Red Alert

Archive for the ‘debt’ Category

Ten ideas for the Government

Posted by on June 26th, 2012

Yesterday the Government released a list of ten “ambitious targets”, and despite ballooning debt, declining exports and slow job growth, there were no new ideas.

In question time today, Bill English confirmed they have no targets for making superannuation affordable, no targets for wage growth, no targets to grow the economy and no targets to reduce overseas debt.

It is just the latest laundry list of vague ideas with no meaningful milestones or policies to achieve real outcomes. It is simply a stunt designed to take the attention off the unpopular asset sales plan and the Government’s botched attempt to increase class sizes.

This list exposes National for once again tinkering around the edges instead of making the tough decisions needed to create a long-term, prosperous future for New Zealand.

While the Government is wishing for rainbows at the end of every street, it has little credibility when it is not dealing with the big issues we are facing as a country.

Here is an example of 10 key issues that National is not addressing:

·         Job creation

·         Economic growth

·         Reducing overseas debt

·         Securing superannuation for the future

·         Reforming our tax system

·         Investing in research and development

·         Supporting our exporters

·         Cleaning up the environment

·         Being tougher on foreign ownership of our land

·         Giving Kiwis a reason to stay in New Zealand

Those are just my first ideas at some “ambitious targets” the Government isn’t trying to address. I’m sure the erudite readers of this blog will have plenty of ideas of their own, please leave them in the comments. I’d love to hear them!


Why The Downgrades Matter

Posted by on October 3rd, 2011

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.


The plan so far…

Posted by on August 8th, 2011

I did a post last night called the poverty trap laying out the bleak situation many people are finding themselves in.

Job losses, rising prices, shrinking incomes. Not a great future for Kiwis, let alone our kids.

Despite the government spin, the economy isn’t in good shape. Look at our government debt and how it has ballooned. And how it will balloon left unchecked.

We need a plan to turn things round. A bold plan to stop our valuable assets being flogged off overseas, to give hard-working Kiwis a break, pay off the country’s ballooning debt and grow our economy. Here’s what we’ve said so far.

People need wages they can live on. A minimum wage that allows people to keep up with the cost of living.

Labour promises a $15 hour minimum wage.

We need to increase our savings and investments in a productive economy. We need to rebuild our economy on the back of exports. Not by selling our assets.

Labour will not sell state assets. You’ll have to wait for policy announcements on the other matters.

We need a fairer tax system where everyone pays their share

The first $5000 of your income, will be tax free.

GST will come off fresh fruit and veges.

Labour will introduce a capital gains tax. It’s predicted the tax will raise $26 billion over 15 years that can be used to pay off
debt, cut taxes for most New Zealanders, save our assets and prepare for the mounting cost of our aging population.

Labour will also put the top tax rate back up to 39 cents for income earned over $150,000.
That’s likely to affect around 2% of the country’s top earners.

A CGT is already in use in nearly all developed countries, including Australia, the United Kingdom and United States.

And Labour  will use major government contracts to back New Zealand firms instead of exporting jobs offshore as National is doing.

Cost and quality will continue to be paramount considerations under Labour. But the new procurement policy will in future require companies like KiwiRail anf Govt depts and agencies to consider wider economic benefits rather than just taking a narrow accounting approach. As with CGT, most other countries have strong policies to back local industries and local jobs.

This is for starters. There’s more coming.


The poverty trap

Posted by on August 7th, 2011

Last week a woman came into my office in tears. Not that unusual. She works. Doesn’t earn a lot. Her husband had been laid off. He was receiving a benefit, but it wasn’t much because of her work. He had scored a few hours work in a job where they couldn’t offer full time work, though they valued him.

He had to scale back those work hours because he couldn’t get the benefit and work many hours and the hours didn’t pay enough to enable him to come off the benefit. He’d had to make a choice. He wanted to work. He was donating some hours to the workplace as a result. In order to keep in the game.

They have bills to pay. She was in tears because they’d had to make a decision that week whether to pay the electricity bill or the bank, which was pressuring them to pay some mortgage payments they had been unable to.

It was hard to know what to advise. They simply didn’t have the money. WINZ couldn’t give them any more assistance. I could only see more hardship down the line for these people who were in this position through no fault of their own.

