I sincerely hope Fran O'Sullivan reads this and produces an authoritative and professional dissertation. Meanwhile Adolf will attempt a few amateur guesses at what might have been, had Cullen, Key and English not acted responsibly and astutely in times of crisis.
Michael Cullen introduced the scheme to stop a massive withdrawal of capital from New Zealand by foreign investors on whom we rely for the nation's working capital. We rely on them because too many brainless New Zelanders have all their investment eggs in residential property which in turn earns the nation not one penny of real (export) earnings.
Adolf is a rural valuer by profession so let's try and attach some values to the consequences of such a capital flight in late 2008.
- The banks would have immediately stopped All lending and would have called in many loans prematurely as they struggled to maintain their prudential capital ratios as required by the Reserve Bank. As a result businesses would have immediately ceased all investment and employment with many shedding staff. The cost to the taxpayer in loss of taxation revenue and increase in social welfare? Maybe $2 billion in 2009.
- Our international credit rating would immediately have been downgraded to junk status, resulting in a two, three or more percentage point increase in the cost of servicing our existing overseas gummint debt. The cost to the tax payer? Maybe $1.8 billion in 2009.
- A massive number of skilled people would have fled to Australia. Let's imagine an extra 20,000 more than usual with 15,000 of them wage and salary earners paying on average $15 k tax. The cost to the tax payer? Maybe $0.25 billion in 2009.
- As business and household spending contracted sharply amidst general panic and uncertainty, the nations GDP would have plummeted with resultant huge reductions in company tax and GST revenue as we moved into severe recession. The cost to the tax payer? Maybe $4.0 billion in 2009?
- The gummint is forced to borrow heavily at high rates just to pay the extra unemployment benefits created by this sudden recession. The cost to the tax payer for the interest and principal? Maybe $2.0 billion in 2009?
So there's ten billion in 2009. It goes on and on and on and that's just the first year.
Just as the decision to bomb Hiroshima in 1945 caused the deaths of half a million people in return for the lives of three million, the decision to put in place the retail deposit guarantee scheme was the choice of the lesser of two evils. Some potential for minor fiscal pain instead of the inevitable cataclysmic upheaval which was the alternative.
People should not forget that if corporate doctor Maier had succeed in putting together a recapitalisation of SCF, the guarantee would not have been invoked and nobody would have said boo. That is why the gummint and the officials allowed SCF to remain in the guarantee system for so long, even though all was not well. It would have been irresponsible to have pulled the plug while there was a reasonable chance that the guarantee would not be needed. As soon as that last chance evaporated, the receivers were called in.
Talk of an electoral backlash is nothing but arrant nonsense from people who should know better. Instead, we have seen an example of superb economic management in the best interests of all New Zealanders, most of whom are intelligent enough to see the reality, notwithstanding many in the the media's best efforts to talk up a nonexistent disaster.