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Economic Suicide

Entry 1284, on 2011-04-06 at 20:04:27 (Rating 4, Politics)

Economist are warning that now is not a good time to "rebalance the books" in New Zealand. The comments came after statements by finance minister, Bill English, that current restraint on public spending will become permanent. He says that the costs of running the government are too high and changes have to be made which will mean more job cuts in the public sector.

There are no details that I have seen on what "restraint" will mean but the "top end" of working for families is one area which will almost certainly be cut back.

A sampling of public opinion showed that most people think beneficiaries need the money they get, some would prefer an increase in tax for those who can afford it, others say that reducing benefits for the better off would be a good idea because they think targeted assistance is better, and some say a better way would be to raise the pension age.

A professor of economics says cuts in one area often lead to greater spending in another, but he also thinks we have a lot of government departments for a country this size.

The chief economist at BERL (a research firm) thinks now is a bad time to cut spending. He says it would be better to do it when there are jobs for those who are made redundant. Cuts might help government debt to a degree but it's total national debt which is the problem so the proposed cuts wouldn't really help. The economy is currently very fragile and we could have a repeat of the 1990s when the economy was tipped into greater depression and government accounts were damaged even more after similar cuts.

The financial crisis and the Christchurch earthquake have put pressure on the government. We have to pay some way, either through higher taxes for the most wealthy or less services and social welfare. The government has to spread the pain.

Bill English says he has no master plan and decisions will be made as required. Our finance minister has no master plan? That seems like an odd admission. Is that why he's resorting to the old standard trick of cuts to the public sector. That's the easy way out. Who needs to make the effort of making a plan?

English claims the previous government massively ramped up spending and created a bloated public sector but an economist says the government got only marginally bigger relative to the total economy and it actually didn't increase much. He also said that inaccurate claims from the minister are not surprising, and we've heard it all before.

So the size of the government hasn't significantly increased and it's about the same size as other OECD countries (about 20% of the national economy). And in fact it hasn't been "sucking out resources from the competitive sector", or if it has it has only been an insignificant amount or only at the margins.

So the government seems intent on committing economic suicide. Many people don't think it's a good idea, many economists disagree with the idea, history indicates it's a counter-productive idea. But the government doesn't have a plan so they will take the easy way out instead. Who cares whether it will work or not.


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