Red Alert

Posts Tagged ‘economy’

TINA’s back

Posted by Darien Fenton on October 21st, 2011

Since Labour announced its Work and Wages Policy, there’s been the editorials repeating the “TINA” (There is no Alternative) lines of yesteryear and arguing for trickle down. Then there’s those who have an in-built opposition to anything that might improve the lot of working people, and an aversion to those dreadful organisations called “unions” – the 370,000 New Zealanders who are part of today’s unions.

This is old National at their worse. It’s they who haven’t changed and who are out of touch. They need to catch up with the reality of work and wages for most New Zealanders and they need to tune into the debate that’s happening around the world about the failure of the orthodoxy of the last 20 years.

When Labour introduced the Employment Relations Act (ERA) in 2000, we heard the same rubbish from some National MPs who are now Ministers and others best forgotten. The ERA was going to be the end of the world, while today, most will concede that it was very modest regulation indeed.

Eleven years ago, this is what Jenny Shipley, Max Bradford, Gerry Brownlee and Richard Prebble said in Parliament.

Rt Hon. JENNY SHIPLEY (Leader of the Opposition): Welcome to Jurassic Park. This is a step backwards for New Zealand…… Taking New Zealand back to ideas that most people thought were extinct is no way to forge the future for this country. I do give notice here that the Government would have been far better to build on the strengths of the Employment Contracts Act, rather than destroy them and try to reintroduce some notions that most people thought had seriously gone 50 years ago, or more.

Hon. MAX BRADFORD (NZ National): … why is the Labour-Alliance Government digging up all the old processes, the old institutions, the old dinosaurs of the past in order to get it? One of the reasons that the Employment Contracts Act was introduced in 1991 was the old system under the industrial relations legislation, the Labour Relations Act, was not working. Yet here we have a grand march backwards into the past to try to assert—because that is all it is; an assertion—that somehow or other employment relationships will improve, growth will improve, and we will get more jobs out of this approach to industrial relations……. there are people who are waiting to leave this country because it will be too difficult under this legislation to employ people and to invest.

Hon. RICHARD PREBBLE (Leader—ACT NZ):…. Who do the Alliance, the Labour Party, and the Greens think they are fooling? This bill is compulsory unionism by the back door. We know what the consequences will be. It is well known that the country’s port unions have already been meeting. They have already agreed that they will be asking for a collective agreement. When this bill comes into effect on 1 August, they will be making a demand to every single port in the country for a collective agreement—in other words, a national award. They are prepared to go on strike to get it. It is already well known that the North Island freezing works sheds—the unions—have already met. They have already agreed on their collective agreement, and the moment this law comes into effect they intend to exercise industrial muscle to get that agreement.

GERRY BROWNLEE (NZ National—Ilam): …… This bill, dressed up as a herald of integrity and individual choice in industrial relations, is nothing more than another step on the long march backward that this Labour-Alliance Government is determined to inflict on New Zealand. This bill rips out any element of trust and mutual respect from industrial relations in this country. It is based on the premise that the employer is always wrong. It is based on the premise that there is an intrinsic, irreconcilable difference between employers and employees. Always it is the employer who is the guilty party, regardless of the circumstances. This bill is the most unbalanced legislation that could ever have been introduced in the industrial relations area.

Eleven years ago, according to the National Party, employment law change was going to be the end of the world. Did the world end? No, of course it didn’t. In fact we had good growth, low unemployment, no debt and an improving social outlook.

Thank goodness there are some real thinkers contributing to the modern conversation about how we build a better and fairer economy and society.

Here’s a good piece on wages from Bill Rosenberg today.

Tags: economy, National Party, TINA
Filed under: #ownourfuture, Work and Wages, Workers, economy, low pay

17 Comments

Doing Things Differently

Posted by Grant Robertson on October 12th, 2011

In the wake of the double downgrade, the debt blowout, and further afield the Occupy Wall Street movement, one thing keeps coming through for me. If we want to improve our lot economically, if we want to address the growing inequality in our society, we have to do things differently.

An interesting contribution to that debate in New Zealand is coming from Gareth Morgan and Susan Guthrie. Their latest piece appeared in the NZ Herald on-line today.

