Fiscal stimulus – everyone’s doing it.
Leaders such as Kevin Rudd, Barack Obama and Gordon Brown seem prepared to plunge their countries into decades of deficit to artificially stimulate demand. In Australia, the United States, Europe, and many other countries around the world, demand side stimulus packages have been rolled out to help fight the global financial crisis.
The new National Party led government in New Zealand has taken a more responsible approach of adopting good, long-term policies and trying to address the supply side issues in the economy.
The John Key government has been trying to help the productive part of the economy, not through handouts to voters but by amending regulations (for example, the Resource Management Act), easing provisional tax rules for producers, and introducing modest personal tax cuts. Although these moves may not seem dramatic, they should be applauded because …
In the current environment, policies such as lowering tax, flattening and simplifying the tax system, removing regulation, shrinking government size and, therefore, shifting more resources into the tradeable goods sector, are viewed as luxuries and not the basis of a sound policy framework. The policy lessons of the past 30 years seem to have been forgotten in six months, as governments around the world scramble to prove their virility by pumping cash into ‘fighting the recession.’
Of course, recessions are as important as they are inevitable. But explaining that to an electorate can be difficult for governments. Slumps are often important market corrections before economic growth can resume.
Long-run economic growth is too abstract an idea for many people and is not as easy to explain as tangible concepts such as ‘saving jobs’ or ‘supporting our retailers.’
Herein lays the pressure on the NZ government. The more other countries hand out cash (and promise more to come) the more out of step with the world New Zealand seems. This will increase the pressure on New Zealand to implement short-term demand side stimulus policies.
But the New Zealand government must continue bucking the trend and resisting this fashionable short-termism.
Home > Commentary > Opinion > Don’t give in to stimulus peer pressure, New Zealand
Don’t give in to stimulus peer pressure, New Zealand
Fiscal stimulus – everyone’s doing it.
Leaders such as Kevin Rudd, Barack Obama and Gordon Brown seem prepared to plunge their countries into decades of deficit to artificially stimulate demand. In Australia, the United States, Europe, and many other countries around the world, demand side stimulus packages have been rolled out to help fight the global financial crisis.
The new National Party led government in New Zealand has taken a more responsible approach of adopting good, long-term policies and trying to address the supply side issues in the economy.
The John Key government has been trying to help the productive part of the economy, not through handouts to voters but by amending regulations (for example, the Resource Management Act), easing provisional tax rules for producers, and introducing modest personal tax cuts. Although these moves may not seem dramatic, they should be applauded because …
In the current environment, policies such as lowering tax, flattening and simplifying the tax system, removing regulation, shrinking government size and, therefore, shifting more resources into the tradeable goods sector, are viewed as luxuries and not the basis of a sound policy framework. The policy lessons of the past 30 years seem to have been forgotten in six months, as governments around the world scramble to prove their virility by pumping cash into ‘fighting the recession.’
Of course, recessions are as important as they are inevitable. But explaining that to an electorate can be difficult for governments. Slumps are often important market corrections before economic growth can resume.
Long-run economic growth is too abstract an idea for many people and is not as easy to explain as tangible concepts such as ‘saving jobs’ or ‘supporting our retailers.’
Herein lays the pressure on the NZ government. The more other countries hand out cash (and promise more to come) the more out of step with the world New Zealand seems. This will increase the pressure on New Zealand to implement short-term demand side stimulus policies.
But the New Zealand government must continue bucking the trend and resisting this fashionable short-termism.
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