Our economy is stagnant under National. Or worse.
Like an opossum in headlights, the Government continues to chart the same economic course. It is not clear whether this inertia is due to a lack of courage, or a lack of imagination. Either way, the Government has proven unwilling to tackle the structural problems that underlie our economy – preferring instead to stare down the oncoming train. We continue to import more than we earn in exports, and no credible plan to change our course is currently being entertained.
In New Zealand, the average value of our individual earnings has dropped during National’s first three and a half years in office. Real GDP per capita is lower than it was in 2008.
It doesn’t have to be this way.
The Government members continue to blame everyone but themselves. Their excuses don’t stack up.
Growth in Canterbury is outstripping other parts of the economy, so National’s attempts to blame Christchurch don’t make sense. Nor do attempts to lay all of the blame at the foot of the Global Financial Crisis. Our biggest trading partners have enjoyed growth stronger than most over recent years.
National has made bad choices. It has failed to develop and implement pro-growth policies.
For starters, National passed over a huge opportunity to stimulate the economy. The latest Treasury figures estimate the cost of income tax cuts made by the National Government in 2010 at around $11 or $12 Billion.
If 44% of the value of the cuts went to the top 10% of earners, around $5 Billion of the 2010 tax cuts went to those who needed them least. The Prime Minister received about $1000 more in the hand per week. Others received more. These tax cuts for the wealthiest New Zealanders came at the cost of income tax cuts for the other 90%: middle and lower income earners. This was not good for our economy. An example Stiglitz uses illustrates this point:
“Consider someone like Mitt Romney, whose income in 2010 was $21.7 million. Even if Romney chose to live a much more indulgent lifestyle, he would spend only a fraction of that sum in a typical year to support himself and his wife in their several homes. But take the same amount of money and divide it among 500 people—say, in the form of jobs paying $43,400 apiece—and you’ll find that almost all of the money gets spent.”
Sir Michael Cullen’s 2008 tax package was more strongly directed towards lower and middle income earners. But the new Government unpicked the changes and wound the spend into a new package which underestimated the need for stimulus. In doing so, National failed to support growth in the New Zealand economy.
The 2010 tax package worked negatively in another way. It grew inequalities. Greater inequality undermines trust. Those not in the very highest income brackets feel less motivated to work in a system that favours those who are already well-off. I’ve covered that ground before – commenting on an earlier Stiglitz piece in Vanity Fair. That article explained in simple terms why growing inequality is bad for all of us.
But all is not lost. Opportunities for pro-growth tax reform are still available. A capital gains tax would push money away from the speculative sector and towards the productive economy. Unfortunately, National has so far refused to entertain pro-growth proposals that would support our hard-working export sector.
And there are other pro-growth policies that could be adopted. They’ll be the subject of further blogs. Labour will take a suite of them to the next election.
The contrast between the records of the two major parties couldn’t be starker. Labour grew real incomes (after inflation is stripped away) by 25% over its most recent nine years in Government. Since then real GDP per capita has fallen back. Population growth, in the absence of economic policy, has driven our economy over the past four years. This needs to change.
Great post bro!
@David, now the thing I’m having most trouble with is that opossum word
Why must people say possum and opossum? 
?
Dem tax cuts for the richies were bad!
!
@ben cheers
How come a $20 billion business ( Fonterra) pays no tax and yet gets a $200mill tax refund
the person to ask questions regarding the wholesale rorting of the tax system would be the ones overseeing that rorting i would have thought….
either johnny sparkles, or blinky bill would be happy to give an honest, comprehensive answers to those kind of questions…
Why there are people still around who still think that the labour party makes the policy decisions affecting how our taxes are bled by wealthy individual/companies, i fail to grasp…
personally, i will feel a lot safer when the branch office of worldcorp(national govt) is shut down, and a real government is installed…
I know it won’t be perfect, but at least there will be some sense, and balance reintroduced into governance….At least then we give ourselves a fighting chance to progress as a society….One that actually gives a toss about all the people in that society, and not just their own mates…..
the person to ask questions regarding the wholesale rorting of the tax system would be the ones overseeing that rorting i would have thought….
either johnny sparkles, or blinky bill would be happy to give an honest, comprehensive answers to those kind of questions…
Why there are people still around who still think that the labour party makes the policy decisions affecting how our taxes are bled by wealthy individual/companies, i fail to grasp…
personally, i will feel a lot safer when the branch office of worldcorp(national govt) is shut down, and a real government is installed…
I know it won’t be perfect, but at least there will be some sense, and balance reintroduced into governance….At least then we give ourselves a fighting chance to progress as a society….One that actually gives a toss about all the people in that society, and not just their mates…..
