Near-zero gross domestic product (GDP) figures for the December 2010 quarter prove how badly the New Zealand economy is stuck in a rut.
Treasury and the Reserve Bank had both forecast zero growth for the quarter. I have taken the view that was about right and that minor variation either side would not change the story.
It doesn’t. Today’s 0.2% is within a shade of that, and is still subject to revision.
The big picture is that the economy is going nowhere because National has no plan.
A breakdown of the statistics is instructive – wholesale trade is down, retail is down, accommodation and restaurants are down, confirming the message that businesses in New Zealand towns and cities have been giving us — that for them 2010 was even worse than 2009.
Cost of living pressures were also clear. Goods and services purchased by Kiwi households are almost flat even though prices rose 2.3 percent in the December quarter alone. This shows Kiwi families are hard hit by the rising cost of living and are having to tighten their belts month by month.
There is no good news on the external side either. Imports rose faster than exports, and the fastest-rising export, raw logs, effectively represents exporting Kiwi processing jobs along with the timber.
Kiwi families and firms are borrowing more than ever before to stay afloat, and the Reserve Bank says this will continue until 2013.
Bill English is presiding over an old-fashioned slump, and clearly has no idea what to do about it.
Last week he wanted to put the whole cost of the earthquake on the country’s credit card, but Prime Minister John Key rolled him a few days later when announcing a zero budget this year.
Economics 101 says that savage budget cuts in the middle of a deep recession will only put more people out of work, undermine confidence, reduce demand and drive down tax flows.
This isn’t a plan. It’s a recipe for continuing economic failure.
What would the impact of reversing tax cuts be in the middle of a recession?
So we no longer have the retail driven boom that was the hallmark of the Labou Years. People are finally understanding the need to pay down debt, by not purchasing large screen TVs, new cars, latest appliances, eating out. In other words people are no longer spending money they do not have.
And in addition there were 2 major earthquakes in Christchurch which have had a negative impact on the economy.
Overal I think National are doing a sterling job given their extremely difficult circumstances. And to date we have only seen from Labour a plan to spend a whole lot of money that does not exist. Where is Labour’s plan – or are you guys just living from crisis to crisis.
No growth , high inflation, no plan, borrow and hope.
here we go again, its the 90s all over again
Borrow and build houses in Auckland (complete all the residential projects on the books of failed companies for starters) and then sell the houses to repay the debt. It should have been the plan back in 2009.
That would have taken us out of recession and improved the budget figures and then we would have been better placed to deal with the earthquake.
It still should be done, the problem now is we are 20-30,000 houses in Auckland behind demand and now have to focus on the Christchurch rebuild as well.
Yep Ghost, so like the 90s, especially the 6.8% unemployment.
As for the National government’s tax cuts, these have failed to stimulate the economy, and left the country borrowing to pay for what is only effectively money for the top 10% of taxpayers. What possible value remains in trying to stimulate the economy via that method when it has failed? Lets try reviving the economy a different way.
Bill English’s plan was visibly failing to deliver by December last year. As for the Earthquake, to quote the excellent Keith Ng.
What’s changed is that we haven’t come out of the recession as well as we’d hoped; what hasn’t changed is that we are still stuck in the same hole – indebted, underperforming and aging fast. The earthquake was an additional kick in the nuts, but even if it didn’t happen, we’d still be in the same position today.
Keith’s piece is well worth the visit, for those who haven’t seen it already.
Most likely a boost in the throughput of the economy. Giving tax cuts to the rich, as National did, actually decreases the economy as more money is shifted away from maintaining the economy into wasteful consumerism and “savings” (accumulation of vast piles of money held by a few).
Although I can agree with building more and better houses the government should never borrow money. It should print what it needs (with the ability to print money removed from private banks) and then tax to maintain balance.
And, as Marty G points out over at The Standard GDP/capita actually went down in the fourth quarter. Most of what growth we did have went to the already rich and everybody else is worse off.
What a joke, Cunny.
Economic growth, year on year, declined when you folk were in power. If you want to know about a restricting, failing economy, ask Dr Cullen. But hes already your #1 go to guy.
What’s your solution Matthew?
Reduce the size of government (spending). Cut income taxes. Cut business taxes. Sell unnecessary state owned assets. Pay down debt. Open ACC to competition. Knock down zoning for schools and improve education. Have student loans interest at the rate (or similar, capped at 2-3%) to make it sustainable for future generations to receive easier access to post high school education such as America. Create a super fund which makes ALL % of individuals taxes is spent on super. Keep politicians from touching our retirement.
Its obvious both you and Bill English bitterly wanted NZ to go back into recession to advance your various agendas.
When will we get some politicians who can (or actually want to) lead?
Pretty much what Matthew said plus winding back the iniquitous WFF as part of the personal income tax cuts. Ideally a flat tax rate of 20% including business tax.
