Written By: - Date published: 3:39 pm, August 3rd, 2008 - 69 comments
Categories: economy, election 2008, john key, national, slippery, tax, transport -
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In a speech described by attendees as ‘more bullet points’, John Key announced to the National Party conference today that National would borrow $5 billion more over 6 years to finance infrastructure – specifically roads and the broadband ‘plan’. The money-man has dressed it up cleverly, of course. A fancy new class of ‘investment vehicle’ will be created – infrastructure bonds. Banks etc will buy these off the Government, which will use the money to build roads and then the bond holder will, over the course of several decades, make huge profits from these bonds. It’s a fancy name, but it’s the same thing – we borrow money off someone else and pay them a mint for it later on. Our public debt would increase from 20% to 22% of GDP as a result. Hundreds of millions will flow overseas every year to pay our debts, rather than being used to fund our hospitals and schools.
Key tells us this has nothing to do with tax cuts; that tax cuts would be ‘hermetically sealed’ from borrowing. If you believe that, you’ll believe anything. First, how could decisions on tax cuts be separated from borrowing? They both appear on the Government’s balance sheet – if you cut tax for the wealthy, you’re going to have to borrow more to make up the difference – or would a Finance Minister English not tell himself how much he wants to cut tax when he’s working out how much to borrow? Secondly, if those tax cuts don’t take place, we won’t have to borrow billions of dollars and spend decades paying back foreign banks. It is only because National plans such big tax cuts for upper income earners that it would have to borrow.
And let’s not forget the macro-economics. When New Zealand borrows money, the amount of money circulating in our economy inceases. But our economy is still pretty close to full capacity (unemployment remains below 4%). So, our economy cannot produce enought extra things to be bought with this extra money. Instead, the extra money floating around means that stuff starts to cost more. Borrowing is inflationary and that’s not a good thing, especially right now in New Zealand where the economy is at full tilt and inflation is already heading north of 5%.
Finally, I know I’ve said it before but is this the ambition that Key keeps promising? More roads and more debt – not even an impressive building programme pouring billions into infrastructure, just $500 million a year for more of the same. Where’s the innovative planning, the imagining of a new and better New Zealand? All we’re seeing is ‘we’ll cut your taxes and build some more roads, and we’ll pay for it all by borrowing from the Aussie banks’.
The same old plan, with a bit more debt. No vision of a world-leading low-carbon public transport system, no cutting edge rail network ready for the reality of peak oil. Hell, even the $1.5 billion broadband ’plan’ remains totally bereft of detail and is coming under criticism from the industry for attempting to do something that isn’t needed in the wrong way, while incidentally restoring Telecom’s monopoly.
National is sorely lacking in a vision for New Zealand, and belief in New Zealand’s ability to be world-leading. They seem more concerned with helping the bottom lines of foreign investors.
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Did they let you stay for the speech Steve?
Yeah, just more bloody bullet points. How much new spending? For what exactly? What would the terms of the PPPs be? What about rail? What are the productivity benefits expected? How much of the extra borrowing will be to cover a structural deficit resulting from the tax cuts?
None of the details we need to meaningfully assess this “major” announcement, as DPF puts it. Well, the implications may be major, but the actual announcement is grossly inadequate.
This is a better plan than enduring third world style infrastructure. Look at most folk buying a house, how many ever pay cash for it? NZ needs a modern infrastructure to enable us to grow & move ahead. It will be provided in a cost effective & timely fashion.
How do inefficient roads & traffic jams save us energy & time?
Such improvements can be said to pay for themselves in the overall economic performance. Better than self flagellation & running around in hairshirts. Better for us all.
One day we can look back & say “How did we ever do without this?”
It is heartening to see National articulate a clear vision for our future.
The MMP referendum will get the headlines (and the good reviews).
Smart politics, empty economics.
keys on the road to nowhere…driving along
coge: “It is heartening to see National articulate a clear vision for our future.”
What’s clear about it? If it’s so clear, tell us what exactly the money’s going to be spent on. Just roads? Which roads? Electricity infrastructure? If electricity, how does that impact on the electricity market? Anything else?
You would think that you’d do some costings before going public with a $500 million/ year spending promise. Not National.
Captcha: Fabian Lt
Edit, And what Felix says at 4.22pm. Shite.
He’s bumpin some easy listening on the stereo.
coge you’ve either never been to a “3rd world” country or you’re just talking shite.
Yet another me too from National. This time they haven’t bothered pretending its an original by giving it a different name. Infrastructure Bonds is what Cullen called his too. I suppose Key wants to toll AlpurtB2 and PPP the Waterview connection too.
Hopefully they sell the rail eventually. Stupidest move ever.
It’s the exact same plan Sir Rob Muldoon worked to. It didn’t work 30 years ago and it won’t work today. This plan is more likely to push us even further toward third world living standards because the cost will be more than we can afford.
coge
Exactly. The supporters of Dr.
MuppetCullen think it’s completely valid to use taxation on current tax payers to fund things that last for generations. Roads that last 150-200 years paid for by current tax payers.I’ve been to a few third world countries, I’ve seen how in possibly all of them the govt are rich and the people are poor – a bit like looking at NZ under Labour.
