The 2011 Budget, which cut tertiary education spending for the next four years, was a victory of story-line over needs according to CTU economist Dr Bill Rosenberg. The story was that the New Zealand government has a debt problem. When confronted with the fact that government debt is not a problem by world standards – one of the lowest in the OECD – the government acknowledges that the real problem is private overseas debt. However, it says ratings agencies “increasingly lump private and public debt together when looking at sovereign ratings”.

“Maybe so”, says Dr Rosenberg, “but that is a long-term issue.”

Does it mean that the government should cut spending sharply when we have not yet got out of recessionary conditions? The question is not ‘should we reduce debt?’ but ‘how soon?’ and ‘which debt – government or private?’”

“It is much too soon. As we said in our pre-Budget commentary, the biggest immediate danger to New Zealand as a whole is the ongoing recession” says Dr Rosenberg. “The government still has a vital responsibility to ensure through economic stimulus that the economy does not go downhill again and to bring down unemployment. The cuts the government has made to spending mean that the stimulus has suddenly been withdrawn, which risks continuing high unemployment and even return to recession.