CTU economist Bill Rosenberg says the there needs to be continued government stimulus spending to ensure that the economy does not return to recession in an environment acknowledged by both Bill English and the Reserve Bank to still be fragile.

“Those out of work also need strong support in acquiring new skills if they need them, and finding jobs. Obviously, too, further significant public service staff cuts would not be at all helpful.”

Dr Rosenberg says the government is likely to focus on rising debt to justify cuts – its frequent claim that “the government is borrowing about $240 million a week” – although  it is now quietly conceding that this is literally only a half truth.

“Only just over half of that $240 million, $130 million, is new. The rest is to “roll over existing debt”. Plus, the New Zealand government’s gross debt levels are much lower than the rest of the OECD – about one third of the average as a proportion of GDP. The growing debt is a matter for concern, but should not get in the way of maintaining government programmes in this uncertain international and domestic environment.”

“Instead we’ve been promised an Operating Allowance – new spending for the year – of only $1.1 billion, compared to $1.45 billion in this year and $1.75 billion in years before that. The sum needed to keep Health just at its current state, including DHB deficits, waiting lists and all, is likely to be half of that, leaving little for real increases in other programmes. That indeed is what the government is telling us to get used to. Instead it says it will find savings of $1.8 billion elsewhere, through line-by-line reviews which are likely to continue the current rate of job loss in the public service – around 1,500 jobs in the last year.”

Read the rest of Dr Rosenberg’s forecast for the budget in his CTU Economic Bulletin.