Budget 2010 was not fiscally neutral. To fund its large tax cuts package of $14.5 billion the government has borrowed an extra $1.1 billion over four years.
The Crown borrowing requirement rises and interest costs roughly double before declining around 2021.
The current account widens from 3% to 7% over the forecast period. The trend in net internation investment remains negative.
Longer term the fiscal aggregates look even worse. We will have more to say about this in due course.
Meantime the world around us is poised on the cusp of a potential double-dip recession. Germany’s voters are tiring of socialising the Eurozone’s mounting deficits. The US and UK are already running huge deficits and accumulating debt due in part to the last round of fiscal stimulus.
World markets are highly fragile. Korea and the Gulf of Mexico mean we don’t need too much else to go wrong.
Why has National strained the fiscal envelope so far while achieving so little economic return?
Treasury forecasts less than 1% additional GDP growth from Budget 2010 measures accumulatng over 7 years.
Only 3% of the forecast employment growth over the period results from Budget measures, and the total is around half that achieved under Labour.
Those desultory results look even worse given the optimism of the underlying GDP forecasts. Treasury predicits around 3% growth p.a. over the next three years.
With this external environment… really? How have the risks been factored in? What are the downside management strategies?
Enter the notion of the “strategic deficit”. Several highly experienced and qualified commentators have underlined to me in recent days that the senior ministers know exactly what risks they are taking, and why.
They are said to be deliberately running an unsustainable fiscal track: front end loading tax cuts and waiting for a second term (which they must not get) to privatise, asset strip and expenditure-cut their way out.
The underlying agenda: shrink the size of the state and lock in a lower tax and lower public investment fiscal environment, while rewarding traditional constituencies: the full flowering of their multi-year plan.
Fine if you want NZ to be a branch office economy and fine if you don’t care about raising real incomes or the conditions of hard working families.
But we in Labour do care. So this fight is only just beginnning.
Labour would be fiscally responsible, as we were in government. We would not have given such large tax reductions for the few but relief would have been better spread across the many. We would not have raised GST.
We would have invested more heavily in growth and productivity driving programmes in R&D and economic development. We would have worked more aggressively to lift sustainable savings rates and arrest the decline in our international position.
New Zealand needs a government that will put the long term interests of the country ahead of its own short term popularity.
Strategic deficits, fiscal risks and focus groups: therein lie the seeds of National’s forthcoming demise.
I thought Bill English announced the Recession was over last year? I dont get how many of his supporters now use the Recession to support his budget?
” To fund its large tax cuts package of $14.5 billion the government has borrowed an extra $1.1 billion over four years. ”
In reality the Government has “projected to borrow … ” which may or may not end up being the case.
But hey I know I am a bit picky about getting facts straight.
David .. I see you have picked up on the “Double-dip” recession meme currently flavour du jour in international economic circles.
When that eventuates and world markets plunge, what will become of your advocation of increased borrowing to fund contributions to the Cullen Fund and how will you explain how it would have been advantageous for NZ to have increased its debt for the purpose of investing in “risky” assets when they suddenly become worth a heap less than they were bought for?
“If Labour were writing today’s Budget, it would spend more than National to ensure the recovery from recession remained on track, says finance spokesman David Cunliffe.”
This was the day before the budget. So Labour would have likely run larger deficits than National.
davidW: good point
I also note that $13.4 billion comes from money we already have…
Of course Labour would then argue that this comes from the so-called cuts to the excessive spending from the last government, nevermind that our revenue is about $50 billion per year.
I think Bill English said that “New Zealand is officially out of recession” in response to the fact that economic activity, measured by GDP, has increased for the first time in 15 months.
I don’t think he has said that the effects of the global recession had come to an end…
Re “several highly experienced and qualified commentators have underlined to me in recent days that the senior ministers know exactly what risks they are taking….that they are said to be deliberately running an unsustainable fiscal track: front end loading tax cuts and waiting for a second term (which they must not get) to privatise, asset strip and expenditure-cut their way out.”
If that’s the case, this is very serious. why are they then not prepared to go public with such comments or is this just Labour speaking in the 3rd person?
Actually DavidW they are borrowing for the tax cuts this year. They are not putting it that way but the budget requires an additional borrowing of around 450m.
I’m quite sure that is the literal interpretation of his comments Rebecca he was quite happy for people to believ the recession was over. My recollection was he was crowing about the success of their first budget.
@Nick. If your read the quotes from me in that articleyou will see they say the opposite of the headline. I said we would be fiscally restrained but bold on strucutral reforms to get exports up and rebalance the economy. National has done the opposite.
