Campbell: the ideology behind state spending cuts

Clearly, the cuts to government spending are being driven by ideology and not by the state of the economy. Yesterday’s figures revealed a government deficit of only $4.7 billion for the 11 months to May, which is an improvement of $1.1 billion on the position forecast in the May Budget, The main drivers of this improvement? The government’s take from GST was $240 million more than expected, while government spending was $558 million behind forecast.

So having previously cited the deficit position as a prime reason for reductions in state sector jobs and services during a recession – when the mainstream economic thinking usually accepts the need for deficit spending at such times – the apologists for this belt-tightening now have to revise their rationale. On Morning Report this morning, Business New Zealand CEO Phil O’Reilly went for the full smorgasbord of excuses: yes, government debt was low, but private sector debt was still high so we shouldn’t add to the overall burden. (So we should all pay the price in state services, for the private sector’s mis-management of their debt position?)

O’Reilly also argued that further belt tightening would somehow give New Zealand a competitive advantage over its trading rivals (So, cuts to welfare or border security staff will somehow enable our exporters to sell more to Asia ?) And all of this against a backdrop this week of Finance Minister Bill English promising even more cuts to public spending : "However, in many ways, restraint in the public sector is only just starting,".

Elsewhere in the world, governments have seen the need for deficit spending to keep their economies ticking over – and the jury is still out within the G20 nations and beyond, about whether those deficits should be being tackled now, or left until later, when robust levels of growth has been more firmly established. For now, our economy is still on a sickbed in the recovery room, with growth barely visible at only 0.6 per cent in the March quarter. Interest rates have been at rock bottom historical lows, but we are still not seeing much in the way of productive investment occurring, and that’s partly because domestic demand is still so weak - and so is demand in our export markets overseas as well, which has contributed to a corresponding dip in commodity prices. Credit is also still not easy to find. And this is a climate where more cost cutting and job shedding in the public service would be a good idea?

To repeat : government debt is not a problem here in any way, shape or form. . Currently, our public debt is forecast at $25.4 billion, which is only 13.6 % of GDP. That is something several Eurozone countries – and the US – can only dream about. It is the private sector (and households) that have a debt problem here. Keeping the economy barely ticking over on survival rations is not going to resolve that, and it may even make things worse. In sum, further cutbacks will inflict further pain to no good purpose socially, or economically.

But then – to repeat – the current stringency is about an ideology of hostility to the state, and not anything to do with economic sense. To the ideologues on the centre right, it is always a good time to cut back on state spending. If we are in a recession, the O’Reillys of the world will argue, we can’t afford state spending. If we’re in a boom, they argue, we don’t need it. And if we’re where we are now, in a sickly inbetween phase, they argue we can’t afford it, because we have to (somehow, by pulling on our own bootstraps ) turn this into a competitive advantage – and generally, be willing to cheerfully volunteer to accept less in the way of pubic services, in order to offset the private sector’s incompetence with respect to its own debt position.

In fact, there is another option. The government could be taking a leadership role and making judicious spending decisions – on R&D, capital investments and infrastructure – that would not only stimulate the economy in the short to medium term, but enhance productivity in the long term. But that would mean an ideological mind-shift by government and within the business sector – and a recognition that public spending is not merely some kind of necessary evil to be tolerated at best, and kept on survival rations. Time and again in our history, investment by the state has been the only engine for economic well being and growth that can be relied on to be effective, especially when times are tough.

Intelligent stimulus spending would even be in the interests of Business New Zealand. Presumably, there are retailers within Business New Zealand. It is a wonder that they – and the members of the various Chambers of Commerce around the country – don’t give their own leadership more stick. Because when public servants lose their jobs, retailers lose customers – quite unnecessarily, as the figures released yesterday demonstrate.

Bethune, Ingrate

Peter Bethune and the Sea Shepherd organization as a whole are easy to admire, but hard to like. Still, protest action is not a popularity contest – so one should probably treat Bethune’s harsh criticism of the New Zealand government for allegedly failing to support him adequately as a tactical gesture, rather than a personal slur against the diplomatic staff who offered him assistance and support during his recent trial.

Would a more aggressive stance by the New Zealand government from the outset – which would have looked like we trying to tell Japanese courts how to conduct their affairs – really have helped? Perhaps if Bethune had wanted to be martyred, he should have made that intention clear before, and during, his trial.

On the face of it, Bethune played his own conciliatory game during his trial – and now seems to want to blame others for not being more feisty, or for not offering him more forthright support. How that would have helped him, or his cause, is not apparent, As Prime Minister John Key has said, Bethune chose to put himself at risk and got himself into the situation in the first place. At this point, a little more graciousness – and a little less arrogance and sense of entitlement – especially to the individuals who helped him to achieve the happy outcome, wouldn’t go amiss. But then, Sea Shepherd didn’t get to be effective by making good manners a priority.

ENDS

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