Government needs change in policy direction

27 January 2012

Government needs change in policy direction

“The government should be focussing on creating jobs and getting money into the pockets of low and middle income people by stimulating the economy rather than an inflexible deficit target,” says CTU Economist Bill Rosenberg.

He was commenting on today’s release of the Government’s Financial Statements. “Further reductions in the revenue expected from both company tax and GST show how dependent the Government’s economic policies are on the Christchurch reconstruction and world events,” says Rosenberg. “This confirms the fragility of its target of a Budget surplus by 2015.”

“But the underlying reason of continuing weakness in the economy and uncertainties more on the negative than the positive side, reinforces our concern that the inflexibility of its stance risks worsening the state of the economy.”

“We have had over 150,000 unemployed and 250,000 jobless almost constantly now since mid 2009. The unemployment rate at 6.6 percent is barely below its financial crisis peak in December 2009. Further cuts in government spending will not help that, and for the following two years, the government’s fiscal plans are expected by Treasury to be a net drag on the economy rather than a stimulus.”

“Internationally there are worries that if governments in high-income countries all cut back spending to balance their budgets, it will lead to a downward spiral and deeper recession. The government seems to be making just this mistake. We have one of the lowest government debts in the OECD - there is room to stimulate job creation and give more help to people who are unemployed. It is simply wrong to force more people off benefits into the job market at a time like this.”

“Revenue could be assisted by taking a leaf out of US President Obama’s book and raising taxes on high incomes. An earthquake levy targeted towards higher incomes is still a possibility.”

“But we need to get money into the pockets of low and middle income people to generate demand in an economy which is stagnating,” said Bill Rosenberg.

ENDS