What’s next for them? Having to sell the house, at a price less than they bought it for. Slipping backwards as they head for retirement. Rented accomodation, nothing to hand on to the next generation.

This is the plight of many New Zealanders right now. People struggling. Not much to hope for.

I sometimes despair. According to John Key and Bill English things are looking up. But they’re clearly not for these people and many others like them.

The SST did a good piece today on poverty. If you haven’t; do read it, because it says the new face of poverty isn’t people on benefits, but people on low wages. Every foodbank around the country will nod their head to this. Prices are going up. Wages aren’t. People can’t cope.

People want and need a plan.

This graph says it all really

Col graph 3


Lies, Damned Lies and … Steven Joyce.

Posted by on July 19th, 2011

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.


2 min 38 secs on the national party leader’s plan – have a look

Posted by on June 17th, 2011


Budget FAQ #6: Why the Deficit Hole?

Posted by on May 19th, 2011

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.

Debt Composition 2008-2011

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?


Budget FAQs #5: Growth Hockey Stick

Posted by on May 19th, 2011

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.  

  2010 GDP Track Revision

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.  

   2009-2010 GDP Track

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


Budget FAQs #4: National’s Growth Gap

Posted by on May 19th, 2011

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


Budget FAQs #3: Kiwisaver

Posted by on May 12th, 2011

 Yesterday Mr Key announced National’s intentions to cut Kiwisaver costs by:

  1. Reducing (likely by half) the member tax credit, currenlty $20 per week or $1024 per kiwisaver per year.
  2. Reversing National’s earlier move to reduce the default contribution rate from 2% to 4% by returning to it to 4%, but apparently with no increase in Crown contributions. 
  3. Requiring a small increase in matching employer contributions, although unclear how much or with what if any employer tax credit chnage.
  4. Details to come in the Budget but not to take effect until after the Budget (trying the spin that it is not another “broken promise” even though it is in a pre -election Budget and possibly legislation!)

Commentators have warned about undermining confidence in the scheme.   Among many, good commentary by Bernard Hickey here, Vernon Small here and The Standard here.

Here are some reasons the Government should think twice about changes which weaken confidence in Kiwisaver and do not contain real measures to grow the scheme: 

Its changes are regressive – tougher on low and middle income earners because they have a reduced matching contribution on the first $1000 per year they invest.  

It is a double whammy for low and middle income earners: cutting the tax credit and increasing the contribution rate at at a time when cost of living pressures are acute.

It is a confusing policy u-turn for Kiwisavers without reasonable explanation, having had their default contribution rate reduced to 2% by this Government not two years ago, and now the reverse.  The logic they used to reduce the default (reducing contribution costs to families and businesses was supposedly inportant – but apparently now is not).
(more…)


Budget FAQs

Posted by on May 11th, 2011

Some quick answers to a couple of good questions about debt and Kiwisaver from recent Facebook inquiries:

Q:  Has NZ’s debt really cimbed from $300 m per week to $380 m per week?  Why?

A:  The difference between $300 m and $380 m is the fact that NZDMO is in the market issuing more debt securities than it needs beacuse demand is good and prices low. In other words it is bringing forward next years borrowing, and that is all.  Of the $300m about half is rollover of exisitng debt.  So next year it can say it reduced the borrowing, beacuse it will have pre-borrowed some of what it needs already.

Q:  How much will the cuts to Kiwisaver Key announceed today save?  $40m a year ?

A:   Kiwisaver cost savings are unknown untill policy is made clear in the Budget.  The Member Tax Credit costs about $880 m per year.  Half that would be ($440m pa) would be  ”saved” to Govt if MTC halved to $10 per week.  But that ‘saving’ but would have to be offset against lower private savings from weaker incentices.   That is a problem beacuse private debt is huge  – in fact 90% of NZ’s total international debt is private.   Govt debt is only 10% of the problem.

Q:  Is it true that Dr Cullen’s books in 2008 showed a fiscal surplus in 2008?

