Saturday, February 28, 2009

Treasury tells it as it is

Away from the touchy feelgood headlines of the Jobs Summit, Treasury has delivered the harsh reality and the numbers to back it.
I don't mean Alan Bollards calculations of the billions destroyed in the credit crunch, but rather a damning indictment of the Helengrad years, how Clark and Cullen frittered away the best economic circumstances in a generation.
Thus, you might want to read this report in full that John Whitehead, secretary to the Treasury, presented to the summitt after Bollard gave his speech.

Whitehead talks of the changes needed to get the economy moving.
The issue of productivity is raised and he reveals how New Zealand was way behind just about everyone else during 2001-2006.

If we want good jobs and higher incomes we have to keep a focus on productivity.

So how does government help?

The role of government is to provide the environment for that to occur. At present that requires a focus around three broad areas: investment, regulation and skills.

Whitehead noted a need for credit, but more significantly pointed out New Zealand becoming increasingly regulated, much to our cost.

The sure way to kill innovation, investment and change isto have rules or laws that discourage or prevent it. We've seen nearly 30,000 new pages of primary legislation over the last decade and a slip in our competitiveness as this slide shows.

Whitehead then looked at government debt and spending, noting a structural deficit heading way into the future.

These projections keep the same spending track as present. They illustrate not simply a shock but a structural deficit. This highlights the need to reduce spending and extract much better value out of the $60 billion of core government spending.

After showing a graph revealing a growing debt burden, he continues:

And this is what that means for debt. We are currently at historically low levels of debt.
No-one will want our debt to return to these projected levels - close to 80% of GDP in 14
years time.
Debt like that is a credit rating risk, will make the cost of investment and lending higher for
firms and households and represents a major financial burden. Over the next five years
the cost of debt servicing will nearly double to $4.6 billion

Yet, the demographics of an ageing population will make the challenges worse.
Whitehead concluded:

All that means that while some fiscal stimulus has been warranted and is sensible, we're
deluding ourselves if we think we can simply spend our way out of our troubles.
This Summit is about working together to find new ideas and practical answers.
We want to ride out this recession in the best way we can: protect the vulnerable; maintain
and enhance our skill base; and come out better placed to seize the real opportunities that
lie ahead.

In my view the way to do that - the do's and don'ts are:

• Do prepare for the future - with better skills and innovation
• Do protect the vulnerable; not the status quo
• Don't pass on a huge debt burden to the next generation

Indeed, and as we ponder Treasury's wise words, look at the mess facing Britain arising from its Liarbour government's 'spend your way out of trouble' policies.


PhilBest said...

Brilliant. And see that graph showing all the nations productivity growth? See nation number one: the Czech Republic? Woo hoo. My favourite world leader, as I have said many times on the blogosphere: Vaclav Klaus.

Do I ever rest my case for small government and low taxes.

Watch the next fiscal year end release of growth statistics and see whose economies are least worst affected by the crisis. It won't be the Keynesian "stimulus" economies.

Madeleine said...

Very nice to see hard and fast proof that Labour had no clue and squandered both the opportunity and the means to keep us out of trouble.

Sometimes when you hear them deny it over and over you start to doubt.