The public does not need to take our word for it that the current government’s economic policies are not working. There is now even more objective evidence in the form of two important credit rating downgrades delivered on “Black Friday”.
I have written an op-ed for the Herald on why the “Ratings Ref” yellow carded NZ. Standard and Poors and Fitch agree on what is fundamentally wrong. They say:
- First “very high external imbalances, accompanied by high household and agriculture sector debt” (S&P). These are mainly house and farm mortgages borrowed through the banks from foreign lenders to fuel our property obsession.
- That’s not a new problem and it has levelled off a bit with the recession. But it is at historically high levels and makes New Zealand “an outlier among peers” according to Fitch.
- Second, “dependence on commodity income” says S&P. Despite record milk prices we are still not paying our way in the world. The current account deficit is a long term issue. But it will worsen to 6.9% of GDP while the Net International Investment Deficit (NIID) will grow from 78% to 85% over the next five years.
- Third “emerging fiscal pressures associated with (our) aging population” (S&P), including health and superannuation. Suspending the NZ Super Fund pre funding hasn’t helped.
The reaction from Bill English on Q & A yesterday was uttlerly inadequate. He maintains the government will keep on doing what it is doing. As if that has done any good so far – $37 billion extra debt, 47,000 more unemployed and 3.6% lower GDP now than when they were elected.
Here is the Government’s spin, and some perspective on it:
- “We have worked hard to control government spending and succeeded”. The problem is that some $37 billion of debt has been added since the National Government took office – some $18 billion in this year alone. While nobody blames any government for earthquakes – and the ratings agencies recognise that both sides of the political spectrum are exercising fiscal restraint, this is not enough to avoid a downgrade. The agencies’ arenot swayed by the prospect of liquidating $5 billion of SOE assets.
- “We are better placed than some other countries”. Being “better placed” than Iceland, Greece or Portugal is cold comfort. Nor is it sufficient, in the face of paralysis in the US and chaos in Europe, to take refuge in Chinese and Australian expansion. The risks of a slowdown in both economies are significant, and s the ratings agencies demand New Zealand takes responsibility for its own future.
- “We are still on track for surplus in 2014-15. So she’ll be right”. As if. The precise timing of short term fiscal balance is not the issue that has worried the ratings agencies. The long term deterioration driven by poor savings performance, weak exports and the mountain of real estate debt is. Clutching at such irrelevant straws only highlights the absence of better ideas.
Proof of the bankruptcy of National’s ideas is in this sobering fact: only one quarter of OECD countries have been downgraded by Fitch in the last three years. The last time this happened to NZ was in 1998. It is nonsense to say we are riding the waves better than most. To the contrary New Zealand is highly exposed, and saddled with a government that has no plan.
Labour has the policies and the political courage to make a difference and to do what is needed: capital gains tax, strong saving policy, monetary reform and strategic economic development. It is vital that we implement them before it is too late.
Be in no doubt: what happened on Friday is a very serious development that will have repercussions for many years. I will write further on what this means for the average Kiwi family.
Appleheart you are warned. You are now trolling. Clare
David,The Nat’s have pulled off quite possibly the best con job for sometime. Teflon Key is just untouchable, despite the fact that their economic management is eye wateringly incompetent the general public are believing the great lies that the compliant media are sending out. When the music stops and smile ‘n wave has run out of photo ops things might get a bit nasty, once his fan club realise they have been had….
@David what you and your Labour colleagues seem to be conveniently ignoring is that the comments made by the ratings agencies largely endorsed the Govt policies and admitted progress was being made. What they are looking for is further cuts to Govt spending and paying down of private debt. The increased tax policy of Labour and extra $6-8 billion in borrowing proposed would not achieve the outcomes they want and risk further action from them. Be careful of shouting about this too loudly as your policy will come under scrutiny and be shown for the failure it is.
Apart from 3 yrs of slagging off the Nats (richly deserved for doing sod all imho), please do tell us what you would have done differently and where your party’s extra taxation and profligate redistribution schemes would have us.
My understanding is that had Labour been re-elected in 2008 that a downgrade would have occurred in early 09. The country is therefore 3 years better off by having a National Government even as pmofnz says it has done sod all.
To be fair mate, mate to be fair !
You need to keep attacking National on their failed economic policies David and how life for most people including the working class people who always voted Labour are much better off under Labour, don’t let Shonkey get away with it David. Like your work!
@David – What do you think the ratings agencies would say to Labour policies which have the government in debt for longer and at greater levels?
Yes Labour have an alternative, but that alternative puts the government in a worse fiscal situation…. But nice try…
Why didn’t these experts predict the crash of AMI after all they gave them a very high rating ?
@Peter – you are right and I am gobsmacked that the media let them away with it. Truly unbeleiveable.
@darrrenW we don’t have a policy of $6b more spending. So I guess you got that line from the Nat research unit.
@pmofnz – CGT, strong savings policy, an economic development plan, better education policies etc etc
@well well well – another piece of nat spin. Do you think if re-elected after the GFC hit Labour would not have adjusted the policy mix accordingly??
@oliveri (is that OGI?) I have met with them they were relaxed. Possibly even impressed.
