By Bernard Hickey
Prime Minister John Key said he was open to using the Government's strong balance sheet to support economic growth with a fresh burst of infrastructure spending as it did from 2009 to 2011, but he did not see any signs of the economy sliding back to 2009 levels.
Key's comments came after ANZ Economist Cameron Bagrie said in a weekly note it was time for the Government and Councils to use their strong balance sheets to support the economy and help the Reserve Bank.
Key told his weekly post-cabinet news conference he was still confident about the economy despite the recent slumps in dairy prices and business and consumer confidence.
He said the economy was still growing robustly thanks to export growth from the tourism, kiwifruit, wine and meat industries, along with solid construction activity in Christchurch and Auckland.
He said, however, the Government remained open to loosening its fiscal stance if it needed to, as it did in the depths of the Global Financial Crisis in 2009 and after the 2011 earthquakes.
"We've done that in the past and I'm confident that we'd do that again," Key said.
Key said China's slowdown was more of a concern than Greece's financial crisis, given Greece was New Zealand's 74th largest export partner, although he was "not terribly worried about China."
He said ANZ's economists may be getting "a little ahead of themselves," by calling for a fiscal response and that there was no suggestion from Treasury or the Reserve Bank of the need for such a fiscal response.
"Put it this way: Treasury and reserve bank are not coming over and saying 'Houston, you have a problem," he said.
Key said people worried about a return to a recession "needed to take a deep breath."
"We're a long way from that feeling of 2009," he said.
Key said the Government would prefer to use infrastructure spending rather than any increase in operating allowances if it had to loosen its fiscal stance.
19 Comments
it did have but not anymore 99 b 38 % of GDP and still growing
http://www.nationaldebtclocks.org/debtclock/newzealand
This is how the Reserve Bank dealt with the Global Financial Crisis, by subverting the democratic process and ensuring that the legislature nor the public had the information necessary to make informed decisions on how to respond to the crisis.
"e New Zealand business sector had been suffering. Profits were down across the board, staff lay-offs were in progress, investment had halted and firms were finding it hard to get funding. This was worsened by the banks’ response to the crisis, which had been to cut lending, abandon committed lines of credit and impose onerous terms and conditions on banking covenants.... Another governance worry related to the power and competence, or lack thereof, on the part of banks chief risk officers and risk committees. These officers assess the possible outcomes from any deal and decide whether the risks are acceptable under the banks mandated policies. We were now hearing about cases where risks had been miscalculated, procedures bypassed and officers overruled, all in the race for higher earnings...Bad debts had started to emerge on their lending books. Most of these concerned small businesses or farms where borrowers had over-committed themselves at a time of high property and farm prices. There were also residential mortgage defaults followed by evictions and mortgagee sales, but these were mercifully rare. Foreclosures attracted considerable media and political criticism.
In the case of some of the agricultural defaults, we felt that certain banks had been over-optimistic and under-analytical in their lending, and we moved to tighten some of the relevant capital requirements for the future.Meanwhile, on 6 March a senior team from the Wellington made its three-monthly trek across Bowen Street, along the walkway above the Cenotaph, through security checks in the Beehive and across to the ornate old Parliament Building to Committee meeting rooms. Here, committees of parliamentarians from across all parties routinely advise on upcoming legislation and examine public bodies on their use of public funds. We are used to appearing before them as they regularly examine our Monetary and Financial Stability Reports. But this session was different. As was their duty on behalf of the taxpayer, they wanted to talk about the crisis, the steps we were taking and the costs and risks for government. The 2008-intake Finance and Expenditure Committee under the chairmanship of Craig Foss was seriously focused and prepared to put aside political differences during the crisis.
I was worried about what might happen at the session. Proceedings are on the record with journalists sitting in the back, television cameras rolling, digital recorders running and even media blogging live from the room. Select Committees have strong powers - they can require people to attend and answer questions. I knew that I might be asked questions about exchange rates, foreign reserves, bank liquidity and a whole range of topics on which straight-forward answers could upset financial markets. The day before the hearing I rang the chairman and explained my concern. Craig Foss has a background in financial markets; he readily understood the dangers and assured me that he would guide the Committee away from dangerous questions in public.
They treated us deferentially. (they even started calling me Sir:) I sat with Deputy Governor Grant Spencer and our head of financial Simon Tyler, at the front committee table, our desk almost beneath microphones and recorders. In carefully moderated terms, we told them about the crisis. We explained how, partly because of the new mortgage-backed security liquidity facility, the Reserve Bank balance sheet had grown hugely to $36 billion; this had increased risk to the government, but by a very manageable amount. Then they inquired about a small company called Mascot Finance, which was in the news because it was making losses. Though a very small player, we were soon to be hearing more about it."
http://publiccreditorbust.blogspot.co.nz/2013/11/book-excerpts-crisis-b…
One would be surprised if things have changed substantially or the response to the imminent crisis will be materially different.
Daily I'm hearing of businesses in trouble, banks not wanting to extend overdraft facilities and I have noted the odd mortgagee sale starting to appear etc.
The tax take has not been increasing....every business is facing increased bureaucratic and overhead costs..
I'm seeing many of the similarities pre the GFC....people slow to pay their accounts, arguing over their accounts etc. more devious practices like signing contracts and ordering the works and then doing everything they can to delay payments.
Then there is the odd whisper on the street that banks have told certain people to reduce their debts by selling some property up now at cost if they have too!!
So when I hear that banks are asking for some stimulatory spending then I know that the Treasury has been snoring in the corner...I already new the RBNZ has been in that position....
If stimulation is needed in the economy they need to cut their own spending, chuck some of the junk legislation in the bin and take the productive economy off the leash!!
If don't think SME are going to sit back this time while people in Wellington run up more debt!!
Key's comments came after ANZ Economist Cameron Bagrie said in a weekly note it was time for the Government and Councils to use their strong balance sheets to support the economy and help the Reserve Bank.
What is the bloke on about? - the National Government has hardly made a dent in the extravagant level of NZDMO borrowing since it took control of the treasury benches. If outstanding NZ sovereign debt remains materially unchanged from the last crisis, how will it be after this called for intervention? Graphic reality
there was never going to be one, this lot are just as bad as the last lot for getting government spending under control.
how many private firms would spend what the MBIE did on a curved TV above reception or the sign.
when the price came in it would have been asked what are our options find something cheaper.
to come out and say its ok the whole building came in under budget tells me the budget set was too high.
If you invited Wheeler and Key to your party,
Wheeler would turn up an hour late and go straight to the back of the room without excuse..
Key would be two hours late and command the room to his attention to explain how he is on time but the party started early. Most wouldn't care as they are already almost pi**ed.
John Key, probably correctly, sees his main role to be chief cheerleader for NZ's economy. Being negative or positive are somewhat self fulfilling respectively. So a dispassionate honest view of everything is not optimal. He will instead put as positive a spin on anything as he plausibly can, within reasonable limits of credibility. In that light this statement is mostly reasonable. Why talk China down even if the reality could be scary? He is also correct to point out that responding to a downturn with fiscal restraint would be economically reckless.
National has mostly turned into the Labour party, and that is not a bad thing.
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