KEY POINTS:
I'd like to be given some money for nothing and I'm sure most people would. I'd like it in cash, but a cheque would be fine.
If I was an Australian taxpayer, I would be receiving my second such cheque worth more than $1000 next month, adding to the one I received before Christmas from Prime Minister Kevin "Santa Claus" Rudd.
So why shouldn't our government and our Prime Minister consider something similar? Perhaps a gift for all those Anzac Day sales?
I like this idea on the face of it because I like receiving money, but it gets more complicated and less attractive the deeper I dig.
With his first cheque last year, Rudd hoped to kick-start consumer spending and save retailers from a bad Christmas. It was successful, but only partly and only for a short time.
Surveys show that Australians saved around a third of the money they were "gifted" and the stimulus proved fleeting. Australian retail sales were stronger than expected in December, but they have slumped since then. Consumer and business confidence across the Tasman is at or near record lows.
A similar cheque sent out to American taxpayers last year barely touched the sides and did nothing to rebuild confidence or retail sales.
That's because consumers are smarter than many governments think. They know their own situations and they know the fundamental problem faced by the global economy, by governments and by the banking system. They know consumers spent too much, borrowed too much and now they need to spend less and save more. So that's what they're doing.
Governments and many businesses are hoping they can "get out of jail free" and avoid a deep recession by stimulating spending, re-stimulating lending, increasing government spending and hoping the economy can hang in there until the global economy recovers or the natural excesses are worked out of the system. They are dreaming.
I think, and more importantly consumers think, this will not work. That's why New Zealanders have reduced spending significantly and saved an extra $9 billion or 10 per cent into bank deposit accounts, finance companies and corporate bonds in the past year.
Consumers and taxpayers know too that any "gift" cheques are actually not free. Their governments are having to borrow this money on international or local markets and it will eventually have to be repaid with interest.
With so many governments borrowing so much, the danger is that interest rates will rise, compounding the debt to be repaid by the current taxpayers' children and increasing their own mortgage borrowing costs.
But the main reason John Key cannot and should not follow the example of the Australian Santa Claus is that international investors who have lent us around 30 per cent of the money we owe will not allow it without delivering an Icelandic-style rebuke. New Zealand is under the threat of a sovereign credit rating downgrade by Standard and Poor's.
Some say ratings agencies like S&P stuffed up rating all the toxic debt instruments that dissolved and therefore cannot be trusted. There is something in this argument, but not too much.
S&P's comments and ratings are really just a series of red flags. Just like in American football, the foreign investment crowd follows the game with minimal interest until a referee throws a flag on to the field. This is what this warning is. It tells foreign investors they should be worried about New Zealand's foreign debts and its ability to repay them. Now they are worried, they are watching.
If they decide we are not safe, they will punish us with an even more brutal fall in our currency, which will increase inflation and make consumers poorer and less able to borrow and spend.
Governments should trust consumers' instincts. They should spend less on everyday consumption, save more and invest in longer-term productive assets. And they should keep their chequebooks in their pockets.
* Bernard Hickey is the managing editor of www.interest.co.nz, a website for investors and borrowers wanting free and independent news and information about interest rates, banks, finance companies and the economy.
