Budget medicine

The first Budget I remember listening to (yes, listening on the radio in the evening because – as Poneke reminded me – that was how you first received the news and when Budgets were delivered) was in 1975, my first year at university.

 

I was hoping for increased help for students. That we already got our fees paid; a living away from home allowance if our course necessitated moving from home to study; A or B Bursaries of $150 and $100 respectively (when weekly rents were about $7); anyone who had a vague notion that they might one day entertain the possible thought of teaching applied for and almost always received a studentship; and that people on pretty modest incomes were paying 60% taxes in part to fund all this largesse, was irrelevant.

 

I’ve forgotten what, if anything students received which supports the contention that we don’t appreciate what Government’s give us; and I don’t recall anything about subsequent Budgets until Roger Douglas’s first in 1984. That was the one was brought farmers kicking and screaming in to the real world by removing subsidies.

 

The sudden removal would have been difficult enough but the impact was worsened by raging inflation, high interest rates, a relatively high dollar and low commodity prices. While we had to face the real world, the labour market was still strictly regulated and there were tariffs on imports so while our incomes went down costs did not. The damage was compounded in North Otago where we were also facing another of the recurring droughts which dogged the district.

 

The economic and social deterioration of the ag-sag compounded as inflation and interest rates climbed, buoyed mostly by city property prices and the share market. Meanwhile farm prices plummeted and many of us found we’d gone from having reasonable equity to theoretical bankruptcy as our debts became greater than the value of what we owned.

 

Perhaps we were fortunate there was safety in numbers. Stock and station firms and banks to whom we owed so much knew that if they pushed a few they might start a landslide which would only aggravate the situation. By the end of 1987 the share market crash meant it was no longer just farmers and rural communities which were in financial disarray.

 

It took years to recover but the changes Douglas, and subsequently Ruth Richardson, made helped contribute to that recovery. So while we didn’t like Douglas’s medicine at the time and could argue about the method and timing of its delivery, few would disagree that farming and New Zealand are economically healthier because of it.

 

 

 

One Response to Budget medicine

  1. truthseekernz says:

    Your thoughts are much like my own on this topic – at least up to the present. It has been a growing feeling in my own mind that we should be careful not consider history to have ended when the policies of the late-80s / early 90s were implemented. The day these changes were ‘complete’, we were still living in a world very much constructed under the old rules. Industries only ever possible while protected by tariffs began to try to adapt to a different world. The people in them and the skills they brought to the economy were from the previous era. At the time these changes were introduced, the cost of education was vastly increased and no real effort was made to enable workers to move to new areas or to acquire new, more relevant skills. Instead, we imported skilled people from overseas to a greater extent.

    As time has gone on and China has risen to the fore in global manufacturing, our own industries have been evaporating like morning mist. Things we used to make for ourselves are now imported. The number and range grows every day. I bought some Wrigleys “Extra” breath mints yesterday – made in China. They cost barely a dollar.

    My own daughter is looking for work to earn money to study at Uni. The jobs on offer are all minimum wage – if you can get employers to actually pay the legal minimum. She is currently working for an illegal $11.50 / hour and doesn’t want to make a fuss as her CV isn’t deep or wide and she needs a good reference. She’s considering going to Australia to earn “larger” dollars and bring them back to pay for studies. Apparently, she can earn more money over there doing unskilled work because unions are still fairly strong across the Tasman.

    The trend I’m beginning to see emerging is a New Zealand largely denuded of manufacturing unless whatever it is can’t practically be made anywhere else. The people and skills that used to be employed in these industries are effectively being scrapped or they are leaving the country in droves to go to places where they can still get a decent job doing what they know. No one here is paying for retraining. What 40 year old is going to take on a $40,000 student debt when their industry disappears? They can’t and wont. That’s not old, either.

    Much of our apparent prosperity in recent years was a function of low interest rates and rising property values. It’s been wonderful while it lasted…..but it appears the end is now insight if not already here.

    What we may see emerge in the medium term is a smaller, poorer New Zealand lacking any local critical mass in skills or opportunities many important areas of technology and industry because we have shut down what we had. More and more people will have to go elsewhere to pursue their careers or settle for a narrower range of opportunities here.

    Our dollar is forecast to fall 20% over the next few months against the US$. The US dollar, in turn, is falling against most other major currencies. Meanwhile, oil if 7 times more expensive than 10 years ago. It’s a triple-whammy……while wages are now much the same for most people as they were 5 or 10 years ago.

    Tax cuts? Almost a red herring for most people as higher interest rates and oil price rises will transfer any additional discretionary income straight to a bank or an oil company.

    The one bright spot is we grow food in a world becoming hungry. But we also make no effort to ensure we don’t put houses and parking lots on good farm land. Why our dollar should be falling when food commodity prices are at record highs is an interesting question, too. One recent article suggests the NZ dollar has become a plaything for mega-funds made even more mega by what is being described as an “asset bubble” of oil profits. The way Malaysia’s Mahathir Mohammed knocked that on the head and avoided the Asian Meltdown spreading to his country was to impose currency controls….and his economy was much larger than ours.

    I suspect the era we are entering into will punish the dogmatic and reward the pragmatic.

    We’ll see whether faith in ecomomic orthodoxy is justified in the months and years to come. It might be that we will have to develop a certain agnosticism to survive here, where we live.

    Like

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