Governments quite often set the criteria by which they want their policies or budgets to be judged. In his Budget speech in May this year John Key was very clear about how he judged his Budget to be a success- the accolades of Standard and Poor’s. So how should we judge the Government’s success, given the double downgrade?
Our opponents have been tied all in knots as they attempt to rebut the obvious – that Labour’s CGT is an idea whose time has come.
First the leader of the National Party, John Key, shrilly claimed it would be a “dagger through the heart” of western capitalism – or as Bomber Bradbury put it “aliens were coming to eat our pets”.
Then Bill English said it was a good idea in theory – but wasn’t comprehensive enough.
So with tweedles dee and dumb at cross-purposes, they called in the “cavalry” on Sunday – a Steven Joyce press release with some bodgied numbers from his Beehive hacks.
It tried very hard to construct a strawman and then shoot it down. Trouble was, the strawman bore no resemblance to Labour’s policy.
First, Mr Joyce alleged that our tax plan had not replaced the capital value of the non-sale of SOEs: “You see Labour done a big lie, and said it is a choice of asset sales or their tax package. But they have not calculated for any increased borrowing through no sales”.
John Armstrong made the same mistake in his Herald column: ”In May’s Budget, National cunningly “booked” the money from its planned post-election sell-off of such shares even though the money has yet to be realised. Some of that “money” has been set aside for $900 million in capital spending. Labour has exacted revenge for this trickery by simply ignoring it” .
Sorry John, our numbers do incorporate the asset sales revenue because it’s in National’s net debt track and our net debt track is based on theirs. Not getting that revenue is essentially the sole reason why our net debt track is above National’s in the first few years.
Second Mr Joyce tried the line that we had not modelled in the cost of interest on debt. Wrong again. Interest costs are fully included.
Third, he argued we would achieve “$0″ on our tax avoidance crackdown. Wrong again: IRD says there is $3.5 bn in colleectable tax debt (of $5.5 bn total); and over $300m p.a. in avoidance through trust structures; as well as -$500m on the $200 bn invested in property. Bill English says there is $5 back for every extra $1 in IRD tax collection. IRD says 30:1. It all makes our provosion that rises over 5 years up to $300m look pretty modest.
Three strikes and your credibility is out, Steven.
Last year the National government was roundly criticized for setting aside $4.8 million in the Budget to be allocated to the Pacific Development Agency (PEDA) without a competitive tender process. Keep in mind that when first quizzed about it Bill English’s first reaction, as it so often is, was to deny the whole thing. It took months of investigative work by the NZ Herald to establish that in fact not only did English know all about it, it was inserted into the Budget at his behest and officials didn’t know what to make of it.
The NZ Herald also suggested at the time the funding was part of an English-inspired effort to secure greater support for National amongst pacific voters. In the end they were forced to back down and a competitive tender process resulted in PEDA missing out completely.
Did they learn their lesson? It seems not. This year’s Budget allocated $2.4 million to Parents Inc, once again without a competitive tender process. The chief executive of Parents Inc, Bruce Pilbrow, was the Deputy Commissioner of the Families Commission (appointed by Paula Bennett) until he resigned just two days before the Budget. Why wasn’t the contract put out for tender? When did Pilbrow find out Parents Inc was getting the funding?
At the very least it’s a bad look for the government to set funds aside for specific organisations without going through robust processes to ensure the taxpayer is getting value for money. It leaves them open to charges of cronyism and looking after their mates, but then again, there are plenty of other examples of where the National Party are doing just that!
Harold Camping’s prediction of the rapture dominated the US headlines for the past few days, and, like countless other rapture predictions, proved to be wrong.
Similarly, Phil Goff’s announcement at Congress that Labour will lift the minimum wage to $15 an hour in the first year if we are elected to government in November has already brought out the “it’s the end of the world” cries from the usual suspects and the same old arguments about costing jobs.
There’s research on both sides, most of it now a little dated, but someone drew my attention to this much more recent American study by Ari Dube, a Labour economist and Assistant Professor at the University of Massachusetts.
It tracks the effect of minimum wage increases over a period of 20 years and looks at differentials across state borders where the minimum wage is higher on one side of the border than the other. The findings are that increasing the minimum wage does not impact on job loss either in the short or long term.
It also found no difference in unemployment because of raised minimum wages during the higher unemployment of the recession.
You won’t be surprised that I am really pleased about Phil Goff’s announcement.
It is a solid promise that will be delivered, unlike John Key’s vague commitments about wages and jobs in his budget, based on dicey Treasury forecasts. Why anyone would fall for such a lack of substance, I have no idea.
Remember when John Key talked big about 4,000 jobs to come from his cycleway? But oh dear, only 200 have resulted so far.
But expect more end of the world predictions about increasing the minimum wage.
Thankfully, Labour has a whole lot of ideas, some announced at Congress, much more to come.
Strong wages and job growth was the headline run acrosss the country on Tuesday as the government’s spin on what the Budget would contain. Here’s an example
I didn’t believe it. Here’s what I tweeted
clarecurranmp Clare Curran
John Key tells bald faced lies. His budget will NOT deliver strong wages and job growth. Stop believing his bullshit NZ17 May
And what have we got? A Budget of cuts. That tells lies about job growth. That clearly won’t deliver strong wages.
This morning I read the regulatory impact statement on the Taxation Bill which cuts Kiwisaver and Working for Families. It says:
The proposal to increase the compulsory employer contribution rate at the same time as increasing the minimum employee contribution rate will lead to some additional costs on businesses that employ staff, by increasing labour costs; in teh short term this may reduce firm profitability. The additional cost for employers is likely eventually to be reflected in wage settlements for all employees…
Wages won’t go up. What incentive have employers got to put them up?
