Living at the Expense of Everybody Else
7 December 2009 | by Hon Richard Prebble
“The government is currently borrowing $400 million a week, and over the next 4 years it will borrow about $40 billion, thereby doubling public debt”
( Hon. Bill English responding to Sir Roger Douglas in Parliament, 23/09/09).
As a country, we are borrowing $400 million a week! And that is just public debt borrowed by the government. Private external debt is over $100,000 for every working person, one of the highest levels in the developed world.
The Herald recently had a front page headline “Borrowing $250 million a week”, based on a Treasury forecast of average weekly borrowing for the next four years. That forecast was predicated on the hope that future governments will not approve so much new spending. If a National government more than two years out from the election decides to susidize Maori TV by using taxpayer funds to buy rugby broadcasting rights - then who believes that in an election year new spending will be halved?
Labour, the Greens and the Maori Party are all calling for more government spending.
You can see this is unsustainable. So why can’t our MPs?
In the long term, governments cannot spend more than they earn. Even before the government started its borrowing programme the country was relying on overseas lenders so we are going to have to borrow even more from the rest of the world. At some point the worlds creditors will realise the New Zealand Government’s level of spending is unmanageable.
September’s Global Financial Stability report published by the International Monetary fund makes it clear that world wide increasing borrowing by governments means there could soon be a serious crunch. Governments have borrowed money at short term rates in order to get cheap deals. When this debt has to be rolled over we will be competing with, among others, the US and Britain for borrowings.
If we are able to borrow at all, the interest rate the government will have to pay will go up and so will the interest on our mortgages, business loans and credit cards. This explains why long term interest rates are so much higher than the floating rate – lenders are already pricing in a dramatic interest rate rise.
To compound the problem, government revenues are decreasing. Over the four years from 2008, our total GDP will be permanently $50 billion lower than if the global financial crisis had not occurred. The Government will collect about $16 billion less tax revenue. The Treasury’s other “hope” of an export lead recovery is derailing on the rise in the Kiwi dollar.
Raising taxes is not an answer as we are already more highly taxed than Australia.
To raise taxes now would just put us back into recession.
The Zimbabwean policy of printing money is not an option. We tried that under Sir Robert Muldoon. The result is always runaway inflation and economic ruin.
If you are borrowing too much, you are spending too much. The answer is to reduce spending. This should not be hard as the Secretary of the Treasury John Whitehead said in a speech in July “there is about $40 billion of public money, more than 20% of GDP, that could be used differently and better”.
Spending $1.5 billion subsidising Telecom’s competitors, $90 million subsidizing rail and millions on cycle tracks, not to mention $5 million of taxpayers’ money so the rugby world cup can be simultaneously on four free to air channels, all spring to mind as wasteful. To cut $400 million a week must include where most spending goes - welfare, health and education.
I spent my ministerial career repaying reckless government borrowing. I never thought a government would recklessly borrow again. While the present borrowing is alarming, our debt to GDP ratio was far more serious in the 1980s. Back then we realised that if the government was upfront and honest, then the public did support tough measures to reduce debt. Those measures gave us 10 years of growth and full employment.
The opposition to the government just reducing its subsidy of hobby night classes seems to have unnerved National. I see teachers are now threatening to strike over the minor cuts to the massive education budget.
Government spending has ballooned by about 50 per cent in the past five years – twice the rate of revenue and twice the rate of economic growth.
We must reduce government spending. Every day we delay, the problem gets worse and the eventual cuts will be only more drastic. We baby boomers are soon going to retire. When that happens, who will be around to pay back not only the debt, but also the increased costs of superannuation and healthcare?
The problem is that Labour’s massive increase in government spending has created a new majority. There are about 20,000 extra civil servants, increased welfare rolls, interest free loans have caused more students to borrow and now there are tens of thousands getting family support payments. The cost of Labour’s extra central government employees alone is around $1.1-1.3 billion per year.
The MPs think there are just too few taxpayers not receiving government largesse left to support a reduction in government spending.
“Government is that fiction whereby everybody believes he can live at the expense of everybody else”
( Frederic Bastiat).
I think National and Labour are wrong. Most of us know doubling the public debt in four years is unsustainable. Even those teachers proposing to strike over a minor cut in the education budget can see that borrowing to fund adult hobby classes, among other spending, is madness. While some voters support redistribution of wealth, every one knows that hobby classes are not free. Eventually our children will have to repay the $400 million a week borrowing back with interest.
Unless we act, we will double government debt by 2014 – borrowing another $40 billion.
It would take a lift in GDP of about 4 per cent over the next four years just for the Government to collect enough revenue to pay for the extra interest costs, something even the hopeful Treasury is not predicting. We are heading for a very bleak future.
And it is our fault – we on the centre right. If a Labour government was predicting its policies would result in a doubling of the national debt in just four years we would be organising street protests lead by National. The last time New Zealand mortgaged its future was also under a National government because business did not wake up to the danger until the country was in crisis.
Borrowing to finance consumption, which is what New Zealand is doing, is bad regardless of whether the government is National or Labour. We may not want to hear it. (I submitted a similar article to the Herald which rejected it and instead prints articles from its financially illiterate columnist calling for more government spending).
It has been said every political revolt can be traced back to an article. First you have to be published. If you want a reason why New Zealand needs the Gauntlet, let me give you 400 million every week, our country’s reckless borrowing.