Morgan and Guthrie highlight the obsession with property speculation, the reliance on commodity prices to keep us afloat, a narrowly based economy and monetary policy and a tax system that fuels the worst of speculative behaviour. These are not new messages from Gareth, but there is more reasonance as we look at a global and national economy defiantly not recovering and staggering (or is that muddling) through the year. He puts it this way

There is a naive single dimension to our economic policy – we either raise or reduce the budget deficit or we raise or reduce interest rates. That’s the sum total of the intellectual capital being applied to managing our economy. That it could be so bereft for so long has led to the persistence of our “structural imbalance”. There is a chronic need for policy enlightenment and a sweeping aside of a simplistic policy orthodoxy that has been rigidly paid homage to for 30 years now.

Now, of course I don’t agree with all of their prescription, but the idea that we have to change the way we think about our economy is the core message, and it is one that Labour has heard and taken on board. We are offering a different way of doing things both from where the current government is, and where we have been.

Monetary Policy. Labour has already announced that we need to change monetary policy to address the structural issues in the economy, including the volatility of the dollar that makes life difficult for exporters and high interest rates that discourage investment in productive parts of the economy. While curbing inflation remains important, having that as the single focus is not working for us. Our policy is to broaden the objectives of the Reserve Bank beyond just controlling inflation to look other issues, such as employment and to support more aggressive interventions to deal with currency speculation.

Fairer Tax System. As noted we are going to introduce a Capital Gains Tax to ensure we tax income in all its forms and start to move toward investment in our productive economy. We also are going to return the top tax rate to 39c over $150,000, the first $5000 tax free and taking the GST of fresh fruit and vegetables

Procurement/Overseas Investment. Labour is going to make important changes to focus to support our own economy. This means new rules on government procurement, that will be compliant with our international ageements, but will require a process that gives Kiwi firms a fair go and will look at a wider set of criteria for awarding contracts including the impact on the domestic economy. We want overseas investment but as announced in 2010 we will put stricter controls on purchases of farm land, monopoly infrastructure, so that we keep control of our assets (and of course there will be no asset sales!).

And there is more to come in terms of innovation and economic development, to build on the R and D Tax Credits, Youth Employment. And more to come in Savings, where we really can build a basis for creating the pool of resources to invest in our own companies, just as Kiwisaver funds have done with Scott Technology.

This post is too long already, so I will come back to some of the social policy issues Morgan and Guthrie raise, but for now I am confident that Labour has a different vision on offer this year. Some of it is policy we have done before, but a lot of it is thinking differently, because as they say a definition of madness is doing the same thing over and over and expecting a different result.

Tags: economy, monetary policy, Overseas investment, taxation
Filed under: #ownourfuture, Tax, economy

95 Comments

Why The Downgrades Matter

Posted by David Cunliffe 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.

Tags: Bill English, Budget, economy, Ratings
Filed under: #ownourfuture, Budget, Capital Gains Tax, Global financial crisis, Investment, Tax, Uncategorized, debt, economic, economy, finance

29 Comments

John Key and that stadium shot

Posted by Chris Hipkins on August 19th, 2011

Remember that video clip of John Key standing in the Westpac Stadium in Wellington before the last election lamenting the number of New Zealanders who leave every year to move to Australia? Well, he’d need a bigger stadium for this year’s campaign video.

After 3 years of John Key’s government, the number of people leaving NZ to move to Australia is at its highest level in 10 years. 46,436 people jumped the Tasman for good in the 12 months to July. By contrast, only 14,807 made the jump back the other way.

Remember what John Key said in his 2008 campaign opening speech?

“Do you want more of the same? The same directionless economy? The same political games and distractions? The same loose management of your money? The same excuses, buck-passing, and the same failure to deliver real results?”

Let’s compare the 9 years of Labour government with 3 years under National. Under Labour we had record low unemployment, more people in the workforce than ever before, more people in tertiary education than ever before. Under National unemployment has sky rocketed and tertiary education funding has been slashed.

As for political games and distractions? This from a PM who walked out of Question Time to avoid answering questions from the Leader of the Opposition. The same PM who backed Rodney Hide, then Don Brash, and has now done a dodgy deal with John Banks in Epsom. The same PM who paid PR firms to get him on Letterman. The same PM who won’t be interviewed on Morning Report but will happily take patsy questions on The Edge…

But of course the state of the economy isn’t National’s fault. Their failure to deliver any meaningful financial relief to those on middle and low incomes isn’t their fault. Youth unemployment isn’t their fault (and in less than a week it’s gone from being John Key’s biggest issue to being a problem that’s ‘overstated’). Now, what was that about “buck-passing”?

