By Alex Tarrant
Labour, the Greens and ACT have critisised the government for having no plan to respond to a weaker economic and budget position.
But Prime Minister John Key said New Zealanders should not panic about the government's fiscal position, with government debt of below 30% of GDP well down from a number of governments overseas heading for debt of 100% of GDP.
Key was speaking after Finance Minister Bill English released the government's half yearly fiscal and economic update, projecting the government's cash deficit to blow out to NZ$15.6 billion in the 2010/11 year. English also revealed the government's first Investment Statement, showing government had a balance sheet of almost NZ$230 billion.
Labour leader Phil Goff said the government was effectively now paying for tax cuts for the wealthy by borrowing.
Labour would not cancel the corporate tax cut brought in by the National-led government.
"That wouldn’t be helpful. Corporate tax take is down by 28% in four months. That shows the economy has stalled. They have no economic plan," Goff told journalists at Parliament.
National was promising savage cuts to health and education expenditure, Goff said.
"They need a plan. They have no plan, that’s obvious from the record that we’ve seen today. These figures are appalling. Unemployment will stay above 6%," Goff said.
However he defended tax cuts delivered by Labour before the 2008 election.
"Those tax cuts were necessary as a stimulus to the economy at the time and they were not focussed almost overwhelmingly, as the later tax cuts were, on the wealthy," Goff said.
"Those tax cuts came when it was clear that the world was going into recession. The recession was underway at a time when a stimulus was needed. We resisted with the stimulus in previous elections that election justified it," he said.
'No courage'
ACT Finance spokesman Roger Douglas said Key and English did not have the courage to do what was needed for the economy.
"It’s really come home. What it requires of the government is to actually admit that they’ve got it wrong. It takes a lot of courage to admit you’ve got it wrong and then to move onto a new path," Douglas said.
"I just simply don’t believe they’ll do that. If they don’t do it, then it’s going to get substantially worse. You cannot run a deficit, borrow NZ$300 million of new money a week and think that you’re going to get on top of it," he said.
"We can all see what happened to Ireland and countries of that nature. Now we’re not their yet, but unless we tackle this problem, we’re going to be in serious trouble."
'Poor decisions'
Greens co-leader Russel Norman said the government should take most of the responsibility for the worsened fiscal outlook.
“The worsening outlook for the Government’s budget is a result of some poor decisions on both the revenue and spending side,” Norman said.
“On the revenue side, the Government’s tax cuts directed towards upper-income earners and the lack of a capital gains tax (excluding the family home) has led to a revenue shortfall. On the spending side, the Government’s poor quality spending on uneconomic new motorways and ETS subsidies for polluters has also had a negative impact on the books," he said.
“We are literally now borrowing money to pay for tax cuts for the well-off and motorway projects with negative economic returns. Tax cuts directed towards upper-income earners are one of the poorest ways to stimulate a failing economy. Increasing aid to the unemployed has a stimulus impact two-to-three times greater than nearly any other measure the Government could have chosen," Norman said.
“The Government’s approach to economic management during one of the most turbulent periods of recent history has failed all but the wealthiest of us," Norman said.
“A smarter way to manage the uncertainty would have been to use the crisis as an opportunity to transition the economy onto a more sustainable and resilient footing. Instead we have an old economy more reliant on cheap oil to run, paying polluters subsidies to emit carbon, and borrowing to fund tax cuts that have failed to stimulate the economy," he said.
Don't panic
Key said the investment statement was not designed to soften the public up for asset sales. “I think it’s going to be an important feature of Finance Ministers in the future, releasing not only what the the books are like, but what the balance sheet is like," Key said.
“Look, I can’t predict earthquakes better than anyone else, or leaky homes or a number of the other things that we’ve had to take onto the balance sheet. As a government we have said we’re going to take the rough edges off the recession," he said.
"What that means is we’re borrowing money to keep New Zealanders in work, and in their entitlements. We’ve made it quite clear that position can’t stay there forever, but actually the Treasury themselves agree that the economic times will turn around.
He would not speculate on what moves the government might do regarding assets in the short term.
"What I can tell you is that Treasury is going to provide the government advice about those assets in due course in the early part of 2011. We as a political party will need to determine what policies we’ll want to take into election 2011. We’ll just see how that advice goes,” Key said.
On assets such as empty schools held by the Ministry of Education but not being used, Key said: "some of them are just simply in the wrong place – the government owns schools that no one wants.
"It actually argues the case of why we should and are considering public-private partnerships, where we lease buildings rather than necessarily owning them," Key said.
He defended not getting back to surplus quicker than 2015/16, even though there was not a lot of room left on the government's balance sheet to absorb more shocks like the Canterbury earthquake.
"Well we’re doing our best. Government debt as percentage of GDP at under 30% puts New Zealand in a very special position. Not many countries are like that. Most countries are on their way to 100% if not more," Key said
"Yeah, we’ll get back to surplus as quickly as we can, but I don’t think New Zealanders should panic about the situation. I think they just need to recognise the government’s doing its best and we’ll be working aggressively to get back into surplus as quickly as we can," he said.
He said he believed government was in a position to deal with another shock.
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