Following OECD advice will increase hardship & unemployment

27 April 2011

The OECD’s advice that the government should carry out “bolder fiscal consolidation” is badly timed, and bad advice. Following that advice could push New Zealand back into recession and would leave us with continuing high levels of unemployment.

“We’ve seen what happens when governments cut spending - the U.K government cut spending and saw a sharp fall in economic output in the last three months of last year. We face the risk of the same thing happening in New Zealand if we follow this kind of advice.” said CTU Economist Bill Rosenberg. “During a recession, it is the role of government to continue spending to reduce the effect of the downturn.”

“New Zealand’s government debt levels are not high. The OECD’s own analyses shows New Zealand’s gross government debt is the third lowest in the OECD.” Rosenberg adds “As the OECD points out, it is private foreign debt that is the real problem for New Zealand, and it is owed mainly by the banks. Hitting government spending is going to do very little to fix that.”

“We need a programme that addresses productivity, low wages, and the inability of small New Zealand companies to thrive and export in sufficient numbers. It also needs to address the vulnerability our economy is exposed to by the high bank borrowing. The OECD’s recommendation for a capital gains tax (if it exempts the family home) would be a useful move to encourage productive investment. But cutting government spending and tweaking government organisations are not going to achieve this.” concludes Rosenberg.

ENDS

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