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Economy : How can we convince voters Labour’s economic policy will work? Labour Leadership Q&A #9

Posted by on September 12th, 2013

14 Questions for 2014

Virtual Hustings Meeting – Question 9

Economy : How will you convince voters Labour’s economic policy will work?

Question : How can we get the voting public to believe that the present economic thinking has failed? And that Labour’s ideas will work for them?

Submitted by : Angie Croft, Christchurch

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Explanatory Note: From September 10th to 14th 2013 as part of the official selection process for a new leader the New Zealand Labour Party is holding a “Virtual Hustings Meeting” hosted by Red Alert and organised by Scoop Amplifier. Over 7 days questions were solicited from eligible voters in the election. The questions and answers are now being posted as a set of 14 posts at the Red Alert Labour Party Blog. This started Tuesday 10th September, and continues till Friday 13th September. At Red Alert all-comers are welcome to discuss the answers in the comment section of the blog. The candidates are expected to participate in these discussions at times over the five days till Saturday 14th September.

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LABOUR LEADERSHIP CANDIDATES’ ANSWERS

Answer from Grant Robertson

We have to relate our economic vision to the reality of everyday lives.

This means an economy where people come before money. Where the centerpiece is full employment- decent jobs paying decent wages.

We need to talk about Labour using the power of government to help create a productive economy, not one like National’s that is based on speculation and selling off assets.

To create this economy we cannot tinker at the edges. We have to leave behind the neo liberal agenda and create a Labour way. This means changing the settings of monetary policy, giving Kiwi firms a fair go at government contracts, lifting wages, reducing power prices, building affordable homes and investing in industry and regional development.

The message from Labour must be, the economy will work for all New Zealanders not just John Key’s mates.

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Answer from David Cunliffe

We need to be clear that the Global Financial Crisis (GFC) blew the lid off the myth that trickle-down economics will create a fairer, more prosperous New Zealand.

Free markets left to their own devices are ultimately destructive of human well-being. Unregulated markets tend towards monopolies and often concentrate vast wealth in the hands of a few. Neither outcome is sustainable or morally right.

When National says they are going to cut people’s legs off, Kiwis don’t want to hear that Labour will too, just nearer the ankles and with more anaesthetic. The post-GFC modern social democratic alternative must include:

• using the power of the state to intervene when markets fail;

• guaranteeing fair workplaces and decent wages through employment laws, including industry standard agreements;

• lifting the minimum wage to $15 and rolling out a living wage as fast as can be afforded;

• building new partnerships between communities, regions, industries and an empowering and investing State; and

• revised marco-economic settings that do not solely focus on inflation but include growth, employment, and our external balance.

New Zealand desperately needs change.

The next Labour Government mustn’t be more of the same.

I am offering Labour a bold economic agenda and leadership with the vision and economic credibility to see it through.

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Answer from Shane Jones

Our ideas are exciting. We will use both the market and the State.

I am convinced that our tax system can be refined to incentivise and expedite fresh investment.

Industry will be actively supported, regional development will be promoted and in special cases underwritten.

Our mix of economic stewardship and equity is desperately needed throughout NZ.

I have the experience and the communication skills to sell this narrative.

ENDS


United Future’s awful week

Posted by on March 19th, 2013

Poor Peter Dunne. He’s having one heck of an awful week.

The sad thing is the United Future leader used to be quite diligent back when his party had a confidence and supply agreement with the 2005-2008 Labour-Progressive Government.

But Labour were diligent to Mr Dunne too. We respected United Future and we were careful to consult with their leadership on revenue matters and keep lines of communication open.

Perhaps, though, in the four years since as John Key’s Revenue Minister, Peter Dunne might have become too comfortable in his cushy leather-seated limo.

Mr Dunne has royally stuffed up with his attempt to ram through uncosted and unfair new taxes on car parks and iPads and cell phones and laptops, and goodness knows what else which hasn’t come to public light yet.

The mobile phone tax is a 1980s idea completely out of touch with New Zealand families in the twenty first century. What about the benefits of flexible work, especially for working mums? What about New Zealand-led companies working across multiple time zones (or the generation of Kiwi parents who have to phone Australia to talk to their kids)? How about encouraging the bright young Kiwis who’ve stayed here to be web warriors and build a high-value knowledge economy!

But let’s set aside for a moment the merits of the new taxes.

(Although, for the record, the car park tax made zero financial sense, would not have grown jobs or the economy or reduced crime, and had nothing whatsoever to do with a plan for better public transport.)

The really shocking back-story to this tax debacle has been the total contempt which Prime Minister John Key has shown for Peter Dunne and the United Future Party.

Twice in two days Mr Key has publicly put the kibosh Mr Dunne’s new taxes by speaking directly to journalists. Each time Mr Dunne has carried on, seemingly oblivious to how he’d just been thrown under the bus by National’s leader.

Today, in the seeming back down on the iPad and cell phone tax, John Key announced “there is virtually no chance of it going ahead” only minutes before he walked into Question Time.

That left Mr Dunne to struggle on under questioning, seemingly oblivious to how his IRD officials were wasting time and taxpayer money finalising another new tax which was already dead as a dodo.

Now Peter Dunne might have grown tired and reckless as Revenue Minister – and I will continue to highlight how on behalf of New Zealanders.

But, ironically, the reality is John Key relies on Peter Dunne to prop up his fraying Government.

That’s precisely why there is a formal confidence and supply agreement between the National and United Future parties.

Crucially the agreement demands confidentiality and collective responsibility. Well, United Future members can see there’s been none of that from the Prime Minister this week.

So, with the new taxes ‘dodo’, United Future’s membership need to ask why they’re being used to prop up the National Government. Because it’s clear that National have nothing but contempt for them and their leader.


Economic Development

Posted by on February 28th, 2013

David Shearer has been clear from the start that he wants a clean, green, diversified economy – to ensure New Zealand’s future prosperity.

With my appointment as Economic Development Spokeperson comes a big challenge. We need to present a credible plan to get to a prosperous diversified economy.  I’m excited about this opportunity.

Steven Joyce spent a year with the huge bureaucratic resources of MoBIE and failed to map anything but a managed decline. His ‘Business Growth Agenda’ finalised yesterday has proven little more that a year long coms plan. It’s been a year of existing policy re-heats with a few meek ideas thrown in for colour.

But Joyce is vulnerable. Because the facts are drowning out his spin.

Last year 30,000 jobs were lost.  Unemployment is pushing 7%.  1000+ Kiwis are leaving for Australia permanently every week.

No amount of spin can hide the fact that the Government has no plan for sustainable economic growth. Selling off our best revenue-generating assets is National’s big idea.  Treasury says it will set back the Government coffers by about $100m/year. Other than that, they intend things to continue as they are.