Tags: Australia, economy, John Key, Migration, national
Filed under: Unemployment, economy, national

22 Comments

Lies, Damned Lies and … Steven Joyce.

Posted by David Cunliffe 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.

Tags: Bill English, Budget, economy, Steven Joyce
Filed under: Budget, Capital Gains Tax, asset sales, debt, economic, economy, finance

37 Comments

What others are saying

Posted by Chris Hipkins on July 16th, 2011

It’s been a good week for Labour. We’ve put forward a bold policy agenda that will protect our valuable state assets whilst also setting us on the path towards a brighter future. It’s ambitious and highlights the contrast between Labour’s visionary approach and National’s total lack of a plan.

John Armstrong’s column in the NZ Herald notes that Labour’s policy is driven by a desire to do the right thing and get the economy moving again, unlike National’s approach of trying not to scare the horses by doing nothing:

National concedes that Labour’s promotion of the tax was always going to get the tick of approval from some economists, think tanks and academics. National did not count on that endorsement being so strong. The endorsement has come from across the political spectrum, thereby making Goff’s push for the tax look less political and motivated more by what might be in the national interest.

Over on Stuff, Andrea Vance argues that Labour has taken the lead:

…Labour has seized the moment. There comes a tide in the affairs of politics and this time Goff, Cunliffe et al have caught it…pitched against an asset selloff, a CGT looks to many like the lesser of two evils…

On TV3’s The Nation Colin James says that Key and National have “miscued”:

They’ve attacked things that aren’t in it, and attacked things that are in it that they said aren’t in it, and John Key talked about it being a ‘dagger through the heart of the economy’ and I thought Russell Norman in Parliament was able to skewer him on that, he quoted the OECD, he quoted the Treasury, he quoted Australia, and I think National just miscued, it didn’t handle it nearly as well…

Earlier in the week, Rob Salmond posted an interesting piece on Pundit correcting some of Key’s mythical claims:

If John Key is determined to measure a person’s welcome in New Zealand only through tax rates, then the conclusion is clear. High income earners are more “welcome” here than in any of the country Mr Key aspires us to be like… The CGT discussion so far has been a bit surreal. Labour starts a debate about tax policy, traditionally a strong area for National and ACT. In response, National becomes a fact-free zone and ACT retreats into an internecine war over the appropriate degree of their race-baiting.

Blogger Idiot/Savant at No Right Turn, often critical of Labour for not being bold enough, nails it:

The numbers stack up. This is not a spendthrift plan to just keep on borrowing. Instead, its a cautious, sensible, fiscally conservative plan to balance the government’s books by closing a serious tax loophole. And we don’t have to sell anything to do it. Labour is now presenting a clear alternative to the government’s policies: either we can sell the family silver and see the profits go offshore, while trying to cut our way out of recession – or we can pay off our debts and support our government services by making the wealthy pay their fair share. Put like that, its really a no-brainer.

Meanwhile Fran O’Sullivan questions whether John Key has the gravitas to deal with the challenges we face:

All New Zealanders know Key has fulfilled his childhood dream by becoming Prime Minister of our small nation. But does he really have serious aspirations for his prime ministership? Or even New Zealand?

One gets the feeling that Key and his Ministers quite like their ministerial BMWs and have forgotten why they’re allowed to ride around in them. We certainly don’t hear them talking about being “ambitious for New Zealand” very much these days.

Tags: #ownourfuture, asset sales, Capital Gains Tax, commentators, economy, John Key, Leadership, phil goff, Tax
Filed under: #ownourfuture, Tax, economy

18 Comments

Budget FAQs #5: Growth Hockey Stick

Posted by David Cunliffe 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

Tags: Bill English, Budget, economy, Tax, tax cuts
Filed under: Budget, Cost of Living, Global financial crisis, Inflation, Investment, Tax, business, debt, economic, economy, finance, jobs, monetary policy

14 Comments

Budget FAQs #4: National’s Growth Gap

Posted by David Cunliffe 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

Tags: Bill English, Budget, economy, Tax
Filed under: Budget, Investment, Tax, Uncategorized, debt, economic, economy, finance

4 Comments

Budget FAQs #3: Kiwisaver

Posted by David Cunliffe on May 12th, 2011

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

Reducing (likely by half) the member tax credit, currenlty $20 per week or $1024 per kiwisaver per year.
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.
Requiring a small increase in matching employer contributions, although unclear how much or with what if any employer tax credit chnage.
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…)

Tags: Budget, economy, John Key
Filed under: Budget, debt, economic, economy, kiwisaver

56 Comments

Budget FAQs

Posted by David Cunliffe 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.