@David W; thanks, you are quite correct.
David “fiscally restrained but bold on strucutral reforms to get exports up and rebalance the economy” – I shall personally hold you to that should you get re-elected in 2011…provided you insert an extra clause when you will do so not at the expense of householders….
“Rebalance the economy” – means reduce wage growth while increasing incomes of well off
hence my clause!
Interesting poll from Stuff.co.nz…
Even if say Labour is right that the Nats are way off base and will only lead us into economic doom, end of the day it all comes down to what the voters perceive to be right for this country once every 3 years:
Are you happy with the personal tax cuts outlined in the Budget?
Yes – it’s a good tax package
9873 votes, 54.7%
No – this Budget gets it wrong
2036 votes, 11.3%
The GST increase negates the tax cuts
6151 votes, 34.1%
Total 18060 votes
Interestingly Rebecca it’s nothing like the 80% who liked it after 16 hours… which National suggested showed they had done well by the people…
I guess the next test will be when GST and the cuts, and everything else kicks in
Perhaps Labour could propose its own transformational tax change. Tax nuetral of course.
Revenue. A comprehensive CGT (rental landlords and farmers paying this by a 1% land tax), excluding the family home. Company tax at 33%. Ring fence property losses, GST on financial services to rental property owners (homeonwers exempt). FTT or some variant (if the IMF says our currency is 255 over-valued we sort have permission to do something about it).
Cost. R and D tax credits, exempting 50% of interest income from tax (the inflation proofing component), a company tax rebate – qualifying companies only to exclude those formed to pay a lower rate of income tax (part 1 universal based on cost of tax compliance, part 2 based on number of paid employees not owners of the company, part 3 based on exporting overseas etc) – most real companies would then pay well under the headline tax rate.
Balance – look at income tax rates, GST exemption for necessities, extending the dole to the partner as part of a minimum guaranteed income/social wage.
General.
Making KiwiSaver compulsory (at 2%, the employer matching contributions up to only 2% in return for a $15 minimum wage indexed to the net average wage) and paying only a $1000 start-up into (new) accounts – the savings into the future retirement cost Fund.
@SPC
Link the super contributions to inflation ie high inflation risk high contributions, low inflation risk low contribution, Singapore does it, can still be run by Reserve Bank. It does away with OCR and goes along way to end speculative activity on NZD giving on commodity based exporter a shot at real growth.
Complimentary to this is an inflation sensitive surcharge on all debt that is adjusted similarly. Its cost neutral as we pay this through the OCR anyway. For individuals surcharge payments could blinked back to Kiwi Saver, or companies back to a R & D fund.
Capital gains tax critical to our economy, but obviously Johns Smile and Wave team did’nt think this was a vote winner.
Lower company tax but increase minimum wage
These are structural and economically stimulating, not this ideologically driven dribble from Bill English
Mr Cunliffe can I ask that assuming you are right re NACTs borrowing to fund tax cuts how this is any worse than the $6billion Labour would need to borrow in order to meet the following commitments (all copied from scoop.co.nz):
$million
Second and third tranches of Labour’s tax cuts 1,600
Full Super Fund contributions 1,565
Reversing KiwiSaver changes 950
Fast Forward Fund 650
Extending benefits to people with spouses in work 300
Funding the “unfunded commitments” in education 250
No job losses in the public sector 250
Reinstating the R&D tax credit 220
Increasing overseas aid 65
Paid parental leave extension 40
Reversing the transfer from health to the insulation fund 25
Other spending 100
Total additional to borrow $6,015m
Richard, it’s a nice idea using the “OCR” component of monetary finance cost as tax revenue (and savings vehicle at that) and so is setting a value at the rate of inflation.
I remember writing to Cullen and suggesting a surcharge on mortgages would allow a lower OCR (and hence dollar) about 2002 I think.
Rebecca, while you have a point,
there are taxes paid on the salaries of those who retained jobs and no cost in benefits
the benefits in better energy efficiency do accrue to the economy (lower energy costs greater tax revenues elsewhere etc).
R and D tax credits and Fast Forward grow the economy and this positively impacts on longer term budgets.
Paying benefits to partners without jobs might reduce WFF costs.
Any money in the Super Fund which grows in value is investment in the future affordability of a budget cost.
KiwiSaver changes signalled include compulsion and this has advantages for the productive economy.
And they have signalled money from a higher tax rate threshold – a top rate over $120-150,000 and their interest in a CGT of some form.
And you fail to note that National funded its tax changes via a GST increase and yet Labour’s 2008 tax proposals which you include are not so.