I’ve always maintained that the market makes an excellent servant and a terrible master. And this Government is failing to control the market. It is failing to deliver jobs. Right now so many hard-working New Zealanders are being treated like its slaves, forced to be grateful for any scraps that fall from the table. A full 40% of Kiwis earn less than a living wage.

Labour already has chunky policy announced that will lead to economic growth, jobs and an export-led recovery. In particular we want a pro-growth capital gains tax, Research and Develoment Tax Credits, Universal Kiwisaver, Pro-Kiwi procurement policy and tools for the Reserve Bank that will allow it to do what overseas countries are doing to assist their exporters.  These changes will give the economy a shot in the arm and create jobs.

There is more to explore.  Sector-specific incentives for growth beg consideration, as do the implications of Labour’s affordable and healthy housing announcements.  They will create jobs as will our commitment to creating more apprenticeships.  Labour wants a market that generates jobs, living wages and future prosperity for our country.

We need change, because the old solutions have been shown to fail. Right now, the market and it’s hands-off disciple Mr Joyce are not working in the interest of New Zealanders.


Today the house must not win

Posted by on February 20th, 2013

New Zealand is a small, remote country with an unfortunate reliance on imported capital to maintain our standard of living. A crucial insurance for the economy is New Zealanders’ hard-earned reputation for having the lowest level of government corruption in the world.

Or at least that’s something we had.

I write this post with the heaviest of hearts because I know how completely National has jeopardised the economy. I know how foreign investors will be frightened by the truth. Their reaction could see more hardworking and innocent Kiwis turfed on the unemployment scrapheap.

Ultimately, though, there is an overwhelming public interest in having on record just how low Prime Minister John Key and his factotum Steven Joyce have sunk in their bid to trade our country’s laws for a casino’s cash.

Yesterday the Deputy Auditor-General released her report into the tender process for the SkyCity convention centre. At 71 pages it is among the longest and most damning auditor’s reports I have seen. John Armstrong, writing in the New Zealand Herald, assessed the tender as “verging on banana republic kind of stuff without the bananas.” Armstrong was too polite.

Labour leader David Shearer summed the report up more completely: “Kiwis know [Key] was donkey deep in this entire process. The deal with SkyCity was his idea. He knew exactly what was going on and was pulling the strings behind the scenes.”

I have followed the convention centre tender since it first came to public light in 2010 – months after John Key had a cozy dinner with the casino company’s board and (in the PM’s own words) “discussed a possible National Convention Centre and they raised issues relating to the Gambling Act 2003”.

As time has passed I have become more and more outraged by what was transparently a stacked process seemingly designed to ensure SkyCity was the only tenderer left standing at the end.

All throughout the National Government have obfuscated, played cat-and-mouse games with the Opposition and the media, and denied multiple Official Information Act requests on the most specious of grounds.

Not only did ministers refuse to answer more than 100 of my parliamentary questions on the SkyCity deal – but they even took to using the SkyCity deal as a supposed reason to refuse answering dozens of questions which were quite unrelated to the casino!

The Commerce Select Committee (which I am a member of) even had to take the most extraordinary step of recalling Ministry of Economic Development/MoBIE officials to a second testimony session, following their failure to answer legitimate questions as part of the committee’s 2011/12 financial review.

As the years passed and the stench of the rotten tender grew overpowering, the sole explanation Key and Joyce offered for their preference for SkyCity was that taxpayers wouldn’t foot the bill for the conference centre. But that was an outright lie – $2.1 million of your dollars were diverted from the Christchurch earthquake recovery effort and other economic development programmes to support the convention centre design!

Finally, when the Deputy Auditor-General prudently announced a probe into the whole sordid affair, Steven Joyce vowed to push on in contempt of her. In my time in Parliament I have never seen anything like it.

But now the auditor has published her report. Her findings are damning and they back up what I have been saying and what my Labour colleagues have been saying since 2010. It is beyond comprehension that Steven Joyce did not resign from the ministry immediately after receiving the report.

The Deputy Auditor-General’s findings include (and I quote):

  1. We do not consider that the evaluation process was transparent or even-handed (p5).
  2. SkyCity was treated very differently from the other parties that responded [to the tender] and the evaluation process effectively moved into a different phase with one party… the steps that were taken were not consistent with good practice principles of transparency and fairness (p5).
  3. The Prime Minister/Minister of Tourism… annotated the [tender] briefing paper by hand, stating that “we should close off the SkyCity angle first” (p15).
  4. It was well known among officials that SkyCity had met with various senior Minister in the previous months. In our view, there was an obvious risk that SkyCity would have a better understanding of the Government’s thoughts than other participants (p45).
  5. There were a number of flaws with the way the evaluation process unfolded during 2010 (p50).
  6. Given the nature of the responses, it is likely that the SkyCity proposal was always going to be the most attractive (p51).

So what are the broad consequences for New Zealand?

Has the opaque and unfair SkyCity deal been scrapped? No.

Instead National has thumbed its nose at the auditor’s office and is about to restart the negotiations. They have to finalise pesky details such as how anyone will receive the television news once a hulking great pokie palace is plonked where our state broadcaster has some of its studios.

Has the Government promised not to change the law to flood central Auckland with very low-taxed pokies, while taking money out of high-taxed pub pokies which fund kids’ learn to swim programmes and quit gambling programmes?

It’s a no to that too.

As my Labour colleague Ruth Dyson succinctly put it “The convention centre will not be ‘free’. The social cost for New Zealanders and their families battling problem gambling will be significant.”

So National seem quite happy to plough along with their trade in our laws, whatever the consequences. Well Labour will fight them every step of the way. I can only hope that the government’s support partners in the Māori and United Future parties will do the right thing and join us.

Ultimately, though, this is not only about one shady deal – although one shady deal is clearly one too many.

This speaks to the whole world about what sort of country New Zealand is in our collective soul. It speaks to the truth about whether we have a clean government which stands up and stops corruption wherever its finds it. Or whether we don’t.

And it speaks to our longstanding core values of egalitarianism and equality. Labour MPs face the human casualties of the National government’s economic mismanagement in our electorate offices every week. We know the despair felt by ordinary, honest kiwis who can plainly see that John Key’s ‘brighter future’ means one law for them and sweet deals for his mates at the big end of town.

The casino deal is a total disgrace. Clearly John Key and Steven Joyce don’t care.

So, in light of the Deputy Auditor-General’s report, I am publicly calling on SkyCity to formally withdraw their current tender. That should trigger the entire process to restart from the beginning, so it can be run fairly and transparently.

I look forward to SkyCity’s quick, positive and public response.

Extra: David Shearer, Grant Robertson, David Parker and Ruth Dyson all gave excellent speeches on the convention centre deal in Parliament today. Well worth a watch!


