NZIER on fiscal stimulus

NZIER have done a very interesting report on the balancing act between jobs and debt.

The fiscal stimulus of almost $10b over four years will result in an extra 10,000 jobs in the short run, but it will reduce future consumption by $160 per person per year. We can spend now, but we have to pay for it eventually.

And that is the key thing to remember – that debt has a cost.

We find that a policy that reduces the cost of employing people could boost employment more at a similar cost to long-run consumption. Better still would be well-targeted spending on infrastructure to deliver longrun productivity improvements. Given New Zealand’s longer term growth challenge, any fiscal efforts to stabilise the economy and avoid a more severe recession should have productivity at the centre of the policy radar screen.

Productivity growth is all important.

we find that the current package is likely to:
• generate an extra 10,000 jobs in the short run
• raise GDP in the short term by 0.6 percentage points
• lead to lower employment after 2012 and a 0.8 percentage point fall in long-run real consumption per annum than without the stimulus.

Again debt has consequences. And just think about how much more debt there would be with Labour – not just $1b+ for their pet tunnel, but they have oppossed every cost saving in the public service.