So it has proven with Labour and the Greens. In fact, none of the present political parties seem capable of admitting that the entire structure that we use is what’s actually wrong instead working to protect the wealthy from the inevitable collapse that is the result of egregious growth.
Ghost, elaborate?
Do easy to criticise from the coomfort of opporisiton and come up with criticisms that really do not stack up under examination. You talki about stimulating the economy. But how much extra borowing would Labour have taken on to stimulate the economy. Any extra borrowing would have almost certainly led to a credit downgrade and that would have increased interest rates. So Labour would have borrowed extra, downgraded the credit rating, increased borrowings which needed to be paid back, delayed the return to surplus and cost all people borrowing money for homes more interms of increased interest rates. Very Clever.
You talk about Michael Cullen – yet you do not mention he left the country (according tot he 2008 PREFU a decade of deficits – and that was before the Chch eartthquakes. Reality is that Cullen spent money like a drunken sailor, and committed the incoming National Government to unaffordable spending that would have been political suicide to reverse (Interest free student loands and Working for Families (part 2 as two of many examples)
Then you talk aboutt he need for a capital gains tax to put the brakes on the speculative sector. I ask what speculative sector – certainly not property – that ship sailed in 2005 (the same year Cullen drove the tradeables sector into recession where it stayed until National reversed that in 2009.
Labour solution to growing the economy seems to be based on more taxation, more control, more government spending, more borrowing, lower credit rating, higher interest rates and more socialism.
Together with the Greens, (extreme left socialists) Your lot would totally and utterly wreck the NZ economy. God help us if your lot ever get hold of the Treasury benches again.
Monty, Monty, Monty…
(emphasis my own)
Really?
So what’s $11 – $12 billion on tax cuts for the rich, especially when allegedly facing a decade of deficits?
Isn’t it a worry that your language is so heavily influenced by Crosby/Textor buzzwords?
Monty the ‘decade of deficits’ you mention was largely because of the Labour tax cuts in 2008. They cost $1.6 bill in revenue 2008/9 rising to $4 bill in 2012/13
As well the NZ Super fund would be worth $32 bill by 2013.
What English has given us is throwing away most of Labours tax cuts, and deficits of $8 bill plus, and cancelled any growing of the NZS fund
Instead of unemployment of 4.8% in 2013 from the 2008 prefu we are going to have 7%
It looks like 2008 prefu was a golden era than has become a 2012 fubar for National
“Consider someone like Mitt Romney, whose income in 2010 was $21.7 million. Even if Romney chose to live a much more indulgent lifestyle, he would spend only a fraction of that sum in a typical year to support himself and his wife in their several homes. But take the same amount of money and divide it among 500 people—say, in the form of jobs paying $43,400 apiece—and you’ll find that almost all of the money gets spent.”
I’m still staggered when I encounter economic illiteracy of this nature. Lets say Romney lives a very ellaborate lifestyle and spends $1.7M, leaving $20M unspent. What do you think happens to this remaining $20M? Burnt lighting his cigars?
No, Romney either invests it in exisitng property and business; expanding the property supply (lowering the price or slowing the price increase), investing in capital goods in a business (increasing productivity and efficiency) or in expanding business (the first process being to hire more workers creating upwards wage pressure).
Even if Romney puts that $20M in the bank under a term deposit at 4%, the bank can then lend $200M (it’s called fractional reserve banking) for the expansion of the property supply and business.
Romney’s $20M is savings and just because he has a lot to save doesn’t make what he does any less valueable than say 500 people saving $40,000 a year, or 5,000 people saving $4,000 a year or 50,000 people saving $400 a year.
What Mr Clark advises is the distribution of the $20M to others to be fully consumed by the goods produced already by exisitng business’ capital goods or spent on the existing property supply, so what does this mean? Mr Clark supports keeping the property supply the same (increasing prices), increasing taxes at the cost of creating jobs (and a bigger economic pie) and avoiding creating upward wage pressure.
To make it easy for the socialists reading. Saving = good. Consumption = okay but not as good as saving.
And just because it’s a “rich prick” doing the saving doesn’t make it any less valuable or moral.
Tim – for the sake of your credibility please undertake a little research – $11- 12 b in tax cuts – I do not think so – the National Party Tax cuts are close to fiscally neutral – there was a GST rise and more importantly depreciation is no longer deductable – Cullen spent money on his trainset paying more than it was worth and committing the incoming government to expenditure – you will struggle to point to any significant new spending by this government – the $18b deficit that national inherited was mainly due to the Canterbury earthquakes and much more fulfilling Cullen’s spending promises. The Country is struggling to recover from the Cullen spend-up. That is the fact – no matter how much you like to deny it.
Ghost – of course you are incorrect yet again – Cullen set aside a clause in the Cullen fund legislation specifically to cut / cancel repayments in the event of a deficit. That is now also Labour Policy – once we return to surplus the contributoions can continue. You need to understand and comment on the whole piucture – not the selected bits that suit your rather depleted arguements.
