A tale of two countries

Is Australia still the lucky country? When it comes to Budgets, Luke Malpass says it’s not.

In 2008, Australia had a mining boom, rising wages and no debt. Its government had delivered consistent surpluses, tax cuts and targeted cash payments to targeted voter groups. Growth was assumed and household wealth doubled during the Howard years. It even avoided recession.

In contrast, New Zealand was lurching into debt, had a collapsed non- bank finance sector, a tradeables sector that had been squeezed for several years, a real recession in advance of the global recession, and a structural deficit. . .

But last week, our Finance Minister Bill English announced New Zealand is on track back to surplus while Australian Treasurer Wayne Swan  announced an A$19.4 billion deficit, with several years of deficits to follow.

Budgets are ultimately about choices. The Australian Government chose to run it close to the wind, increasing spending by as much as the most optimistic revenue forecasts would allow.

New Zealand made a very different and far more difficult set of choices. In 2008 the issues were obvious: productivity growth was poor, taxes too high – particularly at a relatively modest level of income – and the tax system had little internal integrity.

Government was chomping its way through far too much of the national pie, crowding out private sector activity.

One important thing the New Zealand Government has done is tamp down expectations of spending increases, concentrating on core activities and not using government as a vehicle to give handouts to partisan coalitions of voter groups. As part of this strategy, the Government is reducing both its spending and revenue to GDP ratios. It has reaffirmed its commitment to getting core government spending down from 35 per cent of GDP in 2008-09 to 31 per cent in 2014-15. The rate of spending increase has slowed to less than CPI and population growth. . .

This hasn’t just been an economic success, it’s been a political one.

The government has managed to reduce costs while maintaining services and has managed to convince most people of the necessity for doing that.

. . . New Zealand’s books look in better shape than Australia’s, not least because of New Zealand’s public accounting system. It is more difficult to fudge the figures and render the accounts opaque than is the case in Australia, where payments can be brought forward and/or shifted backwards to create fiscal illusion in any given year.

We have Roger Douglas, Ruth Richardson and the ‘failed’ policies of the 80s and 90s to thank for that.

New Zealand’s Budget is commendable and, compared with Australia’s, it looks extremely positive. In the long run, nations can only excel and grow living standards by being competitive and living within their means. The current situation in Europe attests to that.

With all the advantages in the world, the Aussies have not managed it, and face some very difficult decisions in coming years. In contrast, from a pretty poor position New Zealand is getting its fiscal house in order.

And getting its fiscal house is putting New Zealand on a far stronger foundation than many other countries.

One Response to A tale of two countries

  1. jabba says:

    let’s hope we don’t get a Labour/Green Govt like they have in OZ .. I shudder at the thought

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