Talking about third world countries, aren’t our appalling child abuse statistics higher than many lesser Nations?
you guys on the right are pathetic.
the point of this blog concerns debt, and national’s plan to increase it – even my dead cat realises that’s not the way forward. The only reason that we came off the latest slow down comparibly unscathed was due to our surplus (I think that Spain had a comparible situation)
Labour has actually had a masssive expansion of roading over the years – you guys obviously choose to ingore that.
Burt – going by your inadaquate analysis, I don’t believe that you’ve been to the so-called ’3rd world’, let alone know what it means.
D4J – S59 mate
I’ve done a bit of a summing up of my view on John Key’s 10 election pledges over at NewZBlog for those interested: http://newzblog.wordpress.com/2008/08/03/key-unveils-election-promises/
If people are calling New Zealand 3rd world then they’ve obviously never visited a 3rd world country. Period. People think they know what 3rd world conditions are but I’m telling you now: you never will until you have actually visited one of these places. I’m sorry to link whore again but if you want to read a first hand account then have a read of the following posted during my month long trip to Vietnam earlier in the year: http://newzblog.wordpress.com/2008/02/05/third-world-new-zealand-bullshit/
Talking about third world countries, aren’t our appalling child abuse statistics higher than many lesser Nations?
This coming from a guy who was just coming out in support of the Exclusive Brethren. Good one.
Roads that last 150-200 years paid for by current tax payers.
Really you been driving on any 200 year old roads lately. 200 years ago when they had cars and truck aye. In 200 years time will we still be driving around cars?
Link whore your shit eles where. You don’t even refute any points. Just your opinion. Which is fine, but don’t expect anyone to take you seriously.
That’s because it is. Remember that the current tax payers will benefit from the infrastructure as well.
So – current taxpayers should wear 100% of the cost because they’ll get 10% of the benefit? No wonder you have such a good understanding of what motivates rich pricks to ripoff the workers.
Burt,
If you could pay cash for your home why you would ever borrow for it? The fact that the home will last many years is irrelevant.
The only reason why individuals borrow for their homes is that the price is usually many multiples of their annual income and there is no way they can reasonably save to purchase one outright. And the cost of borrowing is enormous. By the time you have paid off a mortgage you have repaid 3-5 times over the original value of the home you purchased. (Of course with rising property prices most of us have been able to conveneiently ignore this, but the same is not necessarily true of motorways, hospitals and the like. And in case you have not noticed, the property bubble popped six months ago.)
There is very little that a govt can spend on that it cannot actually afford out of cash flow, or short-term debt.
The other problem with using debt to fund infrastructure is that the repayments gobble up the cash that is needed to maintain the asset. As many a local govt body has discovered to it’s cost, it’s all very well to build new water treatment plant, roads and the like, but all these assets DEMAND constant expenditure to maintain them.
A road that is not maintained becomes useless very quickly. It may have been originally cut 50-80 years ago… but it was the grader that went over it last week, or the resealing done last year that means you can still use it.
OK. Here is another way of looking at the situation. Anyone who has had building experiance should understand this point. Taking ALL costs & benefits into account, which is cheaper. Building now or building in ten years time? Let’s have some non-partisan opinions.
Wow, with another round of socialised losses in the offering the scrappys will be besides themselves with glee at the prospect of another Methex or Marsden B to dismantle in the years to come.
The purpose of building infrastructure is to increase the productivity of the country. Paying interest (long term) and inflation (short term) on the infrastructure will cancel out those productivity increases if not throw them into the negative. What this means is that present taxpayers will pay almost nothing of the costs and get the bulk of the benefits (increased productivity now) while later taxpayers will pay the bulk of the costs and get almost no benefit (productivity remains stable).
coge: You missed one really important point – Risk.
Right now building roads is a very risky investment, and is likely to be even more risky as the cheaper extraction cost hydrocarbon reserves are exhausted.
Factor that into the NPV’s benefit side. Face it – the Nats look into the past and refuse to look into the future. In this case they’re repeating the same logic that invented “Think Big” (now known as “Fuckup Bigtime”).
Why is it that the Nat’s keep wanting to spend money that they don’t have and pass the costs off to other people…
Fascinating comment on the news just now from Key. He promised to resign both as PM and as MP if superannuitant allowances were cut from his promised levels. Surely all his promises indicate policy platforms for the Nats.
In other words, all his other promises are not worth the paper they are written on. Promise everything, deliver nothing.
coge,
You build when you can afford to do so.
For instance. I personally own five properties. I would like to have built another two about six years ago, but I’ve had to wait until very recently before I had sufficient and conservative equity so that could access new funding at a reasonable price.
If you imagine that it is always cheaper to built today than in 10 years time, then ipso facto everyone would build today. But they don’t.
People cut their suit to the measure of their cloth.
The critical thing about debt is serviceability. There is no problem with debt as long as the asset I have borrowed for is productive AND I can access the resulting cash flow, AND the whole exercise eventually yields a return commensurate with the risk involved.