@Matthew – debate is fine; but keep it respectful please. Fair warning.
@pdm- flat tax is flat earth. Do you and Matthew not get the idea that sucking demand out of an economy but aggressive spending cuts leads to a downward spiral of unemployment?
you’d never guess that all Matthew’s suggestions were implemented in the USA – tested to destruction in fact – under Bush in particular, and left the world in the current mess.
Didn’t hear much of a plan in your post Mr Cunliffe. If I recall correctly, the export sector performed dismally under the previous government.
Do you have anything more to offer than complaints?
Dorothy – Bush increased government spending, more than any of the six Presidents who preceded him and added $5 trillion to their national debt. Nice try though. He also massively increase Federal funding for education through ‘No Child Left Behind’ which predictably failed to achieve much.
” by not purchasing large screen TVs, new cars, latest appliances, eating out.” Or some may argue, eating at all!
Montybear, the country was turning to sludge before Canterbury did the same,
Man, we need Cullen back.
It just occurred to me Caygill, Cullen, Cunliffe,
C what I mean:
The figures for the Bush years only can be ‘greater than the previous six presidents’ because of
1) inflation
2) the global financial crisis in the last 9 months of his term
3) Spending for wars , all paid for by borrowing.
David
So your grand plain is to screw more taxes out of the so called higher paid. The State to spend more. To boost the economy so that the state can then collect/pillage more tax. Of which you will then pay more to the poor.
Enough to make a Marxist dance with joy. It is living in a fools paradise.
“flat tax = flat earth”, no wonder my sources complain of your arrogance around the parliamentary precinct david. Many countries with high GDP, and GDP growth rates practise a flat tax policy. Honk Kong being a great example, singapore too. if you mention the scandanavian countries, don’t forget the impact mining and oil revenues have on their sovereign funds
I know equality is the goal, but how about raising more people up to be equal with those earning good incomes, than bringing down those who earn good incomes to the level of those who don’t. One is an envy driven policy, the other is an optimistic policy. our income tax policy is “progressive” only because it gets progressively worse as you earn more. economically it is regressive as it punishes the true wealth creators of the economy and acts as a handrbrake on capital investement by individuals. I’m sure you are aware that capital investement is the driver of future growth in an economy. As I am sure you are aware that capital investement by individuals grew by 10% last year, after the tax cuts.
Ghostwhowalksnz – That is adjusted for inflation.
Two and three of course have a large part to do with Bush’s woeful record, but that is not the entire story. Non-defense spending, not including the bailouts etc also increased during the Bush years.
Sadly Matthew all you have done is outline National’s failing programme. By their own admission the income tax cuts, directed where they were, were never going to stimulate the economy. Everything you suggest has been tried, and failed to bring sustainable change for the good of all NZers. Still, why learn from mistakes when there are many like you eagerly cheering them on to repeat them.
National increased our debt, not paid it down ($900m borrowed this week alone)
liberty, yeah those damned hard working poor people who make bugger all because it suits an awful lot of people at the other end for it to be that way. You forgot to say that poor people are poor because they are lazy and dont help themselves. Take a stroll down deregulated industries to see the harm done, and the bill picked up by, yup, tax payers, including those accursed poor. Yup a libertarianz world of self regulation and self responsibility would certainly see the world a happy place with no greed, no harm no self serving.
National’s mismanagement of the economy is criminal.
Gary – you talk about National’s mis-management of the economy. I need to remind you (yet again) that National is trying hard to get the economy back on track, and if Cullen had not increased spending by a massive $14b in his last five years in office then there would be an easier job for this National Government. Instead Cullen drove the export sector into recession in 2005 and the tradeables into recession in 2006. The whole economy went into recession in 2007 – more than a year before the rest of the world.
Cullen mis-managed the economy. He inherited in 1999 a great set of books with economic growth at 6% and forecasts of surpluses. He left the economy in debt, in recession, and no money in the bank. He spent like there was no tomorrow and purposely and some say vindictively made sure there was no money for the incoming Government. Under Labour’s watch ACC racked up many billons of losses. He screwed the middle classes for as much tax as possible to fund his socialist programmes. He failed.
Do not kid yourselves that National have mis-managed the economy – such a comment is nothing more than a leftist cliche. Given the circumstances National have done a sterling job especially given the impact of two massive earthquakes and a Global Financial Crisis.
No Gary deleted. Ban next time. Trevor
Tracy
I didn’t say the poor are “lazy and dont help themselves” because that is a silly generalization.
If you believe the economy can be improved by the state increasing its spending. You are deluded.
We need a substantial reduction in the size of the state.
@liberty, it is not a delusion to think that increasing the size of the state will benefit the economy, it is just a different perspective.
Reduced state means more private business, alot of that will be offshore, or the profits will go offshore anyway, increased state means slightly more local jobs, potentially less efficiency, but the spend stays in nz, the overall amount of money spent stays the same as the total pot is the same size.