A:  Yes   Dr Cullen’s 2008 books showed a net debt (incl NZSF assets) to GDP ratio surplus of 7.6%   In other words we were in positive CREDIT, though the GFC meant a forecast net deficit up to around 2% of GDP.    Gross debt to GDP is ow 34%and climbing under National.  It is hard to believe that National still gripes and tries to shift blame.   Time they manned up and took some responisbility for their own choices – like $23 Billion of tax cuts over 4 years in Budgets 2009 and 2010.

Q:  Are our incomes catching up with Australia like National promised?

A: No, we are going backwards.  When National took office in 2008 the gap was about 30% of GDP per capita   It was 34.7% and growing last time I checked.

Bottom line – NZ’s problems are serious and need serious fixes, but don’t buy the panic line that it is only public debt that matters.   Responsible fiscal management, including reducing debt across the cycle, is essential- but it is not the ONLY thing that matters.  We have to grow jobs, exports and savings at the same time as reducing debt.  And we have to build a country that is fair, caring and ready to take on the world, not slide into two NZs – one for the haves and another for the have nots.

PS happy to take your budget questions – message me on http://www.facebook.com/david.cunliffe.labour.


Tell the Government: Don’t Cut Our Future!

Posted by on April 27th, 2011

Flyer

t Cut Our Future


Stop Loan Sharks Community Coalition

Posted by on April 19th, 2011

Today in Onehunga a community coalition to Stop Loan Sharks was launched.  Throughout last year I committed to continuing this campaign no matter what happened to the ‘Credit Reform (Responsible Lending)’ Bill I had picked up from Charles Chauvel.  Since the defeat of the Bill at the hands of National and ACT I have been constantly asked ”why” and “what next”.

And of course the need for action has continued increasing – ever increasing prices, evidenced today by a huge increase in the CPI, and static or reducing incomes (often starting from an inadequate base!) are a recipe for disaster for many New Zealanders.   New Zealanders who struggle to make ends meet,  New Zealanders who need food parcels and increasing numbers of New Zealanders who end up taking out loans at excessive interest rates that they cannot realistically pay back.

Today I was joined by my colleagues Charles Chauvel, Carmel Sepuloni and Green MP David Clendon all of whom along with the rest of our fellow party members will continue to campaign on this issue within Parliament.  Carmel and I will both be putting  Members Bills in the ballot.  Both will deal with the need for responsible lending practices and both of which (in different ways) seek to limit excessive interest rates.

We were joined by groups and individuals committed to dealing with the fringe lending sector. They included Church organisations, budgeting organisations, unions, lawyers, anti-poverty groups and credit unions. In addition to me the  speakers included the Salvation Army, the NZ Federation of Family Budgeting Services, FINSEC, Charles Chauvel  and the Mangere Budgeting Service.  We were also addressed by a fine young man who last year, not far from where we were today, went ‘undercover’ seeking to obtain loans from a number of loan companies.    He pointed out how easy it was to get money and  how no real checks were undertaken. One of the interest rates he did manage to get disclosed was 24% per month.

In the course of the launch we heard of the massive increase in food parcels being supplied by organisations like the Salvation Army, the massive increase in workloads of our budgeting services and the increasing level of indebtedness of those seeking help at budgeting services.  The case studies we heard included a pensioner with six loans with interest rates varying between 25% and 49% and a Samoan family of five with multiple loans with interest rates between 19% and 82%.  We heard of the reality of many families (both on benefits and in work)  where paying food and rent comes after the payment of high interest loans.  The impact on children was stressed and how the consequences can be with them for the rest of their lives.

The Government’s response is seen as not only inadequate but also irresponsible.  The delay in the review of Consumer Credit is impossible to fathom.  The delay was a deliberate decision of the Government. The Ministry of Consumer Affairs website states that submissions which closed in August 2009 are still being scrutinised!  It should be noted that while there are positive suggestions from that review which are languishing this doesn’t include proposals to deal with excessive interest rates. 

The Community Coalition to Stop Loan Sharks will seek in this election year to keep the issues centre stage and to put pressure on all parties to identify solutions.  Solutions that other countries have been far more proactive in seeking than New Zealand. 

In the end this issue is about people, often people who have children, people who are poor and who are vulnerable. How we react to this issue is a measure of our sense of decency and fairness.  I am absolutely clear that most New Zealanders find loan shark behaviour abhorrent and that they want the Government to take action.


