Eco-Economy: Fiscal Prudence and Debt Slavery

Michael Cullen’s fiscal prudence is now legendary. He has obviously held onto the treasury purse strings very tightly in his second budget. Almost all prominent government ministers have expressed the need to spend more money on Health, Education, Social Welfare, industrial development, etc. And all have missed out.

Resisting these considerable political pressures, Dr Cullen and his government have kept alight the torch of "fiscal prudence" passed on to them by the previous, also thrifty, government.

This is a budget that follows orthodoxy to the core. Treasury officials, the Reserve Bank and the all-powerful financial markets have nothing to worry about. Dr Cullen is clearly their man.

But is “fiscal prudence” also benefiting the New Zealand people?

Will the tight purse strings at the top stop young New Zealanders from leaving?

Since 1984 the political economic establishment has had as primary mission the reduction of public debt. This policy drove the privatizations, the user pays ethos and most importantly the whole idea of “fiscal prudence”.

They have been successful. Public debt is now down to historically low levels.

However private sector debt is out of control. We have become a heavily indebted nation.

The 1984 financial deregulations also saw the removal of government controls on credit creation, and since then private sector debt has been growing, fast.

The private sector in New Zealand owes more than NZ$125 billion according to Reserve Bank statistics. This amount dwarfs the government debt of NZ$20 billion.

But we still very much have a debt problem. The government's debt problem has been transferred to the people. Just because government debt is now down to “manageable” levels does not mean that New Zealand has a manageable debt level.

One result of the huge private sector debt is the scandalous balance of payment figure. Every year more than 8% of GDP leaves the country as “invisible” financial payments to faceless and unaccountable foreign bankers.

Meanwhile fiscal prudence is the cause of the departure of young people looking for work, because the public sector in New Zealand can no longer afford to pay them.

Michael Cullen takes his “fiscal prudence” position because he considers it more important to keep the finance industry happy, than to support our hospitals, schools and universities.

The real cost of “fiscal prudence” can be seen in credit card statistics.

Total outstanding credit card debt is presently $NZ3 billion, up 20% on last year.

When underpaid nurses and teachers need money they find banks falling over each other to provide credit card credit, which ultimately ends up being refinanced against their mortgages.

The government seems to believe that it is better for the lowest paid to clock up credit card debt, and pay 18% per annum in interest, than to pay them properly in the first place.

The policy of fiscal prudence is presented as a sound, careful approach to the financial management of New Zealand.

Instead “fiscal prudence”, combined with a financial sector free to create and lend as much money as it sees fit, has resulted in the debt enslavement of the New Zealand people.

Finlay Thompson,
New Zealand Banking Reform.
Ph 021 117 9149

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