Tags: Bill English, Budget, economy, Facebook, Tax
Filed under: Budget, Cost of Living, Tax, Uncategorized, debt, economic, economy, finance, inequality, saving

16 Comments

The car washer dudes are back

Posted by Darien Fenton on March 29th, 2011

Don’t know about you, but I’ve noticed a lot more car window washers on intersections lately. My local one is back after not seeing him for years, because they mostly disappeared during the nine years of almost full employment under a Labour-led government.

But they’re back. They’re part of New Zealand’s informal economy, where in hard times, people are forced to make a living in whatever way they can because they cannot find jobs or are unable to start businesses in the formal economy. These are part of the working poor who are working very hard but who are not recognised, recorded, protected or regulated by the government.

There’s no question that New Zealand does have an informal (or underground) economy. The question is how big is it and is it growing?

Unfortunately, we have no idea about the size of the underground economy in New Zealand because people working in the informal economy are not registered as businesses or employees and they do not pay taxes.

But think about the workers that you see around the place. There’s the flower and strawberry sellers on the side of the road. There’s those who do jobs “under the table” to top up their meagre income or unemployment benefit. There’s those who work from home and even in garages as sub-sub-sub contractors making things, sewing or putting things together, there’s those who mow the lawns, do a bit of catering on the side and there’s the street vendors selling jewellery, fake watches and sunglasses in the streets.

Increasing poverty and the growing gap between rich and poor is one of the underlying reasons for the growth of the informal economy – even in first world countries.

It is is poverty that forces people to take up unattractive jobs in the informal economy and the low incomes that such jobs yield create a vicious cycle of poverty.

It’s not good for our economy or society either. No taxes paid, no ACC levies funded, no health and safety, no minimum wage, no other protections.

It’s almost like the car washers are a barometer of the state of our ecconomy and the well-being of New Zealanders. If it is, then we’re in big trouble.

Sadly, with a government with no plan for jobs, I fear I’m going to see a lot more of my local car window washer.

Tags: economy, Underground economy
Filed under: informal economy, low pay, poverty

47 Comments

Economy Stuck in a Rut

Posted by David Cunliffe 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.

Tags: Bill English, Budget, economy, GDP, Tax
Filed under: Tax, Uncategorized, business, debt, economic, economy, finance, wages

42 Comments

The Great Broadband Sell-off

Posted by David Cunliffe on March 18th, 2011

Yesterday’s FEC hearings on the Telco Amendment Bill were remarkable.

By the end of the day it was starkly obvious that the Bill hands a gold-plated license-to-kill to Telecom under the guise of ‘structural separation’. No-one, not even Govt members, could deny that.

Don’t take my word for it: check out the Commerce Commission submission, or (bipartisan) Internet New Zealand’s, or Vector’s, or TelstraClear’s – all here.

The Bill seeks to lock in a “regulatory holiday” by preventing the Commerce Commission from exercising its current oversight for 10 YEARS. NO other country in the world has done that, and it would be illegal in Europe. It may be in breach of NZ’s WTO obligations here.

Despite that Telecom had the gall to ask for longer! And to weaken the purpose clause of the Telco Act to boot! Have they lost their PR mind? Do they want to channel the ghost of abuses past?

Fair trading “equivalence of inputs” rules between the network owner (Telecom) and wholesale competitors would be watered down so much as to be unenforceable. Arms-length trading rules currently in Telecom’s Operational Separation Undertakings become “optional”.

And so on. It’s so patently obvious it is not even worth repeating all the examples.

No wonder Steven Joyce wanted the hearings over in indecent haste.

The result of this great leap backwards to the 1990’s will be much higher prices and less choice for consumers for a decade. YOU will pay for this sleazy deal.

So WHY has the National Government done this?

Roger Douglas summed it up – it is a “legislative subsidy”: National is ‘selling the law”.

