Robert MacCulloch: Economic Message to National: Don't do a "Mother of all Budgets" or you will Ruthanize your party

Many folks in the country have never forgiven the Nats, under Jim Bloger, for cutting benefits in the early 1990s, as the economy was slowing down and people were fearful or losing their jobs. Finance Minister Ruth Richardson passed what became known as the infamous "mother-of-all-budgets". Interest rates were high back then, as the inflation fight was in full swing and the government was desperate to balance the budget. Ring any bells?

As a consequence of the weak state of the economy, people were scared and looking for support from social insurance. I know Ruth a bit and she sometimes is a guest speaker to my classes, but that benefit cut she did was a bad idea and is still used by left-leaning politicians as evidence that "free market" types are mean and unpleasant people, who care little about those who are in distress, even through no fault of their own.

So what's the message to the incoming government? Don't dare cut social insurance at this time of the business cycle when people are worried. Don't change the way benefits are indexed to make them any less generous. Don't confuse cutting "waste" with cutting the generosity of welfare in these perilous times. By all means, slash the number of over-paid bureaucrats dining out on public expense accounts in Wellington and "working-from-home' but not contributing anything to the betterment of our country. Cut corporate welfare paid to big businesses & grants to students from rich families, if you like. But don't dare touch the benefits paid to those who have found themselves in a bad way through no fault of their own, even through some tricky means like changing the indexation from wages to prices.

Otherwise the incoming National government will become known for the same kinds of brutal Ruthanasia policies - namely the benefit cuts of the early 1990s - which were also done in the name of balancing the budget - but which gave the right-wing a bad name for decades to come in NZ. Balance the budget by cutting "privilege" - payments being made to the wealthy - not to the poor. Once more, don't confuse "waste" with social insurance - the latter is about risk pooling and helping those who have less. Get it?

Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.