More Of The Same: In spite of the ongoing shortfall in the National Government's anticipated Core Crown tax revenues, Finance Minister, Bill English, has reaffirmed his intention to keep tightening the screws on New Zealand's economy.
BILL ENGLISH claims to have cut core Crown expenditure by $1.24 billion. Just as well, given a $1.4 billion shortfall in Government revenue. The latest monthly Financial Statements of the Government paint a dismal picture of relentless economic contraction with Core Crown tax revenue a staggering $946 million below the amount forecast in last year’s Pre-Election Economic and Fiscal Update.
In spite of the Treasury’s consistent failure to provide the Government with even vaguely accurate fiscal forecasts, Mr English’s faith in its policies of austerity remains undimmed. The data’s brutal exposure of the Government's economic inadequacies will, however, powerfully reinforce the criticisms of Mr English’s critics.
The Treasury’s figures certainly vindicate the Opposition parties’ argument that the National Government’s cost-cutting fetish is hampering – not helping – the New Zealand economy’s slow climb out of recession. The falling tax take, exacerbated by the effects of National’s earlier tax-cuts, continues to run well ahead of the austerity drive’s much-vaunted savings.
The situation is likely to deteriorate still further as “slightly weaker labour market conditions” indicate a further rise in the number of New Zealanders without work. With more people unemployed, economic activity is predicted by the Treasury to slow even faster, leading to yet another shortfall in Government revenue.
New Zealand is thus caught in a vicious circle, with falling revenues necessitating further cuts in spending, triggering more economic contraction, more unemployment, reduced consumer spending, lower profits and falling real wages. The Government’s tax-take will fall correspondingly, depressing its revenues still further.
Mr English talks about “limiting our debt to foreign lenders”, but if he wishes to avoid plunging the country into a new and even deeper recession, it is difficult to see how extensive borrowing from overseas sources can be avoided. The value of the New Zealand Dollar will rise on the back of the higher interest rates needed to attract foreign lenders. Kiwi exporters will, as always, pay the price for the National Government’s refusal to raise the taxes of New Zealand’s wealthiest citizens.
Rather than reduce Government expenditure, Mr English should reverse the last two rounds of tax cuts and engage in a quantitative easing of the money supply sufficient to fund a massive state house-building programme. In tandem with the Christchurch re-build, and backed by an all-out effort in trades-training for young, unemployed school-leavers, such a building programme would dramatically reduce the number of people out of work. A commitment to source its building needs locally would further stimulate economic activity, lifting tax receipts and lowering the Government’s borrowing requirement. Interest rates and the NZ Dollar would fall – boosting export receipts.
Mr English will not, of course, adopt such a stimulatory strategy. In response to the latest Treasury release, the Finance Minister simply stated that the official data “reinforces the need for the Government to be disciplined and stick to its plan to get back to surplus in 2014/15, so we can start repaying debt.”
At least for the foreseeable future, New Zealand’s economic performance is set to remain well below the level commensurate with rising employment and fiscal surplusses.
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