Good on you David. Where is the ‘Brighter Future’ National promised us, oh wait, they are promising it again. Repeat a lie and people will believe it? Bill English’s stewardship of the economy is designed to bring the country to it’s knees then he’ll tell us we HAVE to sell our State Assets to pay for his malevolent bungling. The last time he bungled thus it cost NZ eleven billion dollars. With Smile and Wave to distract us Bill is racking up an even higher bungling bill. ‘For a Blighted Future’ might be a more apt National Party election slogan
@ David Cunliffe, “I am gobsmacked that the media let them away with it. Truly unbeleiveable.”
And what media have you been reading or watching for the last 3 years? Ignoring any news that might harm their mate Johnny has been standard operating procedure for so long, they have forgotten what ‘fair, balanced, accurate and objective’ journalism is.
David are you saying that with your policies, if you had been finance minister last week, the credit downgrade wouldn’t have happened?
Pretty hard to believe anything a politician says these days, regardless of what party they belong to.
“My understanding is that had Labour been re-elected in 2008 that a downgrade would have occurred in early 09.” Source please
David, so in coalition with the Greens and NZ First you would reduce government spending compared to National? Good luck convincing the country with that one.
{deleted, making things up. Please take this as a warning, if you keep doing this you will be banned, Grant}
David – would the downgrade have happened sooner if Labour had won the 2008 election?
Tracey -it seems my question was allowed up off moderation and then deleted – David is that the case – certainly not showing up now?
Hi Monty
My quote was from well,well, well above ^^^^^
@David your policies have been costed as requiring an $6 – 8 billion in borrowing and until now this has not been denied despite this being widely commented on in the media. I have been around long enough, and am cynical enough to know that a failure to deny this sort of claim is usually an admission of the claim being correct. If it is not the case please explain (fully) how you will fund them and avoid further downgrading. PS CGT won’t do it. Nor will taxing the ‘rich’ 5% or so of the working population.
@David, I am with darrenw and am very keen to gain an understanding as to the plans of how you will fund your financial plan for NZ.
Please do share.
Can you confirm that the Labour party will not in fact need to borrow some 6 – 8 billion?
Thanks in advance
Great piece David, looking forward to your next piece.
As for those who continue to repeat the troll line of “Labour borrowing $6-8 Billion in addition”, Whafe and DarrenW. What incredible sidetracking on a point which has already been answered, by David, seven hours ago. Check back up the thread if you don’t believe me. Still – full marks for Trolling.
@ Shrooomer, @Murray… reasonable chance we could have avoided it as we would have had three budgets to :
- keep spending tight
- strengthen savings policy by boosting Kiwisaver
- bring in CGT that helps the lomg term fiscal picture and contains the property bubble…and
- get growth up with better timed and targeted stimulus and a real economic development strategy
Put any prejudices aside and check how our policies line up with what the rating agencies have been saying.
@ Shrooomer, @Murray… reasonable chance we could have avoided it as we would have had three budgets to :
- keep spending tight
- strengthen savings policy by boosting Kiwisaver
- bring in CGT that helps the lomg term fiscal picture and contains the property bubble…and
- get growth up with better timed and targeted stimulus and a real economic development strategy
Put any prejudices aside and check how our policies line up with what the rating agencies have been saying.
@David have you admitted that a CGT would have been introduced early in the current term if Labour had won the last election? Interesting as if had not been campaigned on and was not a favored policy of Cullen & Clark. In fact it could be argued their policies ruled out points 1 & 4 of the plan you say would have had a ‘reasonable chance’ which is spin for little chance.
David, do you REALLY think we’re that stupid? You say you would have kept spending tight yet your party has criticised every spending cut National has made. I am really struggling with this concept you have that you can say anything you like, no matter how inconsistent with the facts or anything you’ve ever said in the past, and that nobody will hold you to account for it? Do you not care about facing ridicule and scorn for that kind of behaviour? Those are empty words, David, and nothing that you’ve said or done supports that.
Also David, how can you possibly say you would have had three budgets to bring in a CGT, when until the start of this year your leadership was saying it wasn’t necessary? You cannot claim you would have had three years of a CGT. One at most. That is assuming the CGT is not just a desperate last-minute grab to shore up votes when you know you’re not going to implement it.
The most credible comparison of what the credit rating agencies would have done had you still been in government was the policy settings and spending track you were on when you left office. How did that look, David?
Shroomer, were you happy that during a recession and a year into the GFC a party (then became Government) wanted to borrow for tax cuts to the one portion of society all economist agree wont stimulate the economy with their tax cuts?
The Pm, earlier this year pointed to Standard and Poor’s rating (or non change of it) as an endorsement of the government’s budget and handling of the economy. Do you accept that if that logic is applied consistently they have just criticized the governments handling of the economy since then? has S & P deteriorated so much since the budget that their opinion can now be dismissed
In the real world there is a difference between borrowing for tax cuts, for the rich to spend in Hawaii, like National, and borrowing for investment and economic stimulus within New Zealand, as Labour proposes.
Noting that it is still baffling why anyone takes the ratings agencies seriously after their failures in the GFC.
Investors in US Government bonds are not taking any notice.
Especially their calls to shrink the State and State spending, when with all successful States, Government regulation and participation in the economy is much greater than ours.
Amusing, if it was not so serious, that NACT have failed even by the criteria, they themselves, have set.