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  • rmacculloch

Comment: The Budget Today is Largely a Public Relations Event, Irrelevant to Fixing the NZ Economy

Although it may seem an odd comment to make, today's budget will make little significant impact whatsoever on our economic future. To sort that out, NZ needs what is sometimes referred to in economics as "microeconomic" reform (as opposed to "macroeconomic reform"). The budget is about outlining the government's spending and taxation plans - which affect the future path of deficits (excess of spending over taxes) and public debt. However it has next-to-nothing to do with fixing the competition issues and high cost-of-living issues that are now endemic in our industries, from construction to banking to food to aviation to insurance, and more. The macro-economic framework was largely sorted out in the 1980-90s reforms - which included such quality legislation like the Reserve Bank Act, focusing it on price stability, and Fiscal Responsibility Act. The Kiwi dollar was floated and our markets opened up more to foreign trade.

However, since those reforms, industries in NZ have become more concentrated, with the big money now being made by armies of accountants, lawyers, food & gas station franchise owners, real estate agents .. in fact, almost everyone apart from those who've actually come up with a new idea in their life that has led to selling successful products in the world market-place. Tax cuts don't change the cost-of-living - they affect the cost of nothing. They will just put a bit more money in people's pockets, financed by debt or by firing bureaucrats, to help pay exorbitant bills. Before and after the budget, the cost of all goods & services in NZ will remain the same. Even on the fiscal front, the budget will do nothing to stop the long-run spending blow-outs that are beginning to happen due to our ageing population. Only (micro-economic) health-care reform is capable of addressing that issue - incentive structures must be changed to help build more choice & more efficient delivery in that industry, or not much will change. In short, the budget is primarily a PR event which will not, and cannot, address the root of the problems that are causing the NZ economy to stagnant.


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