Economy Stuck in a Rut

Posted by on March 24th, 2011

Near-zero gross domestic product (GDP) figures for the December 2010 quarter prove how badly the New Zealand economy is stuck in a rut.

Treasury and the Reserve Bank had both forecast zero growth for the quarter. I have taken the view that was about right and that minor variation either side would not change the story.

It doesn’t. Today’s 0.2% is within a shade of that, and is still subject to revision.

The big picture is that the economy is going nowhere because National has no plan.

A breakdown of the statistics is instructive – wholesale trade is down, retail is down, accommodation and restaurants are down, confirming the message that businesses in New Zealand towns and cities have been giving us — that for them 2010 was even worse than 2009.

Cost of living pressures were also clear.  Goods and services purchased by Kiwi households are almost flat even though prices rose 2.3 percent in the December quarter alone.  This shows Kiwi families are hard hit by the rising cost of living and are having to tighten their belts month by month.

There is no good news on the external side either. Imports rose faster than exports, and the fastest-rising export, raw logs, effectively represents exporting Kiwi processing jobs along with the timber.

Kiwi families and firms are borrowing more than ever before to stay afloat, and the Reserve Bank says this will continue until 2013.

Bill English is presiding over an old-fashioned slump, and clearly has no idea what to do about it.

Last week he wanted to put the whole cost of the earthquake on the country’s credit card, but Prime Minister John Key rolled him a few days later when announcing a zero budget this year.

Economics 101 says that savage budget cuts in the middle of a deep recession will only put more people out of work, undermine confidence, reduce demand and drive down tax flows.

 This isn’t a plan. It’s a recipe for continuing economic failure.


The Debt Deception

Posted by on March 8th, 2011

As this is my first blog post since the quake, can I preface my comments by acknowledging the devastating loss suffered by too many Cantabrians and their families, of ther lives and homes shattered, and our shared determination to everything necessary to support their rebuilding and renewal.

In this immediate post-quake period we are all exercising restraint – both in the quantity and tone of poitical comment.  But the debt question has in fact been brought into starker relief by the quake, so I am moved to observe the following.   

Before the quake, National would have you believe that New Zealand had a huge international debt problem, and that the solution to that was for the Government to compress spending and services to pay down this debt. 

It was always a half truth: 90% of that debt is private debt and only 10% of it is public (government) debt.

The second deception was that this high debt was “Labour’s fault”.   The facts are that in 2008 net debt (including NZ Super Fund assets) were in surplus to the tune of 4.7% of GDP.   Virtually no government in the western world saw the collapse coming in advance, but at the least the former Labour Government had the books in strong shape.

Post quake, we are all confronted by huge costs. Families have lost loved ones.  Homes and businesses destroyed will take time to rebuild and renew.  Infrastructure is hugely dislocated.  Much of the CBD will have to come down.  Hopefully there will be proper consultation and an eye to the heritage that makes Christchurch unique.

The financial costs are also huge – in Treasury’s February Indicators, around  $12 billion (later estimates put it around $15 billion),  of which some $5 will fall to the Crown because it is not covered by EQC, its reinsurers or private insurance.  Around a further $5 billion in lost Crown revenue will occur due to the reduced tax take from decimated business activity and personal earnings in Christchurch.  (I will blog further on the “growth gap” shortly).

So, to use the PM’s very round numbers – there is $10 billion for the public to find over the next four years or so. 

Some of that can legitimately be redirected from other investments – for example the “holiday highway” north of Auckland - to help fund Canterbury roading costs.

Mssrs Key and English believe the rest can be borrowed – that is, placed on the international debt pile – and say that is now acceptable becasue it is a “one off”.   They are so far dismissing suggestions of any additional support for Canterbury through the tax system.  (Raising the EQC Levy only restores its capacity to deal with future disasters, rather than this one).

Why then was the international debt pile so huge that reducing it by slashing Government spending and prolonging the recession was necessary a month ago, but borrowing the lot is no problem now?

Forgive me, but could it be that the answer is not economic but political?  Could it be that reducing government expenditure pre-quake was the price of Budget 2009 and 2010′s - largely upper income – tax cuts; and that even Canterbury’s needs have been trumped by the need to protect National’s traditional voter base from even a temporary reduction in these tax breaks?

