Bernard is an economics columnist for the NZ Herald

Bernard Hickey: We're no-idea Nellies

John Key and Phil Goff played fiscal jujitsu. Photo / Getty Images
John Key and Phil Goff played fiscal jujitsu. Photo / Getty Images

New Zealand has just gone through an election campaign as if in a daze. We woke up the morning after that white-knuckle World Cup final and the party that followed with a bad case of blurred vision.

National and Labour talked past each other and the voters early in the campaign with a pointless exercise in fiscal jujitsu.

There's a good case for Treasury to actually do the costings for each party's policies as well as produce the Pre-election Fiscal Update (PREFU) after this year's bout of he-said-this, he-said-that.

Both parties paraded up and down the country ignoring the storm brewing over the seas in Europe, America, China and Australia.

Both were relaxed about assuming that growth would power the budget deficit back into surplus within three years. Neither were willing to address the structural deficit worth about 3-4 per cent of GDP that they both baked in over the past six years through tax cuts, Working for Families and interest-free student loans.

Neither major party, and none of the minor parties, have prepared a Plan B (that we know about) if Europe's financial system and economy implodes. John Key and Phil Goff stared off into the distance and pointed at the Treasury's PREFU forecasts for a growth revival as their fig leaf for denying the storm existed.

The economic forecasts in that PREFU were finalised on September 26.

Since then, the Greek and Italian governments have collapsed, the Spanish ruling party was voted out and Europe's economy has slumped quickly towards a deep, dangerous recession. Europe's banks are unable to borrow from each other or US money markets. Instead they are now reliant on a European Central Bank, as increasingly are the governments of Spain, Italy, Portugal and Greece.

Even Germany, right at the heart of Europe, failed this week to sell its bonds.

America's Congress failed again to tackle a huge budget deficit and China's factory output fell this month for the first time since the Lehman crisis. Australia cut its official interest rates in response to a rapidly cooling economy and its house prices are now falling faster than at any time since the Lehman crisis.

Yet whoever is today expected to form a government in New Zealand has not told the voters what they would do to shelter New Zealand from this gathering storm. Would they cut government spending? Would they increase taxes? Would they borrow even more? Or would they do all three and cross their fingers that everything will be okay?

I'm not sure which is worse - knowing the politicians were preparing to break their promises or knowing the politicians had no idea what to do if they were forced to break their promises.

Either way, we should get ready for New Zealand's political and economic leadership to introduce us all to a giant dose of financial Berocca. Because the hangover starts tomorrow.

- Herald on Sunday

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Bernard is an economics columnist for the NZ Herald

Bernard Hickey is the publisher of Hive News, a Wellington-based political and economic subscription news email service. He also writes for and appears regularly on Radio New Zealand, Radio Live, TVNZ and TV3. He has been a financial journalist for 25 years, having worked for Reuters, the Financial Times Group and Fairfax Media.

Read more by Bernard Hickey

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