The economic settings that led to excessive borrowing over the last decade are still in place, and New Zealanders will return to their borrow and spend ways once the economy recovers unless there are policy changes, Labour finance spokesman David Parker says.
Parker today took a swipe at Finance Minister Bill English's comments that New Zealanders were being scared into changing their behaviour, and were turning from debt-fuelled consumption to saving more as they watched economic developments overseas.
“Bill English might believe Kiwis have been ‘scared’ into saving by the global recession and won’t return to borrowing as the economy grows, but he’s obviously got blinkers on," Parker said in a press release on Wednesday.
“The economic settings that led to excessive borrowing are still in place – speculation in housing and farmland for capital gain still attracts a tax advantage and National’s policies have made KiwiSaver less attractive,” he said.
“Unless real policy changes are made New Zealand will just go back to borrowing too much and saving too little when the economy eventually recovers."
Labour contested the 2011 general election with policies to introduce a more comprehensive capital gains tax, raise the retirement age, auto-enroll workers into KiwiSaver, raise the top tax rate, introduce a NZ$5,000 tax-free zone, remove GST from fresh fruit and vegetables, and raise the minimum wage. However, leader David Shearer said on the weekend that all policies were up for review until 2014.
'The Aussies know what to do'
Parker said the Australian government was increasing the rate on its universal workplace savings scheme to 12% from 9%.
"The government there knows that once the recession is over behaviour will return to type unless it makes the changes that are needed," he said.
“Treasury forecasts show Mr English’s blind faith is misguided. It projects that every year, under National’s policies, the country will run a current account deficit and increase its international debt. By 2016, New Zealand will owe nearly NZ$200 billion in net overseas debt, up NZ$50 billion from today," Parker said.
“And the main driver of that debt spiral is a lack of domestic savings, with banks and businesses borrowing from offshore or selling assets to foreign investors. This leads to some NZ$10 billion a year flowing offshore in profits, the main contributor to our current account deficit, which is then funded by further borrowing and asset sales," he said.
“The government needs to break the cycle with policies that ensure New Zealand permanently lifts its savings level. By not doing so it shows once again its unwillingness to deal with the structural problems in the economy."