-
Source: ONE News -
Related
The word 'austerity' is enough to send a wee shiver up the spine.
It sounds so severe, dour, restrictive - and it is. It's a word that's become a familiar one in countries like Portugal, Ireland, Greece, Spain and even the United Kingdom to describe the era residents now live in: the age of austerity, which has come hard on the heels of the age of excess.
Now that same word is being used to describe what New Zealanders can expect from the Government's budget in May. Basically: not much.
Before we look at New Zealand, let's stay with Europe.
Another EU bailout?
Speculation is again rife that Portugal will be the third European Union country forced to seek a bailout, after its package of austerity measures - its fourth within a year - was voted down in parliament.
True to his word, Prime Minister Jose Socrates resigned as a result.
The small debt-laden country has now plunged further into financial and political crisis, but its leaders still vow they will follow in the footsteps of Ireland and Greece and go cap in hand for a bailout.
Nevertheless, that's likely to be the focus of an EU leaders summit over the next few days.
Portugal has already implemented a number of austerity measures, but on TVNZ's AMP Business today Mike McIntyre from OM Financial said the measures probably just haven't been austere enough to deal with its debt problems.
"It's very unpopular to vote for a cut in government spending and an increase in taxation...it doesn't win you any votes."
Which almost goes without saying, but mismanagement or even just perceived mismanagement of a financial crisis can be damaging too.
Just look at the result of last month's Irish election - voters fair savaged the former governing party, Fianna Fail, after Ireland's bailout.
Which brings us back to the situation facing our government.
The headline reason - the Christchurch earthquake - for our own impending budget of austerity is quite different to Portugal's.
The government must foot a bill of some $10 billion to assist Canterbury and ensure it is rebuilt following the quake.
Push for surplus
But underlying that, the government has also been seeking to return its books to surplus, in a bid to appease the credit rating gods and put the economy in a better position to withstand shocks (like, say, natural disasters).
It was planning on doing that by the 2014 to 2015 financial year. But last week the Finance Minister indicated that because the government will have to borrow more to meet the cost of the quake it now isn't likely to be back to surplus until a year later than that.
The International Monetary Fund this week put its two cents in, arguing it's both desirable and possible for the government to stick to its pre-quake timetable for reducing its debt.
It has a point, one it's been making for many years now - we do need to reduce the deficit and bring down our foreign liabilities.
The data this week showing the current account deficit grew in the fourth quarter is evidence enough of that.
But the government also has to think about the economic landscape in which it's making these decisions, in a New Zealand that's been rocked by a massive seismic event.
So in that context, the fact the government's debt track has only been pushed out by a year is significant.
Keeping a lid on borrowing when the latest numbers confirm the economy flatlined in the last half of 2010, and with a burgeoning bill following the earthquake, means one of two things - higher taxes or cuts to other areas.
It's pretty clear which one the government favours.
John Key used that dreaded word 'austere' when talking about the May 19 budget at the mayoral summit in Auckland this week.
A budget with no new spending.
That budget will be pivotal for the credit ratings agencies who have us on negative outlook for a possible downgrade.
But it won't be in the realm of that faced by Europe's debt-laden countries.
There's unlikely to be wholesale cuts, rather money will be shifted from one area to another.
But either way, it reflects the fact that we too have to move past the age of excess.
Austerity is the new black.
At least, it's the only way the government will be able to get its books that colour again anytime soon.
Read more of Nadine Chalmers-Ross's opinions here and comment on the messageboard below.
Add a Comment:
Post new commentnztifosi said on 2011-06-03 @ 17:26 NZDT: Report abusive post
Just when my family was making headway financially the government chose to cut tax and put GST up. At the same time funding to the school I work at was cut resulting in an hours cut for me. Result? We are now worse off than ever before! And now we are supposed to spend, save, donate to Canterbury and every other charity as if the current situation were the working man's fault. It is the speculaters and the financiers along with the government who got us into this mess! -now they can get us out!
deltics said on 2011-05-19 @ 12:38 NZDT: Report abusive post
Saving isn't what NZ needs right now, it needs to pay off it's debt AND increase spending. Money paid into KiwiSaver doesn't reduce our current debts and doesn't circulate around or stimulate the economy! So it actually makes a lot of sense for the government to reduce the incentives to pay into KiwiSaver whilst emphasising the need to be more prudent in our spending (paying down debt) without closing our purse strings too tightly in the process.
ceejaygee said on 2011-05-15 @ 12:33 NZDT: Report abusive post
i currently pay 4% into kiwi saver i would like to pay 6% unfortunately there is no provision for that hopefully the govt have thought about that. as to the tax credit cut not a clever idea, maybe they could make it totally tax free then we could really save for our retirement then they could cut the tax credit altogether
Danthetaxpayer said on 2011-05-14 @ 19:10 NZDT: Report abusive post
I would also like to ask how is it retirement savings are even a priority when we fail so badly as a country to take care of our children? Children who are meant to be our future taxpayers helping to fund future NZ Super? Children who are often neglected, illiterate & who struggle to get the medical assistance they need due to health care shortages and whose families often have to fundraise? Why are these things not a priority?
Danthetaxpayer said on 2011-05-14 @ 19:07 NZDT: Report abusive post
I'm confused: how is it saving when most of the 1.67 odd million people with Kiwisaver are probably receiving some kind of government assistance. Assistance is for hardship and to meet basic needs - food, clothing, shelter only. If they have enough spare to put into Kiwisaver which then gets matched by more taxpayer funds earned by the hard work of others, then isn't this the horse before the cart? Further, how can it truly be savings when we are borrowing $300 million each week?