Mar 15, 2008

1990 All Over Again?

Keeping Stock has posted this morning on the similarities between Labour's tactics in 2008 with 1990 (remember Helen Clark was Deputy PM right at the end).

This has been a concern around Wellington for a couple of years, a concern which runs well beyond the running down of the state coffers. Aside from leaving things in a general mess, there is a theory that Helen and team are planning to leave behind a couple of policy bombs, policies designed to disable an incoming Government's policy agenda. Free student loans, the new R&D programme, and the new R&D bribe are all mines, but perhaps the effect of the emissions trading scheme will be more shattering.

So lets look forward to around 1 December when the new PM and Minister of Finance get their briefings from Treasury on the country's economic situation:
  • inflation continues to run beyond the Reserve Bank's 3% upper limit;
  • new policy programmes announced or implemented over the past few years have greatly reduced the size of the Government's cash surplus;
  • interest rates remain too high, even though the Reserve Bank began easing in the months immediately before the election (in the same way it delayed increases in 2005);
  • growth in the economy has slowed dramatically and it is likely there will be a serious recession;
  • high interest rates continue to leave the dollar higher than fundamentals suggest it should be, but a crash in the dollar value is looking unceasingly likely as concern mounts over the health of the economy;
  • foreign investment in New Zealand has slowed obviously following the Government's rejection of the Canadian purchase of shares in Auckland Airport;
  • unemployment is increasing towards the 100,000 mark. If the exchange rate doesn't start correcting faster ;
  • fuel prices remain high, and once the dollar crashes are set to move even higher, maybe 30% higher ($2.30 per litre is seen as more than likely given the combined effects of the exchange rate crash and the emissions trading regime);
  • the Government's decision to proceed with the emissions trading regime has seen companies freeze investment in existing assets. The cement and pulp and paper industries have announced their intention to close;
  • The Government's purchase of the railways was at an inflated price, and there is no chance of getting a positive return on the investment on the railways and track, a major write down will be necessary, and this will further erode the Government's financial position;
  • Government departments are all signalling that it won't be possible to meet salary increases from within baseline - either staff will have to be shed or programmes curtailed.

Sounds pretty grim doesn't it? The 2009 Budget isn't going to be fun - Mother of All Budgets (II)???