Austerity government

The qualities we expect our political leaders to bring to the job of prime minister are modified by our own individual experience and moral viewpoint, but they may be characterised as honesty, honest purpose, energy, statecraft, high intelligence, determination, the ability to seek consensus where beneficial and to lead where necessary - and a sense of humour helps, too.

Since this is, above all, a two-horse race, voters are assessing Helen Clark and John Key on all of these characteristics, along with more personal attributes.

Miss Clark and the Labour Party have tried to base the thrust of their campaign on only one of these, "trust", in one sense calling for voters to trust the experienced hands of the past nine years, and in another to distrust Mr Key for his inexperience and "flip-flops".

But only the simple-minded with accept this criteria as all that is required.

Above all, as managers of the country's economic fortunes, one characteristic voters should be looking for in a prime minister is the level of skill and experience of the commercial world they bring to government, as well as the choices they are likely to make in finance ministers.

There is reason to be wary of both Labour and National.

Michael Cullen has been an astute treasurer and a fortunate one.

He has been lucky to have the whole of the past nine years overseeing an economy in generally prosperous times (although that prosperity has been built mostly on private debt), has been able to choose between banking the additional income or spending it (until 2005 he banked it; he has spent most of it since), and meeting the key policy proposals of Labour's manifesto as well as rewarding its supporting parties.

Bill English was National's treasurer in far more difficult, though improving, times, and comparatively briefly, but has shown a cool head in reining in some of his colleagues' more extravagant expectations and has a background that should give reasonable confidence to voters.

Post-election, one of these men will face a world economic situation not paralleled in their lifetime or practical experience, with little extra cash in the bank and a period - possibly a decade - of difficult conditions and demands in the national economy.

Running the government in a period of austerity will be very much harder under MMP than meeting expectations in prosperous times.

Treasury's prediction that government accounts will be in deficit for the next five years, with government debt increasing from under 20% of GDP to about 25% by 2012, leaves little room for maneuvering for the next minister of finance.

Dr Cullen's prudence in reducing government debt levels during the healthy years has helped the situation, especially in the face of the international credit crisis, but by the same token, the Clark Government's expensive longer-term government policies - such things as tax cuts over the next three years (to which National has also committed), KiwiSaver, family tax credits, the expansion of the foreign service, and subsidised childcare - coupled with much lower tax revenues, means the next government will have to resort to debt financing.

It is clear Dr Cullen has tried to buy the election by putting cash in people's pockets, and that National feels it must follow suit with a bigger offer.

National has also made some expensive promises while knowing that the cupboard is, essentially, bare.

Its leaders have said a National government would not need to borrow to pay for its tax cuts; that they will stimulate the economy.

The economy is in recession and unemployment is predicted to rise to 5.1% next year.

Mr Key has said the country needs an economic plan to get out of its recession and that the tax cuts are part of that plan.

But spending the way out of a recession does not equate with the greater need for self-denial and far stronger productive growth - the manufacture of things to sell to overseas buyers.

Mr English says lower taxes, more disciplined spending (we assume this to mean cuts in government spending) increased infrastructure spending, less regulation and higher education standards are the basis for meeting those goals.

Labour is relying on its tax cuts and investments in programmes to help expand the economy but it will also face higher welfare payments and less tax revenue should it be returned to office.

The cost of KiwiSaver is forecast to increase by $650 million, free early childhood education by more than $800 million, welfare payments have already increased by $358 million in the current year from the May forecast and are expected to rise by $629 million next year, then by $678 million and $543 million in the following two years.

If National retains these programmes at the same level, it, too, will face the same constraints on new spending while trying to build export capacity in an economy that is changing from making things to providing services.

Government spending will certainly provide some impetus to the economy, but can we afford it?

Add a Comment