Spending priorities

Complacency is simply not an affordable response to the express train heading in New Zealand's direction as a consequence of the global financial crisis.

The recession has already resulted in numerous private lending or investment institutions failing or being placed in regulatory control, and the damage to investors in the sharemarket will have long-term consequences across the economy.

Very soon, too, the trading banks must refinance a great deal of overseas borrowing, estimated to be as much as $90 billion, and although the Reserve Bank is confident of the outcome, there can hardly be any doubt that a liquidity shortage is inevitable, meaning more problems for struggling businesses trying to find both customers and credit.

Many households are struggling and having to rework budgets, mortgage finance is more difficult to find and mortgagee sales are now not uncommon.

The main contestants in the election seem to be at sixes and sevens in explaining just what they plan to do in their short-term response to improve confidence and trading conditions.

And long-term plans are notable by their absence.

The holy writ of party philosophy seems to have been turned on its head by both National and Labour.

The Labour Party's leaders say they are planning a mini-budget in December which will involve a significantly large public works spending programme, most of which will consist of accelerated projects already in long-term plans.

It will also ease provisional tax requirements for businesses (having already reduced business tax) and may seek to have more of the funds invested in the New Zealand Superannuation Fund spent locally.

The Minister of Finance, Michael Cullen, does not want to make the details public, although officials have been working on the plan for months, until the post-election period.

Typically arrogant that may be, but we do know more government debt will be taken on earlier, at greater expense, to fund the programme, which is a reversal of Labour's previous policy.

The National Party has also announced plans for additional infrastructure spending, of $300 million more next year, rising to $750 million above Labour's current spending by 2014-15, funded by borrowing, but has not yet talked of a post-election mini-budget.

Its leader has trumped Labour by defining National's intention to require at least 40% of the capital of the New Zealand Superannuation Fund to be invested in the productive sector and to broaden and deepen capital markets, almost certainly by putting more into infrastructure bonds.

Mr Key's plan makes a lot of sense, especially given world market conditions, but it makes a nonsense of National's previous reluctance to invest taxpayer capital in private businesses.

Mr Key has, like Labour, also emphasised the hope that National's tax cuts will provide stimulation to the economy.

In contrast to Labour and National's proposals, the mini-budget announced by the Australian Government this week (which followed a substantial cut in interest rates), was decisive and will be stimulatory.

Low and middle income families will receive a Christmas bonus of $A1000 per child, single pensioners will get a $A1400 payment and pensioner couples will be given $A2100.

A first home buyers' grant will be doubled to $A14,000 for those who buy an established home and tripled to $A21,000 for those who buy a newly-built home.

Australia will also spend $A187 million to create 56,000 new training places in 2008-09, and the package includes a previously announced plan to bring forward investment in nation-building projects to 2009.

All of the $A10.4 billion cost will be funded from the budget which, unlike New Zealand's, will still be in surplus.

Both major parties in this country are embarked on a short-sighted spending spree to buy votes at a time when the country cannot afford it and may be even less able to meet the cost in the years ahead, if the official forecasts are to be believed.

It is not a responsible approach to the looming problems, nor is it indicative of a sense that the parties have a clear plan to ensure growth in the economy is going to be backed by the production of exports.

Top priority has to be given to supporting business to invest in research and development, new plant and processes, and encouraging exporters to widen their horizons.

These means will produce far more reliable results than the past nine years of excessive social welfare spending; it is plain enough, after all, why during such a period of prosperity New Zealand has had increasing trade deficits.

Every country that gets into trouble because of the global crisis will be the author of its own salvation.

The Clark Government's guarantee of deposits in banks and other finance institutions is a sound first step, providing everyone realises that if the guarantee is called in, taxpayers will be paying the bill.

Vague promises of a mini-budget or reliance on vast state and taxpayer spending to get the recession economy out of a deeper hole hardly constitute sufficient assurance that the errors in economic policy of the past two decades will not be repeated.

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