Written By: - Date published: 7:35 am, November 24th, 2011 - 39 comments
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I think it’s worth reminding ourselves that we had a choice at the last election between competent economic management and a bunch of hollow promises. We made a poor choice then, and every indication is that we’re about to repeat it. Perhaps if we consider the history of how we got where we are on the economy (updating a post from last year), there’s still time to avoid making the same mistake again:
Labour left the economy in good shape in 2008. Treasury said so at the time in their briefing to the incoming government:
A stable macroeconomic environment gives investors confidence in the New Zealand economy as a place to invest. It gives New Zealand businesses a degree of certainty for making business decisions. Successive governments have done a good job of getting the New Zealand economy in a position where it can respond well to economic shocks. Low levels of public debt allow freedom to look through short-term cyclical fluctuations and there is room to adjust monetary policy to support demand.
Bill English said so too, on Dec 18 2008:
“I want to stress that New Zealand starts from a reasonable position in dealing with the uncertainty of our economic outlook.” “In New Zealand we have room to respond. This is the rainy day that Government has been saving up for,” he told reporters at the Treasury briefing on the state of the economy and forecasts.
[New Zealand] was better placed, in terms of its starting point going into the crisis, than many countries. The basic nature of its banking system, the floating exchange rate, and low Government debt should stand it in good stead. … As well, “significant” stimulus from monetary and fiscal policy was happening, even if its full benefits had yet to be felt. “The average advanced country is starting with [government] debt of around 80 per cent of GDP,” Mr Brooks said. “New Zealand’s gross debt is around 20 per cent and in net terms it has positive financial assets. That’s important.”
Labour oversaw a decade of growth. According to Reserve bank Governor Dr Allan Bollard in 2008…
“We have enjoyed a decade of growth, the longest period of economic growth since the post-World War 2 era. Inflation has been low, averaging 2.2 per cent since 1998.
Labour paid off debt from the past, grew the economy quicker than comparable countries, stopped the widening pay gap with Australia, took unemployment to 30 year lows, alleviated poverty with Working for Families, and started planning for the future (and stimulating the economy) with Kiwisaver and the Cullen fund. That’s an economic record to be proud of.
For a variety if reasons – none of them economic mismanagement – the New Zealand economy technically went in to recession in 2008. Reserve Bank Governor Dr Bollard sums up:
The international financial crisis actually played little role in the early part of New Zealand’s economic recession. Rather, it was drought, falling house prices and high petrol prices that dragged New Zealand GDP growth negative over the first three quarters of 2008.
Despite being then caught up in the unfolding global recession, the resilient economy left by Labour recovered, and we were technically out of recession by the June quarter 2009. In other words the recovery was underway before the new National government’s first budget. National claim the credit of course, but we were out of recession before they even so much as twitched the reins of the economy. But National wasted the opportunity for a stronger rebound. Wasted it, because (unlike Australia) they had no idea and no plan for growth.
It was obvious before the election that Labour both understood the magnitude of the global recession, and had a detailed plan and stimulus package ready for the economy. National, in contrast, was only focused on buying the election with irresponsible promises of massive tax cuts (a promise dropped as soon as their bums hit the ministerial seats). They had no realistic plan. John Armstrong summed up:
If actions speak louder than words, Labour was the winner on Day One of the official election campaign – game, set and match. In the fight over which of the two major parties is best at running the economy, Labour scored a significant tactical victory. …
Key’s earlier speech at National’s campaign opening in Auckland’s SkyCity Convention Centre said nothing new on economic policy. In fact, it said nothing new about anything.
If that was not bad enough, Labour was getting ready to lay out something really meaty just a few blocks away in the Auckland Town Hall. There, Helen Clark trumped Key by delivering the recovery package he had been demanding, including contingency plans to save jobs and the promise of a mini-budget in December. The upshot was that Labour looked like it was governing; National looked complacent and flat-footed.
The new National government
In the face of the worst global recession in decades, the incoming National government infamously went on holiday:
Govt’s ’100 days of action’ includes 28-day holiday
It was supposed to be “100 days of action” … . but the new Government’s urgent agenda includes 28 days of a skeleton holiday-time operation. Despite the global economic crisis, Prime Minister John Key is on leave at his Hawaii getaway and – as in past summers – other ministers have been acting as the lone “duty minister”.
