Salient. Victoria University Student Newspaper. [Volume 39, Number 2. 11th March 1976]
Mini Budget — The Key to whose Future?
The Key to whose Future?
The days before Muldoon's economic message. Rumours flying thick and fast. Rushing around madly stockpiling cigarettes, beer, records and petrol. We were wrong. We should have been stockpiling colour TV sets, hire purchase agreements and mortgages. Not that many could afford that.
Nor could many understand it. Muldoon: 'It is a very sophisticated package'. Meaning he didn't really understand it either I suppose. He claims to have lifted the Interests on Deposits Order. Don't know what that was really but as there's still all the controls on interest rates banks can pay it can't have meant much.
All sorts of people reacted to Muldoon's ideas. Hire purchase people were pissed off. Not surprising. Economists clapped loudly that marked interest rates were to be followed. Means either they're totally confused by it as well or they've gone off their rockers. And your average poverty student didn't know the first thing about it......
Muldoon's worried about a balance of payments deficit, large Government overspending, inflation and unemployment. So he says. These measures improve the first very slightly, worsen the second slightly, do absolutely nothing for the third and could dramatically increase unemployment. So what's he up to?
After a high level conference lasting long into the small hours at Sasrac, the Salient think tank has come up with its conclusions. We enjoyed the discussions so much we're thinking of having them again sometime Anyway, on to the conclusions. Reckon the only thing he's achieved is to make things easier for his wealthy mates.
Horrible idea! Surely the Government of New Zealand is solely interested in the good of the country! We wouldn't be suggesting that New Zealand is split into economic classes! Or would we? Let's look at the things Muldoon got up to. Each time - what exactly was achieved, and who benefits from it?
Hire Purchase Regulations
Hire purchase generally has been toughened up, and on new cars and trucks it has been abolished. What will this achieve? In the short run, it will reduce the buying of cars, colour TV's and the like - as Muldoon did in his 1972 measures. In the longer run, it means we can expect another mad rush of car importing like that of 1973 when Labour lifted Muldoon's controls. In other words, its not cutting out the demand, merely postponing it.
Who benefits from this? Not the car traders, nor the finance companies (and my heart is bleeding for both of them - but they will probably lay off workers because of the reduced trade). The average bloke wanting to buy a car or colour TV will find it much more difficult. The rich however, who can find other sources of loans to pay the deposits, will be affected very little. Particularly they can borrow off solicitors who have a strong bias towards wealthy clients.
These stem directly from outdated economic ideas that if the rate of interest is varied people will save more. With 15% inflation people are feeling, quite rightly, that they'd be stupid to save money at 4% interest. Surely they'd be just as stupid to save at 5%? Besides, if they do want to invest money for three or more years, there are much better things to invest it in. On the same page in Wednesday's 'Dominion' that Muldoon said 8% interest over 3 years would attract savers, the Lombard Finance Company was advertising 12% deposits.
|1.||as above, people can get far higher returns elsewhere|
|2.||he's already stopped local authorities from raising more loans.|
So it doesn't look like these savings incentives will achieve much. Who do they benefit? Directly, no one. Indirectly, they bolster the finance companies offering the high rates of interest who Muldoon reckons are 'distorting the market'. As the alternative was to hit them hard, they've come out quite well. And that means the rich benefit, as, like solicitors, these companies have heavy biases, both in borrowing and lending.
There's one more point. If the savings incentives do work, it means people will spend less. Consequently firms will cut back production (since people aren't buying their goods) and lay off staff. So, either the rich get richer or the poor get poorer. Nice choice.
Loans for Housing
Because the savings incentives are supposed to attract more money, there should be more money available for housing loans. If, as argued above, they don't, what does that mean. Nothing. The only real effect of the measures here is to making low interest housing loans more expensive. If you're mortgaged to the hilt you've got problems.
Who benefits? Housing finance will be no more expensive for the wealthy, so there's no change there. Things just get worse for the rest of the population. Muldoon also varied overdraft rates more, so now if you're a good golfing mate of the bank manager (i.e. rich), you've got it easier. If not, watch those overdraft rates rise. This could hit hard some business firms (most of which operate on large overdrafts). If so, they could well put more people out of work.
So, we're thoroughly unconvinced Muldoon has the faintest idea how to run an economy. He claims to be worried about a high rate of inflation and a large Government deficit. The measures he's just announced do absolutely nothing for the first, and the only way they can affect the second is if he's planning to reduce Housing Corporation Loans. There's nothing else. With no general effects on the economy, the only thing to be affected is the distribution of income. Things for the rich have been left the same or else improved. Things for the poorer sections of the community have got tougher. Housing loans are more expensive, and unemployment could well rise. But then we all know that class analysis of society doesn't make any sense. Don't we?