Friday, July 16, 2010

Government spending cuts for their own sake?

Faster cuts in government spending risk tipping the economy back into recession, says the CTU’s Economist and Policy Director Bill Rosenberg.

Despite steady reductions in the Government’s deficit, well ahead of forecasts, it is still talking of getting the accounts back into surplus even earlier. “With real risks in the world economy, and the recovery in New Zealand still weak, even harsher government spending cuts and public service job losses could lead to the recovery faltering,” said Rosenberg.

“There is no need for this. New Zealand’s government debt situation is mild compared to other developed economies. While debt is to be avoided, it is not to be avoided at all costs. This is a time when the Government could tolerate the moderate debt levels that are projected in order to ensure the economy does not return to recession and higher unemployment. Already we are seeing severe stress in health services due to the inadequate funding in the Budget.”

“Rather than further cuts, the Government should be considering a Plan B for the possibility that the world economy does go downhill again. We see no evidence of such planning. It should be readying a stimulus package such as infrastructure projects, new low-cost energy-efficient housing, increased opportunities for tertiary education and skill development, and further support for employment and people who lose their jobs if there is a turn for the worse.”

“We shouldn’t follow governments in Europe into a self-destructive round of big cuts in spending that increase the risk of a second dip into recession.”

For further information contact:

Bill Rosenberg, Economist and Policy Director, CTU
04 802 3815 / 021 637 991

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