The New Zealand economy has failed to fire under National. As a result successive rosy Treasury forecasts have been revised downwards. The starkest example is between last year’s May Budget and December Half Year Update.
Implications: The growth upturn “hockey stick” just keeps getting pushed out into the future. The so-called GST tax switch had no discernable positive impact on growth. And the same rosy forecasts will be embedded in today’s Budget. On this track record Budget 2011 growth projections will not be worth the paper they are written on.
When the 2009 growth projections are added the picture gets even more interesting. As this graph shows the actual GDP growth track has been so bad that it is back down to the proections made by Treasury during the darkest days of the 2008/9 global financial crisis.
In other words, despite the international crisis having passed 18 months ago and NZ receiving record prices for our agricultrual commodities, our economy has performed so badly that it is back down to the track Treasury predicted during the darkest days of the crisis. Quite simply, whatever the Govt has been doing is not working.
In a future post we will decompose the relative impact on debt of this under-performance and otehr factors like earthquakes.
There is no coherent plan from National on how to manage debt reduction alongside needed investments in economic and export development, closing the savings gap, repairing the damage to middle New Zealand, and giving all Kiwis hope and confidence for the future.
Labour has an integrated economic strategy that will achive that withi a fully costed programme that will reduce net debt over a 10 year economic cycle. You can see the direction we are heading in set out in a recent speech I gave to Business NZ here.
For the wonks among you, here is the underlying data – all the Government’s own numbers.
| GDP per capita, 95/96 dollars | ||||
|
Actual |
Half Year Update 2009 |
Budget 2010 |
Half Year Update 2010 |
|
|
30/12/2008 |
7,805 |
|||
|
30/03/2009 |
7,700 |
|||
|
30/06/2009 |
7,683 |
7,683 |
||
|
30/09/2009 |
7,677 |
7,694 |
||
|
30/12/2009 |
7,716 |
7,721 |
7,716 |
|
|
30/03/2010 |
7,741 |
7,741 |
7,758 |
|
|
30/06/2010 |
7,734 |
7,768 |
7,802 |
7,734 |
|
30/09/2010 |
7,701 |
7,795 |
7,909 |
7,747 |
|
30/12/2010 |
7,694 |
7,830 |
7,883 |
7,799 |
|
30/03/2011 |
7,873 |
7,928 |
7,859 |
|
|
30/06/2011 |
7,916 |
7,973 |
7,904 |
|
|
30/09/2011 |
7,967 |
8,026 |
7,948 |
|
|
30/12/2011 |
8,027 |
8,088 |
8,010 |
|
|
30/03/2012 |
8,055 |
8,118 |
8,039 |
|
|
30/06/2012 |
8,091 |
8,156 |
8,085 |
|
Sources: Budget relevant documents and Statistics NZ series
Nats’ Budget 2011 growth projections can be very kindly and mildly expressed in euphemistic terms as growth “aspirations”.
To call a spade a spade, their budget policy will read more like fiscal fiction – imaginary fabrication.
As an economic illiterate even I can understand this, especially when graphed.
It would seem that “they” talked up the positives without any evidence to justify.
I am sure that at the last Budget, the direction was predicated on rapid improvement of the economy and without it they would crash and burn. Unfortunately the burn is a tiny Key fueled wisp of smoke with a MSM fire extinguisher at the ready.
The link to your speech is missing David.
I was interested to hear this morning that the cuts to be made today are to be diverted to Health and Education and trades in CHCH (good) BUT the PM also said we need to reduce our debt. Given the first part, isn’t he saying that the only debt reduction is that the debt in existence wont be growing from more borrowing? Otherwise how can a reduction in A to top up B be a debt reduction, when B isnt the debt?
Right, we can all clearly see the problem. Let’s see if the Budget has policies that reflect the actual economic position.
Not holding my breath on that one.
According to Morning Report’s Business reporter even Business knows that National doesnt have any economic plan…
Treasury is staffed with neo-liberal economists who follow a failed (Chicago School) model of economic theory.
Treasury should be broken up and sold in pieces.
Problem being of course, when it gets valued it will probably be considered a liability and so won’t be worth much.
The limo driver I use has done a better job forecasting the economy than these jokers.
“Earlier this morning, the consensus forecast on iPredict was that this afternoon’s Budget would see the income limit for parental tax credits for a family with four children slashed from the current $166,000 to just $112,000 next year.
But after several thousand dollars’ worth of trades in the last two hours, the market has revised that view with a new consensus forecast that the income limit will be cut to just $134,000.”
Fascinating, how much will that reduce our debt by?
How do I find out, without being an economist or employed by Treasury, how much the following would cost
lowering the tax rate for the current highest kick in to say 28 or 25% and adding a higher kick in at say 45% for money earned over $150k or something.
Im trying to work out whether there is any system of calculation online or whatever
Tracey,
Try an Australian income tax calculator. I’d say given our low wages that those brackets levels are what we should be aspiring to.
David, there is a line in the second graph legend for Budget 2011, but no line in the actual graph. Is there meant to be a line in the graph or is it not known yet?
Thanks Dan, will try that and hope my head doesn’t explode.
Well there is it – a zero Bubdeget. Zero new ideas and absolutley zero to lift the growth line, unless you beleive Kohn Key that there are pixies in the garden to make it all come right by iteself, or if you swallow the failed neoliberal arguments that budget cuts are always good because lower interest rates follow…
Myself, I was shocked that there was not even the pretence of a growth plan, and that accordingly the long run growth rate (excl EQ rebuild and RWC) is only 2.2% by 2014, which is below the long run average of 2.5%.
And here is the kicker – p 81-82 of the Budget shows that IRD does not even accept those numbers, and is foreasting revenue $3.8 billion less than Treasury’s numbers. That is a huge gap and really shows how fragile all theis is.
A zero budget indeed. Zero ideas. Zero plan.
Its about time to make the call David and call a spade a spade. Bill English is not competent as a Minister of Finance. What MOF makes large tax cuts based on wildly optimistic growth forecasts, leads the economy back into recession, borrows money to pay for the tax cuts and then announces asset sales to pay for the tax cuts? You have to go back to the days of Roger Douglas to find such ineptitude. No, it is now clear that English is not competent enough to run the economy. English has failed to be a prudent keeper of Government finances. In the house next week David it is time to call on Key to replace English as MOF. MOF 2012 – Bill English? Or someone competent?
georgecom Remember Bill English has always seen the answer as asset sales. Remember the secret taping? He was a one-trick pony who had his trick taken away by the PM’ love of the celebrity circuit
See this brilliant Utube clip of Paul Callaghan’s on how to generate serious wealth without one off’s like mining or puttuting the rivers like dairying.
http://youtu.be/OhCAyIllnXY