The Imagination Deficit

This government is so devoid of imagination that all they can think to do is cut the public sector.

Cutting the public sector will see a short term gain, due to a reduction in government expenditure. But the negatives are fairly obvious: more unemployment, and a reduction in the quality of public service delivery. We don’t have a particularly large public service, having privatised almost everything that moved under previous administrations.

Some people would say that the government making more people unemployed during a time of recession is plain dumb economics. The orthodox thinking is that in a recessionary time you try to stimulate the economy. Cutbacks can potentially deepen a downturn, because they take money out of the economy. Pumping more money through the economy is the rationale National gave for the tax cuts. So why stimulate on the one hand and cut back on the other, unless you’re barking mad?

In the end this is more about ideology than economics.

Loss of livelihood is a thing more destructive to a person than having to pay another few dollars a week in tax. But this government doesn’t like public servants, and would rather screw the economy than allow public servants to feel secure in their jobs.

The government can always find money for its friends, like the $4 million it gave to AMI Stadium because the owner didn’t want to pay for insurance. And the tax cuts have gone mostly to people like me who really didn’t need them. It seems pretty clear that there is no plan for our economy other than “wait and pray for some sort of recovery.”

But waiting this out probably won’t work. We are a commodity-exporting nation, and at the moment we’re receiving record high prices for our goods. Imagine how bad things would be if commodity prices were not so high. When they go down again (and history tells us they will), we will see a reduction in government revenues and more stress on its books. The inevitable response will be cutbacks and a potential deepening of the downturn.

Despite the fact that commodity exports, while important, are not going to be a high growth industry for the nation long-term (we can only ever farm so many cows), there’s next to no planning underway to look at alternatives. There’s been tinkering with our science and innovation sector, but little in the way of bold vision. And tax incentives continue to encourage investment in low-growth areas of the economy, like property speculation.

Maybe this will dawn on the Nats one day (to be fair, I’m not sure that Labour gets it either). No doubt their response will be to cut taxes further.