@ Rebecca
See my last comment, will create growth. Im sure David will have his own approach.
Secondly – Thatcher UK and Regan USA tried Englishes slash taxes and borrow in the 80s, absolute failure and by the way DavidW it did cause a double dip recession. Oh yes it was small government ideology driven
Also increased inequality gap..not making it up it is in the history books,
SPC I am not arguing for or against these things, merely asking for Mr Cunliff’s comment.
We can assume that the borrowing Labour would no doubt need in order to fund these initiatives has also already taken into account the increase in GST – remember, while they want it axed, they have not promised to reduce it.
My point is that the amounts listed are not net, but gross.
As to the GST – the 1.5B for Labour’s 2nd and 3rd part 2008-2011 tax cuts is comparable to Nationals three year plan which they deferred (as may have Labour) – and was only continued with via the GST increase.
@Rebecca
@SPC
Your both muck’n about in the detail, neither Nationals actions or the extrapolation from Labour comments in opposition change much.
Brian Gould article verbosely sums it up
http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10647390
You’ve got to go bigger picture and forget neo-classical economic forecasting because it is inherently inaccurate.
Matthew Hooten admitted to me on Radiolive today that if the GST rise drives greater savings it would create smaller tax receipts than projected and increase the gap between the total raised by the new GST and the lost revenue due to tax cuts, but I didn’t need to worry as the money now in savings would drive economic growth and tax receipts – so re-assured…
Phhew I can forget about neo-classical economic forecasting….! Or more accurately, forget about having to look it up and find out what the heck that is!
I would have thought Gould’s comments as less than radical.
He merely questioned whether the tax cut stimulous would generate growth, particularly in the productive sector.
Its a good solid game plan National has, more forward thinking than I gave them credit for. They want to sell off State assets and shrink Govt but need a bulletproof cassus bellum to do so.
So, engineer a future fiscal crisis to generate that need by getting NZ into an unsustainable debt crisis. The answer is to *ever so reluctantly* sell off the family silver and implementing *massive* and *very reluctantly carried out* cut backs in Govt services and benefits.
PS when someone is in so much fiscal distress that they need to sell off their assets, buyers’ offers will plummet and the Govt can hawk our assets off to mates at “fair current market valuation” = firesale rates.
Cunning!!!
Nick C said:
Run up the deficit I say. As long as the return on investment from the debt increase is well worth it i.e.
Spending money on building up internationally competitive NZ industries and boosting the creation of an advanced high value added economy through investment in R&D?
Yes please. 8)
I might be picky but isnt part of the point that JK promised during the election campaign that National wouldnt borrow to fund tax cuts?
If he did promise that, and given the books are open before the election, exactly what changed so much to make them change their mind
Loota said,
http://blog.labour.org.nz/index.php/2010/05/27/budget-2010-strategic-deficits-and-fiscal-risks/comment-page-1/#comment-64099
Thanks for the biggest deflation of hope I have had for a long while, you occupy this site like a resident snapper round a big rock, yet you obviously have not shown me even the least common courtesy of even skimming a word I have posted or any of the irrefutable evidence I have gathered on my blog, because if you had you would have realised a lot earlier than now just what is happening and just what I, and many others fully literate in the private international banking network, have been trying to expose for many a year now.
The use of the strategic deficit to further the economic domination of the cross-owned banking corporate raiding partnership has been inplace in this nation since the point of continuous European contact, we have only on a handful of occasions, due to anomalies, earned more than the amount of foreign private investment bank created credit that we owe.
David Cunliffe,
I have studied your education history, you need to start honouring the memory of the name one of the institutions that both yourself and Shane Jones have attended, The John F Kennedy School of Government, the Kennedy family have been resolute in their quest against corruption and financial quackery, it is time you dropped the diplomatic gag and started putting in in terms those you wish to champion, atleast I hope you wish to champion, will clearly understand. If we do not take back the sovereign right to issue our own money supply we will under the current monetary system, by mathematical formula, suffer perpetual strategic deficits and receiverships, until we are a hollowed and gutted basket case.
I think using the Kennedy name as a synonym for anti corruption and integrity might be stretching even the myth a little too far.
Yes, adultery, covering up a car crash, bay of pigs springs to mind….
There is not a nation in the world that has willingly given up their necesitties of life to foreign corporate raiders, they have all been done under conditions of receivership to the private international banking network, 64 odd sovereign credit repayment crisis since 1980.