The 2008 PREFU was inaccurate in so many areas. the Bottom line is that Labour delivered a wrecked economy – made worse by a massive world-wode crisis – and other factors well outside the control of the National Government. As well as the earthquake there was the Cullen committment to underwirite with poor legislation the Finance Companies, but also the Canterbury earthquakes, the unreported losses of ACC, and KiwiRail. If I did not know better I would suggest that Cullen deliberately misled the country in respect of the 2008 PREFU.
National have worked hard to shore up the economy. It is not an easy task. Labour suggestions that on the face of it seem reasonable usually have a very negative consequence. For instance increasing minimum wage will lead to losses of jobs. Increasing borrowing will lead to increased interest rates, Tightening of job market regulations will lead to increased unemployment.
Labour do not seem to realise that every policy will lead to an increased cost somewhere else.
The fact the National Party has given us growth in 10 of the 11 past quatrters (albeit some of that growth is marginal and sluggish) is a better job than Labour (especially hampered by the Greenies weird financial policies) could have ever done.
@David C, from your rather good post,
“Like an opossum in headlights, the Government continues to chart the same economic course. It is not clear whether this inertia is due to a lack of courage, or a lack of imagination.”
It is due to a lack of ethics imo. These neoliberals are constructs of their own making (as opposed to normal,natural man) and are perfectly on course for their own money worshipping agenda.
Economics has become the be alpha and omega and is the perfect church of excuses for all business men and women, forex traders, bankers etc to find sanctuary in. Economics has nothing to say about the social condition, which is just the way painstakingly crafted since 1978, neoliberal automatons like it.
We were warned of this in August, 2005. However, it was so alien and amoral to me that I missed it. I never realised people could be so wicked.
http://www.scoop.co.nz/stories/HL0508/S00023.ht
What private socialists and conservatives do with their money is their affair. Either persuasion can borrow and spend. Even on very similar things. You know – houses and shares and portfolios of shares. Truly. ‘Lefties’ do that, too.
However, Dear Neo-Liberals: ALL governments ‘tax and spend’ – and each variety believes in ‘the magic money tree’ nourished by the miserable tribes of PAYE workers, beneficiaries (yes, dear ones, they DO pay taxes of all kinds, from GST all the way through to paying tax on their pittances – and they might not want to have their taxes supporting corporate bludgers and thieves, either) and the few mugs who actually save money.
So could each-and-all conservative-aligning posters stop droning on about ‘socialists+tax-and-spend’? At the kindest interpretation it shows ignorance.
@Monty – will avoid responding on a DNFTTs basis. But @Jeremy, the temptation is too strong. What economists call ‘rent seeking’ is not good for the economy. The extremely wealthy few are able to protect and grow wealth by negotiating special treatment or avoiding taxes (eg half NZs wealthiest individuals are reputedly not paying the top tax rate). Energy spent on protecting privilege is not a productive activity.
And on top of that there may be other downsides. Not only do the worst abusers fail to contribute to the public services that frequently deal with the unintended consequences of callous employment practices but those abusers generally have no personal investment in the future of our country. Those who flagrantly abuse our system are just as likely to disappear offshore at short notice if their selfish motives are better supported elsewhere.
I’ve gone into more detail on the economic inefficiency of inequality in my previous (linked above) post.
For more, I suggest you read the linked Stiglitz article. The section on rent-seeking may be of particular interest.
(emphasis my own)
Monty,
I take no pleasure in arguing with someone who appears to be little more than a Program for Randomly Generating Hackneyed Crosby/Textor PR Phrases. You appear to be so blinkered by your code that you think dull repetition of phrases like the fiscally neutral tax cut, Canterbury earthquakes and Labour’s train set is all you have to repeat to cover up for the shocking economic management of your Government.
Since you brought up the decade of deficits, do you, or do you not accept, that the Government had to achieve more than fiscal neutrality in their economic management in order to avoid this phantasm?
So if they needed to increase Government revenue to avoid this situation, why on earth would even “fiscally neutral” (a disgraced and discredited claim, even putting aside the social harm of GST as a form of tax) tax cuts for the rich be appropriate?
As for my research on the fiscal impact, I was referring to:
If you’ve got access to better or newer information, please cite, preferably without couching your post in spin-phrases, because it is not a substitute for substance.
Would the country be in a better financial position if National had not given the tax cuts to the wealthy???
Obviously there was some economic rational for the tax cuts for the wealthy???
