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Starving the beast' in the Cook Islands: why they still require aid, with some implications for Labour's Fiscal Responsibility Rules

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"Starve the beast" is the old slogan for the neoliberal/neocon strategy of capping or cutting taxes with the intention of forcing subsequent cuts to government spending under the threat of looming fiscal deficits.  ("Fiscal responsibility" has become a closely related slogan for the same shrinking-the-state strategy, to which the New Zealand Government remains captive.)  

The Cook Islands Government is currently spending more than 40 per cent of gross domestic product (GDP). Its tax revenue is capped at 25 per cent of GDP, under a 1998 austerity package largely designed by the New Zealand Treasury and agreed with the Cook Islands' creditors New Zealand, Nauru and the Asian Development Bank. Non-tax revenue is 5 per cent of GDP, and external aid fills the resulting gap, with borrowing ruled out by the austerity package's cap on government debt as a percentage of GDP.  

This reliance on aid, and the related politics of dependency, contrasts sharply with the strong performance of the Cook Islands economy’s capitalist private sector, headed by a booming tourism industry, which has pushed the balance of payments into a huge apparent current-account surplus, raising important questions about the allocation of the gains from growth and the actual taxable capacity of the economy. 

 

Dr Geoff Bertram is a Senior Associate at the Institute for Governance and Policy Studies (IGPS) at Victoria University of Wellington and comments extensively economic history, macroeconomics, industry regulation and small island economies.

When
August 30th, 2018 from  5:30 PM to  7:00 PM
Location
Old Government Buildings Lecture Theatre 3
55 Lambton Quay
Wellington, WGN 6011
New Zealand