It’s obvious the government has little idea how to handle the looming economic crisis.
Having formed his government quickly after the election John Key took time to travel to Peru for the APEC meeting to give his input and get a good international perspective on the catastrophe.
But his speech at APEC provided no new insights or new ideas on how to tackle the global meltdown. We shouldn’t have expected any better because his role as a currency trader put him at the heart of helping create the financial crisis in the first place. It would be more appropriate to get his apology than expect a useful lead.
During the election campaign both Labour and National downplayed the problem. Labour didn’t want to suggest it was anything they couldn’t handle while National didn’t want to frighten voters with predictions of doom before the storm struck. Both said bringing forward infrastructure projects was the most important step to stimulate the economy and reduce the impact of the recession.
Now in government the infrastructure plans look uncertain. Underlining this last week Finance and Infrastructure Minister Bill English called for advice and assistance from the private sector to help the government get its infrastructure plans in place quickly. English clearly had no plan to offer himself and called on the private sector to bring its own plans to the government instead.
National and ACT would like to use PPPs (public-private partnerships) to develop infrastructure but these are never viable even in the best of economic times. They are always more expensive because most PPPs are financed through heavy borrowing and the private sector always pays higher interest rates than a government. The so-called credit crunch will make borrowing even more difficult and expensive for the private sector.
The counter argument is that PPPs shift the financial risk from taxpayers to private investors but in reality this doesn’t happen. If a project is successful the revenue streams are enjoyed by private profiteers but as soon as ones gets into trouble it’s taxpayers or ratepayers who bail them out.
National’s approach was dealt a serious blow last week with a major infrastructure developer signalling PPPs were not really viable in New Zealand. Mark Binns, chief executive of Fletcher Building’s infrastructure division, said the projects were generally too small and even for big roading projects the traffic volumes were likely to be too low to make them worthwhile as PPPs.
This is good news for public ownership and common sense but will count for little in the face of ideology. The most likely outcome will be the government pressing ahead with expensive PPPs while around the rest of the world they are a deep embarrassment for politicians and the private sector.
If the proposed infrastructure thrust falters as seems likely then the government will come under serious pressure from ACT and the business elite to adopt more traditional right-wing policies involving serious cuts to government spending as tax cuts make social services unaffordable.
The Auckland City Council showed how to do it ten days ago with Auckland Mayor John Banks appearing on national television to tell the country people were hurting out there and councils had to reign in spending to keep rate rises affordable.
It was a remarkably successful public relations con. When the Mayor and Act aligned councillors had finished their speeches and the TV cameras were packed up the council moved to slash spending on projects in low-income communities of Auckland over the next decade. More than half the $800 million cuts were made from the council’s Tamaki ward while in other low-income areas such as Otahuhu and Avondale where the needs are greatest, the spending for swimming pools and community facilities has been slashed. The council however has retained $5 million to re-sand inner-city Judges Bay for its millionaires and their offspring.
The council then moved to dramatically increased its annual fixed charges so that rate increases in the city’s most affluent areas have been kept to 5% but increases in low-income areas are as high as 20%.
When John Banks said people were hurting he meant the wealthy were suffering and needed a hand-up from the poor.
These classic ACT-type policies will be vigorously promoted by Minister of Local Government Rodney Hide across all New Zealand local bodies and will likewise be heavily promoted by business interests and their political agents at the first sign of government faltering.
Bill English invited just this response over the weekend when he told the Chambers of Commerce he wanted to hear from them if they thought the government wasn’t getting it right.
Such hapless comments within a fortnight of being sworn in mean we are closer to the ACT option than we think.