18 February 2011

There is no cause for an asset sale spree according to the Government’s financial accounts for the six months to December, says CTU Economist Bill Rosenberg. There is however a need for continued government spending to prevent unemployment rising again.

“There is no reason revealed here for selling off state assets as the Prime Minister has announced,” said Rosenberg. “Net debt is on the expected track at 20.7 percent of GDP. Investors are keen to invest in government stock, with the Government holding more cash than expected as a result. The operating deficit before gains and losses was also on track while the operating deficit at $1.3 billion was $3.6 billion less than forecast due to good performance of the public investment funds and changes in ACC’s discount rate.”

“The Minister of Finance has been defending the Government’s record on unemployment, correctly saying that its infrastructure spending announced in 2009 has helped to create jobs. But unemployment drags on at high levels. At 6.8 percent or 158,000 people it is currently only 0.2 percentage points or 5,000 people below its peak in December 2009 of 7.0 percent or 163,000 people [1]. It is unlikely to fall quickly without continued and more focused government action.”

“Employment and the Government’s accounts would be in better shape if rather than permanent tax cuts favouring high income earners, the Government had put in place more infrastructure spending, more programmes like housing insulation, more direct assistance to people out of work, and more assistance targeted towards low and middle income earners. That kind of spending could be reversed much more easily than tax cuts, which create a structural problem for the government accounts. It would also have gone much more directly into jobs.”

“Mr English’s statement that these government spending programmes have helped prevent unemployment rise even higher are an acknowledgement that this kind of expenditure needs to continue or we risk further rises in unemployment,” said Rosenberg.

[1] Note that the December 2009 unemployment figures have been revised by Statistics New Zealand.

ENDS

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