Govt Finances A Balancing Act On A High Wire
February 12th, 2009
Now the hard yards begin. The Govt has to frame a budget under the harsh restraints of falling revenue, a deepening global recession, increasing job losses and shrinking corporate profits. NZ is on negative credit watch. The health of the banking sector is under daily scrutiny. The pillar of NZ’s export sector, the dairy industry, is hit by plunging cash-flows. Other key industries like construction, technology, retail and tourism are highly exposed to the downturn. Even the sunny optimism of John Key could soon wilt under this burden. His mantra – NZ is in better shape than most other countries to cope with the recession – could soon ring hollow. But there are positives (some would say too small to count) in the mix.
The Fonterra bond issue which raised $800m almost as soon as it was opened shows there are resources the Govt can tap for its loan programme. The Cabinet Expenditure Committee is about to carve into Govt programmes which are either unnecessary or too expensive. Ministers say the public service leadership is responding well, even though it has had to get used to Govt business being done very differently than under the previous administration.
The big difference lies in the question: does it make economic sense? The Govt’s “rolling maul” of stimulatory measures, beginning with the October tax cuts, to be followed by the April round of tax cuts, and other measures such as the SME business package last week and the $500m infrastructure spend announced this week, dismissed in some quarters as palliatives, are having an impact in propping up business activity, if not confidence. John Key reckons he has more shots in the locker. Meanwhile, it’s a balancing act on a high wire.
BALANCING ACT
• Govt finances under real pressure.
• Revenue falling in recession conditions.
• But there are still some positives.
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Duncan Cotterill