Not that it mattered much, because there’s very little difference between Nats on holiday and Nats asleep at the wheel. They had no plan of their own, so they tried to claim credit for the outgoing Labour government’s economic stimulus. Superb reporting by Tim Watkin at Pundit caught them out:
The $9 billion bait and switch
National claims its $9 billion stimulus package is one of the largest in the world and will protect New Zealand from the worst of the recession. But much of package is in fact old spending re-announced, including most of the previous government’s 2008 Budget and the purchase of KiwiRail that National so vehemently opposed
News sites and radio bulletins today are full of the government’s $500 million infrastructure spending plans, as part of its $9 billion stimulus plan for the economy. What they’re not telling you how the government is cutting and pasting old numbers under new headlines to make itself look more pro-active than it really is. … In truth, it’s a bunch of already budgeted-for spending plans re-announced and labelled a stimulus package. …
Tim finally got the truth:
The truth about National’s so-called stimulus: not a penny more
… Yesterday afternoon I got an answer and an admirably detailed answer at that from Bill English’s office. The short version is this: Last December the government confirmed that its new spending combined with Labour’s already committed spending would total $9b over the next three years. Every spending announcement since the business tax reform, the new bridges and schools hasn’t been about new money, it’s merely been telling us how that $9b would be spent. While the economy tanks and the rest of the world commits hundreds of billions in new spending, New Zealand hasn’t changed its fiscal plans one iota.
Desperate to be seen to be doing something, Key came up with a talk-fest “Jobs Summit”, and his astounding plan to fight the global recession with a cycleway. How’s that working out again? National have now had three budgets, in economic terms all of them wasted. Or actually damaging. Oh and by the way, unemployment is still high and the wage gap with Australia is growing ever greater too.
Signs of recovery
Not because of but in spite of the bumbling National government, the battered NZ economy is trying to battle itself back to good health. There are occasional signs of hope. As usual the Nats are desperate to claim the credit. But none of the “green shoots” are due to the government. Here’s a typical example:
Rising commodities have supported New Zealand’s economic recovery over the past 12 months after it climbed out of its deepest recession in 18 years in the June quarter last year. Central bank Governor Alan Bollard said New Zealand’s trading partners had recovered faster than expected and this had filtered through to the country’s exports.
Thanks commodity prices! Thanks trading partners! No thanks National. Similarly:
The outlook for the financial system has improved over recent months, reflecting a recovery in the New Zealand economy driven by stronger trading partner activity and a sharp lift in the terms of trade, Reserve Bank Governor Alan Bollard said today…
Thanks terms of trade! Thanks again trading partners! No thanks National. But it’s not all down to international factors – consider:
Deficit Falls Further The Government’s deficit has decreased further, with the Crown’s operating balance for the nine months to March 31 coming in $2,006 million smaller than forecast at $1,327 million mainly due to gains on the Crown’s investment portfolios held by the NZS Fund, ACC and EQC.
Thanks Super Fund, ACC and EQC, or in other words thanks Labour governments (2001, 1974, 1947)! No thanks National. Overall our performance coming out of the recession was anaemic:
June 2010 rebound much slower than usual:
The Reserve Bank is expected to keep raising interest rates, despite figures showing a much slower recovery than seen in past rebounds from recession. … The pace of this recovery is only a fraction of other rebounds seen in the past 20 years, as the economy slowly picks up after the global financial crisis.
The reason that the recover in NZ is taking longer than it should is that the Nats’ economic policies are stifling it. They think that the answer is for the government to cut cut cut. Cut spending, cut jobs, cut everything (except their own pet projects of course). This austerity is supposed to impress “the market” and “inspire confidence”, thus “causing growth”. This theory, known as “expansionary austerity”, has a tiny problem. It’s bollocks. And it’s been shown to be bollocks in both the UK and the USA. Here’s an example of us coming to the same realisation here in NZ:
Frozen family support blamed for economy
Reducing support to lower and middle income families worsens the impact of recession and contributes to the widening gap with Australia, Auckland University’s retirement think tank says.
The Retirement Policy and Research Centre investigated whether New Zealand and Australia’s economies have grown further apart since the global financial crisis.
Many of the Nats’ economic problems arise from their irresponsible 2008 election bribe of tax cuts “North of $50” per week. While they broke that promise they did deliver some tax cuts. This was supposedly in the form of a “fiscally neutral” tax switch, where Key broke another promise and raised GST to 15%. But the tax cuts didn’t deliver growth, and they weren’t fiscally neutral at all. The Nats have borrowed $1.1 billion in the first nine months to pay for their tax cuts (most of which went to the already wealthy). This extra borrowing helped contribute to the credit downgrades…
Double downgrade = Epic fail
The Nats made avoiding a credit downgrade the litmus test of their budgets. They failed, not once but twice, receiving credit downgrades from both S&P and Fitch. That’s an international vote of no confidence in the Nats’ handling of the economy. Here’s economist Bernard Hickey:
Ratings agencies don’t accidentally or routinely downgrade sovereign credit ratings. This is New Zealand’s first downgrade in 13 years. They matter. An ANZ study showed how previous downgrades preceded significant downward pressure on the currency and the economy.
