Don’t always agree with Fran O’Sullivan but her analysis this morning gets to the core of the choice we are facing in Economic Development.
Is John Key preparing to inspire New Zealand to make the leap from a consumption-led economy to one driven by a smart investment ethos?
A bit like Singapore, perhaps, with its strong focus on using domestic savings to fuel growth via the Government-initiated investment and savings funds which have provided much of the cash that has propelled the development of its companies in the past couple of decades.
and :-
So far there is little questioning – at least in public – of why the country has to wait until the oilfields are proven before taking a leaf out of Norway’s – or preferably Singapore’s – book to increase sovereign wealth.
The purists will inevitably chime in that the Government should retire its own debt before setting up another investment vehicle.
This is the kind of thinking that led Finance Minister Bill English to slash transfers to the NZ Superannuation Fund which is supposed to help offset the bigger burden super will impose on Government accounts in future years.
Super Fund boss Adrian Orr has already earmarked some of the fund for what is arguably a nation-building purpose by investing in various New Zealand entities like Shell’s downstream business and Auckland International Airport shares when each looked likely to be sold abroad.
Orr now wants to invest in New Zealand farms. The fund is also expected to co-invest with Fonterra in expanding its farms business overseas.
But the problem is that the fund is set up with an over-arching purpose of offsetting superannuation costs – not to help grow the economy by providing strategic investment capital.
Key yesterday dropped a rather strong hint that the Government would announce new policies to increase the savings rate in next year’s Budget.
English made a start in that direction in his May 20 Budget when he unveiled a tax-go-round that put more money in the pockets of working New Zealanders and reduced the tax rates on various savings vehicles.
Many Kiwis are now retiring personal debt at a faster clip.
But the Government is in a classic Catch-22. Does it continue to inject a large fiscal impulse into the economy by borrowing up large to fund Government spending (including the major construction projects) and middle-class tax cuts?
Or does it begin cutting Government spending faster so it gets on top of its burgeoning deficit?
This is not an easy decision – particularly as there is now considerable evidence that not enough of the additional money the Government has borrowed to fuel the fiscal stimulus is being spat back into the economy via growth-fuelling consumption.
At some point the question will have to be asked: is there any point in borrowing more to fund tax cuts if taxpayers simply use the extra to retire personal debt?
Maybe we would be better off tipping some of those “cuts” into a Government investment vehicle to provide extra capital for our companies to help fund their growth and create jobs.
I don’t think Key has the balls to veto English’s objections and run with it – happy to be proven wrong.