I again plead for those seeking to understand the core common denominator of the break down of social cohesion that is again afflicting the globe to read and watch very understandable vids from here down at this thread:
http://blog.labour.org.nz/index.php/2010/05/25/budget-2010-the-sucker-punch/comment-page-2/#comment-63472
I have been lucky enough to finish work before business hours today, so would appreciate any indepth debate for or against the privately designed and controlled international banking network being a massively destructive pyramid scheme that ensures debt enslavement by mathematical formula akin to the same systemic basis as that of a casino.
I think the answer is simple Iain, either the government; allows free currency, or it turns Kiwibank into a bank similar to the Bank of North Dakota, gives it the power to issue currency and directs issues of public credit for infrastructure, mortgages, etc…
Rebecca, Tracy
The last time corruption and financial quackery had so much systemic destructive influence on the globe JFK’s father Joseph P Kennedy took this part:
“Bear raids were prevalent prior to the 1929 crash. The collapse of the U.S. market and ensuing depression helped Franklin Roosevelt’s campaign for president. Investment banker Joseph P. Kennedy was appointed by Roosevelt to head the newly created Securities and Exchange Commission. New regulations cleaned up the roles of bankers and brokers and made the stock market safer for investors. Based on his intimate knowledge of how the U.S. securities markets worked, Kennedy introduced a number of changes in the transactions process itself. One was the uptick rule, which prevented a broker from selling short if the last sale price of a listed stock was lower than the previous transaction price. This slowed the momentum of bear raids and they largely disappeared. Note that this rule utilized “ticker tape” action. The ticker was based on transaction reporting that we place at the heart of the FXTRS.”
His son JFK went on to do this:
When President John Fitzgerald Kennedy – the author of Profiles in Courage -signed this Order, it returned to the federal government, specifically the Treasury Department, the Constitutional power to create and issue currency -money – without going through the privately owned Federal Reserve Bank. President Kennedy’s Executive Order 11110 gave the Treasury Department the explicit authority: “to issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury.” This means that for every ounce of silver in the U.S. Treasury’s vault, the government could introduce new money into circulation based on the silver bullion physically held there. As a result, more than $4 billion in United States Notes were brought into circulation in $2 and $5 denominations. $10 and $20 United States Notes were never circulated but were being printed by the Treasury Department when Kennedy was assassinated. It appears obvious that President Kennedy knew the Federal Reserve Notes being used as the purported legal currency were contrary to the Constitution of the United States of America.”
————–
I dont know if the bankers killed him or just another nut job, but one thing is certain the Kennedy family were at the fore front of attempting to reign in corruption and financial quackery. I for one will forgive JFK, or any other member of the basically decent majority, Man or Woman, who is setting about doing great decency for falling to what is a longterm human fault.
As for the bay of pigs, some issues whip up such public passion you must act or lose any hope of further influence, to do nothing would have handed control straight back to the financial elite. To have such weaponry right on your border in such unstable times was a ligitimate concern. I say this as a person who believes history has proven right Castro’s refusal to bow to international money interest, as his nation now its one of the most self sustainable in the world, has not suffered any hollowing receiverships.
Jeremy,
great explanation of Bank North Dekota in link at the bottom of this comment.
Onething is for sure the true value of Kiwibank, even in its present form, is not so much the profits its making from its plain vanilla banking, but the public service it was doing, until private banker co-operative National Party got hold of it, by keeping what had become a rampant gouging cartel in check. National have now already infected it with the terminal illness of foreign borrowing via a shadow subsidiary it has set up within NZ Post that borrows on the wholesale money markets on its behalf. Kiwibank has saved this nation far more in interest obligations that would flow of shore than it has in any taxpayer funds directed to fund it. Currently 20% of export earnings of this nation go to service interest alone on our debt.
Kiwibank is of great benefit above and even if it remained doing what TSB does for the people of Taranaki by circulating our foreign monetized debt money supply through its veins to cut a margin in order to return it to the community, it is nowhere near as beneficial as it could be if it were to be given the most logical next step of replacing Westpac as the governments service bank, and even better if it were used for distribution of productive public credit issued by a reclaimed Reserve Bank of New Zealand.
Very few people realise that 97% odd of our money supply enters circulation as interest bearing credit owed in the main to foreign interests. This has been admitted in person to me by both Cullen and English and is documented by both RBNZ and New Zealand Bankers Association.
I have to duck out and pick the kids up from school, will be back though to continue debate with anyone on what is the single most impacting factor upon our society.
