The New Zealand Institute

The New Zealand Institute calls for action in the 2009 Budget

29 Apr 2009

The New Zealand Institute has today released an article, “Not just a case of a passing recessionary flu: The Budget must also address an underlying lack of economic fitness”.  In this article, the Institute proposes principles that should drive New Zealand’s fiscal strategy and calls for action that should be reflected in the 2009 Budget to be released on 28th May. 

New Zealand is facing the dual problems of the global recession and under-potential economic growth; both a passing economic flu and an underlying lack of economic fitness.  There is a crucial need to treat both these diagnoses in order to prevent putting at risk the ability for government to support basic amenities.  Such amenities include quality free education, health services, environmental protection measures, and security in retirement over the long-run. 

Because it must address both New Zealand’s underwhelming growth performance and the impact of the global recession, the 2009 Budget is one of the most challenging policy prescriptions that a New Zealand government has had to write in recent years.  The recommended course is to seize this fleeting opportunity to springboard New Zealand out of the recession by using the Budget to: (1) invest in critical areas needed to boost economic growth; (2) prevent a debt explosion by putting on the table measures on both the spending and tax sides of the budget ledger; and (3) address structural imbalances that have led to chronic underinvestment in productive assets.  This medicine may be difficult to prescribe and hard to take, but the main alternative – which is for the Budget to focus exclusively on controlling the costs of existing policies without addressing the need for transformative action on growth – will not put the patient in good long-term health.

The need for the New Zealand Government to take bold measures to increase growth is immediate and such action is necessary for New Zealand’s economic and social future.  The global economy is expected to be in recovery in 2011, so New Zealand has only two years to seize the opportunity to reposition itself in the world economy by using the recession to “re-launch” itself as a magnet for business and talent and halt its decline down the OECD income rankings.  The upcoming Budget must seize that opportunity before it is gone by starting to put into place high-impact policies.  The Budget should also make hard choices on both the tax and spending side of the ledger, with the Institute recommending the cancellation of previously proposed income tax cuts that would likely do little to stimulate growth or support vulnerable communities.  Such bold and transformative measures will require strong and innovative leadership and vision about how New Zealand will position itself to compete and grow in the long run, and the upcoming Budget is an opportunity to show that leadership at a critical time. 

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For information please contact: 
Benedikte Jensen, Research Director, The New Zealand Institute, Ph: (09) 309 6230,
Email: , Web site: http://www.nzinstitute.org