So­lu­tions to our debt cri­sis scarce

Kapi-Mana News - - OPINION -

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.

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