Challenges on the home front

From almost all points of view, 2010 was the worst year for New Zealanders.

The year began with a promise of the economy emerging out of recession but it soon became apparent that the worst was yet to come. Loss of jobs, either through redundancies in major companies or business closures became more and more pronounced. Thousands of people were out of employment and most of them face a dismal future.

The Christchurch earthquake and a hundred or more aftershocks and minor tremors that rocked the Garden City since September, the Pike River Mine tragedy in which 29 men lost their lives, the rising toll on our roads due to speed and drunken driving and the increasing incidence of family violence were all factors that stared at our face.

The economy portrayed the worst scenario. As our analysis in this issue (see Businesslink) indicates, we are fast becoming a spendthrift nation and unless we take some immediate and bold steps, we are at the risk of becoming bankrupt.

The Government’s tax cuts appeared to have been more than offset by the hike in GST. Although marginal (2.5%), the multiplier effect has been worse, with disproportionate rise in costs of all goods and services.

Critics of the present Government say that public borrowing to fund the gap left by tax cuts (unmatched by GST increase) will put the economy in reverse gear and worsen the impact of recession.

Such a comment may be harsh and perhaps even unwarranted. Internationally, the New Zealand economy is considered successful and one of the best investment and commercial destinations. As the least corrupt country with a clean and transparent administration, New Zealand should be able to attract more foreign direct investment with a well-planned strategy.

However, New Zealand’s income levels, which were significantly higher than that of Western Europe before the crisis of the 1970s, pose a challenge. Despite the Government’s measures, the country’s income, calculated in New Zealand dollars, never recovered in relative terms.

Apart from these issues, 2011 will pose several challenges to the Government, including the choice of the next Governor General, efficient conduct of the Rugby World Cup and winning the General Election, which we now believe would be held in November.

We will watch, report and comment on each of these as they occur.

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