The debt blame game

Stuff reported earlier this week:

Voters blame Labour more than National for the country’s current debt levels, according to a nationwide survey of Fairfax newspaper readers.

With the two main parties pointing the finger at each other, we asked more than 2000 of our readers who they blamed more.

Almost half of those in the survey saw it as effectively ”a plague on both their houses”, with 44 per cent blaming a combination of the Clark and Key governments.

But among those who singled out one or the other, 33 per cent saw Labour as being more at fault, while only 18 per cent blamed National more.

That is despite a huge blow-out in net core Crown debt since National took office, with a rise from $10 billion in 2008 to $50b now and forecasts it will top $70b by 2015.

However, in 2008 Treasury was forecasting a decade of deficits, though not at the level actually seen over the last few years. There was a record $18b deficit last year, which was hit by the cost of the earthquakes, and will be a likely $10b to $12b deficit in the current financial year.

The survey results are not a random sample, so should not be taken as gospel. However they do give me confidence that voters out there are smarter than assumed.

These finding have caused great howls of outrage from the normal Labour types, with graphs showing how debt fell until 2008 and rose afterwards. In their simple binary world, that means Labour was good on debt and National has been bad. They hope and pray the public are so stupid that they overlook the global financial crisis and associated world recession.

As most people will know the 2008 PREFU showed us that under Labour’s fiscal settings, New Zealand was facing a decade of deficits. But it was even worse than that. Just two months later the forecasts were for not a decade of deficits, but a permanent structural deficit that would never go away.

Now National responded to these forecasts by cancelling its planned 2010 and 2011 tax cuts, and a mixture of spending cuts and reductions in the future spending allowance. One can argue that Labour may have taken some action also to stop a structural deficit from being locked in, if they had won in 2008. But the problem for them is they opposed every single spending cut or even restraint that National did. So hence it is no wonder that the public don’t see them as credible.

It was only a few months before the 2011 election that Labour realised how badly they had misjudged the public mood, and stopped calling for massive new spending.

So as I said, the results of that survey are reassuring that many in the public can tell the difference between correlation and causation.