its $9 billion stimulus plan for the economy. What they're not telling you how the government is cutting and pasting old numbers under new headlines to make itself look more pro-active than it really is.

The $484 billion promised to "kick-start the economy" includes $217m for education projects including five new schools and $142 for state highways and bridges. The government says it's "the latest in a series of initiatives" to combat recession.

In truth, it's a bunch of already budgeted-for spending plans re-announced and labelled a stimulus package. The Kopu Bridge replacement was already on the books; it's just been brought forward. The five "new" schools? Anne Tolley admits in her press release that the $69m committed will simply "accelerate" the building of schools that were already planned. If you compare the list of schools to be renovated, it bears a remarkable resemblance to the schools the Labour-led government had already promised to retrofit while it was still in government – Cambridge High, Manurewa East, Pt Chevalier, Christchurch South... they were already expecting the builders to turn up. The same can be said for the state housing upgrades.

No-one in either National or Labour seems to be able to say just how much of the infrastructure scheme is new spending and how much is re-heated. "That's proving quite difficult," one Labour staffer told me wryly. But it's not a lot.

All we can say for certain is that after four months of promising the country an infrastructure stimulus that will take the rough edges off the recession, the government is bringing some projects forward, but offering little in new ideas or money. In contrast to the US$800 billion-plus new spending being debated by the US congress, National's plan is neither bold nor swift.

Infrastructure was something National has long criticised previous governments for under-funding. Back in September, less than a week after Lehman Brothers had collapsed, John Key criticised Labour's handling of infrastructure as "complacent" and assured voters that National already had a "carefully considered plan for achieving a step up in New Zealand's infrastructure". He said:

Infrastructure allows us to unleash the skills and talents of our people and our businesses. Fundamentally, it underpins better and stronger growth.

Five months later, the credit crisis has turned into a once-in-a-lifetime recession and the need to stimulate the economy is desperate, and all National can offer is projects already identified by "complacent" Labour? John, where's the plan?

Today's effort is indicative of how the government has been selling its entire $9 billion stimulus package – long on rhetoric, but fudging the facts.

The government has claimed the total package is worth around five percent of our GDP. As John Key said last week:

The combined effect of this infrastructure spending, together with tax reductions, will mean that New Zealand will experience a fiscal stimulus amongst the top five in the developed world, when compared on a relative basis.

For the past few days I've been in touch with Bill English's office, trying to figure out just what's included in this $9 billion and whether the government is being straight when it claims that our stimulus package is, by GDP, amongst the top five in the developed world. As yet I've only had a partial reply.

The top five claim, I'm told, comes from cross-country comparisons of GDP as per the OECD's Economic Outlook from November last year. I can't see the appropriate page without buying the report, but a spokesman for Bill English says it shows New Zealand "having the third highest fiscal stimulus over the years 2008, 2009 and 2010."

I found that hard to believe, but then the comparisons are shifting sands. It's hard to pin down GDP figures, the time over which the money is spent and how much of the spending announced is new.

All we can say with confidence is that most OECD countries have been spending between two and four percent of their GDP on stimulus packages (Canada 2.5 percent, Sweden 3 percent, Germany 4 percent, and so on).

Australia has gone further. If you accept its total stimulus spending as A$78 billion (including all its announcements since September), then it's around 6 percent of its GDP. The Obama package being debated now is around six percent of GDP, and that doesn't include the Bush packages and bailouts. Japan's stimulus plans thus far would take it into double figures. While it's not in the OECD, China's stimulus packages are around 15% or more.

So we may be in the top five – just – if you accept the government's $9 billion figure. But I don't. Why? Because Key and English aren't comparing apples with apples.

Roughly US$544 billion of the Obama package is new spending; the bulk of the Australian package is new spending (though I haven't looked into every line). Ours is not. Not by a long way. While the $9 billion stimulus package has been spun to look like the government's response to the global recession, much of the spending pre-dates those events. It's a political bait and switch.

English's spokesman told me the $9b includes not only National's April 1 tax cuts that it has been promising for several years should it win the election, it includes much of the spending announced in the Labour-led government's last Budget in May 2008. That's right, the spending planned by the previous government and announced nine months ago – five months before the credit crisis exploded – is being counted as part of this government's efforts to "help many businesses and families keep their heads above water".

Perhaps most incredibly, it includes the $690m purchase of Toll New Zealand's rail business, that became KiwiRail. At the time of purchase, then-leader of the Opposition John Key said:

"The reason that the trains were painted red, is so that they can be a constant reminder to the taxpayers of New Zealand, that's the colour of the ink that will be flowing through the books post this purchase."

Just before Christmas, Bill English said there was no money to pay for the extra $120m Labour has promised to invest in KiwiRail. English said:

"A large part of the capital programme promised to KiwiRail...there is no money for it."

Now the pair are claiming that spending as part of their recession rescue plan.

The same smoke and mirrors are being used looking ahead as well. The government has no intention of spending new money on any initiatives that come out of the Employment Summit at the end of the month. They will be paid for out of this existing $9 billion.

