Our Labour team wanted to understand why every year under National the budget deficit has far exceeded the forecast when they took office. In the graph below, the black line is the projection of the deficit made in December 2008, at the height of the global financial crisis. But you can see the actual deficits have been much larger.
Part of this is due to National’s tax cuts, even accepting the rosy predictions English made about the cost of his tax packages, they still cost a significant amount (green blocks). This year the deficit has been worsened by one-off events in the form of the Christchurch earthquake and the South Canterbury Finance bailout (brown and purple blocks). But there’s still a huge difference between the 2008 projections and what happened that isn’t accounted for by the one-offs or the borrowing for tax cuts. What’s behind that?
When we look at the GDP growth forecasts vs reality for the same period, the answer becomes clear. Every year, National has projected that a return to strong growth is just around the corner which will mean more tax take, lower benefit costs – and a smaller deficit. But it hasn’t eventuated. Instead, the economy has stagnated under National and every year National has evened up having to slap billions more on the taxpayers’ bill to cover for this economic underperformance (blue block).
No doubt today’s budget will also contain rosy growth projections. Will the reality end up being more deficit blowouts?
Thanks David. Bad news very clearly delivered.
It appears as if Bill English is planning to crash the country.
This reinforces the message that National are waiting for the fairy godmother to come and deliver an aggressive economic recovery on their behalf.
Someday, somewhere, somehow, just don’t ask the no-plan, no-idea Bill English for specifics.
So really, the tax cuts amount to bugger all of the cost? economic under-performance is not any governments fault and the government cannot be blamed for the earthquakes. so really, all your criticism is unfounded. all your claims of being able to do better? still just words at the moment.
I blame English for the global financial meltdown as well.
Lucky we have such stellar performers from the economic sector on both sides of the house to get us through.
What were your specific plans to rectify things again David?
Even the business sector has said national has no economic plan.
Treasury has recommended capital gains tax, maybe this will be in the budget?
The MOF was spot on yesterday when he stated that his Government had
“focused pretty strongly on avoiding decisions”
So really, the tax cuts amount to bugger all of the cost?
Not fiscally neutral are they, despite John Key’s claims. And certainly not helping matters. Where is the economic upswing these tax cuts were promised to deliver?
economic under-performance is not any governments fault
Not planning for economic under-performance is a government’s fault. Clearly the National/ACT/Maori party/United Future government have not produced a plan yet.
C’mon Sean, you’re missing the key point
Everything is Labour’s fault and Labour must come up with policy to fix everything not National.
Why don’t you ask your clueless, zero plan, National mates, mate?
Giving tax money to the already wealthy so they could invest it offshore, instead of to middle and low income earners who would immediately spend it into the real economy, has been extremely damaging.
Thanks National, we’re lovin’ it.
lollercaust @ 1036
The tax cuts were initially meant to be “fiscally neutral”, and once it was pointed out that was bullsh*t, they became “broadly fiscally neutral”. Except now that has been shown up for the bullsh*t it is, too. You need to learn your lines properly.
It seems that when you say “tax cuts amount to bugger all of the cost”, what you mean is “tax cuts cost about a billion dollars a year”. For most NZers, a billion dollars is not bugger all.
The tax cuts have been a disaster. What’s worse, the poor economic management by National has made what should have been a huge mistake (the tax cuts) seem small in comparison to the rest of their stuff ups.
Not to worry armchair, a 400m per annum cut to kiwisaver will solve all the problems… oh wait on… how much did you say we owe and are borrowing? Did I mention the PM is going to Washington and we have the rugby world cup ( a Labour initiative by the way if we’re going to split hairs, and I think we are)
Cheers Tracey, you are quite right.
…and Labour must come up with policy to fix everything not National.
That is true. Looking at National’s track record in government nothing will be fixed before Labour is back on the Treasury benches.
David I am at a loss (also commented The Std)
We are borrowing $300-$380m/week. About $130-$150m is refinancing. Resulting in $130m/week to cover cash deficiencies = $8b p.a. Yet deficit is est. to be $16b. Does that mean that much of the Chch rebuild has not yet been paid out but has been recognised as a cost, and thus we will have to increase our actual borrowings further over time?
Also what is the breakdown of this $6b cost resulting from Chch and do you know how much has been spent and will?
http://thestandard.org.nz/pre-budget-roundup/
This reminds me of a nursery rhyme sung to the tune of ‘Polly puts the kettle on’ where the kettle symbolises the economy and social growth:
Cullen put the kettle on,
Cullen put the kettle on,
Cullen put the kettle on,
We’ll all have tea.
Shonkey take it off again,
Shonkey take it off again,
Shonkey take it off again,
They’ve all gone away.
http://www.youtube.com/watch?v=3-nAVG2tIvA&feature=related
lollercaust: “So really, the tax cuts amount to bugger all of the cost?”
Um. Key has been trying to tell us they’re not borrowing for tax cuts at all!
And it may be a small portion of the deficit but it’s hundreds of millions of dollars.
But if you think borrowing for tax cuts is cool, go ahead and say that.
LOL
can you please provide the breakdown and the cost of servicing the promises of the Labour Government, in particular the costs associated with interest free student loans, Working for families, Trainsets. I am far from pleased with the National Government and they have failed to undo much of the damage of Labour. The reason for this is they do not want to be a one term government. But the 2008 PREFU made it clear the country was headed for some hard time on the back of the Labour mismanagement of the economy.
@ Gary Jones – you win!
P.S – It’s interesting how the media is framing the student loans issue around the time of the budget…
Come on Mr Cunliffe – pull the other leg.
