Gordon Campbell on National’s economic vision
Gordon Campbell on National’s economic vision
Chances are, if someone said they
were planning to raid their children’s piggy banks in
order to pay the rent – mainly because they just
couldn’t resist the impulse to spend the rent money down
at the TAB - we wouldn’t be applauding them, and we
certainly wouldn’t be lining up to let them run the
country. Yet in stark essentials, such is the economic
vision for New Zealand over the next decade unveiled by Bill
English and John Key at the National Party conference on the
weekend. “Vote National: Mortgage Your Children” was
the message in a nutshell.
The details can be gleaned from the speeches by Bill English here and by John Key here
Essentially,
National’s plan will have three main components. First, a
Key government will bring forward the second and third round
of tax cuts currently envisaged for 2010 and 2011 by Labour.
Secondly, it will embark on a $5 billion spending programme
on infrastructure over the next six years. Thirdly, there
will be a cutback in red tape and regulation, notably to
ensure that the resource consent provisions of the Resource
Management Act do not hinder the roading and other
infrastructure projects National has in mind.
Neither Key nor English explained in any detail how
this programme will be financed – though passing reference
was made to private public partnerships and infrastructure
bonds. By its own admission, National plans do entail more
overseas borrowing. Apparently, it is willing to saddle
future generations with more overseas debt in order to
maintain public services in the meantime, and help finance
its infrastructure projects.
And why, beyond
ideological reasons, do Key and English feel the need to do
so? Because by then, National will have spent the rent money
on tax cuts at a level and pace the country can’t sustain
from its current income and reserves. In that sense, this
plan represents a historic high water mark of spending by
the Key/Clark boomer generation – a generation that
never faced user pays disciplines for their own education or
healthcare, and that has never since learned how to defer
the gratification of the needs that it seems to regard as
its rightful due. Simultaneously, it has few qualms about
placing a heavier and heavier load of repayment and/or cost
cutting onto subsequent generations, further down the track.
.
Certainly, Michael Cullen’s tax cut package this
year - it kicks in with its first round on October 1st –
was also a shameless election bribe. But it was more
affordable, going forwards. As usual, we still don’t know
the full details of National’s plan. So as yet, it is not
possible to compare which groups in society will benefit the
most (and when) from the tax cut programmes on offer from
the two major parties.
For now, all we know is that
National plans to finance its programme in part, from a rise
in overseas borrowing. In a hair -raising analogy, Key calls
this “ taking the brakes off the New Zealand economy.”
Given the scale of what it is proposed, National’s
estimate that this will entail merely a 2% rise in the gross
debt ratio – currently around 18% of GDP and rising -
looks highly optimistic.
Keep in mind that National is
planning this $5 billion boost in government spending on
infrastructure over the next six years, while still
promising to keep all the other big ticket items (
Kiwisaver, Working for Families, the Cullen Fund,
superannuation levels, interest free student loans etc)
essentially intact.
What this means is that the
public/private partnerships that are the favoured format for
delivering the Think Big projects that National has in mind
will have to function to near perfection in order to fit
within the extra 2% debt ratio parameters. This is unlikely.
Why ? Because a Key government is also planning to cut back
its regulatory oversight of the economy – just as the PPPs
will need to be highly and competently regulated in order to
save taxpayers from being rorted by their big business
project partners. All up, something like a 25 % debt ratio
seems a far more realistic figure in future This will add
significantly – a billion a year, the Labour-Green
supporting Standard website estimates – to debt
servicing costs. In each successive year, such costs alone
will create a chronic pressure to cut social services.
This year, both major parties are offering tax cuts
as election bribes. National however, by pressing on with
bigger and faster tax cuts even after the cupboard has been
all but emptied by Cullen, does seem to be the more reckless
player - in that only its plans deliberately embrace
further overseas borrowing in order to pay for them. This is
credit card economics, as Cullen has already pointed out.
Alternatively of course, National could reduce those
extra borrowing costs by further sales of state assets -
such as Kiwibank or TVNZ in its second term - as the bills
start mounting. In other words, the future sale of Kiwibank
will not have been due to any shortcomings in performance on
its part – ultimately, it will have been required to pay
for National’s election bribes during 2008. Cut taxes
now, and strip mine state assets later…yes, it will be
interesting to watch Key trying to defend the indefensible
over the course of this election campaign.
Such a
death spiral is so unnecessary. With a more balanced set of
tax cuts – or none at all - New Zealand could afford far
better public services, make far better investments in
productivity and pay for the forms of infrastructure that it
will require in the looming context of peak oil and global
warming. In that respect, the commitment by National on the
weekend to outspend Labour on roading is a depressingly
head–in-the-sand 20th century response, to the biggest
challenge facing the 21st century.
In fact, a
striking omission from the Key/English vision statements
was the lack of any programme to boost productivity –
beyond cut taxes, borrow from foreign bankers to cover the
shortfall, cross your fingers and hope. Between them, the
Key and English speeches do not appear to have a clue about
how the free market actually works - or that the government
needs to intervene at regular intervals in the market in
order to ensure that it remains free and competitive. The
Americans have known this for nearly 100 years, ever since
the federal government intervened to break up Standard
Oil’s stranglehold on the energy industry in 1910.
The National Party has never grasped the point of
anti-trust regulation. Nor did Richard Prebble in the 1980s,
when he sold Telecom. Looking ahead, this means that
National’s vision of private public partnerships is very
likely in practice to resemble a series of corporate welfare
handouts. National’s planned $1.5 billion investment in
broadband for instance, will do little more than re-entrench
Telecom’s ability to screw New Zealand consumers. In the
process, it will roll back the hard won benefits of genuine
competition that government regulation has recently and
belatedly brought into existence within this vital sector of
our economy. National’s approach is more akin to that of
an indulgent parent – it seems to believe in applying a
– no smacking ‘ approach to whatever its corporate
darlings say they want. National describes this as a
‘light handed’ approach to regulation. Offhand, it is
hard to think of a step less likely to foster a modern
productive economy than putting Maurice Williamson, and
Telecom back in control of our telecommunications sector.
Finally, young voters should now be seriously
thinking about starting a Youth Party for their own
protection. As young offenders are packed off to boot camps,
the rest of their generation will be faced with a rising
bill for the boomers’ last big tax cut party. Quite
clearly, this combo of major tax cuts, rising debt levels
and quality public services is unsustainable.
You’d
think that in return for handing out this lethal cocktail to
young voters, National and Labour would at least be offering
them a tempting universal student allowance in the meantime,
if only to ensure they become more productive drones in
future. But no, apparently not. Beyond a privileged few,
young voters will not only get the scraps from the table -
they will also get to foot the bill.
ENDS