Up in the Press Gallery for Parliamentary Questions yesterday, someone was asking Finance Minister Bill English a patsy about the dreadful state of the Crown’s accounts. “Are you scared yet?” asked a colleague.
“Bill wants us to be very scared about the economy before the Budget.”
That hadn’t actually crossed my mind. The recent string of reports from the IMF, OECD, New Zealand Institute, Treasury, Reserve Bank and others all read pretty convincingly that the world’s in the poop and no one’s sure how long it’ll last or whether we’ve hit the bottom yet.
So, technically, I was already technically scared, and if anything, found English’s pre-Budget speech to CEO’s about 10 days ago almost a bit upbeat. His warnings on government spending, for example, weren’t exactly “shiver me timbers” territory.
All he was promising was not to increase government spending as quickly as it did in the good times.
There’s a political opportunity to use the credit crunch to make this a radical Budget. But that seems highly unlikely of this Finance Minister and the way New Zealand politics works now. Nicky Hager – prove me wrong.
The New Zealand Institute was ever worthy in trotting out everything we’ve heard before about what the country should but won’t do to grow faster and may have been trying to be helpful with last week’s report advising against the next two rounds of tax cuts. But they’ve looked shaky for months.
If you wanted real economic panic in the media, you need to be in Australia at the moment. You wouldn’t know there was a recession on over there. A chilly wind blowing through the empty boulevards of Melbourne’s new Docklands complex bespoke a development born in the boom and birthed in the crunch.
Other than that, though, Australians seemed to be carrying on pretty much as normal. It just feels richer there. But their Treasurer, Wayne Swan, is talking up Australia’s first timid steps into recession, banging on constantly about a A$50 billion federal Budget and getting maximum headlines for his efforts.
The recession is news over there. Here, we seem to be over it.
The National Bank business confidence survey makes interesting reading for signs of that. Sentiment improved markedly in April, albeit that businesspeople are still basically pessimistic, especially about hiring anyone.
The bank’s chief economist, Cameron Bagrie, is sticking his neck out and saying that after six quarters of recession, the New Zealand economy is “finding a floor” from which there is scope for recovery – long, slow, and unspectacular, but a recovery nonetheless.
However, he can only be right if the world economy has gone through the worst of its catharsis. To believe that yet is simply wishful thinking.
The world financial system came perilously close to a cataclysmic collapse in the last six months.
We may have escaped that, but it’s far too early to tell. Plenty of opinion says we are on a ledge that will break and we’ll all fall further before finding the bottom.
That calls for caution for the next 18 months at least. It also requires some luck, including not getting a global pandemic that stops all travel and local commerce dead in its tracks because no one wants to be in a crowd.
And it requires resolute policy-making that drives toward a more transparent and less highly leveraged world financial system.
If the past is a guide, transparency will be confused with yet more onerous disclosure requirements that don’t actually improve the sum of human knowledge.
For evidence of that, look no further than the absurd volatility created in companies’ accounts by the new International Financial Reporting Standards that are meant to leave investors better informed about corporate health. They don’t.
If those stars all align, then things will slowly return to something more stable and there will be growth although the rich world may never quite go shopping the way it did over the last 20 years.
So it won’t be spectacular and it will have to include some evening of the imbalance between global rich and poor which will see today’s poor spend and have more, while the gluttons cut back.
That, essentially, is the guts of the climate change deal that must be concluded this year, and which has been so overshadowed by the financial crisis.
It’s becoming a commonplace that the world is now stuck with a 2 degrees average warming over the next hundred years or so, meaning we are now into a huge process of adaptation, as well as mitigating climate change.
If those efforts don’t succeed, and 3 – 4 degrees global average temperature increases occur, then the global climate will start to become markedly volatile.
That is kind of scary.