Fiscal responsibility

There was a nice set of numbers in a Stuff story yesterday about net Government debt levels in the past few years:

Net core Crown debt in $NZ:
2000: $25.9b
2002: $25.3b
2005: $19.9b
2008: $10.3b
2011: $40.1b

Forecasts:
2012: $53.8b
2014: $67.8b
2016: $72.5b

These numbers show Labour's prudence in office, and National's profligacy.

Yes, there has been damage to the government's financial position through the Canterbury earthquakes and the global recession. Those are granted. But the chipping away at NZ's debt levels has also come about through wilful cuts to government revenue through tax cuts to those who need them least, only partly offset by tax rises on those who feel the pain the most.

The story contains a broader narrative about public impressions of who is responsible for the debt.

I've never understood why anyone would think it's a left wing thing to run up public debt.

The Clark governments in 1999-2008 weren't exactly National-lite, and they paid off a large volume of net debt. The Nats in the 1990s left it more or less where they found it; Labour in the 1980s and National in the 70s both lifted debt significantly.

Modern social democrats aren't interested in running unsustainable deficits. Given the New Zealand private sector's obsession with borrowing to the hilt, it is more important for the NZ Govt to be conservative fiscally than is the case for many other countries.

That is why our policy last election was a mix of tax increases and spending restraint that would have seen borrowing a little higher in the short run but lower after about four years, and for all time after that.

David Shearer has decided the policy should avoid the confusions inherent in the 2011 pledge to re-start NZ Super fund contributions while the deficit still exists. That's fine. Since National is promising surplus by 2014/15, which Labour was too, I anticipate the incoming Labour led government in 2014 will pretty quickly be looking to start the pre-funding again.

Fiscal responsibility is what we are all about -- along with a broader responsibility to society and the economy which isn't part of National's DNA.

We will on average run higher levels of government spending and tax than National, because we have different judgements about where the line should be drawn between individual and community responsibility in some areas, and because we use the State to undo the inequalities the market creates by its ordinary operation.

We will be tougher on pollution than National because we don't believe in giving some sectors a free ride that they don't deserve.

We will be more careful about preparing for the upcoming baby boomer retirement and the costs it will impose on super and health spending. Thus our painful pledge to raise the retirement age over time; thus the KiwiSaver initiative; thus the creation of the NZ Superannuation fund; thus our determination to run fiscal surpluses and pay off debt.

Two final thoughts.

First, external prospects. If the world enters a prolonged low-growth period, then Labour will have to do tough thinking. It is easy to be fiscally responsible when revenue is rising through economic growth. When it is not, tougher choices will be required -- and our take on them has to be clear well before 2014.

Second, the broader economic fight between the parties isn't on fiscal issues - it's on how to grow and develop. The wider structures that are driving poor performance in our economy - flawed tax regimes that exempt capital and incentivise non productive investment; limits on firm scale growth due to lack of access to capital; an under-regulated labour market that keeps wages low and lets firms avoid tough choices about productivity - are the actual real difference between Labour and National these days. Even in a world of low growth, doing these things better will leave New Zealanders better off.

As David Parker said in his excellent pre-Budget speech this morning: "Change nothing, and nothing changes -- but don't blame Greece!".

Comments

[Steve]

Who says the left is known for building up debt? I thought the left vs right argument was about the size of government.

unless we're talking about keynes v hayek as left v right. then massive surplus' during a boom (with properly applied keynesian policy) and deficits during a recession are to be expected from the left - wait, perhaps that means national is left too...

you need to put these numbers along side numbers for economic growth - when growth is relatively higher you should expect surplus', when growth is lower we should expect deficits. I expect labour would have had similarly large deficits in recent years if they'd been in govt (although with larger govt). It just happens the stimulus under the nats came in the form of tax cuts and labour's would have come in other forms.

[Steve]

ok, i should have read the article that blames labour for the debt. but let's think about it. the nat's didn't expand the size of govt - labour did during the 2000's. yes the nats cut taxes and deserve some of the blame. and they haven't reduced the size of govt substantially since labour - but I can certainly understand people putting the blame on labour for increasing govt spending.