So just how much of National and ACT's $9 billion package is new spending? I'm waiting for Bill English to answer that question. I've also asked Labour's people to look into, but it's complicated and I don't have an answer yet. I'll let you know if or when I get one.

The government may be wary of over-stimulating the economy given the interest rate cuts and falling dollar. It will also have one eye on the budget and want to hold some gunpowder in reserve until then. But pretending to simulate the economy when it's not is risky and dishonest.

This government is trying to look pro-active when it has in fact decided to sit on its hands and do as little as possible in the face of the global recession. While other government's are coming up with new recipes in these unprecedented times, our leaders are simply reheating the same old stew. Voters deserve to know why.

The government must explain itself on two fronts. Why has it chosen not to follow the course of other countries and inject new money into the economy at this perilous time? And why is it pretending that it is?

Comments (5)

by Steve Barnes on February 11, 2009
Steve Barnes

This is very interesting Tim, thanks. I would never have guessed that the government would include items like KiwiRail in its package (but then again, I would never have thought to have looked either).

My question to you (and other readers) is what should the government be investing new money in as part of its stimulus package? What are some options for new funds that haven't been identified but should be considered?

by J Keenan on February 12, 2009
J Keenan

Sorry to be a little anal but I think the Australian govt has pledged 78 billion rather than million as you report.

You don't have to post this in the comments (correction purposes).

by Tim Watkin on February 12, 2009
Tim Watkin

Thanks J. Correction made. It just shows that it's hard for my sub-conscious to get its head around the huge dollar amounts involved.

To answer your question Steve, I'm most intrigued at how some countries – the US and Australia in particular – are using this spending opportunity to start to green their economies. When you're injecting 5% of total economic activity into an economy you can have quite an impact on demand; in this case create enough demand for new green products that might otherwise struggle to get going, and move them more quickly to a place where they can reach economies of scale and cut their prices.

An example? The most recent Aussie stimulus increased the solar hot water rebate from $1000 to $1600. That will make it more affordable for more people, and as demand increases solar companies will be able to cut prices, making it more affordable for even more people... a virtuous spiral.

Given all the energy issues we have here, getting more people onto solar would be smart. Australia also offered free ceiling insulation to every uninsulated home. That not only saves on energy, it improves health. But John Key has talked about that, so maybe he's still got that plan up his sleeve (although delaying makes no practical sense).

And while we're on the topic of energy, why not some money to make sure the oil drilling off Taranaki and Southland doesn't fade away over the next two years? Let's invest in our own oil industry.

The US is spending $10 billion on new science facilities and Australia is building 500 new science labs or language centres in needy schools. What a great opportunity to develop the sciences in this country...

The thing is to show a little vision. What do we want long-term for this country? A smaller carbon footprint? More scientists? When spending is or the economic good and you have a blank sheet to work with, now's the time to think about long-term benefits.

What other suggestions do people have?

by Chris de Lisle on February 12, 2009
Chris de Lisle

Wow! Thank you for turning this up!

If they're taking credit for KiwiRail does that mean that they are going to invest that extra $120million after all? Or would that being going too far?

I think that the question as to why they aren't actually spending is a good one. Perhaps the hope is that the Japanese, American, Australian and European schemes will pull the world economy out of the gutter and us with it, without New Zealand incurring the massive budget deficits that these schemes entail (Question: Where are all these countries getting the money from? I assume they're borrowing, but from whom?)

As for where to spend- I think for New Zealand, the goal has to be plugging the brain drain. As a nation we're stuffed if we keep losing people. It's also been a pet gripe of National's, so they must be eager to solve it. Investment in schools is a good start, but I'd suggest write-offs of student loans for graduates who stay in the country (particularly docters) and an active program to enable professionals in lower wage economies like India to migrate and settle here (Theory being that the wages here are a step up for someone there, rather than the step down they are for someone coming from Britain or Oz). Something to reverse the ageing population- like a kiwisaver bonus on childbirth might be good, but I can't see how it could be made to also kick start the economy in the short term.




by Tim Watkin on February 16, 2009
Tim Watkin

Chris, if you check out the comment thread on my other piece on the stimulus package you'll see another Punditeer, Nikki, has pointed to the 'increase immigration' idea as well.

Writing down student loan debt for graduates who stay in the country is a good idea. From memory National were making some promises along limited lines during the campaign. Was it doctors in certain areas?... I just went and check on our good ol' election quiz, and there was National's policy:

National will introduce a "voluntary bonding" scheme offering student loan debt write-off to graduate doctors, nurses, and midwives agreeing to work in hard-to-staff communities or specialties for three to five years. According to the education policy statement, “We will consult organisations such as professional colleges and universities, and the Ministry of Health, to ensure graduates in the scheme are placed where shortages are critical. We envisage: A maximum annual write-off of around $10,000. The amount will be set for each occupation based on the average student loan debt levels at graduation. The first three years of annual write-offs will be made when the professional has been in place for three full years. The remaining write-offs will be made annually.

Sad they didn't get that into their first 100 days!

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