Friday, March 29, 2024

FROM THE RIDGE: We’re in good shape compared to others

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It was termed once-in-a-lifetime Budget and, given the circumstances from the last two months, it needed to be. Old folk or students of history will know of another big deal Budget.
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It became called the Black Budget but, naturally, that is not what the finance minister of the time termed it.

Arnold Nordmeyer was a religious fellow and had been a Presbyterian minister and noted early for his skills in debating. He spent 35 years in Parliament as a representative of the Labour Party. He was in Cabinet for 11 years and leader of the Opposition for two years.

But it is his budget of June 1958 as finance minister he is most remembered for.

The second Labour government had taken office in 1957 and within a year suffered an external shock that created a balance of payments crisis caused by the collapse of butter prices in Britain, which was our biggest export market. Wool and meat prices were also down. In those days, agriculture was the economy, as its about to be again.

We have just been reminded once more that as a small trading nation far from anywhere it is always external shocks and outside events that determine our fate.

So what terrible things did Nordmeyer do that led his own allies in the trade union movement to coin the term the Black Budget and not vote Labour at the 1960 election, making it a one-term government?

To balance the books Nordmeyer increased taxes but just not any taxes. He taxed beer, tobacco, cars and petrol and his own working-class supporters were not happy and the government fell because of it.

Last week’s Budget was an entirely different kettle of fish.

There were no changes to tax, no changes to the welfare system, no new entitlement programmes and no money floating down on us from helicopters.

These are the sort of things Grant Robertson would naturally like to do and he had a crisis giving him a once-in-a-career chance to make big transformational changes but he didn’t. 

Much as John Key and Bill English had the chance to use the global financial crisis as a reason to do their own transformation to the economy but also let that slide and instead engineered a much quicker economic recovery than many other nations.

And this was no austerity package, quite the opposite.

Everyone agrees a big stimulatory package was needed and that is what we got.

A $50 billion fund to save 138,000 jobs according to Treasury forecasts to reduce unemployment to pre-coronavirus levels within two years. That’s hard to believe given the tourism sector alone has 230,000 directly employed and is going to take many years to recover.

But we know our primary sector needs another 50,000 workeers so it’s good to see $232 million will be used to boost jobs and create careers here. The money going into pest control, wilding pine removal and environmental improvements will have flow-on benefits for the farming sector as well.

This $50 billion spend-up will take our debt as a percentage of GDP to 53%, which doesn’t sound good.

However, after the great depression of the 1930s that figure peaked at 250%. It finally got down to 40% in the 1970s, back up to 55% by the early 1990s then Sir Michael Cullen got it to 6% by 2008. The GFC saw it climb to 26% by 2012, English got it back to 22% by the last election and we were at 19% going into this event.

So, the government balance sheet has had its ups and downs in the past, was in a good position and now is being used to get us through this crisis in the best shape possible.

And to keep matters in perspective, before the impacts of the virus on economies and before any spending measures, Japan already had a debt to GDP ratio of 230%, Britain was 81%, the US 107%, China 50% and Australia at 45%.

Given every country on the planet is planning to borrow vast amounts of money to stimulate economies the question no one else seems prepared to ask should be asked. From whom?

Finally, today I heard out-of-work pilots are applying for train driver jobs in Auckland because the skill set is remarkably similar.

It makes me wonder if we had a shortage of pilots would we be able to turn to the train drivers to keep the planes flying? 

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