CTU Media Release

4 April 2012

Government Finances Show Mismanagement

Today’s release of the government’s financial position for the eight months to February shows that yesterday’s statements by the Prime Minister that new spending in the May Budget would be cut from an historically low $800 million to zero appear to be cutting for cutting’s sake.

“The government is pursuing its budget surplus target for 2014/15 at all costs,” says CTU economist Bill Rosenberg. “There is nothing in the February accounts that justifies this major turnaround since the Prime Minister’s statement barely six weeks ago that the May Budget would include an $800 million allowance for new spending unless ‘we really saw a catastrophic meltdown in Europe’. There has been no catastrophic meltdown.”

The February accounts are slightly better than January, but still show the government’s strategy of cutting taxes on high incomes and raising GST has not paid off. Income tax and GST revenue are still $825 million below even revised lower forecasts because people’s incomes are not rising as fast as expected by the government, says Rosenberg.

“The government’s economic strategy is now almost completely reliant on the Christchurch rebuild. This is not a strategy: it is cut and hope.”

“The cuts in government expenditure are acting as further brakes on the economy which is stagnating as a result of weak demand. Further cuts will simply prolong the time before a real recovery takes place. The Christchurch rebuild has been repeatedly delayed and may not assist the rest of the economy sufficiently to reduce unemployment and stimulate activity outside a few construction-related industries and Canterbury itself. It’s time for a change in strategy,” Rosenberg said.

ENDS

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