December 18, 2009 2:00pm by David Farrar

Editorials on Labour and fiscal restraint

Finance Minister Bill English should listen carefully to his Labour opposite David Cunliffe and then do the exact opposite.

Mr Cunliffe is a clever man who proved a capable minister of health, but he is either out of his depth in the finance role or has completely abandoned principle in pursuit of popularity. There is no other explanation for his absurd criticism of the Government for refusing to loosen the purse strings in the wake of a Treasury report suggesting the recession has ended and New Zealand is in better economic shape than forecast seven months ago.

“Basically what they are saying is our books are $2 billion better off but we the Government are going to keep all of it and you the public will get none of it,” Mr Cunliffe told National Radio on Wednesday.

That is populist nonsense. The improvement in the Government’s books does not translate to money in a bank account. It is money the Government no longer needs to borrow from international financiers. The choice Mr English faces is not whether to spend or save; it is whether to borrow more or borrow less.

We’re borrowing $250 million a week. There is a slight upturn and now we are borrowing only $240 million a week, and Labour says time for a big spend up. They just do not get it.

If he were to act upon Mr Cunliffe’s urgings, he would borrow and pass the debt on to future generations – generations that will already be burdened with servicing the billions of dollars of extra debt the Government has taken on this year and will continue to take on over the next few years to stave off the worst effects of the global economic crisis.

Fiscal restraint is needed not just for a few years. First we have to reduce the deficits and get back into surplus. That may take seven years or so of fiscal restraint. But even after that, we will want to get our debt levels back down to what they were pre-recession (in case we have another one at some stage, which is likely), so we will want several years of surpluses of around 1% of GDP. So fiscal restraint is needed for at least a decade.

If Mr Cunliffe really thinks the Government should be spending more now, he should have taken a greater interest in financial matters during Labour’s last nine years in office. If the government of which he was part had spent less on middle-class welfare, overpriced train sets, hip-hop study tours and shonky tertiary courses, its successor would have more to spend now on health, education and welfare. Seedcorn eaten today cannot be turned into cornflakes tomorrow. …

Money borrowed has to be repaid with interest. Mr English should ignore Mr Cunliffe’s rantings and enforce the strict spending limits detailed in the Budget.

And the limit is a limit, not a target.

Also the ODT:

Government surpluses are expected now to return two years earlier, by 2016, but government debt will still rise to an extraordinary $64.9 billion by 2013 and the burden on the public will continue to grow.

By comparison, it is $17.1 billion this year.

This means tighter conditions are a certainty – unless the Government decides future administrations can worry about the problem of paying the higher debt burden in years to come.

Considering the future cost of superannuation and healthcare, that would be very unwise.