The luck of the Kiwis

It has been a tumultuous few weeks in Ireland and unfortunately the luck of the Irish has run out. In a recent BBC Documentary podcast there were some very sad stories of people currently experiencing severe hardship and unfortunately with the government’s austerity plan it’s only going to get worse. Here are the main points of the plan:
• 10bn euros (NZ$17.6bn) of spending cuts between 2011-2014, and 5bn euros in tax rises
• minimum wage to be cut by one euro to 7.65 euros per hour
• 3bn euros of cuts in public investment by 2014
• 2.8bn euros of welfare cuts by 2014, returning spending to 2007 levels
• reduction of public sector pay bill by 1.2bn euros by 2014
• the reform of public sector pensions for new entrants with pay cut by 10%
• 24,750 public sector jobs to be cut, back to 2005 level
• VAT (GST in NZ) up from 21% to 22% in 2013, then 23% in 2014

With multinational companies accounting for 20% of GDP there is no wonder that they have kept the company tax at 12.5%. Furthermore if the 85bn euros from the IMF and EU is not enough and Ireland still defaults this will put further pressure on interest rates and ultimately any recovery. On the other side of the world the state of the New Zealand economy is a lot more healthy. With the banks being Australian owned (5 Aussie banks in top 20) and dairy (New Zealand’s comparative advantage) prices at record levels, mainly due to Chinese demand, the country has a bit of time on its hands to address other issues. According to Liam Dann in the NZ Herald – if anything, we need to treat the relatively benign downturn we are experiencing as a window of opportunity. We’re lucky to have some time to deal with our high levels of national debt and we would be mad not to do so. Also it will be imperative that our credit rating is maintained. So New Zealand is lucky but it can’t rely on the luck of the Irish.

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