I feel unclean even thinking that.  But the question has to be asked: why not expect the whole community to share part of the cost through the revenue system?  Even the NZ Herald agrees with that.


Isn’t it Strange…

Posted by on January 27th, 2011

…How last year, John Key had the media believing National was doing a good job of pulling NZ out of recession and suddenly yesterday he has decided we are in the cart big time (he said we have the same debt profile as Portugal, Ireland, Greece and Spain)  and we need to sell off the family silver to survive. What happened over Xmas?

…That the mythical mum and dad investors are going to buy up the family silver so we are not gobbled up by foreigners. Now John, would they be the Mum and Dad investors who lost their lifesavings to financial institutions in 2008 or are they the ones who have  saved up a big nest egg over the past two years while wages have stagnated and prices keep going up? Surely, your not going to try and sell the line that it will be the KiwiSaver accounts that you gutted to make them as meaningless as possible?

…That National’s solutions to the nations problem now, look exactly the same as in the past – tax cuts that favour the wealthy, cuts to health and education and asset sales to privatise the nations wealth.

Play it again John. Didnt work then, wont work now.


S&P: National on negative watch (part I)

Posted by on November 23rd, 2010

National’s counter-spin on yesterday’s placement by Standard and Poor’s of New Zealand’s sovereign credit rating on negative watch shows increasing desperation, the latest of a torrent of bad economic news.  I comment in two parts: the announcement and the counter-spin.

First the announcement’s overview:

  • “We perceive New Zealand’s projected widening external imbalances and the country’s weakened fiscal flexibility as increasing risk to the sovereign.
  • New Zealand’s vulnerability to external shocks, stemming from its open and relatively undiversified economy, also raises risks to the country’s economic recovery and credit quality.”

The S&P Report’s rationale makes the drivers even clearer:

  • widening external imbalances
  • weakened fiscal position
  • under-diversified economy
  • high external liabilities
  • a return to high current account deficits averaging 5.9% of GDP over the next three years.
  • and crucially, that “net external liabilities … predominantly reflect dependance by households on foreign capital to fund consumption and property investments”

In other words: New Zealand does not save enough, it has too much private debt, and that debt was used to fund the wrong things (property speculation not real business investment).  New Zealand’s exports are under-diversified and New Zealand will continue structural bleeding on our external accounts after the immediate recession.

The logical repsonse to these problems should be;

  • strong action to close the savings deficit (if possible by building good household saving behaviour)
  • diversify and increase exports (presumably moving beyond a narrow range of bulk commodities)
  • managing the fiscal position to encourage sustainable growth, employment and healthy tax revenues without blowing the fiscal deficit.
  • ensuring monetary policy supports the direction of reform rather than acting against it.

It obviously should NOT include:

  • borrowing more for tax cuts to upper income earners that neither create powerful stimulus nor correct the underlying imbalances
  • reinforcing exisitng bulk commodity exports while reducing investment in innovation and R&D to divesify and add value to the export base
  • cutting back Kiwisaver; cancelling prefunding for the NZ Super Fund; and taking two years to set up a Savings Working Group (and even then proscribing a range of strong policy options)
  • pretending monetary settings are ideal when exporters face extreme currency volatility

Bill English and John Key declared S&P lifting their previous negative outlook as a” verdict’ on Budget 2009.

They should be straight-up enough to accept that S&P has now reversed its verdict.

After 18 months of National Government policies National can have only itself to blame.

In part II of this post we’ll check whther their rhetoric matches this reality.


Unlocking Our Potential

Posted by on October 4th, 2010

The Canterbury Earthquake, terrible though it was, reminds us of the courage and resilience of New Zealanders in a crisis. 

 If only the same courage and strength could be tapped as part of our normal ‘economic development’, NZ would be able to unlock enormous untapped potential.

 That same courage was evident in many of our forebears: those who voyaged to NZ by waka or ship, and those hacked down the bush to form arable pasture (often on slopes so steep it should not have been touched, but their courage was undeniable).  

 Tapping into that same strength of character to unlock future potential is part of the task that lies before us. 