Sorry,
almost forgot the link re Bank North Dekota
http://www.huffingtonpost.com/2010/02/16/bank-of-north-dakotasocia_n_463522.html
Loota,
Thanks very much for reply
http://blog.labour.org.nz/index.php/2010/05/27/john-key-timeline/comment-page-2/#comment-64442
History has been chapter after chapter of slaveminded elements conspiring to exploit the basically decent majority who would in the main just be happy to make it from one end to the other with their dignity intact having not wanted for food, water or shelter. When first exposed all of those chapters of conspiracy started as conspiracy theories until the evidence became so overwhelming they became conspiracy fact. I alledge that for the predatory lending banking pyramid scam that, that time has come. We have been conditioned to immediately ridicule those who challenge the current presented orthodox. I challenge anybody that reads anywhere near all my collected evidence to attempt to outweigh it in refute.
Loota, in total agreement, money as a means of exchange and an efficient transfer system of that means of exchange should have been the greatest public service ever invented, instead it has been captured by private interests to become the greatest pyramid scheme ever implented.
Another reason they are out to neuter Kiwibank is the fact that should we wake up and take up our sovereign right to issue our own money supply we are one of the few nations that own its own electronic transfer software outside of the private system.
@Jeremy M Harris – you say above:
“Matthew Hooten admitted to me on Radiolive today that if the GST rise drives greater savings it would create smaller tax receipts than projected and increase the gap between the total raised by the new GST and the lost revenue due to tax cuts, but I didn’t need to worry as the money now in savings would drive economic growth and tax receipts – so re-assured…”
This is a crucial issue (see the latest IMF report on NZ, but Hooten is only half right.
I will release this weekend detailed analysis that shows a huge fiscal hole opening up over the longer term.
Obvioulsy the tax package could not be afforded.
And the allocation to the top end is both grossly irrepsonsible and inequitable.
That there is no sufficient savings effect to offset this fiscal mayhem is evidenced by the forecast blowout of the current account deficit to over 8% of GDP.
The IMF observes that NZ’s savings gap and total (public and private) net international debt is among the worst of any advnaced nation.
We are in a very serious situation now and Budget 2010 made it a whole lot worse.
@Ian Parker. I think you are rasing some very important issues and I want to consider your line of reasoning carefully before responding. I agree very strongly that we need to be more financially self-supporting and robust, but I would want to take careful advice and reflect on the alternative means of getting us to that point. Thank you for your thoughtful and provocative contribution.
@Iain Parker – sorry I slipped the “i” in Iain above, not deliberate.
No worries David, although I am not really cut out for this stuff and sometimes wish my coincidences in life had left me blissfully ignorant, it is what it is, and in the interest of the future of my kids I now can’t ignore what I have spent over a decade learning or what kind of a father would I be. The more I get confronted by defenders of the current clearly failing domineering orthodox the personal attacks effect me less and less, I just try to keep playing the ball not the man.
All I ask is that in respect of my efforts that you and your colleagues might take the time to give my evidence a fair and reasonable review.
If you have not ever already done so, I would plead for you to watch atleast chapters 6 – 10 here:
http://www.chrismartenson.com/crashcourse
it outlines the template repeated throughout the world and explains why US Congress members have been asking why the US is lending to the world when the US itself owes so much, they dont comprehend that the same private bankers have monetized their money supply as debt with their created credit in a predatory fashion just as they have most every other nation.
Theres only one song sheet John Key is singing off, and its that handed down by International Financial Services London, toggle down and open tab titled messages:
http://www.ifsl.org.uk/output/
then check out the Bond report in the report tab, where they acknowledge the existance of $85 trillion of Bonds in existance, which once you realise what they are, where they come from and what they use to pay for them is nothing but obscene.
Iain you are banned for being offensive and provocative. If you want real debate, then don’t attack individual MPs. Use the techiques of honest discussion. Clare
I know this is not the place for this but can’t find any thread that might be better. I am also unsure of site guidelines on pasting links to other sites so apologies if I am breaking house rules.
Labour MPs should be reading Deborah Coddington’s NZ Herald article on the proposed takeover of Crafar farms by Chinese investors.
http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10648315
Deborah has found herself in agreement with the Greesn on this issue. Deborah’s solution might perhaps be somewhat different to the Greens. However, in her proposed use of Superannuation Fund money for purchasing the Crafar farm interests, Deborah betrays socialist values and values of nationhood that are surely worth a second look.
A small clarification to the above comments – ‘Deborah portrays socialist values and values of nationhood that are surely worth a second look.’
The company brokerages network will give you access to some big pool of individuals who’ve the information about companies for sale and buyers or investors searching for a company venture. By producing great use from the info you’ve, you may be cutting a offer and make a handsome profit out of the transactions.