New Zealand General Election: Economic storm clouds gathering

The forthcoming elections in New Zealand have been overshadowed by the world financial meltdown and the oncoming recession, which have highlighted the huge level of debt in the country’s economy. This all puts at risk the very ability of any government to guarantee basic social reforms. In New Zealand as elsewhere the choice is between whittling down the welfare state or a radical socialist transformation of society.

New Zealand: General election storm clouds are gatheringThe meltdown on the world stock markets and the ensuing economic crisis have overtaken the general election in New Zealand. At present opinion polls vary enormously from giving National a 3% lead over Labour to 18% respectfully. Quite clearly volatility is building up within society.

The recent opening of the Crown accounts show that the government from having modest cash surpluses, in the recent period, has now accumulated a deficit. It is anticipated that the country will be in debt for at least the next decade. Cash deficits will rise to NZ$5.9 billion in 2009 to NZ6.8 billion in 2012 and NZ$7.3 billion in 2013. The deficits are based on predictions prior to the present meltdown on the world's stock markets and are probably a conservative estimate. One thing is absolutely clear: the government's cupboard is bare and further government spending will mean increasing the national debt to pay for it. This is just the icing on the recessionary cake, with rising unemployment, rising inflation and the collapse of the housing market.

With this in mind the National Party has announced their tax cut packages which, if they were elected, would mean seriously undermining Kiwisaver (The State Pensions provider) and the abolition of tax credits for firms carrying out research and development to pay for it. This is an unpopular move to many voters. Whilst we are critical of the government's market approach to saving for retirement (one only has to look at events to prove our point) the policy is popular at the moment thanks to the government's incentives and forced employer contributions. Additionally, New Zealand languishes at the bottom of the OECD league with regard to research and development. The tax credits are an attempt to improve competitiveness of New Zealand companies. The outcry from the exporters and what remains of the industrialists exposes the dominance of finance capital not only in the National Party but in the country as a whole.

The National Party released its manifesto at roughly the same time as the Labour Party. The dominating theme from National is "a time for change". It reveals little about their economic policy except the need for strong leadership. Quite clearly the question starting to be posed in people's minds is do we want a party in power that supports the principle of the free market and a prime minister who used to be a "spiv" for Merrill Lynch running the country? The analogy that comes to mind is putting Dracula in charge of the blood bank!

Whilst all politicians repeat the fact that our banking system is sound and the banks have been rather conservative in lending, they haven't exposed themselves to such high risk loans as overseas banks: the storm clouds are gathering. New Zealand has been borrowing more and more from offshore markets. In 1998 this was 22.6% of total liabilities. This has now increased to 35.5% and the debt stands at $NZ126.8 billion, mostly borrowed on a short-term basis. It is not ruled out that a similar fate awaits us here as to what has happened recently in Iceland. At the end of August a whopping NZ$90.1 billion of the NZ$126.8 billion of overseas borrowing was either to be refinanced or was due to be repaid in 90 days. Added to these woes is the fact that the net household deficits have increase from NZ$15 billion in 1998 to NZ$78.3 billion today. In real terms household borrowing now stand at NZ$160 billion and household deposits stand at NZ$81.9 billion. These do not seem like conservative figures and show quite clearly New Zealand is extremely exposed financially. The extension of credit has gone far beyond what it is meant to do so and is a financial bubble that has indeed burst. It has gone way beyond the productive capacity of capitalism here in New Zealand as well as internationally.

The NZ$ is falling against all major currencies, in particular the US$, and it is not ruled out that if it is weakened further then the chances of New Zealand banks defaulting will increase significantly. Coupled to this is the fact that most of the banks here are owned by Australian banks and any banks going belly up in Australia will have serious repercussions here too. No amount of money that the Reserve Bank has will stave off a major financial crisis. Neither will the government's tax $ either!

New Zealand: General election storm clouds are gathering. Photo by Tirau Dan on Flickr.Helen Clark in delivering the Labour Party's manifesto said, "A curtain is being drawn on the era of the free wheeling unregulated money traders and financiers whose greed has shaken the international finance system to the core... Co-ordinated international action will be needed to ensure that the greed merchants don't ever again get the chance to destroy the lives of ordinary people in real jobs trying to put food on the table for their families."

The Labour Party has announced the guaranteeing of bank deposits, a programme of useful public works to mop up rising unemployment, retraining of workers that lose their jobs through redundancies as well as the phasing in of universal student allowances. This is at best a reformist manifesto and cannot be paid for on the basis of capitalism without significantly increasing the national debt and stoking up inflation. It is doubtful that on the basis of capitalism any meaningful reforms will be delivered to match the rhetorical speech of the prime minister.

With this in mind Labour needs to further clarify and deepen its manifesto by adopting bold socialist policies. It needs to clearly explain the crisis of capitalism that is unfolding if it is to stand a good chance of winning the election. Unfortunately, the present leadership of the movement does not have a socialist perspective. They are wedded to market solutions that will not deliver and are in danger of allowing a National government to be elected.

Helen Clark is absolutely right, co-ordinated international action is needed but such a sweeping statement needs clarification. The co-ordinated international action that is needed to solve this economic crisis is the co-ordinated action of the working class to expropriate the capitalists. The capitalist system is not fit for purpose and the only solution to the problems faced by humanity is the building of a socialist society here in New Zealand and internationally.