No one should forget also that the government argued in the 2009 and 2011 budgets that its supposedly tough measures were designed to avoid a credit rating downgrade. This is clearly an ‘epic fail’ as the programmers might say.
Muddling through to PREFU
The John Key Government’s own growth strategy is a case in point. For example, the shambles over the mining strategy and the failure to put some ballast under the PM’s financial services hub project. Until recently, NZTE has been a relative shambles … the list goes on.
It’s unfathomable that a private sector operator like Key doesn’t put a few more skilled ministers alongside Steven Joyce and Tony Ryall to form a speed team to get major change bedded down.
After three years of economic crises, endlessly debating is no longer an option.
Sometimes they try pretending that they’re doing something – but they get caught:
Govt admits no new details in $17 billion infrastructure plan
UPDATED: Bill English has admitted the government infrastructure plan released today does not contain detail on any infrastructure project that had not already been announced over the past 2-3 years.
(And most of that, you’ll recall, was actually Labour’s work.) No wonder that most businesses think that the government has no plan for the economy. But that brings us up to date, and up to the PREFU (Pre-Election Economic and Fiscal Update). Here’s one summary (and warning):
Grim forecast for New Zealand’s finances
After Treasury opened the books on yet another gloomy forecast, it is tempting to ask whether things could get any worse. Well, yes, is the short answer. In a case study presented by Treasury in today’s Pre-election Fiscal Update (prefu) as one extreme scenario, we are caught in a downward spiral that ultimately results in the Government being so bust it can’t pay its bills. …
And here’s Labour’s well researched summary of where we’re at in the run up to the election:
- Unemployment has increased by 50 per cent, leaving 157,000 New Zealanders out of work.
(Source: Statistics New Zealand, Household Labour Force Survey)
- 100,000 New Zealanders have left for Australia after he promised he would stop the brain drain.
(Source: Statistics New Zealand, International Travel and Migration)
- Prices have gone up nearly four times faster than incomes over the past 3 years. John Key increased prices by hiking GST after promising not to.
(Source: Statistics New Zealand, New Zealand Income Survey and Consumer Price Index)
- The first credit rating downgrade in 13 years and a double downgrade at that.
(Source: Westpac, Weekly Commentary: Sign of the times, 3 October 2011)
- There are 60,000 more people on benefits costing an extra $1 billion a year.
(Sources: MSD, National Benefit Factsheet and Monthly Benefit Data; and Treasury, Pre-election Economic and Fiscal Update 2011)
- The wage gap with Australia has increased by $32 a week.
(Sources: Statistics New Zealand, Quarterly Employment Survey and Australian Bureau of Statistics, Average Weekly Earnings, PPP adjusted)
- There are 55,200 15 to 24 year olds not in education, employment or training and the number of young people on the unemployment benefit long term has increased by over 700 per cent.
(Sources: Statistics New Zealand, Household Labour Force Survey, NEETs and Hon Paula Bennett, Question for Written Answer 6058 )
- The economy has grown by just 0.4 per cent since John Key took office.
(Source: Statistics New Zealand, Gross Domestic Product)
- National’s tax cuts for the most well off were supposed to be paid for with the GST. They actually cost an extra $1.1 billion in their first nine months.
(Source: Treasury, Financial Statements of the Government of New Zealand for the year ended 30 June 2011)
- The underclass has grown with the number of children living in benefit dependent households increasing by over 32,000 in the past 3 years.
(Source: New Zealand Council of Christian Social Services, Vulnerability Report, Sept 2009 and Sept 2011)
The last Labour government had an economic record to be proud of, and left the country well placed to weather the global recession. National squandered that legacy. They had no plan before the 2008 election, and they still have no plan to this day. All they can do is try and illegitimately claim the credit for every minor upward blip in an indicator, and watch helplessly as they fall further and further behind on every measure for their self appointed goal of catching up with Australia.
The Nats blame their multiple failures on the financial crisis, and of course it’s true that events have made things difficult globally. But this was known before the last election. National promised us a fully costed plan and a quick recovery. It didn’t happen. Not this election they’re making similar empty promises (and telling similar lies). We shouldn’t make the mistake of believing them again.
We don’t need excuses, we need solutions. We’ve tried National and so we’ve wasted three years. Time for a real government. Bring back Labour!