We found out today how bad is Labour’s economic legacy. In 1999 National left Labour with a strongly growing economy, falling unemployment, low interest rates, and low inflation.
Today’s DEFU tells us what Labour has left National. And my God it is bad:
- Unemployment to hit 6.4% (and maybe 7.2%) within 15 months
- Gross debt to increase from under 20% to a massive 33.1% (and maybe 38.6%) by 2013
- OBEGAL deficits of $23 billion over next four years
- Cash deficits of $48 billion over five years
This is appalling. Even the “upside” scenario sees a massive increase id debt, deficits and unemployment.
Deficits of up to $6 billion are just unacceptable. If we do not improve from the lgeacy Labour left us, we will be leaving the next generation with a mountain of extra debt.
It gets even worse over the ten year horizon:
- The costs of all the borrowing basically fuck the economy. We end up with a permament structural deficit with the books Labour have left us.
- Even after 2019, the crown will be running an permanent OBEGAL deficit of 2% of GDP, or $4 billion a year. Even the “upside” scenario sees an ongoing deficit of 0.7% of GDP. So Labour have left us with an economy that is stuffed, even under the more optimistic scenario. We just can not run a decade of deficits.
- Gross debt is now projected to hit 57% of GDP in 2023. Do you remember Helen and Michael telling us that hitting 22% of GDP would be reckless. Well they have left us with a debt on track to hit 57% of GDP!!!
- Even net debt, which had reached zero, is projected to rocket up to 47% of GDP
This is a set of books, every bit as bad as those left behind by Labour in 1990. They are horrible. Bill English has the toughest job in NZ for the next few years.
The task for the National-led Government is to improve on this. DEFU is basically what would happen if you continue with Labour’s policy settings. The tax cuts were fiscally neutral so don’t affect things. Over the next few years we should always refer back to this DEFU as what we would achieve under Labour. National has to deliver smaller deficits and less debt than DEFU is projecting. That is their challenge.