Why isn't National more stimulating?

While the government sends parliament into urgency to pass stale bills, its response to the global financial crisis is about as urgent as a tortoise

Advent is the season of expectant waiting and reflection, the word derived from the Latin word for "coming". Yet since it began at the end of November, world governments have been busier than Santa's elves acting to staunch the economic wounds opened by the world financial crisis. Waiting hasn't been an option and the words "stimulus package" have become part of the daily news lexicon.

America led the way with its $700 billion bailout, but other countries have rapidly followed suit. In less than two weeks stimulus plans have been announced every couple of days. Around the Pacific Rim, especially, there has been frantic action. Last weekend it was China revealing plans to spend $568 billion to spark its economy. Late last week Kevin Rudd in Australia announced a second package, following one in October. Together they amount to US$20b. Soon after, Japan committed over US$400b to its recovery.

Elsewhere, over the weekend European leaders said the EU would share US$265b amongst its 27 member-countries and India, struggling with an already large deficit, committed a more modest US$4b to its economy.

So where is New Zealand's response? Because we had tax cuts ready to go from October 1, it was safe for the parties to get through the election campaign without any sense of panic or missed opportunities. Some stimulus was already in play. But the government's mean in place a month and there's been nothing new, nothing to suggest that this crisis is changing and evolving by the day.

National has promised a package some time this month, which Finance Minister Bill English has said will be worth about $7b, or four percent of our GDP. How does that compare to other countries?

With the vast numbers being promised, it's fascinating to do the maths to see just how those numbers stand as a percentage of other countries' GDP. The $33b committed by France, for example, is less than two percent of its GDP, much smaller than the promised package here. What about the other countries I've mentioned?

  • Australia's US$20b is a little under three percent of its GDP.
  • India's $4b is just half a percent of its GDP.
  • Japan's spending a whopping ten percent of its GDP.
  • China tops them all, promising a stimulus package worth nearly 20 percent of its GDP to keep its economy afloat.
  • And the promise being promised by Barack Obama for February? At $500b, it's around four percent of America's GDP. Of course that's on top of the $700b already spent.

So is New Zealand being too cautious? I don't feel qualified to answer that. On one hand our economy – especially national debt and employment – is in better shape than most. On the other, our neighbours seem to be out-spending us and we don't want to be caught a few steps behind when the global economy finally begins to turn.

Treasury reckoned in its advice to the new government that we didn't need further stimulus now. But, having a quid both ways, it added:

“Should additional fiscal stimulus be used in the short term, it will need to be timely, targeted and temporary.”

For now at least, English's four percent plan seems reasonable, as does its focus on infrastructure. Roads, railways, schools and so on are hugely expensive. In the building boom of recent years, we taxpayers have paid a premium. In a recession, contractors will be willing to cut margins to get the work, so it's a perfect time to build. And build. The government mustn't miss this opportunity.

National is also expected to pass its $42m relief package of those made redundant during this recession. We don't have any details, but it's a start.

Nevertheless, the questions remains about why the government isn't acting faster and with greater concern. While the world faces the greatest economic crisis for half a century, parliament has been in urgency passing laws to... fine truants more. It's been six weeks since the NZX and New Zealand Institute issued the second version of their Economy on the Edge paper, stating, "This is not a time for incremental steps". While I don't agree with all their prescriptions, it's proof that the ideas and urgency exist in some quarters.

So where's the government's urgent response? Why are our politicians repealing old laws and passing stale, fringe legislation, rather than debating creative new policies that could rescue us in our time of need? (And before you reference the 90-day probation bill, don't bother. That's two year-old legislation, not a new idea for the times).

Rod Oram made a similar point in his Sunday Star-Times column yesterday, saying that the speech from the throne had only "a few perfunctory paragraphs about the global crisis."

All the speech offered was a bit of fiscal stimulus via tax cuts planned long before the crisis hit and some totally vague promises about the likes of transitional help for people made redundant, more infrastructure spending, better education standards and attempts to improve the bureaucracy. It was a speech for a time and conditions that no longer exist.

In the US, there's an energising sense of urgency. There's talk of major bridge repairs, visionary rail networks, greening the economy and more. There's a recognition of both a desperate crisis and a once-in-a-lifetime chance to rebuild. The only thing staying the new administration's hand is the transition period. Come February, it will be a blur of laws, funding plans and packages.

How different this government's first month. John Key made a lot of noise about leadership during the election campaign, especially financial leadership. This is what he's meant to be good at. Now he has the opportunity and the duty to act decisively. So where's the plan? Where's the real urgency and inspiration? As advent drags on and the rest of the world acts, we're still waiting.