And Then What?: Only the criminally ill-informed and/or the hopelessly romantic believe that anyone but John Key will be prime-minister after the General Election. The more important question is: What happens then? After the ball is over - and the global recession finally hits New Zealand?
WITH MORE AND MORE voters regarding a National Party election victory as inevitable, the question arises: “What happens after the ball is over?”
When all the hoardings have been taken down, and all the ballot papers counted – what then? What challenges lie in wait for New Zealand’s government a few miles down the track?
While a fitful sun still bathes large parts of New Zealand in a golden light, many communities already lie in the shadow of storm-clouds blown-in from northern climes.
Farmers and their support networks in rural and provincial New Zealand may find it hard to comprehend the difficulties being experienced by metropolitan New Zealand. This is because record export prices have cushioned them from all but the first few recessionary blows.
Even so, the nation’s cockies – being a cautious and responsible breed – are furiously paying down their debt and eliminating all unnecessary expenditure. It seems axiomatic to them that their government should be doing the same. If the National Party was to run the country the same way they run their farms, say the farmers, all would be well.
But, I wonder if they’d still say that if, as many economists now predict, the Chinese economy experiences a sudden contraction? If China’s apparently insatiable appetite for New Zealand milk powder disappeared overnight – along with her equally insatiable appetite for unprocessed Pinus Radiata and Australian minerals – would our farmers still model their economic expectations on a simple set of household accounts?
For the sake of argument, let’s assume they would. What would be the result?
That’s easy. The farming sector’s huge debts to Australia’s banks would very soon precipitate a major financial crisis. If Chinese demand dried up – on both sides of the Tasman – the Australasian banking sector would be in serious trouble. Farmers unable to pay their mortgages would be foreclosed. Rural properties would flood the real-estate market and land prices would collapse. Farming families’ equity in their properties would evaporate, and the ownership of New Zealand farmland would pass into fewer and fewer hands – many of them foreign.
Very rapidly, the farmers’ pain would be transmitted to everyone else in rural and provincial New Zealand. With the demand for agricultural goods and services in free-fall, small to medium businesses throughout the “heartland” would falter and/or fail. Thousands would find themselves without an income. (Being self-employed, these folk would quickly discover the meaning of bureaucratic delay: how much longer it takes to access the unemployment benefit when you’re not a laid-off employee from a major city.)
To make things worse, the Government (still assuming the country is being run according to the household accounts model) would be searching around frantically for ways to reduce ballooning public expenditure.
A collapse in export prices couldn’t help but have a massive impact on the entire economy – sending the indices of unemployment, spousal abandonment, mental illness and sickness through the roof. Welfare spending would soon constitute an insupportable burden on the State. Benefits would have to be cut and eligibility tightened. Working For Families tax credits would be abolished. The age of eligibility for New Zealand Superannuation would be lifted from 65 to 67 and then to 70. The quantum of the pension would fall from two-thirds to half the average wage.
New Zealand’s misery index would rise sharply.
Of course the cutting wouldn’t stop at the Welfare Budget. Spending on health and education would also fall. The interest-free student loan concession would be removed. Major capital projects, such as hospital, school, state-highway and light-rail construction, would be put on hold. Eventually, the wages and salaries of public servants would face the chop – possibly by as much as 10-20 percent.
This is what “austerity” looks like.
What if the Government adopted a different economic model? A model based on something other than a simple set of household accounts? A model which called for the maintenance of a strong and consistent demand for goods and services? A model which held that price deflation, reduced incomes, and the corresponding reduction in the demand for goods and services thus created, only make the economic situation worse – not better. In short, the model put forward by the British economist, John Maynard Keynes, back in the 1930s?
Well, that model would require the Government to do a great many things.
First and foremost it would have to bring the financial sector under strict public control (yes, that does imply a large, state-dominated banking and insurance industry). Then, in order to equip itself with the resources to maintain employment and demand, it would need to institute a radically redistributive fiscal programme. Finally, it would require policies calculated to sustain the viability of New Zealand’s export and import substitution sectors.
Unfortunately, none of these measures are even remotely compatible with the current policy settings of the National Party.
This essay was originally published in The Press of Tuesday, 11 October 2011.