A light rail station might look great, but it's roads we need in the real world, argues Mike Hosking. Photo / supplied
A light rail station might look great, but it's roads we need in the real world, argues Mike Hosking. Photo / supplied
COMMENT:
The Labour-led Government in the partial announcement at their conference over the weekend of what is to come spending-wise, followed by the finer detail next week, are joining the growing trend of buying their way out of trouble.
The trend is global and the premise is simple.
Money ischeap so fill your boots.
Domestically the Reserve Bank is playing the same game with the domestic consumer.
We don't get money at 1.3 per cent like the government but you can get it at not a lot over 3 and ever since their 50 point cut have been trying their hardest to make borrowing look like a good idea.
The trouble with debt of course is it depends what you are incurring it on.
A holiday is a waste of time while a deck extension might pay dividends.
Just spending for the sake of spending is not an economic answer to low growth which is why our government has embarked on the process.
Growth is most likely in the 1 per cent going into election year and despite Grant Robertson's best efforts to blame it all on his now infamous international headwinds it simply isn't true.
A good chunk of what this economy of ours isn't doing is down to policy and attitude towards the government from business.
Equally debt is only good if it's viewed as such by the lenders, so much of international economic activity is driven by mood.
The reality is the world is in a mire of debt. It'll be north of $250 trillion by the end of the year.
None of that is getting paid back.
These sort of loans are not like our sort of loans. Our sort of loans have a life span.
Country debt doesn't. There is always another avenue of borrowing, another reason not to pay it down.
Most countries don't actually even run annual surpluses and probably never will.
It was a red letter day in the past year that the Morrison government announced a pending annual surplus, and even then, very few believed it would actually eventuate.
America has an annual scrap over closing down the government driven solely by the fact they're running out of money.
To be fair to both this government and the previous couple, we buck the global trend and are in good fiscal shape.
Generally the books are in the black, sometimes even encouragingly so.
Spending millions on light rail benefits those who build it. Photo / Supplied
Our debt is low by anyone's standards and therefore some spending in tight times would bother very few.
Politically I doubt it bothers anyone.
Debt is not really a vote swinger, it's just big numbers owed by someone somewhere and until it becomes a crisis, until the interest rates rise or the lenders foreclose, or the government of the day starts printing money no one really cares.
It's also true to say government spending fuels growth, but the critical part is how you spend it.
What's the return, what's the ongoing impact on the economy?
And this is where this government might be blowing the opportunity.
Spending millions on light rail for example benefits those who build it.
But long term the return shrinks because people don't use light rail, it's like our trains and bus services, when they're not broken or on strike the vast majority of people prefer to use a car, and for that you need roads.
So building roads benefits the road builders, but also adds to the economy on an ongoing basis, because it frees the economy to move more efficiently, hence you can get more done more quickly.
This government in too many areas are ideologically driven as opposed to practically.
Their returns, mental health ($1.9 billion) being a good example, are holistic. Yes it's good to invest as the Prime Minister announced in schools, but the returns are limited long term. Do you educate kids any better? Do they achieve more? Do they contribute in the workforce more efficiently? Who would know.
So there is spending and there is spending - are they doing it for the right reasons and the economy expands? Or are they doing it to impress the right voter to improve their re-election chances?