Manufacturing in crisis: Why pro-growth tax reform matters

Posted by on November 8th, 2012

During the last two weeks new data has confirmed what we already knew: manufacturing is in crisis. Far more manufacturing businesses are closing than opening and half the manufacturers that started up in 2008 have since gone bust. Iconic Kiwi manufacturer Fisher & Paykel Appliances has been sold offshore and will be delisted from the stock exchange. Advanced crystals manufacturer Rakon has laid off 60 hardworking New Zealanders. Dynamic Controls, a leader in high-tech mobility systems, is moving to close their New Zealand plant.

At the same time the overheated property market in Auckland is rearing its head again.

And just today we learned unemployment has climbed to a horrific 7.3%. Change is clearly needed in New Zealand.

Reform starts with the realisation that the current tax system has a fundamental and inappropriate bias towards speculation and against production and exports. So it is timely to note what a pro-growth tax package should contain, and why it matters to New Zealand’s manufacturing sector economic development.

New Zealand is one of only 3 OECD countries that does not have a capital gains tax and, as my colleague David Parker has noted, both the OECD and the IMF have reminded us this creates real problems.

Why should every dollar that you and I earn in wages or business profits be taxed, while nearly every dollar arising from gains in the value of property or shares or business ownership is tax free?

It’s not fair. And it’s just  not good for the economy either.

Making property speculation tax-free drives money into the property sector, meaning more competition to buy properties, meaning rents go up, and meaning young families are locked out of home ownership.

Making capital gains on business disposals tax-free simply makes an incentive for entrepreneurs to sell their businesses offshore, instead of growing taxable profits and creating jobs in New Zealand. A case in point is the “accountant farmer” who collects farms to realise capital gains, instead of farming to make sustainable profits.

A simple capital gains tax can help move the distortion that currently exists because of our biased tax system.

Without a CGT, the National Government is penalising innovators, meaning the positive spill-overs to our economy of a healthy innovation system are never fully captured by the innovators themselves. Capital is too scarce for young companies trying to commercialise research and development, and too many sell up early and lose their intellectual property to offshore buyers.

That’s why Labour believes a realisation-based, first-home-exempt fair capital gains tax is a no-brainer. All our polling indicates a New Zealanders are coming to agree.

Pro-growth tax reform also means giving our innovators a break; recognising the huge spill-over effects for our economy from a healthy innovation ecosystem.

R&D tax credits create a positive incentive (as opposed to the negative incentive around property). They encourage companies to look forward to future opportunities and help create a more neutral and long sited production environment and create high-value jobs.

Labour is looking seriously at how to bring back R&D tax incentives based on a survey of world best practise. My colleagues David Clark and Megan Woods are working on the link between taxation and innovation.

The bottom line is this: Everyone except the National Government can see the current system is not working. The IMF says we will have the OECD’s largest current account deficit by next year – bigger than Greece! That’s a road to ruin for today’s businesses and tomorrow’s young New Zealanders, so something must change.

Labour, the Greens, NZ First and MANA have launched an inquiry into manufacturing, and we expect submitters will canvass these important issues (along with other crucial issues like the over-valued and over-speculated dollar). Interested people should submit at manufacturinginquiry.org.nz.


Today they’re terrified

Posted by on September 19th, 2012

Today is Women’s Suffrage Day. It’s a day to remember how New Zealand blazed the path of progress and extended the vote to all women, regardless of wealth, family background or ethnic makeup. It’s a day to be proud to be a Kiwi.

But, sadly, New Zealand today is in a terrible economic rut. The median household is at least $900 worse off than a couple of years ago. Jobs and hope are being lost everywhere – and today, of all days, it should be remembered that downturns in the job market have a disproportionate impact on women. Kids are going to school with empty tummies, and anyone who doesn’t believe how bad things have gotten under the National Government needs to watch this.

The structural tax imbalance which is delivering another Auckland residential property bubble is a contributor to the economic doom and gloom.

But a huge factor is National’s not-my-responsibility approach to the over-inflated and over-speculated New Zealand dollar. Manufacturers and exporters and now even the bankers know it’s just not sustainable for things to go on as before.

Today should be a day for action. Instead it’s shaping up as a day when National will vote down Winston Peters’ Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill at first reading.

The New Zealand First leader has a flair with words, and I expect he’ll accept that the language of his Bill can be moderated and polished.

However, the purpose of Mr Peters’ Bill is valid:

The simple fact is that interest rates, the only tool available to the Governor of the Reserve Bank to combat inflation, impacts on far more than just inflation—it is not a siloed effect. Most obviously it impacts on the exchange rate…. A far more co-ordinated approach between monetary and fiscal policy is required to both combat inflation and keep the economy balanced.

What’s crucial is expanding the scope of the independent Reserve Bank Governor to take action based on measures of New Zealand’s welfare additional to inflation – measures such as the strength of the dollar, the external balance, GDP growth and the level of unemployment.

There are several stages to passing a Bill in the New Zealand Parliament. The only thing that is being voted on today is whether Winston Peters’ Bill will be sent to a Select Committee for review and expert and public submissions, or whether it will be chucked in the bin.

If National are so confident in their ideology then they should vote for the first reading of the Bill today. If Winston Peters has gotten it wrong then this should come out in the Select Committee process.

But, as my colleague David Parker has rightly pointed out, National are terrified because they know their approach is on the wrong side of today’s orthodoxy. They seem to think they can vote to shut down the debate. But things are going from bad to worse and the head-in-the-sand approach isn’t durable.

Today is a day when New Zealanders are reflecting with pride on our country’s trailblazing progressive legacy. Today the conservative National Party should do the same, for once, and support the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill at first reading, so it can be examined by Select Committee.


Jeffrey Frankel on the Asian solution

Posted by on September 7th, 2012

I am travelling to the US and UK to discuss my ideas on monetary policy with some of the best economic minds in the world, including former World Bank chief economist Joseph Stiglitz, Harvard academic Jeffrey Frankel and IMF chief economist Olivier Blanchard.

Jeffrey Frankel says:

• He prefers nominal GDP over CPI for inflation measurement

• Inflation targeting hasn’t stopped asset bubbles

• Asian economies show exchange rate focus doesn’t come at expense of inflation

Jeffrey Frankel is a Professor at the John F Kennedy School of Government at Harvard, holding the chair in capital formation. He is a prolific writer and has published widely on the subject of monetary policy and exchange rates over a number of decades.

http://ksgfaculty.harvard.edu/faculty/cv/JeffreyFrankel.pdf

Professor Frankel reminded us that times change, saying the world had at different times given primacy to targeting exchange rates, then money supply and then inflation. Each one of these has led to shocks in the past. He could have added to that list, even earlier, the gold-standard.