 Our world is changing.  The old solutions will not work for tomorrows problems.  The old certainties have gone.   The era of guaranteed markets in the UK for our sheep and beef has gone.   The era of free and easy credit has now gone.  

 We are told we face a ‘decade of deleveraging’.  All around us we see growing signs of despair.  

 Just as in the 70’s we were called upon to diversify our markets, in the 80’s to deregulate our economy, and in the 00’s to rebuild our torn social fabric, Labour is now called upon to rise to a new challenge in a new era. Just as Mickey Savage did in the 1930s, we are being called upon to find a better way.

 NZ is currently meandering through the aftermath of the global financial crisis.  We are beset by malaise.  We lack confidence.  We appear unable to define our own future, and even lack awareness of our own potential and character.

 So NZ falls back passively on its proximity to larger Asian growth centres, its traditional bulk agricultural base, and its relationship with its nearest neighbour Australia.

 These are undeniable strategic advantages, but if any are a substitute for owning our own future, they will ultimately undermine our national wellbeing and identity.  

 Our relationship with foreign investment has to change.  As it stands we are becoming more and more deeply indebted to foreigners.  We have been through a phase of selling state assets to cover the interest.  We are now selling our land at the rate of dozens of rugby fields a day.  But still our national debt keeps rising. 

 It was not primarily ‘the government’s’ fault.   Most of this debt is private debt.  Most of it fuelled the private binge on property consumption (it was never really ‘investment’ despite the temporary up-cycle in which much of it happened).

 That we need more foreign investment is undeniable, but it must be channelled into genuinely value-creating and productive activity and not simply transfer the ownership of existing assets to foreigners making our future income deficit worse.   

 A new conversation must begin – one that starts from the proposition that we wish to own and govern our own affairs.


Child support debt – the national shame

Posted by on August 5th, 2010

A recent report tabled in the House by the Office of the Auditor General on the IRD’s management of the child support system highlights some serious issues in this rather sensitive area.

Over $1.5b is owed in child support payments.!  This is forecast to rise to $7b by 2018 unless something drastic is done soon to address the problem.  Of the current $1.5b outstanding, only around $195m is actually owed to parents – the rest is owed to the IRD in penalties and interest.!  The OAG concluded that the severity of the penalty regime can actually act as a disincentive to people meeting their parental responsibilities, as opposed to the incentive it is supposed to be. 

I think most of us agree that any parent who doesn’t take responsibility for their children by providing for the necessities of life needs to take a good hard look in the mirror.  ‘Front up and take responsibility’ is the message society needs to send to those who abandon their dependants.  About 68% of parents do make the correct payments on time, but that leaves 32% of parents who don’t.!

However, we need to have a system that is fair and an agency managing the system that understands its own responsibilities to the country’s citizens as well.  The data in the OAG’s report shows that the IRD only calls around 40% of those who enter into the child support scheme.  Remember, people enter this scheme often at a time of great turmoil and emotion.  IRD should be making an effort to contact EVERYONE and work with people to outline their financial responsibilities and how to best manage the situation.  A staggering 96% of all those within the child support system have had to pay a penalty at some point in time.  This is astounding.  The penalties are harsh – as mentioned, the OAG acknowledged this - if you are a minute late in paying, your debt jumps by 10%, then a further 2% per month.  A person’s debt doubles around every 3 years. 

The thing I find a little disturbing though, is that the penalty payments collected by the IRD don’t go to the parents looking after children, but straight into the IRD coffers.  How about this: if a person with a child support debt dies, the IRD tries to claim that debt from the estate – the estate doesn’t go to the children, who could well do with the funds – but to the IRD.!  How perverse.

At a speech in October last year, Minister Dunne said that he would have a paper to cabinet in ‘a couple of weeks’.  Almost a year later, and no sight of it yet.  So, like the management of most issues, Key’s cabinet collectively fiddles while Rome burns.  Its becoming a common theme.  Does this govt actually care?  Dunne has known about this problem for around 3 years (remember the man was Revenue Minister under Labour), and still hasn’t done a thing.!  Where is the plan to remedy this situation?  It simply doesn’t exist.  And who suffers?  Kiwis who can least afford it.  That’s hardly fair Mr Dunne and Mr Key.