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Fran O’Sullivan on Bill English and other things

22/01/2009

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Fran O’Sullivan’s mid-week Herald piece yesterday was rather interesting based as it was on an interview with Bill English.

Interesting as much for what she wrote about John Key’s approach, as it was in respect of English and the challenges he faces.

Given the economic tsunami which seems to be enveloping the UK and the US we will be very lucky in Adam’s view to see an end to recession before late 2010, though in this regard it would be pleasing to be wrong.

At the end of her article O’Sullivan wrote:-

In any event adding a new wave of debt at a time when Government coffers have to be readied to cope with an escalation in National Super costs (estimated to go up 40 per cent in seven-eight years) will not be an easy task. Any fiscal stimulus has to be well spent “yielding assets or efficiencies that you are going to be able to repay”.

Standard & Poor’s are making negative noises at present.

Further, how many people realise the forthcoming surge in Superannuation costs is coming. Does the spectre of a pension freeze loom in the longer term? Realistically are there programmes which should be cut or assets sold. Adam suspects that hard decisions will have to be made, which will be decried by Labour, but which privately Cullen for one will know are inevitable.

The other critical factor is the need to try to protect Kiwis’ standard of living over the next three to five years. “If we go off the rails and end up with a downgrade – you can end up with a much lower exchange rate and impoverishing well – cutting people’s standard of living quite easily by 10-15 per cent.”

Adam suspects this may happen given the problems in some of our markets, coupled with poor productivity in NZ.

Getting a credible plan together for repaying the debt is no simple matter. In the short month since the Treasury posted its December economic and fiscal update, the international outlook has worsened so much that officials have warned their forecast of 1.2 per cent GDP growth this year has evaporated. At best the NZ economy will flatline. S&P is attaching a high weight to the Government’s medium-term programme to address the fiscal deterioration which on current projections will result in the Budget deficit widening to over 3 per cent of GDP in 2011.

New Zealand is vulnerable. If the Government is to defend a reasonable purchasing power it has to tread carefully because, as English puts it: “We are at the outer end of the total indebtedness among developed countries.”

The Treasury will be beefed up. The previous Government’s mantra of economic transformation and sustainability is out. What’s in is a refocus on competitiveness and productivity.

About time in Adam’s view. Let’s get real, stop posturing and try and actually do something.

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