He has previously written that:

• no single currency regime is best for all countries

• no single currency regime is a panacea

• even for one country, no single currency regime is necessarily best for all times

As he has written, life always involves trade-offs. Countries have to balance the advantages of more exchange rate stability against the advantages of other flexibility. He notes that: “‘Fixed versus floating’ currency debate is an oversimplified dichotomy. There is, in fact, a continuum of flexibility”. Options include.

• a currency union

• a currency board

• a truly fixed exchange rate

• adjustable peg

• crawling peg

• basket peg

• target zone or band

• managed float

• free float

Prof Frankel is interested in New Zealand but he was understandably reluctant to advise what he thought would be the best settings for New Zealand in the absence of in-depth knowledge of our exact circumstances. He did note his preference for grounding inflation measurement in nominal GDP rather than the CPI, and that he favours product price targeting for some commodity exporters.

He said that the GFC showed that central banks pursuing inflation targeting had commonly failed to properly take into account asset price bubbles, but said the answer to that probably lay in prudential policies (such as those I have mentioned in earlier blogs) rather than interest rates.  I said that was my view too, noting that the carry trade was a large part of the problem in New Zealand.

Prof Frankel said that Asian countries have shown that it is possible to successfully influence exchange rates for lengthy periods while not giving up on monetary independence. “Central banks can maintain the exchange rate lower for longer – 10 years plus, or at least longer than some of my colleagues would suggest – without giving up their credibility on inflation”.

On the principle of the supposedly impossible trinity (ie that a country must give up on one of three goals – exchange rate stability, monetary independence, or financial-market integration; it cannot have all three at once), Prof Frankel has said that as financial markets are becoming more integrated internationally, the choice has narrowed towards giving up exchange rate stability or monetary independence. “But this is not the same thing as saying that one cannot give up on both, that one cannot have half-stability and half-independence.”

That is, exchange rates can be influenced for longer periods than have been traditionally acknowledged by most economists, without losing the battle to control inflation. This has of course advantaged the exporters from countries that have achieved this, and contributed to current account surpluses.

I would note this is exactly the opposite experience to what has occurred in New Zealand.

Along with his extensive knowledge in this area another research interest of his is how to achieve politically acceptable national greenhouse gas emission targets in order to attain global CO2 concentrations of 460ppm. This man is a force for the good.


New Zealand’s monetary policy “totally crazy”

Posted by on September 6th, 2012

I am travelling to the US and UK to discuss my ideas on monetary policy with some of the best economic minds in the world, including former World Bank chief economist Joseph Stiglitz, Harvard academic Jeffrey Frankel and IMF chief economist Olivier Blanchard.

 

My last meeting in Paris was with a senior economist well versed in monetary policy.

He came straight to the point. There was no ambiguity. In his personal view:

  • “It is totally crazy how New Zealand runs monetary policy”.
  • “It is the most pure form of inflation targeting of any small country”
  • The pure type of inflation targeting New Zealand has run “strikes me as madness”

He believes there is a need to focus more on our exchange rate.

He thinks the differential between New Zealand and overseas interest rates has been bad for New Zealand. He also believes the mix of capital investment in New Zealand has been problematic.

He made reference to changes suggested to “the Taylor rule” for smaller countries.

As we leave Europe to get the views from the IMF and various leading USA-based economists, I am struck by these main points:

  • No-one thinks we should ignore inflation.
  • New Zealand’s approach to inflation targeting has been extreme.
  • Even before the GFC, other countries were more concerned about their exchange rate than New Zealand
  • Since the GFC, unorthodox practices have increased, and even the arch defenders of inflation targeting now concede other countries are properly pursuing other interests
  • It is common for other countries to use additional mechanisms to guard against liquidity and asset bubbles
  • Smaller countries are different to larger economies
  • To grow the breadth of our exports we have to counter the additional risks faced by our non-dominant exporters
  • Some answers lie in a more nuanced approach to inflation targeting compared with exchange rates, including the greater use of tools other than the interest rate
  • Other answers lie outside monetary policy in tax and fiscal and industrial policy, the most important of which is to introduce a capital gains tax.

Do global investment flows actually harm the prospects of locals?

Posted by on September 4th, 2012

I am travelling to the US and UK to discuss my ideas on monetary policy with some of the best economic minds in the world, including former World Bank chief economist Joseph Stiglitz, Harvard academic Jeffrey Frankel and IMF chief economist Olivier Blanchard.

 

Raed Safadi says:

  • Global trade inextricably linked to global investment
  • Large foreign investment may require restrictions on land and infrastructure investment
  • Concentrations of wealth are going too far
  • Government must give exporters confidence in exchange rate

I’ve had several shorter meetings at the OECD with trade economists, all expressing similar views. I’ll wrap these up into the insights from Raed Safadi, Deputy Director, Trade and Agriculture Directorate at the OECD.          .

Raed focused on the benefits of trade and the links to investment flows. He noted that increasingly sophisticated supply and manufacturing systems integrate both trade and investment. Different inputs are produced in different parts of the world, with investment as well as trade increasingly global. Globalised production and trade is in his view inextricably linked with globalised investment.

An interesting but logical point in many ways. He then said that despite those links, investment in rural land, housing and utility infrastructure assets must be properly restricted (ie to locals).

This view has been expressed by a number of people I have met. It seems this is a growing concern for many.

For example Denmark, a model that many in Wellington aspire to, restricts overseas ownership in their land. A large part of the upward pressure on property prices comes from concentrations of wealth, some of which is imported.

In London, the concern arose for some from the effects of capital inflows from wealthy investors who are protecting some of their capital from risks in their home country. For others, the concern arises from land purchases in developing countries by investors who have the benefit of large trade surpluses.

In all cases, the effect on pricing out locals from owning their own farmland or houses, or the extraction of excessive profits from monopoly services, were concerns. The trade economists I’ve spoken to don’t like concentrations of wealth pushing out locals. This of course coincides with my views, and I was pleased to hear this.

The most extreme examples of how much wealth has been accumulated by the super-rich around the world are regular news in the papers over here. Whether it’s Russian billionaires in soccer clubs, the super-rich pushing art prices to unbelievable levels or dominating media ownership, there is a tone to the reporting which suggests that people and politicians think it has gone too far.

It will be interesting what, if anything, is done to resolve it.

Raed and I also discussed exchange rates. He was surprised, as were others, at the volumes the Kiwi is traded at which are considerably in excess of the size of our economy.

A memorable point he made was his passionate emphasis that an important role of government is to create a stable future outlook in respect of factors important to entrepreneurs to give them confidence to invest. For exporters, that includes confidence about more than inflation and interest. It includes the exchange rate by which exporters live or die.

Put like that, it seems pretty obvious.


How did the banks get away with it?

Posted by on August 31st, 2012

I am travelling to the US and UK to discuss my ideas on monetary policy with some of the best economic minds in the world, including former World Bank chief economist Joseph Stiglitz, Harvard academic Jeffrey Frankel and IMF chief economist Olivier Blanchard.