In plain speaking, National in the last election over-promised ultra-fast broadband to 75% of Kiwis for $1.5 billion. But rather than being a clean subsidy there were massive strings attached, requiring a commercial return through the hopelessly conflicted Crown Fibre Holdings. The numbers just did not add up.

Hence no rollout for 2½ years, and Steven Joyce is worried about his reputation.

But instead of fronting the problem honestly and getting the whole industry to be part of the solution while building a vibrant competitive market, National has done a side-deal with the incumbent telco that leaves everyone else worse off and the market beggared beyond belief.

That will set back innovation, chill investment and deliver less broadband at higher prices than necessary for a decade to come.

As if Kiwis aren’t facing enough price rises without paying too much for their broadband as well.

Tags: broadband, economy, Steven Joyce, telecom
Filed under: Cost of Living, Investment, Uncategorized, broadband, business, comms & IT, digital, economic, economy, finance, infrastructure, internet

12 Comments

Telco Hearings Set for Stoush

Posted by David Cunliffe on March 15th, 2011

Clare Curran did a great post on Steven Joyce’s abuse of the parliamentary process with the Telecommuniations Amendment Bill.

The FEC is meeting Wednesday and potentially Thursday this week to try to ram through all the submissions in one week!

Paul Brislen, CEO of the Telecommunications Users Assocaiation, was rigthly outraged.

Clare and I put out this release today. We believe this Bill will take the telecommunications industry back to the bad old days of the 1990s, when market dominance was the norm and the consumer got screwed.

The government’s proposed 10-year regulatory holiday is a complete crock. The Commerce Commission would be prevented from doing its job of ensuring fair access for competitors, while ensuring investment works in the long term interests of end users.

Those gains were hard won in the last decade. The industry does not need a leap backwards.

The design of the proposed structural separation of Telecom is uncertain and implies real risks.

The weak, vague and ill-defined form of “equivalence” in the Bill provides little reassurance to retail competitors and consumers.

Crown Fibre holdings is deeply conflicted as both market player and front line regulator.

Ironically, this could all chill investment in a market NZ desperately needs as it seeks to become a hig-value, knowledge economy.

That doesn’t mean Telecom should not be allowed to structurally separate. Done properly, that could be a win-win.

But it does mean the legislative processs should be careful and thorough, as billions of dollars of taxpayers funds and private equity are at stake.

Why is the government so determined to ram the Bill through and pto try to stifle legitimate parliamentary scrutiny?

Could it be that their $1.5 billion with a commercial rate of return is insufficient to stimulate the broadband rollout the government promised in its slogans – and that the only way to square the circle is for the poor, dumb consumer to pay too much for a decade to come?

Could it be that after dithering for two and a half years, Steven Joyce is just plain desperate to make something – anything happen, even at the cost of serious damage to the industry’s future?

Tags: economy, Steven Joyce, telecom
Filed under: Uncategorized, broadband, business, comms & IT, economic, economy, finance, infrastructure

6 Comments

The Debt Deception

Posted by David Cunliffe 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.

Tags: Bill English, Budget, Earthquake, economy, John Key
Filed under: Budget, Canterbury Earthquake, Global financial crisis, Investment, Tax, debt, economic, economy, finance, infrastructure, roads

38 Comments

A clear dividing line

Posted by Grant Robertson on January 26th, 2011

From time to time someone will ask me if there is any real difference between Labour and National. For me the answer has been, and is, obvious. But the last two days should leave no one in any doubt.

From Phil, on behalf of Labour we saw yesterday a vision for an economy where we all pay our fair share, combined with a plan to actually grow the economy through a focus on R and D, skills, savings and protecting our assets and where government works as a partner with businesses.

Today from John Key we have seen a retro 90s style recipe of asset sales and slashing government spending. As my colleague Moana Mackey said if a definition of madness is doing the same thing over again but expecting different results, then John Key and National are positively bonkers. As another colleague Charles Chauvel said this morning, there is no plan for increasing Kiwi wealth, just for selling off what we already own.

It was interesting today another leader gave his State of the Union Address. There were lots of interesting lines in the Obama speech. His call to respect the teaching profession being one. But I was also struck by this

Cutting the deficit by gutting our investments in innovation and education is like lightening an overloaded airplane by removing its engine. It may feel like you’re flying high at first, but it won’t take long before you’ll feel the impact.