But Key would have us believe that he can similtaneously increase our govt debt obligations AND reduce the govts ability to service that debt by reducing taxes. It’s magical thinking.
It is a swindle. Until just hours ago Key was still telling interviewers that “National will not increase borrowing to pay for tax cuts”. Those were his exact words. I’ve heard him state this a number of times and his meaning was absolutely unequivocal. He was plainly answering these questions in a manner that conveyed ‘no more borrowing’to his listeners.
At their conference this weekend the Nats announce that they will be increasing borrowing.
Key has been lying. There is no wriggle room on this.
The idea that he can somehow ‘ring-fence’ tax cuts and borrowing on infrastructure expenditure is a plain nonsense as anyone who has ever run a household budget knows. At the end of the day it is all the same pot of money.
And if he has lied about something as plain as this, why the hell would any of you believe anything else he has said.
“At the end of the day it is all the same pot of money.”
My Maori mate says the same thing when he gives the pokies a nudge.Monty Burns is my father.
You know what I love this little gem from Bernard Hickey about Labour’s budget awhile back:
Whatever happened to their mantra that they wouldn’t pay for tax cuts by running up debts? Their (quite powerful) argument that it wasn’t right for National to pay for tax cuts with debt is now dead as the proverbial. Their rebuttal that the debt is only paying for infrastructure is, strictly speaking, true, but debt wouldn’t have to be raised without the tax cuts. There’s no getting away from this. They are raiding the Reserve Bank’s cookie jar and borrowing from foreigners for an irresponsible spending and tax cutting budget.
I wonder if Hickey will be criticising National’s plan or if the sad little sycophant will have nothing to say.
key is not the new man. he doesnt have a vision. sounds trite but it is true. he only wants the money. NOW. he gets his upfront. we have to pay it off for him. there is no short term gain at the moment and we are already positioned so butt out.
RedLogix
If you could pay cash for your house while the builders were paid buttons you would be called a rich prick exploiting workers. If the govt can pay cash for roads while people are struggling to put petrol in their cars to use them then the govt should be called a rich prick exploiting the tax payers.
You also completely ignore the realities of capital, the position the govt have with that capital and the means of funding maintenance. The govt are the landlords of this country, we (you and I and other currently living people) are the current tenants.
If I were a land lord (residential property) and I expected a sitting tenant to fund the additional bedroom I wanted to add because they had a use for it I would be called a scum landlord. If I put their rent up slightly after I had build it (ie: Collected more maintenance and capital funding revenue) then I would be being fair to the current tenant.
If you can justify a house owner charging the current tenant for extensions to the house then perhaps you could justify the govt using cash to fund long term infrastructure. Long term infrastructure that we as the funders do not own or get anywhere near value for money from due to our short tenure as a tenant of this country compared to their effective life.
Sure if the people of NZ are happy to fund it all today via taxes and that is an election issue then the choice is that of the voters. Do you think most people understand the capital funding realities or do you think the buy into or out of the “John Key will plunge us into debt BS” ?
Quoth the Raven
Very true. In fact, we could quote just about every right-wing pundit, politician, professor that has ever drawn breath … all denouncing the reckless, irresponsible left for their borrow n’ spend wickedness.
Let’s face it, John Key gets a free pass on this because
1) He isn’t Helen Clark
2) He isn’t Michael Cullen
3) Um … that’s it.
Still, I must admit that watching the cheerleaders do the semantic gymnastics is very entertaining. It’s going to be a fun campaign.
Iprent, what about the risk of not building safe & efficient roads?
Lack of hydrocarbon reserves or not (in my opinion not) roads will still be used. Unless you have a teleportation machine in your garage they will always be needed. They are convenient & people like to use them. It’s been that way for hundreds of years. Same for the forseeable future, unless we repair to the caves. Even then quality foot tracks will still be required.
Redlogix, it looks as if we are in the same business. Talk to any accountant or valuer, & there are a myriad of ways to cost up virtually any activity. In the end they are all opinions. So we must agree to disagree, or we could debate this for hours & still not get anywhere.
yeah well take a hike and I’ll finish it off…ok?
Burt,
I’ve seen some confused analogies before burt, but that one takes the cake.
The govt is not analogous to a landlord. A far better analogy is the idea of a collective in which all citizens have an interest.
But just to humour you.
Right now we have the tenant demanding demanding a new bedroom, demanding a new kitchen next year, demanding a lower rent, AND demanding that the NEXT tenant pay for it all.
Talk to any accountant or valuer, & there are a myriad of ways to cost up virtually any activity. In the end they are all opinions. So we must agree to disagree, or we could debate this for hours & still not get anywhere.
Yes I can fully agree with that.
In one of my fantasy worlds I would have borrowed ten’s of millions of dollars and built 100′s of rental units 30 years ago, because one view is that it would have been so much cheaper to build back then.
But if I had done that I would have likely gone broke trying to service the cash flow. Or even if I had been prepared to take on the risk, I would have struggled to find an affordable funder who would.
Which is why your original question, although a good one, is very hard to answer because there are so many different paths through it and so many ways to evaluate the potential risks of any given scenario.
Pop quiz for “Steve Pierson”:
Who said that, and when?