 

“Banking system is fraught with moral hazard,” says former Kiwi regulator.

“Inevitable that regulators will push retail banks to core functions

I met yesterday with David Mayhew, currently a London barrister working briefs regarding the scandalous manipulation of the Libor rates by Barclays.

David was born and raised in New Zealand before embarking upon a successful career in London. You may know him as a former member of the New Zealand Securities Commission, and he was the Commissioner for Financial Advisors.

He has fascinating insights on what has gone wrong with banking in many parts of the world.

He summed it up by saying that the authorities around the world went along with retail banks fusing with merchant banks, then gobbling up ever larger proportions of income and wealth, because they believed banks were creating value in the economy for the benefit of nations.

Events in recent years show they were not. The profits were fictitious. In the end, many of the banks managed to privatise large increases in profits and then socialise the losses which had been disguised.

He believes the current system is fraught with moral hazard, probably caused by retail banking services being subsumed by the ostensibly more profitable investment banking arms of major banks. The dominance within banks of interests loyal to the investment branch, rather than depositors, meant the fortunes of the banks were divorced from the interests of their depositors. The hazard they caused to retail depositors by investment banking practices was small beer to those who were in control of the banks.

Given that the privileges and profits enjoyed by the big banks from investment banking were allowed based upon the erroneous view that value was being added, it seems inevitable that regulators and economies will push retail banks back towards their core functions, and require them to avoid the moral hazard that bank bailouts have shown arise from highly leveraged and risky investment banking practices.

New Zealand has to date been spared the worst excesses of banking practice around the world, but the fresh look overseas at what separation there should be between retail and investment banking may translate to rules internationally that have relevance in Australasia too.

This is yet another dent in the increasingly discredited “efficient market hypothesis” which underlies National’s economic management. They say let markets rule themselves and a thousand flowers will bloom. Sell off SOEs, deregulate the RMA and all will be okay.

Yet the economies that have done the best in recent decades not only regulate where necessary but also use the power of the state in concert with private enterprise to ensure their economy thrives. The ‘voodoo economics’ derided by Mr Joyce have worked in economies which are now more successful than New Zealand.


What helped the UK bring back manufacturing?

Posted by on August 30th, 2012

I am travelling to the US and UK to discuss my ideas on monetary policy with some of the best economic minds in the world, including former World Bank chief economist Joseph Stiglitz, Harvard academic Jeffrey Frankel and IMF chief economist Olivier Blanchard.

Evans-Pritchard says: “Inflation targeting is dead”

“arbitrage opportunity of New Zealand well known in the UK”

Today I met with Ambrose Evans-Pritchard.  He is International Business Editor of The Daily Telegraph. He has covered world politics and economics for 30 years, in Europe, the US, and Latin America.

I have followed his writing for a number of years. For a period his by-line was ahead of the curve, and his analysis of the GFC and its consequences certainly has been.  So I was keenly looking forward to meeting with him today. I was not disappointed.

We primarily discussed the topic which my study trip concentrates on – monetary policy, and its effects on exchange rates, current account deficits, growth in the real economy and private debt.

Ambrose said the credit inflows from the carry trade caused by New Zealand’s comparatively high interest rates must be a concern. He said that in the UK the arbitrage opportunity in New Zealand was well known.

I said that, in my view, for a number of years the Reserve Bank underplayed the seriousness of this, despite the fact that those credit flows fuelled the consumption binge and asset price bubble that higher interest rates were meant to curb.

I was struck when Ambrose commented that “inflation targeting is dead”. He was interested to know why it has persisted in New Zealand. I said maybe it was because of our experience with stagflation in the 1970s and early 1980s.

Ambrose said Great Britain would be in a far worse position if it had not been able to adjust to its decline in circumstances via a drop in the pound, which has led to resurgence in manufacturing, especially in the car industry. What a boost it would be to New Zealand’s modern manufacturing industry to have a dollar unaffected by arbitrage.

We traversed my view that competitive devaluation is alive in the world. Ambrose said he does not know whether it was an objective of the USA’s quantitative easing, but a consequence has been a 12% pa narrowing of the terms of trade gap between USA and China.

Ambrose believes UK and the USA will embark upon further quantitative easing that will have flow-on effects to the New Zealand dollar. We discussed whether concentrations of wealth born of the huge trade imbalances and settings in some countries means there is a need for greater care or attention to asset price bubbles and whether the globalisation of investment flows  (as opposed to trade flows) is desirable.

We discussed the contrast between New Zealand under Clark/Cullen and the UK under Blair/Brown. Cullen ran budget surpluses, leaving low government debt and countercyclical tax cuts, whereas Brown ran deficits of 3% of GDP when he should have been running a 2% surplus.

That 5% pa of GDP stimulus, and slide in the UK government books, has left a government debt hangover for the UK reminiscent of the debt burden Muldoon left for New Zealand in 1984. I told Ambrose that it took New Zealand a generation to overcome that debt burden, and that my impression, as an outsider, is that the likely length of the consequences of government debt levels in Europe does not appear to have fully sunk in.

Extremely insightful thoughts overall, especially the death of inflation targeting, the carry trade knowledge in the UK and the consequences for asset prices, eg housing, of free flow of investment funds (as opposed to free trade) given huge wealth concentrations of wealth and the trade and current account imbalances in the world.

Next I’m off to the OECD.

 

I’m going to be sending a few emails about the discussions I’m having while overseas. If you’d like to receive them, please click here.


The uncomfortable truth about inequality

Posted by on August 29th, 2012

The Ministry of Social Development’s latest analysis of household incomes should make uncomfortable reading for the government. It shows that real equivalised median household incomes dropped by almost 3% from 2010 to 2011.

Now that’s some fine economist-speak, but in English it means that ordinary Kiwi families are $900 per year worse off than they were a couple of years ago.

$900 is a huge amount of money. It could buy all the kids’ school uniforms, or pay quite a few power bills. It’s enough for a whole neighbourhood to set up vegetable gardens!

But it’s $900 that your average family doesn’t have anymore. And National’s economic mismanagement is to blame. Their top-rate income tax cuts and GST rises saw top earners boosted up, but the middle and bottom went backwards.

Today in Parliament I asked the acting finance minister, Steven Joyce, about the MSD report. I wanted to get to the bottom of how National can possibly think that it’s fair for ordinary Kiwi families and the poorest New Zealanders to be much worse off under this government, while at the same time the richest New Zealanders have gotten huge tax cuts and are much richer now.

The minister was clearly uncomfortable, and in light of the facts he should be.

As expected, Mr Joyce trotted out the usual list of hollow National excuses.

But it was astonishing to hear him arguing (as the Prime Minister did yesterday, incidentally) that the 3% decrease was actually an increase!

