A tale of two countries
It is Budget week in Australia and New Zealand, and the centre-right governments in both countries have a remarkably similar story to tell.
Essentially, Tony Abbott and John Key will be engaged in bragging to the public about their achievements in balancing the books. That’s understandable. A balanced Budget is routinely treated as a sign of a government’s managerial competence. In addition, it sends a useful message that any personal hardships that voters may have experienced have been for the country’s greater good.
By contrast, political opponents tend to paint modern Budget surpluses as the product of unnecessary, harmful spending cuts that have been selectively imposed — while also claiming that the balance sheet result is merely smoke and mirrors, and not to be taken as a sign of genuine, long term health in the economy.
This crossfire of political claims and counter- claims over the Budget surplus can be deafening, and somewhat puzzling. Reportedly, Australasia survived the global financial crisis in better shape than almost any other region on the planet. New Zealand’s government debt was just 35.9 per cent of GDP in 2013 – in Australia it was only 28.8 per cent – which puts us among the least indebted governments of the world’s advanced economies, and certainly in better shape than the 105 per cent figure for the USA and the 243 per cent for Japan.
Why, therefore, has there been there such a concerted drive for austerity ?
In Australia in particular, as Bloomberg’s business columnist William Pesek has claimed, the Abbott government has concocted a fake budgetary crisis, ‘‘in order to attack programmes that it dislikes on partisan grounds, including unemployment benefits, assistance for poor and single mothers, and healthcare programs for the elderly and disabled.’’
Not only are such actions mean and unnecessary, Pesek told his business readers, but the emphasis on austerity and on shrinking the role of government is likely ‘‘to starve Australia of the vital investments in education, training and infrastructure the country needs if it is to diversify its economy and thrive in the decades ahead’’.
Such concerns strike a chord here, as well. Regardless of the political gamesmanship involved, a balanced Budget is (arguably) only a tool, and not an end in itself. Cutting spending and juggling the figures to create a surplus will neither make New Zealand prosperous, nor globally competitive.
To cultivate long term prosperity, any New Zealand Government will need to undertake judicious spending on technology and skills training to boost innovation and productivity. It will also need to fund new transport infrastructure in Auckland and elsewhere, and better internet connectivity. It will require government to recognise and resolve the causes of income inequality and wealth concentration, and the social problems fostered by them. It will also require New Zealand to pursue policies to combat climate change, given the related droughts that appear likely to hit our farming sector more frequently.
The Key Government is addressing some of these concerns. Yet the existence of this week’s surplus and how it has been achieved are probably the least important aspects of the Budget.
Inevitably, the Budget surplus will be treated as a fetish object and as a political totem.
A more significant debate remains to be had in election year about the planning – and if need be, the debt financing – for long term growth.