“Monty! !!!! #Ithoughtyouweredead”
From the neck up
How hilarious, Monty now says the 2008 Prefu is ‘inaccurate’
- Should have gone to specsavers. Thats where you will find Bill English
But @Jeremy, the temptation is too strong. What economists call ‘rent seeking’ is not good for the economy. The extremely wealthy few are able to protect and grow wealth by negotiating special treatment or avoiding taxes (eg half NZs wealthiest individuals are reputedly not paying the top tax rate). Energy spent on protecting privilege is not a productive activity.
I’d first point out that I’ve shown how Mr. Romney’s savings are reinvested into the economy for the benefit of all, your retort is “What economists call ‘rent seeking’ is not good for the economy”. You’ve provided no evidence of this.
And who do the extremely wealthy negotiate special treatment from? They themselves have no power to extract money from individuals unless they offer goods and services worth for worth. They only class of people able to compel NZers to give them money by force is the government via the IRD. When politcians have shown themselves to be so ready to protect NZ business via subsidy and regulation is it any wonder that business people keep coming back for more? It’s a bit rich for a politcian to be pointing to crony capitalism as a problem when parliament is the problem and as bad as the Nats as at it, Labour proposes even more by increasing subsidies and tax break for it’s favourite industries.
In a capitalist economy it really matters not who owns the capital goods in our society as long as the barrier of entry are low, competition is rife and all people have access to the goods produced. So it is good for our economy when wealthy people lower their effective tax rate, it is good when all citizens structure their affairs to legally lower their tax rate, especially if people save this money and invest it and I encourage all people to do so.
Energy is not spent on protecting privilege, it is spent legally avoiding government intervention in people’s affairs. Do you honestly believe that will ever stop? To think it will is naive at best and shows a fundamental lack of understanding of the nature of “persona” based on English Common Law principles and the sovereignty of other nations and their ability to set tax rates and deal with persons of their choosing.
And on top of that there may be other downsides. Not only do the worst abusers fail to contribute to the public services that frequently deal with the unintended consequences of callous employment practices but those abusers generally have no personal investment in the future of our country. Those who flagrantly abuse our system are just as likely to disappear offshore at short notice if their selfish motives are better supported elsewhere.
The top 10% of tax payers pay over 45% of the income tax, they own a significant amount of the shares in the companies paying corporate tax – hardly not contributing to the public service. It’s just rubbish that people with significant holdings here in NZ have no stake in the future of NZ, it’s as if you think that when people start a successful business they lose their patroitism and citizenship? You also may think it’s right for these people to pay more tax but when they pay many more times the income tax than average (but the Police don’t show up many times faster) do you really need to resort to calling them names? 50,000 people a week are moving to Aussie, is it only the “rick pricks”? Or could it be that people are being offered a better deal in Aussie (tax included) and that what you call “disappearing offshore… if selfish motives are better supported” is called tax competition, and it is demonstrably to the benefit of citizens (globally) as it pressures governments to spend more wisely and keep tax rates realistic.
I’ve gone into more detail on the economic inefficiency of inequality in my previous (linked above) post.
For more, I suggest you read the linked Stiglitz article. The section on rent-seeking may be of particular interest.
I’ve read Stiglitz before, he’s an idiot who has a Nobel because the muppets in Stockholm like to occasionally give a prize to the leftwing economists (all 8 of them) so it doesn’t look like they are being mean.
Jeremy you still cant justify Romneys very low tax rate ( something like 12-15%).
This is what allows him to accumulate capital at a faster rate than the average taxpayer.
None of these things you have justified , other than he ‘may’ be a wise investor.
The reality is that apart from having a car lift for his underground garage, he likely to invest in hedge funds which could well be buying oil trading futures. Not the jobs friendly stuff you lay out.
Regarding the hedging losses at JP Morgan, he wisely pointed out some one won on the deal. Is this creating jobs ?. The billions involved again go to a very very few , to make them even richer, who put it back into speculation and leverage, certainly not
the local bank.
JP Morgan of course is backed by the government and had access to the credit created by the Federal Reserve from nothing
@gwwnz, I don’t have to justify Romney’s low tax rate, US politicians do. Given we’re on the edge of a potential depression I don’t think they’ll want to be raising taxes too much too soon, especially on people saving and investing.
The issues you are talking about don’t fall under the argument of whether Romney’s taxes should be raised and disbursed as Mr. Clark argues for (essentially), they fall under structural problems that occur from reserve banking (and the reserve bank lending first to large banks), easy creation of credit, non-commodity backed currency etc. and to be honest you don’t have any evidence Romney is investing in Hedge Funds (which still invest in numerous productive asset classes).
Dont be a fool Jeremy, Romney created a hedge fund Bain Capital of course hes going to still invest in it.
i understood that one thing almost all economists agree with… which is rare… is that tax cuts to the wealthy do not stimulate an economy. so lets not soft soap it… there was another reason for doing this at the beginning of a recession.