Joyce’s reasoning:

“The point is over what period of time the median household incomes have increased…. The Member has selected a period from 2009/10 to 2010/11.”

Obviously I chose that period because it’s the period that National have been the government.

If we follow Steven Joyce’s logic it’s not important to rationally analyse the success or failure of the government of the day and its policies. It doesn’t matter to him that struggling families are getting poorer.

All that’s important to National is finding any historical comparison point which might make today’s disastrous economic figures look better. Evidently our acting finance minister doesn’t even understand inflation.

This is what National’s “brighter future” means. It’s an unfair and unequal society where the government helps its rich mates to get richer while making everyone else poorer.

 


 


I seek leave to make a personal explanation …..

Posted by on July 30th, 2012

I see I am getting a bit of gyp from critics in the blogosphere whose latest fantasy is that I lack an environmental ethic.

Their mistake is they think that a healthy environment stands in opposition to a healthy economy.

I don’t rise to the bait too often, but on this occasion I will bite and lay out my record.

Some of these critics should do their homework.

I am 52 years of age. I tramp, ski, and swim in rivers and the sea. I have been fighting for environmental causes most of my life.

As a lawyer I fought for conservation orders that now protect many of the south island’s rivers including the Mataura, the Buller, the Ahuriri, the Greenstone, the Dart, the Lochy, the von, and the Kawarau. 

I am still active in river protection. This year I am appearing pro-bono as an expert witness on energy policy in support of the Fish and Game application to protect the Nevis river from damming.

As Minister of Energy I halted the decline in renewable electricity as a % of total generation, set an objective of 90% renewables by 2025 and put in place a myriad of initiatives to achieve that end. That objective has survived the change to National, and good progress is being made towards it. Together with Jeanette Fitzsimons, I also promulgated the most ambitious energy efficiency and conservation strategy we had ever had, and played a strong hand in the design and funding of the insulation retrofit programme that National continued with.

As Minister of Energy I added substantially to the lands protected from mining by extending schedule 4 protection to all parts of national parks not then protected, including Kahurangi.

As Minister of Land Information I revamped tenure review, helped form a number of conservation parks, including the Otiake Park in the Hawkduns, stopped tenure review around lakes and rebalanced the relationship between the Crown and lessees. National has reversed some of those changes.

As Acting Minister for the Environment I unblocked the national policy statement on freshwater quality. Trevor Mallard continued this work culminating in the very good NPS proposed by Judge Shepherd et al, which was then neutered by National.

As Minister of Climate Change I successfully legislated to price greenhouse gases in all sectors of the economy covering the 6 main gases covered by the Kyoto protocol. New Zealand remains the only country in the world to have achieved that. I was named Environmentalist of the year in 2008 by the Listener for that and other initiatives.
Changes by National and a loss of momentum internationally collapsing the price of carbon have undermined it, but the architecture remains sound. It is Labour’s policy to bring agriculture in to the ETS.

While in government I read about set nets causing the deaths of Hector’s and Maui dolphins. After confirming with Chris Carter that this was intend a serious problem I approached Helen Clark who, with Jim Anderton’s help, vastly expanded the areas where set nets were banned.

I have had high profile run-ins with proponents of lignite developments, including Solid Energy’s Don Elder.
As Labour’s then spokesperson for conservation, I helped lead Labour’s successful campaign against National’s plans to allow mining in schedule 4 National parks, Coromandel, Great Barrier Island etc. For those with a sense of humour, my Christmas interchange with Gerry Brownlee on the issue, in which Gerry starred, remains the most watched clip from parliament.  http://inthehouse.co.nz/node/912

I have spoken often on the need to better protect our albatross and petrels from being killed as by-catch. Similarly, I am a defender of lowland wetlands against reclamation, and against degradation caused by intensification of nearby land use.

I have been a defender of the RMA, while wanting to improve its reputation by addressing some of its arcane and hard to defend processes.

I am happy to stand on my record on environmental matters.

Which is why it annoyed me to be told I am out to lunch on mining issues.

Having a clean environment means making sure we use our natural resources responsibly. It doesn’t mean we stop using all of them.

That’s why, outside of schedule 4 areas, mining applications can and should be considered case by case.

As I said when interviewed, there is legitimate public concern about deep sea drilling arising from the Gulf of Mexico catastrophe and the limitations of New Zealand’s response to the Rena shipwreck. We must ensure that world’s best practice is followed and that the safety devices needed in the event of mishap are available and can be deployed. Even then, it may be that the deepest of wells are too risky and ought not to proceed.

In terms of lignite, I reiterated that Labour believes its use as an energy source using current technology is a dirty greenhouse gas intensive practice. We are also unconvinced it is economic, especially if environmental consequences are included, and have said government money should be  spent on renewables instead.

Our position on developments in the EEZ is that RMA type principles should apply. We sit between the Greens (who would ban most development activities) and National, whose EEZ legislation, while initially supported by the Greens, is inadequate.

We can develop our resources responsibly and make responsible decisions for our future – and a sustainable economy requires it.


Green business challenge to National’s dirty status-quo

Posted by on June 11th, 2012
Human history often drives off intractable economic and environmental problems which we must adapt to in order to survive. For thousands of years the main concern was producing enough food to hold off starvation. Agriculture helped solve that – at least for the first world (and leaving aside population growth). Then industrialization expanded our possibilities, living standards, and energy/ resource footprint – most likely beyond the carrying capacity of the planet. The information age was supposed to be the new nirvana.
How easily we forget the planet that sustains us – to our peril. Now we are increasingly the costs and terrifying risks of that oversight – as well as missing out on the economic benefits of change.
Pure Advantage is a campaign of high-profile business people “formed in the belief that enhancing New Zealand’s natural environment in order to improve our competitive positioning in the global shift to green growth represents a huge opportunity for all Kiwis to prosper.”
For too long the default narrative has been that business views environmental stewardship as purely a cost, rather than as a risk to be turned into opportunities for more efficient production and sustainable growth. This lazy account has suited the ideologies of the National and Act parties and the immediate vested interests of their donors.
Today Pure Advantage released a landmark report, New Zealand’s Position in the Green Race. It proves that many of New Zealand’s successful wealth creators do not think that the old conservative way. The government be simply unable to ignore this report.
Pure Advantage says the country’s ‘business as usual’ approach drives us into a high carbon, low-value future. It argues our 100% Pure brand will be tarnished and we will not be able to sell our dairy and other agricultural goods overseas in the premium segments anymore. At home we’ll have dirty rivers, more disease, and we will have fewer choices in life because we will be poorer in absolute and relative terms.  The costs of doing nothing really are horrific.
But this report also says the opportunities for New Zealand to protect its environment and to create dynamic new exports industries are very significant. Global green growth is potentially worth $6 trillion every year, and many countries such as South Korea, Sweden, Denmark, Finland, Israel and Singapore are already in the game.
Labour agrees that our innovation system could be ramped up to capture huge international market opportunities for sustainable growth in clean-tech and renewable energy. We could achieve global leadership as a high quality, environmentally sustainable food and protein producer. We are even relatively well-placed to adapt to the consequences of global climate change – if we are honest about where we are and have the courage to take this country to where it needs to be.
The Pure Advantage report rightly conveys the urgency of the situation and calls for bi-partisan government action to use a wide range of legislative, regulatory, fiscal and educative measures to actively tilt our economy to a low carbon, high value, renewable energy future.
Labour commits to working with all parties who are prepared to do the right thing today and for our children.
The transition to a clean economy is not only one of the most important economic challenges of our time, it is also potentially a matter of economic and social survival…

