There was a lot to admire about the Australasian banks during the GFC. While the USA had its Freddie Macs and Fannie Maes, and the Bank of Scotland just about went broke, the banks in Australia and New Zealand never faltered. They had never really joined in the global party of lending to people who didn’t have a hope in hell of repaying the loans; they maintained their strict criteria of minimum deposits and scrutiny of lenders to ensure their debt books remained valuable, and we saw the benefit of that in New Zealand. While other countries were seeing runs on their banks and banks were collapsing all over the planet, we were fine. We had no problem at all, and it is one of the things that made the GFC so much more bearable here than overseas.
Nothing has changed in the local banking world. The Reserve Bank does not allow retail banks to make more than 20% of their residential mortgage lending to borrowing owner-occupiers with less than 20% deposit. For investors, only 5% of loans can be low-deposit. The rules are strict. These rules protect borrowers, as those with low equity can often become overstretched financially, and are prone to economic shocks, such as a recession or an increase in interest rates. The rules also protect the banking system in the event of a significant fall in housing values or an economic downturn. It may mean that some people miss out on mortgage finance but these are usually the ones who are borderline anyway who might have ended up defaulting, or in the unfortunate position of being subject to mortgagee sale.
What a shame the same rules of financial prudence don’t seem to apply to the government.
Government debt, after years of sound fiscal management by the previous National government, is now spiralling out of control, and is likely to reach 50% of GDP before long. Whichever way you look at it, this is unsustainable.
Yes, COVID-19 has caused most countries to increase public debt, but many such countries do not have such a high level of private sector debt. But the government is spending like there is no tomorrow, and is spending money that, of course, we do not have.
When they announced last December that they were going to increase borrowing for large infrastructure projects, part of the reasoning behind this was the historically low-interest rates at the time. While rates are still low, government borrowing now is more on revenue account — to pay wage subsidies, for quarantine programmes and to bring refugees into the country. There is no long term value in this. It is splashing money around favoured businesses, pet projects and just about anything else they can think of. Benefits have been increased, money is made available to the universities for the loss of their international students, and don’t forget all those people being housed in motels. Not an infrastructure programme in sight.
They don’t even seem to care. When put under pressure (by the National party) to charge returning residents for their quarantine costs — currently at about $400 per person per day — they eventually came up with a half-hearted programme of charging only people returning from holiday, while the quarantine programme overall is estimated to be costing $500 million. That’s half a billion dollars, and their new scheme for charging returning holidaymakers will raise an estimated $9 or $10 million if we are lucky. Boy, I just hope those overseas votes are worth $490 million.
This government’s idea of crisis management is to splash money in all directions. It cannot continue. Not only do they not have a plan to get the economy moving but they also have recently announced (the Labour arm of the government at least) that they are not going to announce any major policies this election.
Many of us will know, of course, that at the last election, they announced a whole raft of transformational policies and then failed to implement any of them. This time, they are not even going to try. They are hoping to win the election by sitting back on their laurels and expecting everyone to vote for them because they are just so good. And kind. Don’t forget kind.
As we go further and further into economic recession, with over 200,000 people unemployed so far and more redundancies to come, the government needs an economic plan. It doesn’t have one. As its tax revenues start to reduce, they need a programme that grows the economy, which will also grow the tax take. This will require major economic reform, the likes of which we have not seen for some time. They have no idea how to do it.
The government is using COVID-19 as an excuse to ramp up the usual socialist spending agenda, but their biggest problem is going to be falling tax revenues, and we all know what the result of that will be. It looks as if the government is deliberately avoiding the discussion of increased taxes before the election so that they can put up taxes once they have been re-elected. Then they will simply blame COVID. The pandemic has played brilliantly into this socialist government’s hands, and many people will fall for it and simply accept the tax increases. But remember what we said when this government first came to power; we said that it will only be a matter of time before they embark on a wasteful tax and spend fiscal policy, because socialists simply cannot help themselves. Well, here we are. And it may take decades to recover from it.
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