The prediction that the economy will strengthen isn’t based on strong fact. It’s making stuff up.
170,000 jobs by 2015.
That’s the Government’s core claim in this Budget. Where from? No answer.
John Key was asked on Radio Dunedin this morning where the jobs would come from. He fudged it. He has no answers. He’s making stuff up.
Bill English says record prices for commodities, rebuilding Christchurch and the service jobs created through the Rugby World Cup for a few months. That won’t deliver 170,000 new jobs. Which industries are being targeted? How is the stimulus going to occur?
No answer. Making stuff up.
re Budget 2011; Bill English and John Key have promised 170,000 jobs will be created by 2015 - but from where? When pressed on TV this morning, Bill said that record commodity prices will create more jobs in these sectors.
Record commodity prices does not equal more jobs. Products are commodities because we have failed to add any (or very little) value in NZ. So the reality is the opposite is happening. For example, in the forest industry record log prices have meant job losses as forest owners are selling more unprocessed logs overseas and domestic processors are struggling to afford the sharp increases in prices. We have already seen three mills close in the past 6 months.
Farm prices, whilst high, are not the panacea to all problems. The sector is still saddled with massive debt ($42b) which it must address before any expansion is considered. Besides, how will record wool, meat and dairy prices create jobs? The works may stay open a few months longer, but I certainly haven’t seen any plans for new processing plants.
The public sector is being asked to find saving of $1b, and we all know that will mean staff cuts, so no new jobs there.
Sure, Chch reconstruction will create employment, but I hope the govt isn’t counting on Chch to pull it out of recession. That’s simply not sustainable growth.
So where are these 170,000 jobs coming from Mr English? From post budget TV appearances, he doesn’t seem to know either. Great plan Bill…
I have spent the last few hours thinking about the Budget. There is a lot not to like. The ballooning deficit, which as David C has pointed out has been the creation of this National government and its failure to get the economy going, well before the Christchurch earthquake added to the country’s woes. And the response to managing the deficit- sell the state assets There is also the silly cuts to Kiwisaver that undermine the scheme. And all the others in WFF, health, public services etc.
But for me the thing that I am left with is the complete absence of any plan to actually help grow the economy. The total lack of a vision for a better New Zealand. There is no urgency to create the jobs, the innovation, the regional development. Nothing. No plan, just cuts.
I keep having an image in my mind of a football team all huddled around their own penalty area, in full defensive mode, and with no way to get out because they have no one in position to attack in the opposition half of the field. This Budget has the government with no one playing up front. So much for ambitious for New Zealand.
Don’t know whether it was because he has spent too much time on travel and photo ops or that he just doesn’t have the economic genius he claims but today’s budget was pathetic.
It was a collection of both specified cuts to Kiwi families and $1b of unspecified cuts. Unspecified cuts are new to the New Zealand system. It is the sort of cut you have either when you have no idea what you are doing or when you are trying to hide something till post election.
And Key is relying on the asset sales to buy pretty basic hospital equipment.
Cuts but no economic strategy.
On page 81 of the budget docs it states “…the total difference between [the IRD and Treasury's] tax forecasts across the five June years 2011 to 2015 is nearly $4b…” “The lower forecasts of tax revenue from Inland Revenue indicate there may be some downside risk to our tax forecasts”
May be some downside risk??? Understatement of the year.! IRD are the government’s tax collectors. Would be wise to go with their advice I would have thought. Govt gone with Treasury.
Much wishful thinking and crossing of fingers I suspect…
One of the standout banners at the Don’t Cut our Future rally outside Parliament today.
Update : There were around 1500 at the rally.
Have had request for link to this morning’s TVNZ Business slot re the Budget. For those who weren’t awake at 6am (very wise) here ’tis.
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?
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
GDP growth has been so poor that the National government’s predictions have continually been downsized. The gap is huge – 505 underperformance in 2010 alone, achieving only 1.5% actual on 3.0% predicted.
This underperfromance is a key factor – alongside fiscally irresponsible and economically useless tax cuts – driving the awful budget deficit New Zealand now faces.
in response to requests on my Facebook page, here are the underlying numbers.
| Quarterly GDP growth |
Q1 2010 |
Q2 2010 |
Q3 2010 |
2010 annual growth |
| Budget 2010 forecast (BEFU additional information, p 3) |
0.8 |
0.8 |
1.6 |
3.0 |
| Stats NZ actual |
0.7 |
0.1 |
-0.2 |
1.5 |
| Average annual percentage change, real wages |
Year to Q1 2011 |
| HYEFU 2010 forecast (HYEFU additional information), p 6 |
-0.9 |
| Stats NZ data |
-1.2 |
Source: Parliamentary Library
Interesting Act and Labour both accept that government can’t go on borrowing at such massive levels and therefore step change and not tinkering needed.
Watching with interest.
When I was Associate Minister of Finance cuts had to be confirmed before they were booked in the budget. Looks like the rules have changed to the extent that cuts aren’t even allocated to individual departments, that’s a long way away from saying where the money is coming from.
And this was the government that campaigned on increasing transparency.
So the new policy is – pretend you have reduced the deficit but wait until after the election to say what the cuts are.
Will be interesting to see the media and especially the financial medias take on this.
Also interesting will be whether the Brash/Douglas party will vote for it.
Report from Key’s presser today :-
Targets for individual agencies would be finalised after the Budget and it would then be up to chief executives to identify how to meet them.
“We believe people who understand their own operations are in the best position to make financial tradeoffs and to introduce innovation which genuinely improves public services.”