Human history often drives off intractable economic and environmental problems. We must adapt in order to survive. For thousands of years the main concern was producing enough food to hold off starvation. Agriculture helped solve that – at least for the first world (and leaving aside population growth). Then industrialization expanded our possibilities, living standards, and energy/resource footprint – most likely beyond the carrying capacity of the planet. The information age was supposed to be the new nirvana.

How easily we forget the planet that sustains us – to our peril. Now we are increasingly wearing the costs and terrifying risks of that oversight – as well as missing out on the economic benefits of change.

Pure Advantage is a  campaign of high-profile business people “formed in the belief that enhancing New Zealand’s natural environment in order to improve our competitive positioning in the global shift to green growth represents a huge opportunity for all Kiwis to prosper.”

For too long the default narrative has been that business views environmental stewardship as purely a cost, rather than as a risk to be turned into opportunities for increasingly efficient production and sustainable growth, for now and the future. This lazy account has suited the ideologies of the National and Act parties and the immediate vested interests of their donors.

Today Pure Advantage released a landmark report, New Zealand’s Position in the Green Race. It proves that many of New Zealand’s successful wealth creators do not think the old conservative way. The government will simply be unable to ignore this report.

Pure Advantage says the country’s ‘business as usual’ approach drives us into a high carbon, low-value future. It argues our 100% Pure brand will be tarnished and we will not be able to sell our dairy and other agricultural goods overseas in the premium segments anymore. At home we’ll have dirty rivers, more disease, and we’ll have fewer choices in life because we will be poorer in absolute and relative terms.  The costs of doing nothing really are horrific.

But this report also says the opportunities for New Zealand to protect its environment and to create dynamic new exports industries are very significant. Global green growth is potentially worth $6 trillion every year, and many countries such as South Korea, Sweden, Denmark, Finland, Israel and Singapore are already in the game.

Labour agrees that our innovation system could be ramped up to capture huge international market opportunities for sustainable growth in clean-tech and renewable energy. We could achieve global leadership as a high quality, environmentally sustainable food and protein producer. We are even relatively well-placed to adapt to the consequences of global climate change – if we are honest about where we are, and if we have the courage and foresight to take this country to where we need to be.

The Pure Advantage report rightly conveys the urgency of the situation and calls for bi-partisan government action to use a wide range of legislative, regulatory, fiscal and educative measures to actively tilt our economy to a low carbon, high value, renewable energy future.

Labour commits to working with all parties that are prepared to do the right thing today and for our children.

The transition to a clean economy is not only one of the most important economic challenges of our time, it is also potentially a matter of economic and social survival…

Read the report here.


Urgently taxing toddlers

Posted by on May 25th, 2012

The test of urgent legislation is not just what is in the legislation, but what is not. On both counts this National government should be condemned.

It’s the day after the Budget and Parliament is sitting in urgency to debate new tax legislation. The Taxation (Budget Measures) Bill is apparently so important that National have:

  • Deferred the main Budget Debate;
  • Removed normal select committee review;
  • Imposed a retrospective effect.

So what is this tax bill about?

Is it the secret “base broadening measures”; National’s supposed answer to Labour’s future focussed capital gains tax?

Is it the closing of the major loophole by which half of the wealthiest 100 New Zealanders avoid being on the top tax rate?

Is it reinstatement of the Labour Government’s research and development tax credits, the key tool which was stoking our businesses’ engines of innovation?

Er, no, no and no.

The centrepiece of this Bill is picking the pockets of paperboys and papergirls.  Urgently taxing toddlers, if you will.

It’s laughable that National’s top economic priority is retrospectively stealing the pocket money of 68,000 kids.

But it’s incredibly sad that this is what government in our beautiful country has come to.

National has wrecked New Zealand’s economy.  Just yesterday they unveiled a horrific 17% plunge in exports.  But instead of getting a real plan to deliver a brighter future they’re plotting to tax toddlers.

The zero Budget of 2012 is yet another wasted opportunity for a country desperate for change.  It’s an insult to ordinary Kiwis who are working harder and longer for less and less.  It’s a slap in the face to law abiding families and small business owners who pay their taxes, and who deserve to get ahead instead of being pickpocketed.

New Zealand is losing 1,000 Kiwis every single week.  That’s 50,000+ a year.

Unemployment is up by 50,000+ since National took office.  The number on benefits is up over 50,000 too.

A zero Budget means zero hope for them, and all New Zealanders.

It also means zero pocket money for paperboys and papergirls.


Budget prediction

Posted by on May 16th, 2012

051412krugman3-blog480Thanks Paul Krugman (blog) and Josie Pagani (Radio NZ today)

Tags:
Filed under: Budget, economic

Economic development ideas

Posted by on April 29th, 2012

During the recess I have been working to fill out some ideas around economic development.

These personal views build on caucus discussions and our 2011 manifesto, and take on board feedback from party and business circles as I have been listening and engaging over the last few months.

This oped, published in the Herald on Friday, argues for lifting sustainable economic growth through a more ‘can do’, positive partnership with between government and business. It argues for a clear and credible strategy that integrates economy-wide, sector-driven and regional initiaitives. It warns of the dangers of the kind of one-off ‘deals’ with indvidual corporates now so typical of National.

This speech, delivered today to a meeting hosted by the New Lynn Women’s Branch of the NZLP, goes back to first principles. It argues that, post GFC, the “invisible hand” of neoliberal economics has failed, that New Zealand cannot cut or sell our way out of a hole, and that Labour must therefore present a clear alternative economic approach to the current government based on our own enduring values.

Hope you enjoy them.


NZ is not for sale

Posted by on March 11th, 2012

Today David Shearer released a new Member’s Bill to prevent foreign investors from buying rural land unless they can prove it will bring substantial benefits to New Zealand that would otherwise not occur.

National has botched the handling of the Crafar farms issue. They’ve got it wrong. John Key has tried to brush away criticism by arguing land was sold to overseas investors under Labour too and if we were serious about our opposition we’d change the law. Today David made it very clear we will be doing just that.

