Amid the hue and cry at Michael Cullen's very pointed musing about over-riding the Reserve Bank's inflation targets, and Cato Institute economist Steve Henke declaring New Zealand to be in a "death spiral" of interest rates rises and an over-valued dollar, it might be worth re-visiting this October 2005 NBR column by Gareth Morgan.
Back then, it was de rigeur to bag Cullen for running the most conservative fiscal policy in the Western world. Whatever it might like to say now, National headed into the 2005 election with an air of insouciance about inflation. It planned to spend barely less than Labour, and it would be flushing money into the economy via tax cuts, making up the difference by raising government debt. The rubric went: what was Cullen thinking by insisting on funding capital investment out of revenue?
Morgan began his column thus:
During the heat of the election campaign when both parties had released their tax and spending goodies, I criticised each for the impact on interest rates, coming as it does on top of rising inflation and an economy close to full capacity. Clearly neither aspirant for Minister of Finance was happy with that reminder but John Key had the audacity to say several times publicly “Gareth Morgan is in a group of one and interest rates will be falling”.
Now that the Governor of the Reserve Bank is free to speak, the group is at least two and yet Key is strangely silent in condemning Alan Bollard for his view. In fact Key’s probably quietly cheering the Governor on hoping that Labour’s post-election party will be spoiled. Funny what difference a few weeks in politics makes.
And concluded with this:
In conclusion its odds-on that exporters have a lot more pain in front of them (I see very little sign of the global savings glut not providing us our share, nor is our debt servicing capacity stretched yet, and nor are our consumers surrendering on their borrowing-fuelled spending).
If exporters don’t like this they might think of taking John Key out the back and giving him a good talking to. His pre-election nonchalance about the impact of expansionary fiscal policy on interest rates, was at best misleading and more accurately irresponsible. That due its political hue, the Business Roundtable chose to cheer him on with correct but irrelevant claims that lower taxes ultimately aren’t inflationary, didn’t boost Key’s credibility. Roger Kerr has never cared about the transition cost of journeying to the small-government nirvana he preaches. But for businesses – exporters in particular – the journey matters. Timing of any tax cuts is all important therefore. No wonder the Hard Right has been marginalised.
If Cullen's jawboning was to spook the currency markets, that would seem to be a good result, because I'm buggered if I know what else is going to drag down the dollar and spare the exporters in the current climate. Henke recommended de-floating: pegging the NZ dollar to the US dollar. Uh-huh. And that worked really well for Argentina …
In terms of blame, well, yes, Labour has lifted spending off the back off increased revenue, and, to that extent has pursued an expansionary policy. But I don't think anyone can claim that Cullen hasn't had inflation (and associated factors like our fanatical borrowing and reluctance to save) uppermost in his mind for several years now. He has spent his own political capital on being the Grinch.
Alan Bollard's rate rises have had an impact hereabouts: they've pushed our plan to borrow money for a fairly necessary house extension just that little bit further into the future. But damn, those new iMacs and flat-screen TVs look cheap …
Meanwhile, spare a thought for Ron Mark. For all his bluster on Morning Report today, he must be hurting inside, after his bill to reduce the age of criminal responsibility to 12 was described as "abysmally drafted" by the chief Youth Court judge, and "incompetently written" by the Children's Commissioner. Ouch.
The former said this:
Judge Andrew Becroft told a parliamentary committee yesterday that NZ First MP Ron Mark's Young Offenders (Serious Crimes) Bill would abolish the Youth Court and end family group conferences.
"It would effectively end our current youth justice system ... Whatever have been the intentions, it is clear that this bill is profoundly poorly drafted ... One could even say it is abysmally drafted."
He said youth offending rates had remained relatively steady and, for 10 to 13-year-olds, were reducing or stable.
"Where is the statistical evidence to suggest offending by 10 to 13-year-olds is spiralling out of control?"
Double ouch. Still, this is form for New Zealand First. As Holden Republic and others pointed out last year, Barbara Stewart's failed bill to reduce the number of MPs in Parliament didn't make much sense either. They may want to raise their game, in case people start muttering about their party really being more of personality cult.