INDEPENDENT NEWS

Shipley's weak economic grasp sorely exposed

Published: Wed 27 Oct 1999 10:45 AM
"No wonder the Prime Minister is trying to duck as many election campaign debates as possible. She must be worried that her weak grasp of basic economics will be exposed," Labour finance spokesperson Michael Cullen said today.
"She is right to worry if her silly comments in Tauranga yesterday on the "four fundamentals for growth" are the best she can do.
"Fortunately for Mrs Shipley only 50 people from an invited guest list of 200 bothered to turn up to the meeting. Unfortunately for Mrs Shipley, one of those people was a journalist there to report her speech," Dr Cullen said.
"The first of Mrs Shipley's "four fundamentals" - controlling inflation - is the work of the Reserve Bank and has nothing to do with the Government. The second, reducing interest rates, actually reflects poor economic management by National.
"And there is no evidence to suggest that the last two - cutting taxes and the Employment Contracts Act - have been good for the economy," Dr Cullen said.
· Controlling inflation: This stems from the Reserve Bank Act, passed by Labour in 1989. The Act entrusts the task of controlling inflation to the Governor of the Reserve Bank and specifically protects his independence from government in the conduct of monetary policy.
· Reducing interest rates: Interest rates and the exchange rate are low now because of the recession of 1998, not because of good economic management. On the contrary, the National Government's response to the Asian crisis tipped New Zealand into recession - a recession Australia managed to avoid despite a stronger exposure to Asia. And projections are for interest rates to rise as the economy recovers.
· Cutting taxes: There is no hard economic evidence to show that tax cuts lead to sustainable economic growth, no matter how much National and Act would like us to believe it. What we have seen from the 1996 and 1998 tax cuts is a reduction in Government and private savings and a splurge in imports which is putting pressure on the already high current account deficit.
· The Employment Contracts Act: Reserve Bank figures show productivity growth has fallen under the ECA from an average of 2 percent a year to 0.36 percent. The unemployment rate has averaged 7.9 percent under the ECA compared to an average of 5.3 percent from 1986 when the Household Labour Force Survey began to 1990. Many of the jobs which have been created under the ECA are low paid, part-time and casual, or all three.

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