Editorials 17 May 2010

The Herald wants a decisive budget:

Seldom has a Budget been as crucial to the economy as the one that Finance Minister Bill English will deliver this week. It is immediately crucial to the housing market, where activity has been practically frozen while prospective buyers and sellers wait to see what tax will do to property investment.

And it is crucial to the country’s productivity that something is done to divert investment from housing and consumption to industry and exports.

After years and years of complaints about the property boom, and the impact that has had on inflation and interest rates let alone the banking crisis, finally a Government is taking some steps towards fixing this. They don’t go as far as Bernard Hickey would want, but they should be a good start.

The minister has made no secret of this objective. For many months he has been travelling and speaking with charts to illustrate his concern that New Zealand was in an export recession long before the domestic sector’s housing bubble burst in 2007 and it was struck by the recession of 2008.

While household and Government spending had been happily rising year by year, export activity had slumped in 2005 and has not recovered.

Quite incredible that the tradeables sector had in fact been in recession for Labour’s entire last term of office.

The Press looks at how the UK Government may learn from us:

The spectacle of the United Kingdom looking to New Zealand for constitutional guidance, during the formation of its coalition Government, is rare and perhaps unprecedented. …

The recent general election there may well have inaugurated a long-term weakening of the political parties. The increasing social mobility of the population and disenchantment with the behaviour of MPs is lessening the tribal affiliations to Labour and the Conservatives. The result is an increasing willingness among the electorate to switch from party to party according to the prevailing political climate.

This could well be the case. In the past conventional wisdom was National had core support of 35%, Labour had 35% and 30% were swinging.

But we have seen National’s support drop to 21% in an election and Labour drop to 14% in polls in 1996. There are very few core supporters left now.

Whatever the scenario, New Zealand has lessons for the British. We wrote the rule book for coalitions in a Westminster system of government, and it was that which helped the British through their recent experience of putting together a Government from competing parties. That the process was so smooth and rapid can be significantly attributed to the processes formulated in Wellington.

Of course with Winston we learnt the hard way!

The Dominion Post asks Phil Goff to explain:

Labour leader Phil Goff would like the Reserve Bank to aim at more targets. The almost certain result of this is that it will miss them all.

Absolutely. Goff is trying to retreat from every good policy that his party has previously supported.

New Zealand has, by and large, been well served by the Reserve Bank Act, with its single-minded focus on the inflation rate. The tools available to the governor to achieve that may be blunt, and his task made more difficult by New Zealanders’ determination to pump every spare dollar – and every dollar that can possibly be borrowed – into property, but at least he or she has only one goal to chase, and it has been relatively successful in keeping the lid on inflation.

You can achieve one target well, or you can not achieve multiple targets. Plus it is also an attempt for a future Labour Government to blame the Reserve Bank Governor when unemployment is high, rather than the elected Government.

There is also a need for caution on democratic grounds. Economic changes that can drastically affect people’s lives should be made by those whom the people can hold to account at the ballot box, not appointed officials. An expanded role for the bank makes it all too easy to muddy the lines of responsibility, and to use the bank as a scapegoat for economic failure – the same trick has been used to duck responsibility for health, where failures become the property of area health boards while successes are claimed by the minister.

The same point I made above before I carried on reading.

It is still a good while until the next election, but Mr Goff is still a good way away from delivering a coherent economic policy that offers alternatives rather than a parcel of vagaries.

So far the policies are not at all future looking, but attempts to revisit debates from 20 years ago.