More state means that voters have more control over the way NZ grows and the services we receive, less state means voters have no say over how this country is run and the services we receive.
That is my very basic take on it, i prefer to be able to vote for the overall services i want as i have no trust in private corporations,if the economy isnt as dynamic due to having a trustworthy system in charge, so be it, but that is not deluded it is simply a different take on your way of thinking.
@liberty: If you believe that the economy can improve by state decreasing its spending and relying on the private sector who are so crippled by debt, you are the deluded one.
@monty: that is the most fantastic re-write of history I have ever seen. Govt debt reduced from 16% of GDP to 10%(?) under Labour and Govt’s net worth more than doubled. Some (I’m not arguing all) of Labour’s spending was actually constructive and one reason why we didn’t get smacked around even more when the GFC hit.
liberty I’m glad to see you dont support all the spending on infrastructure like roads in wellington and auckland and north of it etc, or the 1.5bn to telecom I just havent seen you write it here.
“improved by the state increasing its spending”
Monty, you are dreaming, go look at the figures since 2008, the earthquake will actually help this govt with a huge influx of foreign money (insurance). They’ve done nothing but borrow billions for Tax cuts that WERE NEVER INTENDED TO STIMULATE THE ECONOMY
Waterboy – It’s a very basic take on it indeed. You overlook some basic problems. Firstly, probabilistically speaking your individual vote is near imperceptible. Secondly, the state suffers from economic calculation problems and simply cannot calculate what is ‘good’ for society.
When you discuss more ‘private’ versus more ‘state’ it is important to remember what really defines a state which is an ideologically subsidised monopoly on violence. It is an institution of coercion. What you have when you say private versus state is that between individually voluntary human interaction and institutional coercion.
If one looks at the real world one sees that less state intervention in the economy more often than not means higher incomes including for those at the bottom and greater human development.
“Secondly, the state suffers from economic calculation problems and simply cannot calculate what is ‘good’ for society” are you saying that private business can???
i thought the GEC had destroyed those beliefs.
Waterboy – I don’t believe anyone can. I don’t believe that what is best for society as a whole can be calculated. Value is subjective and can only be revealed through voluntary interaction. From such interaction order emerges. This is opposed to the top-down order imposed through mass coercion.
It is naive to believe that the GEC was a result of the free market. This is a well trodden territory so I’ll point you to this interesting paper by Jeffery Friedman (a critic of libertarianism) A crisis of politics, not economics, complexity, ignorance, and policy failure.
Quoth the Raven, you so smart!
QTR – “If one looks at the real world one sees that less state intervention in the economy more often than not means higher incomes including for those at the bottom and greater human development.”
Often repeated so much that some will believe it. The mistake is not looking at enough countries or enough time. Mainly the transition from third world to first world is to sell high value resources to build infrastructure and education. eg America exporting wood, Arabia exports oil.
I can think of economies in the third world where the govt is small and/or lacks control and have low/no growth and others where spending/command is high and so is growth. Other factors are obviously at play here.
Tracy
In an ideal world. The roads should be privatized. We currently live in a socialist cesspit. The state building the roading system is the only viable option.
This can’t be said about the state spending on Arts and farts and public entertainment such are Radio NZ, TV1 ,TV2 and looters such as TV3.
LIberty – you seek an ideal which can only be achieved without the existence of human beings. For example your own use of epithets reveals your bitterness, such bitterness makes ideal scenarios nothing more than theory on paper.
A world of self regulation and self responsibility would certainly see the world a happy place with no greed, self interest or back stabbing and lies. Yeah right.
As an aside anyone seen the latest Tui Ad showing a drift toward political partisanship in an election year?
Tracy
You are right Libertarianism to a point is theory. Then Marxism is also a theory that has been tried and has been found to a totally useless.
The reality is a section of society (labour voters) who have trouble getting through life without the state holding their hand and wiping there bottoms.
The question is to what degree should the rest of society be forced to pay for Nanny to subsidize the lifestyle of a few.
Yes Tracy, and high and inefficient government spending is doing so well isn’t it. And no not all of it was tried. Infact since Helen (IMO our worst PM) bought back total control over health care, increased the size of government and had growing inefficiencies in the public sector, our economic growth has gone downhill in the times were we should have had the highest economic growth.
liberty, you fail completely to address my statement, twice.
Matt, I will argue forever to your right to speak your mind. A word of warning, scrutinise what you swallow, you dont want to choke.
The figures do not include the Canterbury area (the February earthquake took out the records and back up apparently) sa- they were excluded. Given the impact of the September earthquake on those figures it would have been a second negative quarter in a row if they were included.
Powerful stuff Hon. Cunliffe. Please continue to communicate the failings of National; they don’t seem to be getting put across very well at the moment.