To extend the metaphor further than it probably should be, John Key’s plan is to remove the engine and sell off a wing and half the seats and hope that the plane keeps going, ours is to fix the engine, make the plane fly higher and faster and make sure there are seats on it for everyone. That’s the difference.

The test is how the public will view these different visions. Interesting to see that as at early this afternoon the (obviously highly unscientific) Herald and Stuff on-line polls which do not tend to favour Labour were 2/3rds against asset sales and 2/3 for first $5000 being tax free respectively. It’s sure going to be an interesting year.

Tags: asset sales, economy, spending cuts
Filed under: economy

67 Comments

It’s the little things that count…

Posted by David Cunliffe on December 7th, 2010

Sometimes it’s the little things that tell a big story.

Parliament is sitting in the press-Xmas period under the shadow of urgency to pass a rush of “priority legislation”.

Guess what one of the top priorities is? Abolishing gift duty.

That’s right, at a time when Kiwi families are doing it bloody tough, when the recession is biting this year worse than last, when top earners have had two rounds of generous tax cuts, and when the government is confronted by evidence of large scale tax avoidance, their priority is abolishing gift duty.

Making it easier to transfer assets to the trusts or the kiddies (on lower tax rates) above the existing threshhold of $27k each per annum.

Surely not a prioirty in the Mana electorate, not a priority in New Lynn, nor quake-ravaged Christchurch.

Surely not an example of personal responsibility – where everone pays their fair share.

Surely not bringing relief to the squeezed middle.

For National it is clearly a prioirty to bring yet further relief to the top.

Sometimes it really is the little things that count.

Tags: Auckland Super City, economy, Tax, tax cuts, urgency
Filed under: Tax, economy, perks

42 Comments

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

Posted by David Cunliffe on November 23rd, 2010

Part one of this post showed that S&P placed NZ on negative watch because of the savings gap, the huge (mainly private) net international debt and our under-diversified export profile (and consequent vulnerability). It all adds up to lenders perceiving potentially greater risks and seeking compensation through higher interest rates.

How did the Government react to the news? Did it front the issues and explain its “plan”? Not in your life.

Alex Tarrant at interest.co.nz did a great job of covering John Key’s rather bizarre, meandering post-Cabinet press conference here. Interest.co.nz’s coverage if the political debate is here.

Mr Key manages to contradict himself three ways in two paragraphs:

“Nothing has changed from our point of view, in fact if anything, our position looks stronger from our point of view (really?)…

We accept that we’ve had to take the earthquake on our balance sheet, accept tax revenues have been a bit weaker this year than we had anticipated…(corporate was 22.4% below 2010 forecasts, gst 15.8% below!)”

So… nothing has changed, we are stronger, but we are weaker. Classic. He must have been eyeballing three different journos and guessing they wanted three different answers, so why not try to please all of them at once?

The coup de grace is his attempt to pass it all off as Ireland’s fault. True, the Irish are in a bit of a bog, but lets assume S & P can tell the difference between the land of the long white cloud and the emerald isle.

Back in the real world, one thing is for sure, S&P won’t be amused if Messrs Key and English try to talk their way out rather than addressing the fundamental issues: how about trying to grow savings, diversify and lift exports, and reduce private international debt? Who knows, they could even turn it into a plan?

Tags: Bill English, Budget, economy, John Key, Standard and Poors
Filed under: Investment, Tax, Uncategorized, bank, business, economic, economy, international, monetary policy

37 Comments

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

Posted by David Cunliffe 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.

Tags: Bill English, Budget, economy, John Key, Standard and Poors, tax cuts
Filed under: Budget, IRD, Investment, Tax, bank, business, debt, economic, economy, finance, international, monetary policy

15 Comments

Red Alert

Red Alert

Posts Tagged ‘economy’

TINA’s back

Doing Things Differently

Why The Downgrades Matter

John Key and that stadium shot

Lies, Damned Lies and … Steven Joyce.

What others are saying

Budget FAQs #5: Growth Hockey Stick

Budget FAQs #4: National’s Growth Gap

Budget FAQs #3: Kiwisaver

Budget FAQs

The car washer dudes are back

Economy Stuck in a Rut

The Great Broadband Sell-off

Telco Hearings Set for Stoush

The Debt Deception

A clear dividing line

It’s the little things that count…

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

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

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