The Clark Govt has made our economy less vulnerable to the global slowdown by improving its finances over the past nine years (at the expense of tax cuts only just introduced). Tables in a report from Britain’s Institute of Fiscal Studies show NZ slipped into recession with much less public-sector debt than when the Nats were dealing with the previous downturn, although many economies with severe problems, such as Iceland and Korea, also have healthy fiscal positions. The NZ Govt’s 2008/09 first-quarter financial statements show gross debt was 17.8% of GDP at 30 September while the Crown’s net financial assets (including NZ Superannuation Fund financial assets) were 5.7% of GDP, a strong balance-sheet position which Finance Minister Michael Cullen says vindicated his Govt’s decision not to blow the surplus “in the good times.” But the statements also show the upheaval in global financial markets has taken its toll: the $757m operating balance deficit was $1.7bn below Treasury forecasts in the Pre-election Economic and Fiscal Update, largely because state investment portfolios have shrunk.

Tough Times Certain. Because the Prefu projected tough fiscal times for the next several years, major party leaders warned of cutting Govt spending, including (in National’s case) the $700m Fast Forward Fund to boost primary sector science. PM Helen Clark forestalled some policies intended for release during the election campaign, such as linking the minimum wage to inflation movements or the average wage. Since then, however, both Labour and National have announced programmes to care for people who lose their jobs during the recession and Clark told Radio NZ she will borrow, if necessary, to protect jobs and bolster the economy. And for the Pacific TV service she has promised, presumably.

Election Will Have Consequences. A mini-budget next month is on Labour’s agenda, but if Clark must climb on the Green Party “ban” wagon to keep her job, she may have to fund the administration of some of 85 Green Party bans tallied by Kiwiblog, from fizzy drinks in schools to companies which don’t comply with a code of corporate responsibility. Accommodating the Maori Party will come at a fiscal price, too. Its spending ideas include $500 tax-free handouts to pensioners and poverty-stricken families with children to help them through the Christmas period. Co-leader Pita Sharples warbled about the benefits of the “multiplier effect.” Someone, obviously, used fancy economic language while briefing him about the proposal. Let’s hope Sharples doesn’t demand being our next Finance Minister.

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