Government spending restraint in New Zealand will not have the same effect on the economy as austerity moves in the UK, as the government here was able to take a Keynesian stance and help the economy through the downturn by using its balance sheet to soften the blow, Prime Minister John Key says.
The UK economy last week plunged back into recession, with the government there being blamed for overcooking austerity measures it says are needed to get its own position back in order as the European sovereign debt crisis rolls on.
New Zealand's Finance Minister Bill English is set to deliver a second consecutive 'zero budget' in May, as the government here tries to reach its self-set goal of returning its books to surplus in the 2014/15 year.
That goal got harder last week, with new Treasury forecasts showing a previously-expected surplus of NZ$370 million in 2014/15 was now set to be a NZ$640 million deficit. English responded by saying the government was still set on the goal, and would have to control spending even more than previously thought. It would be an achievement if the government got "near surplus."
Over the weekend, Key reaffirmed the government was intent on reaching the 2014/15 goal. In January, Key warned the government may have to forego the 2014/15 surplus track if global conditions worsened to such as point that austerity measures needed here for reaching the target led to a "sharp contraction" in demand in the economy.
'Not a slash and burn budget'
Speaking on TVNZ's Breakfast programme this morning, Key said he would be revealing more details about Budget 2012 in a speech on Tuesday.
“The important point here is, we need to get back to surplus. As a country we need to start spending what we earn, and not more than what we earn," Key said.
“So the government’s been very focused on that over the last three or four years – zero budget last year, zero budget this year," he said.
Despite the revised forecasts showing a billion dollar deterioration in the government's expected position three years out, Budget 2012 would not be a slash and burn budget.
"I don’t think people have an enormous amount to be fearful of in the Budget, but there’s no extra money to go around,” Key said.
There would be less spending in certain areas, and changes in others, but Key would not go into details. He would not be drawn on whether there would be any new tax changes.
“In the end the test, I think, for the government in its budget will be, what position does it leave New Zealand in?" he said.
“If we keep spending more than we earn, and that’s what the Labour Party is promoting through all of their policies at the moment, it’s got a name, and it’s called Greece. Eventually you lose control of your own country and your own destiny, and more and more taxpayer dollars go to actually having to pay the interest on that debt.”
We're good Keynesians
Key said he did not think New Zealand would follow countries like the UK, where the government had gone on a large austerity drive, back in to recession.
“I don’t think that’s right in our case. I think that Keynesian view that you would use government resources in the bad times to bridge you through, is exactly what we’ve done," Key said.
“We didn’t spend more money through our new budget spending process, but we maintained, and therefore spent a lot more money, on things like the unemployment benefit, Working for Families, student loans, all of those areas, in the first three and a half years that we’ve been in," he said.
“And those areas are off-limits [for spending cuts] this time. So I think we’ve done that bridging about right.
“But eventually, you’ve just got to get to a point where you live within your means. And I might add, that the vast bulk of people watching this show are doing exactly that. In the last three years, New Zealanders have changed their spending habits," Key said.