KEY POINTS:
It did not take long for the importance of tomorrow's Beehive summit on the state of the economy to be underlined. The Institute of Economic Research's survey of business opinion for the December quarter, released yesterday, painted a picture of a downward spiral that could become self-fulfilling unless
there is a strong Government response. Some of the institute's findings were dire. New Zealand businesses are the gloomiest they have been about their prospects since at least 1970, with fully a third saying they intend to cut staff during the next three months. Yet, to a large degree, those businesses are operating in an information vacuum. They are looking for leadership from the Government and may readily rediscover a measure of confidence if it is received.
The very act of calling this summit is, in fact, welcome. For too long, it has appeared the Government is still in Opposition mode. A statement this week from the Prime Minister's spokesman defending Cabinet ministers' long holiday break was telling. "In the absence of a bank collapsing, what would we do?" he asked. This smacks of a party reacting to events, rather than one intent on galvanising the whole apparatus of government to frame a cogent plan to deal with a deepening recession.
Motive enough for that process should have been last month's Treasury update, which estimated that 68,000 New Zealanders would lose their jobs in the next 15 months.
This should have prompted a strong focus on how jobs could be created. If so, there is scant evidence of it. So far, the Government has made only vague pronouncements about being "on track" with an action plan and recognising that more needed to be done. Aside from already-announced tax cuts, its plan for stimulating the domestic economy has traversed only non-specific talk about infrastructure projects.
Business and the public are looking for far more detail. Hopefully, for example, officials have analysed how many people could be employed on work on school buildings and upgrading state houses, two of the more obvious and accessible targets for infrastructure spending. They have the advantage of being more "shovel-ready" than many other areas of potential expenditure. The other side of the coin is the cutting of wasteful government spending. Again, the
Government's precise intentions remain unclear. Is a plan already drawn up or will this be something a razor gang tackles over time? Only a significant initiative will supply the necessary level of leadership.
Tomorrow's summit comes as the Government faces Labour Party criticism about not being active enough in pursuing a stimulus package. The Prime Minister will be fully aware of President-elect Barack Obama's determination to waste no time in implementing his response. He will also know that Germany's Angela Merkel, a long-time critic of "tossing around billions", has now prepared a $113 billion package of tax cuts and incentives designed to avert what some forecasters predict will be that country's worst recession since the 1930s. Public opinion polls suggested most Germans thought not enough was being done to tackle the credit crunch.
Doubtless, Angela Merkel's mind was concentrated by a pending general election. That is not an immediate consideration for the New Zealand Government. Nonetheless, this crisis will be pivotal for its long-term credibility.
Business activity is being undermined by weak consumer demand, a paucity of credit and a diluted demand for export products. The Institute of Economic Research's latest survey starkly illustrates the upshot. Only robust leadership from the Government, starting tomorrow, can imbue business with the confidence needed to turn matters around.
