In Focus

A Budget for the faithful ...

Friday May 17, 2013 Dr Ganesh Nana

A comprehensively underwhelming budget.  Holding the line, no surprises, business as usual, things are fine, are the messages.

I have to give it 5 out of ten.  A pass mark, no more, no less. The Minister did what was expected; the markets consequently loved it (no surprises, little uncertainty, and confirmation that the SoE sale process remains on track). Further, few (if anybody) will change their vote as a result, and the international financiers will lap it up.

 

The core aim of Budget 2013 is to bolster, and perpetuate, the illusion (myth?) that the New Zealand economy is steering a well defined course and we’re on track. Further, as long as we hold to the course and, most importantly, don’t lose the faith, all will be fine.

So, why my sense of disappointment?

 

Unfortunately, it doesn’t take too much of a scratch on the surface of this Budget to reveal ongoing, fundamental, imbalances, that are not only stubbornly present and showing few signs of improving, but are indeed progressively worsening.

 

 

The medium-term forecasts that underpin the Budget numbers, reveals a picture that is not pretty for those interested in rebalancing. The quick buck is out there to be made. 

 

But, the much promised switch of effort from the non-tradable to the tradable sector, from consumption to productive investment, from property to production remains absent. 

The quest for long-term sustainable prosperity – and the opportunities that go with that like interesting, exciting, high skill, high paying jobs, and a destiny that New Zealanders have influence or even control over – is once again put on the back burner.

 

Cut to the chase, the picture remains bleak for the export sector. Export growth is expected to remain lower than overall GDP growth over the forecast period.  More depressingly, we can’t even blame this on the rest of the world – as our trading partners are expected to grow faster than our export effort. That is, we are not even expecting to retain our existing level of competitiveness.

 

 

And, the Budget response to this? Exports got two mentions in the Budget Speech, while debt got 20 mentions. How NZ will meet its debt obligations if it doesn’t earn greater export income remains a mystery.

 

 

... but not for the nation


The irony is this reminds me of an early Clark/Cullen budget – where the sole overriding objective of ‘don’t scare the horses’ overshadowed any desire to tackle fundamental issues.

Consequently, the focus is on the Government’s deficit/surplus. Clark/Cullen succeeded in building surpluses, Key/English have succeeded in reducing the deficits and will soon move to surplus.

 

But, Clark/Cullen oversaw a stark deterioration in the nation’s indebtedness (from 75% to 85% of GDP), with the nation’s current deficit hurtling to $15bn annually.

Now, Key/English are set to preside over another ballooning in the nation’s external debt, which will see us back over 80% of GDP by 2017, and the nation’s annual deficit soaring to $16bn and more.

 

Yes, we all make mistakes. To err is human. But, to repeat the mistakes of the past (again), is just plain bleedingly unprintable.

Looking at the two graphs below beg the questions.

 

 

 

I ask, what is more important - the government getting the government’s house in order?  Or, our leaders prioritising the nation’s future?

That’s why the disappointment.

Many (most?) New Zealanders will continue to be hoodwinked into thinking we’re “back in the black”. If you still believe this, please look at the graphs again.

Meanwhile the markets will applaud the hauling in of the (government) deficit, and (many) commentators will assist in perpetuating the illusion that we are following sound economic policy. And, of course, don’t lose the faith.