KEY POINTS:
There is no doubt capitalism is having a crisis of confidence. The French are hosting an international conference of pointy heads and politicians this week to show us the way out of the global financial mess.
The problem apparently is the fault of what is now dubbed "old
capitalism". The economic gurus say 2009 is a new start and we are to refer to the world economic order as "new capitalism".
It seems if you put the word "new" in front of any other word we can all pretend we've turned over a new leaf and the causes of the mess we're in can be consigned to history.
But then you'd expect this sort of amnesia by our economic philosophers as the attendees at this conference are the very same people who propagated the laissez-faire dogma that created this problem in the first place.
Anyone with an iota of common sense knows that the financial crisis was created by the mystical belief in so-called free markets and unfettered greed, made possible by an absence of rules and regulations.
But that doesn't soften the fact that an economic crisis is about to hit our country and it will make life difficult for most. It will also create some challenges that will put the new National Government to the test.
For the past decade, New Zealand had a charmed economic life which Labour will remind us of whenever John Key has to announce economic bad news during the next 12 months.
Here's some of the stuff coming our way: Unemployment will skyrocket and I won't be surprised if it doubles by the end of the year. This will put the squeeze on wages.
Workers have been getting themselves into debt big time and have got used to steady wage increases during the past decade to manage it. Wage freezes will cause pain.
House prices will continue to fall and I mean really fall. Despite the banks whistling in the dark, there is little doubt house prices will drop by at least a quarter.
The house bubble was always phoney. Now that tax-free capital gains aren't happening, landlords won't take long to work out rent on a $400,000 house of $400 per week means a half a per cent return before costs. You figure how sustainable that will be when house prices keep dropping.
The National and Act parties made a lot of noise during the election about how they would implement economic policies that would raise wages to Australian levels.
Given the gap between New Zealand and Australian wages widened considerably during the last National Government, I don't have much confidence in their rhetoric.
The only employment initiative announced since they became Government was allowing employers to sack any new worker without a reason. And where the Government does have a direct ability to raise wages, it has remained silent.
Every December, the last Labour Government announced an increase to the minimum wage. In fact, Labour increased the rate of the minimum wage by $3 an hour during their last term.
National spent most of last month shoving legislation through under urgency, yet didn't mention any change to the minimum wage.
After I wrote to them about this oversight, they promised to make a decision next month. Frankly, that decision will be a real measure of whether this government is centrist or right-wing.
To distract us from the impending pain there will be lots of talk about investment and infrastructure. I suspect it will just be cover for a privatisation agenda. To soften it, they'll use the soothing title of public-private partnerships.
It will start with infrastructure but, once we get used to the idea, the Government will get a little braver and go after education and health services.
The consequence will be the workers will get screwed, their wages will drop and services will be slashed, but it will return hefty profits to some lucky corporations and give an aura of progress and increases in efficiency.
Key is a centrist. Well, at least he is now. But, given the inevitable economic downturn, he won't have the surpluses that Labour had to cover the problems. His choices will be interesting.
He's already taken billions of dollars off workers enrolled in KiwiSaver. In addition, Accident Compensation, as we know it, will go on the chopping block and will, no doubt, be privatised.
But he'll have to go a lot further than this if he is going to cut taxes as well as provide the economic stimulus package he has promised.
All of this opens all sorts of opportunities for Labour. Phil Goff will put Key under pressure.
If you exclude the Maori Party from National, the gap between the left and right blocs is only four MPs. If Labour can get a 2 per cent swing towards them over the next three years, National is toast.
I believe the difference between Key being a one-term wonder or a three-term success story is how he manages the economic challenge this year. At the end of the year, we'll all know.
No pressure, John - have a happy New Year.
