Beware the Budget

So what about the budget then? Who cares? There's sod all extra spending, not much extra borrowing and some rearrangement of spending.

Does that amount to a social and economic transformation? I don't think so. On the other hand does it amount to the biggest disaster since the Titanic left Southampton on its maiden voyage a hundred years ago? Well hardly.

Budgets (and governments for that matter) just don't have the impact on people's lives that they did thirty, forty, fifty years ago., Back then the nation huddled around the radio in the evening listening to the Minister of Finance drone on in Parliament breathlessly waiting for news about the prices of petrol, beer, spirits, fags and government charges for things like rail fares and electricity.

Then the preoccupation was with the size of the 'deficit before borrowing", because that said how much the government was going to have to borrow to balance its books. The larger the deficit the more expansionary the budget was, but also the more pressure there would be on interest rates, as the government competed with other borrowers.

There was no obviously right balance.

Now we have two really bad choices: borrow more and risk ending up like Greece where no one will lend to us unless we agree to brutal restructuring; or make some (smallish) cuts and hope for the best.

The government will argue that the cuts won't affect ordinary people - at least that is what they will tell us. But at the same time they'll tell the rating agencies that they are making a major (but slow moving) structural adjustment to the New Zealand economy which will position it for growth and make us a safe borrower.

It might be true, provided that the Euozone doesn't melt down, which would (sooner or later) destabilise Asia, and hence us. We may not be as dependent upon trade with Europe as much as we were, but we are in turn more dependent upon Asian prosperity than we were.

If Europe goes pear shaped, Asian exports will fall, their incomes will decline and their spending will fall: that will hurt us. Demand for our exports (and our tourism would fall), not straightaway but in a year or so.

Our borrowing would then cost more; lenders become more reluctant and want to see us doing more about living within our means.

So whatever the budget says, remember - like elections, budgets are advance auctions of stolen goods.

We are not a wealthy country any more. We are a cork on a storm tossed ocean as David Lange once put it, and our indebtedness to the world and our continued inability to live within our means only makes us even more vulnerable to whatever the world dishes up.

And there is not much any government of any political colour in New Zealand can do about that - whatever they may tell you to the contrary. So who cares about the budget? No one, but eventually everyone.