Reversal of 'Trussonomics' shows common sense prevails over 'throwing money around' - Cameron Bagrie

A leading New Zealand economist believes the positive market reaction to the UK's reversal of "Trussonomics" shows common sense prevails over "throwing money around".

It comes as UK Prime Minister Liz Truss fights to retain her job after her recent economic announcement crumbled, with new finance minister Jeremy Hunt reversing nearly all of her "mini-budget" policies - that sparked weeks of market turmoil - just four days into the role. 

Hunt overnight announced a U-turn on Truss' planned tax cuts, widely dubbed "Trussonomics", which would save the UK about 32 billion pounds (NZ$65b). 

Independent economist Cameron Bagrie has long said tax cuts aren't the answer to the current economic woes and told AM the UK's experience was a lesson to governments worldwide. 

The British pound jumped immediately after Hunt ditched Trussonomics, sparking a rally in UK and US government bonds and reducing demand for the safe haven United States currency.

"Credibility in tatters," Bagrie said of Truss, adding there have been more flip flops from her government that "the beach at Bondi".

"What we've seen overnight is markets rewarded the reversal with a pretty positive night."

Bagrie said the world needed to take heed of what was happening in the UK.

"Common sense, pragmatic economics is prevailing over sugar candy and just throwing money around," he explained.

Liz Truss and Jeremy Hunt.
Liz Truss and Jeremy Hunt. Photo credit: Getty Images

"That's a real big message out of this UK debacle.

"I think the UK is just the initial example of what's going to proliferate around the rest of the world, and the message for governments is getting your house in order and work in a constructive, positive fashion with monetary policy in order to get this inflationary thief back in jail."  

At home, National leader Christopher Luxon wants to trim 14,000 public service jobs to fund his party's $3 billion-plus tax cut package, in order to save $2b a year, if elected. However, National has said its plan differed from Trussonomics. 

While Jacinda Ardern has said Labour wouldn't follow National's idea of scrapping the top 39 percent tax bracket - introduced by her Government - the Prime Minister last week would not rule out cuts at election 2023.

National's fellow right bloc party ACT also wants to implement tax cuts, funding them by "reducing the size of the bureaucracy" - saying it "wouldn't touch a single dollar of health, education, police or any frontline service".