Sam Stubbs: Tighten belts for long-term gain

Opinion

Three months into the year and we have suffered an overload of bad news from both home and abroad. Kiwis could be forgiven for lacking confidence in the doom-and-gloom atmosphere.

Good things are happening, however, even if their effects aren't apparent immediately.

This is not a time for Pollyanna-style optimism, but trends are emerging that will ultimately lift our economy and living standards again. Perceptions count, so it depends on whether we see New Zealand's glass as being half empty or half full.

An example is the good news in exports. New Zealand is producing what the rest of the world wants to buy, particularly dairy products. This trend is likely to continue as the world frets about political instability, lack of water and food quality.

We have a long-term advantage here, the same way we did in the 1950s.

That earlier trend lasted 20 years and this time we are set for long-term gains as well. Glass half full.

The downside, we are told, is that farmers will slash farm debt instead of splurging on goods and services in their local towns. Glass half empty.

Actually, the focus on killing debt in our private sector is part of what New Zealand needs to do. Paying debt is short-term pain, long-term gain.

The Government is tackling the same problem with its upcoming budget, dropping hints about no new spending and cutting state payrolls.

Remember also that since the inception of the Superannuation Fund and KiwiSaver we have collectively saved more than $25 billion.

Glass half full, and getting fuller all the time.

The negative view is that our total net public and private sector debts make us look like another Greece, Ireland or Portugal, and there is little chance we can keep borrowing our way out of the mess. But the Government pays about 5.6 per cent interest to borrow money for 10 years. It's not cheap, but better than other governments are shelling out.

The key question is, what can we do to contain our debt? The only viable alternative is belt-tightening.

The great news is that New Zealand can and will pay off its debts, which is much better than having to weigh up the options of gypping our creditors by going bust or handing ourselves in to the International Monetary Fund's clutches for a bailout on punitive terms.

New Zealand's glass isn't brimming over but the tide isn't as far out as some might think.

* Sam Stubbs is CEO of Tower Investments

sam.stubbs@tower.co.nz