Solutions to our debt crisis scarce
As Mike Moore once said about the gullibility of voters, ‘‘The public can be very forgiving’’.
Even so, many New Zealanders have clearly decided they won’t be burned again when it comes to the sharemarket.
During the mid-1980s, almost everyone was reportedly doing it. Sharemarket investment groups sprang up all over the country – among friends, within work places – in the hope of making some easy money out of Rogernomics.
All that came to a crashing halt on October 19, 1987, when the sharemarket collapsed – and ever since, the ordinary public has put what spare money it has had into residential property. As a result, the economy has suffered. Houses don’t create export earnings, and property investment has become a driver of the nation’s ever-mounting debt problem.
The Government’s Savings Working Group recently issued its final report on how to increase savings, boost growth, lift prosperity and reduce debt.
Essentially, the group urged more of the same – raise GST, squeeze more out of the public service, extend KiwiSaver, make savings more profitable, and so on.
It also conceded the public has been wise to shun the sharemarket:
‘‘Total returns from the New Zealand market over recent decades have been lacklustre compared to other investments, such as housing, and more volatile.
‘‘Overall then, investing in the sharemarket has not been a driving force for saving.’’ A chicken and egg problem, though. As the report said, many New Zealanders don’t earn enough to allow them much room to save, anyway. Unfortunately, the working group had been ordered to ignore obvious solutions to the national debt.
Raising the eligibility age for superannuation and introducing a capital gains tax were both ruled out of bounds.
Still, the report was useful in turning the spotlight on just how scary our debt problems have become.
Largely because of the miserliness of Michael Cullen during the 2000s, government debt is not the issue.
The vast bulk of New Zealand’s debt has been run up by the private sector and by households, at the urging of foreign-owned banks. The cost of servicing these net foreign liabilities, currently standing at $162 billion, has become a major drain on our resources.
If we want to grow our markets and boost productivity, there is a further barrier.
Our corporate leaders have long needed to do their bit and invest in technology and research because, as the report noted, New Zealand has a low capital-to-labour ratio.
This shortsightedness is now being reflected in poor worker productivity, longer working hours and relatively low incomes compared to our trading rivals.
The working group offered few solutions to match the perils it had identified.
Making KiwiSaver compulsory, boosting GST again (an option speedily ruled out by the Government) and giving tax encouragement to savers has struck many observers as mere fiddling.
New Zealand may be standing on the edge of a crumbling cliff as the working group chairman Kerry McDonald warns, but no workable solutions are evident – or none that the current Government is willing to run the political risk of implementing.
Gordon Campbell is an experienced political journalist and columnist who has written for The Listener and Scoop.