Unlike National, Labour is out there listening to New Zealanders, who are increasingly concerned about our country being sold out from under us. John Key was right when he said New Zealanders don’t want to end up tenants in their own land. It’s a shame his actions aren’t living up to that sentiment.

David spells out the case for the Overseas Investment (Owning Our Own Rural Land) Amendment Bill pretty clearly:

“We cannot afford to lose control of our best income-producing assets and become tenants in our own land. Selling our farmland to foreign buyers does not improve our economy. Instead the profits simply flow offshore. We also do not want to see New Zealand farms priced out of the reach of Kiwi farmers who are the best in the world at what they do.

National just doesn’t seem to get that we can’t sell our way to a brighter future. Four years ago John Key was ambitious for New Zealand. Today he seems content to manage our economic decline. There are alternatives, and Labour is going to be at the forefront of promoting them.

Click here to download a copy of David’s Bill, along with the detailed explanatory note.


Assets and Elbows

Posted by on March 1st, 2012

Can the Government tell an asset from an elbow?

Had it thought through the fatal flaws in its partial privatization drive, or has it been taken by surprise? Hat tip to Clayton Cosgrove for bringing SOE sale issues to the fore. Here’s a potted summary of some emerging commercial and economic development implications:

- When the SOE’s are partially privatised they become companies with a partial public shareholding, regulated by commercial law and not the SOE Act. They are no longer SOEs. They no longer have the Crown’s good corporate citizen obigations. Elbow #1.

- That is why the s9 Treaty Clause debate is so fundamental. Iwi are 100% right to be outraged that the Crown’s obligations under the Treaty of Waitangi could be sold down the river (literally). If the Crown’s response is to indemnify the private investor and bear 100% of the ongoing Treaty obligation, then the taxpayer is effectively subsidising the private investor. Clayton nailed this last week. Elbow #2.

- Minority shareholders rights include the ability to invest in future profitable expansion plans. Dilemma for Crown: pony up its 51% of those future capital requirements or face equity dilution below 51% and loss of residual control. The Govt’s response has been to hedge how much it wil initially sell. Does 45% leave it enough of a buffer? For how long? How long is a piece of string? How does this affect its sale proceeds? In a rare moment of frankness Bill English fessed up that those proceeds are only a “guess”. You bet they are. Elbow #3.

- Magically the Government’s new-found forecasts of SOE dividend loss are not, apparenty. These were shamefully omitted from the Pre-Election Economic and Fiscal Update (PREFU) because they were apparently too hard to calculate. They have since been found in a bottom drawer and Lo! they show there will be precious few future divvies, so little loss. Ooops Why would a private investor buy them then? Elbow #4.

- Except Air NZ of course, which will be as cheap as chips after its sad losses last year. Crazy, stupid fire sale. Elbow #5.

- Speaking of which, future takeover threats must now be managed. Minority shareholders have rights. If a future merger or takeover provides them a windfall, they have the right to sell, most likely to foreign corporates or hedge funds (subject to the 10% individual cap, if any). What would the Crown do in the face of such temptation? Could it face legal action from minorities if it blocked such a future sale? How is the public protected from future leveraged asset stripping? Elbow #6.

- Potential cross-shareholding complications arise, as confirmed by the Chair of the Commerce Commission at the Commerce Committee hearing this morning. (I can’t comment on the Committee’s views but can on the issues diiscussed in public hearing). Lets say a foreign energy company bought the maximum allowable shareholding in each of the 3 SOE generators – risks of information pooling, coordination and anti-competitive behaviour would need to be policed by the Commission. At best there would be a lag while consumers suffered and prices rose. The Crown itself would have to be subject to Commission oversight in this regard. Sound complicated? Elbow #7.

Back to the original dilemma: did John Key know about all these issues when he started this privatisation crusade? If so, why was the Government not more transparent about them all before the election – with the public and even with its potential coalition partner?

Oh yeah, I momentarily forgot. It’s politics.

That being the case, lets fight this crazy plan to the last comma.


The Growth Gap

Posted by on February 23rd, 2012

In my last post I indicated that I would be doing a series of posts on growth and jobs, reflecting my portfolio work in economic development.  Here’s the first – and I want to begin with the Government’s results (or lack of).

By way of context, as a country we need to create and export value in order to pay for imports and good wages.  Sustainable economic growth is not at odds with social democracy, but a necessary component of making it work.  Growth is not an end in itself but a means to families and communities getting ahead.  For modern social democrats,  it should occur within a framework that ensures good social and enironmental outcomes.

The trouble is, despite repeated promises from the current government that economic growth is “just around the corner”, it just hasn’t happened.  

After Budget 2011, I posted a graph showing how the economy had actually performed under National compared to the growth forecasts since they came to office. With the latest downgrading of the growth outlook in the recent Budget Policy Statement, I’ve received a few requests for an updated version, so here it is:
 

Government GDP vs Reality

Government GDP vs Reality

(sources: Treasury Fiscal and Economic Updates, and Stats NZ GDP series)
 
What do we see? Well, under National the economy has under-performed each set of growth projections since they came to office by a long way.    The sole exception is BEFU 11, which assumed an immediate GDP hit from the Canterbury earthquakes that didn’t eventuate. It raises the question, is the problem with Treasury’s forecasting models or with National’s economic management?
 
Take a closer look at the 2 oldest sets of projections.
 
DEFU 08 came out immediate after National become government, at the height of the global economic crisis. It predicted that the economy would now be over 6% larger than it is – that’s $12 billion a year.
 
BEFU 09 came out with Budget 2009 – this was Treasury’s ‘doomsday’ predictions written at the peak of the Great Recession (although, ironically, it was released after the recession officially ended). BEFU 09 saw a further two questers of recession that didn’t happen and a gradual return to slow growth.

In the jargon of finance, it’s called a “hockey stick”  – a graph that always starts by going down in each set of forecasts, but is always predicted to curve up in the future.  If  ”NZ inc” was a company with accounts like these, the board would be asking hard questions of the managers.  

In fact,  look where the economy should be now according to that ‘doomsday’ scenario. That’s right, ahead of where it actually is. The recession didn’t get as bad as Treasury thought in BEFU 09 but the recovery under National has been so anaemic that we are now below the level of GDP forecast at the gloomiest period of the Great Recession and falling further behind every day.
 
Here’s how over-optimistic each set of predictions has proven: 

Government Projections Over-optimistic by:

Government Projections Over-optimistic by:

 There is a huge mismatch between what Treasury predicts and what National delivers.
 
So, what needs fixing: Treasury’s forecasting, which serves as the basis for government and opposition policy decisions, or National’s economic growth agenda and “120-point plan” ?
 
Both are the responsibility of Mssrs Key, English and Joyce.

More on why the Govt’s 120-point ‘laundry list’ is not a real plan, and what a real economic growth plan ought to look like, in future posts.