You can’t even manage the content of your own website and you want to manage $120b of our money?
Gee Viper, did you quote that out of the manifesto?
Actually the stick I point is as both sides of the house (that means “all parties” in English).
As a middle income earner, I can honestly say I was no better off under Helen’s mob either so save your vitriol for the hustings “pal”.
Wow NAT spinners are desperate that the Government is not held to account for their shabby Budget, and they’re desperately praying that English will find 4% economic growth from the fairy godmother!
I’d love to see what Bill’s Budget numbers look like if economic growth is only 1.5%, which is the far more likely scenario.
“State-owned Enterprises Minister Tony Ryall said money from the sales would be recycled to invest in assets such as schools, hospitals and broadband. ”
Oh good we’re going to sell the family jewels to pay over the odds for recladding leaky schools that don’t need recladding but which reclads line the pockets of an entire section of the building and building expert industry. This is a farce. The Government knows this particular spend is a farce but are happy to hand over our money (at least $1.5bn of it) despite knowing they could easily halve it or more.
@David Cunliffe
Thanks for the graphs – much easier to see what’s going on.
@ J Edgar; I have published two speeches this week that set out the framework fro our policy and there il be more news at this weekend’s Labour Congress. But then i guess you probably won’t be there…
Just maybe deferring spending of $10B on the construction of 7 roads is one way to avoid mounting debt.
Gotta love the cynicism behind the idea of selling off power generation assets rising in value and making returns over debt cost to invest in hospitals and schools – will they be requiring a 10% capital return (ala Wellington Hospital) out of the health board or school budget? Of course eventually they will be either proposing the full-sale of the power generation assets or the proposing that the part-sale of hospitals and schools to PPP’s.
But without the road build this would not be necessary.
One can only conclude they see government office as an opportunity to divest the public sector of its assets.
@Joseph, I’ve said this elsewhere; two days in a row different economists (one from treasury, one from elsewhere) pointed out that during Labour’s years much of the debt from the last NATIONAL government was repaid, and if it wasn’t for that we would be a Portugal/Greece/Ireland – time the Nats started giving credit for Cullen’s sound management.
Add to that, the policies implemented by Clark served to actually improve the health and well being of those in the worst circumstances within our relatively poor country. Evidence shows that the gap between the haves and have nots is the biggest determinant in terms of health, educational attainment, career advancement, life expectancy, crime rates, etc…..
And guess what, on Key’s watch the gap has increased, so guess what, the cost of fixing those issues also increases.
Maybe the NACT fans should read this…. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10726442
not that they would believe it….
It’s interesting to observe these Tory no idea trolls
Just like their masters no idea as to how to increase the output in our economy, unless it’s to produce low value bulk commodities like logs and milk powder
Key hasn’t the time to even consider leadership as that would miss the next photo opportunity !
Here’s a breakdown of where our money goes
http://wheresmytaxes.co.nz/
The Tories used the Cullen Fund profits and the repaid debt budget dividend to claim a surplus that could sustain tax cuts, now they use a recession to justify spending cuts and asset sales.
We are not alone and can take comfort in that.
Since Reagan (more recently George W) the right have delivered tax cuts to deliberately undermine the government budget as an attack on the public sector economy model.
Meanwhile the Chinese (somewhat aware of the way the PNAC Americans were playing their winning hand in the Cold War) have bought up the Western debt and secured their place as the untouchable supplier of products to the world economy (and buying up their own global supply chains) – now global corporates compete with each other to win contracts to transfer technology to the Chinese (who require joint venture partners who will eventually take over the “winning” corporates global market). Read my lips the defenders of the free world have sacrificed their liberty on the altar of mammon.
To the historian there has been little of its like since the fall of Minoan civilisation and the decline into the following age of piracy. We’ll call it the end of the nation state public sector and the rise of the global corporate, shame for the architects of their policy that they will not be the super power presiding over it.
David. Well done. These figures nicelty show what I have been wondering the last few days. The Christchurch earthquake costs masks some breathtaking incompetence from Bill English as Minister of Finance. The root cause is the rash tax cuts from 2010. Those cuts themselves necessitated borrowing to pay for. English then took the economy back into recession meaning MORE borrowing was required to cover the tax cut shortfall. The earthquakes added even more borrowing as the government books were in such bad state.
The tax cuts created an income shortfall. Driving the economy back into recession and the earthquakes required more and more borrowing, exacerbating the income shortfall. The stark reality is that English has created a structural deficit. The NZ Government doesn’t have a debt crisis, it has an income crisis and Bill English is the creator of that crisis.
And today we learn that the only plan English has to cover that income shortfall is selling state assets. I struggle to conceive of a more myopic solution to this income crisis than selling assets. It is such a short sighted solution, even for this government.
Its about time now to state the reality, Bill English is not competent as Minister of Finance.
…and remember ACC is back in profit again in terms of its invested funds. Seems there’s not as much talk about privatising some of its operations anymore?
Its about time now to state the reality, Bill English is not competent as Minister of Finance.
Agreed. Let’s not forget John Key selected him for that role, and cabinet signed off on the budget. There is alot of incompetence in the current cabinet to go round.
…and remember ACC is back in profit again in terms of its invested funds. Seems there’s not as much talk about privatising some of its operations anymore?
Sorry Tracey, that is still on the agenda. National does not let numbers get in the way of ideology.
English poured scorn on the Cullen Fund – borrowing to save for the future. He even cancelled further contributions.
Apparently the rates are favourable for borrowing at the moment. Presumably he could borrow and reinstate contributions to the Cullen Fund – don’t hold your breath though ’cause it would be his idea.