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Squeezing the life out of the economy

Written By: - Date published: 7:13 am, June 20th, 2011 - 41 comments
Categories: capitalism, class war, economy, national - Tags: , ,

Are we “roaring out of recession”? No. Is there an “aggressive recovery”? No. What’s going wrong? The problem is that the Nats are squeezing the life out of the economy.

I’ve written on one aspect of this before. The Nats believe that the correct response to these hard economic times is to cut cut cut. Cut a billion dollars out of public spending. Cut funding for adult and community education, cut support for early childhood education, cut support for community groups. Cut jobs. Cut Working for Families. Cut incentives to save. There is an economic theory – expansionary austerity – which claims that cutbacks in government spending can stimulate economic growth. The trouble with this theory is that it’s complete nonsense. National’s cuts aren’t helping, they’re making things worse.

In the weekend Stuff carried a piece which explains another piece of the puzzle:

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.

The New Zealand Government, originally committed to closing the 35 per cent or so income gap with Australia by 2025, now says the target is aspirational.

Aspirational is fast becoming my new least-favourite-word.

… A fellow of the Australian Centre for Policy Development at Sydney’s Macquarie University, he said growing out of recessionary times is more of a challenge in New Zealand … “If the lower and middle income families don’t have much money to spend, you can’t support growth in the retail and construction industry, and it makes you more susceptible to the worst effects of the recession.”

The absence of this shock absorber tends to exaggerate the recessionary cycle in New Zealand and inhibits consistent growth.

Dr Spies-Butcher said that even without the mining boom, Australia’s family payment system is “more robust in terms of it being a shock absorber”. “Here you are freezing Working for Families support at $35,000. “Australia is freezing it at A$150,000 (NZ$196,000).”

And there you have it. The ordinary people, the vast majority, the middle and low income earners, are the ones who determine the health of the economy. National is squeezing them, with reduced support, by holding wages down, and with a GST / tax swindle that enriched the well off at the expense of the majority. All this while costs are rising fast.

The rich get richer, which is always National’s goal, but it’s all so short sighted and self defeating. Without an economically healthy majority, you can’t have a healthy economy, and ultimately everyone is less well off.

41 comments on “Squeezing the life out of the economy”

  1. Are we “roaring out of recession”? No. Is there an “aggressive recovery”? No. What’s going wrong?

    To this should be added “Are we catching up with Australia?”  The answer again is “no”.  We may be catching up with Afghanistan though although as you note the wealthy aint complaining.

  2. Good post r0b, something that needs attention drawing to. Shows some of the fundamental difference between Labour and National views on the economy.

    National believes if you look after business and the rich, it’ll somehow work out for the economy and the rest of the population. Labour knows that you look after the rest of the population, and it’ll be good for business, and the rich will continue to be fine regardless… That’s why, whether you look at the last 20 years, or the last 75 (since we started the Labour/National dichotomy), the economy has grown faster on average under Labour.

    • Jim Nald 2.1

      Nats rule the country for their cronies and foreign interests, and plunder our kitty and transfer our wealth to them.

      • sean 2.1.1

        Thats weird, I’m a Nat voter and all my wealth is a result of me working my ass off. (all my income comes from exporting my IT skills to the Euro market).

        How can this be when you say that it is your wealth that is being plundered?

        • Tangled up in blue 2.1.1.1

          Are you not a tax-payer?\

        • Draco T Bastard 2.1.1.2

          …all my wealth is a result of me working my ass off.

          Wrong, all your wealth is the direct result of the society supporting you through education, supply of roads, electricity, telecommunications etc etc. None of which we’d have if society hadn’t put them in place. You working your arse off has very little to do with it.

        • Hennie van der Merwe 2.1.1.3

          I would like to work my ass off but somehow I just cant find any opportunities to do so ….

  3. ianmac 3

    I have a dim recollection from the history books that when the first Labour Government came to power, instead of increasing the cuts, they gave 5 pounds to every worker(?). 5 pounds in today’s money is huge. The effect was to stimulate the economy and the Depression eased.

  4. Tangled up in blue 4

    The ordinary people, the vast majority, the middle and low income earners, are the ones who determine the health of the economy.

    Which is the basis for Labour’s Tax Policy:

    http://blog.labour.org.nz/index.php/2011/01/25/philosophy-principles-behind-labours-tax-policy-announcements/

  5. millsy 5

    I actually think that people, especially those that back the National and ACT parties, have a vested interest in having this economic downturn go on as long as possible, as it provides an excuse to hold down wages and conditions.

    • sean 5.1

      So, having the economy in a recession is actually good for businesses? How do you come to that conclusion?

      • millsy 5.1.1

        Read my post again – but I will repeat:

        It allows business to hold down wages and conditions — ie drive down labour costs.

        • Tangled up in blue 5.1.1.1

          I would think that businesses make less money in a recession?

          • McFlock 5.1.1.1.1

            But if they get to keep more of it, they’re better off. Their employees and the taxpayers are worse off, though. 

            Let’s say turnover is 10% down on what it would normally be. If tax is 5% lower and wages/infrastructure are 7% lower, the business profits would still go up. Sucks for everyone else, though, including most small businesses.

            • Colonial Viper 5.1.1.1.1.1

              Remember that most small businesses suffer badly in recessions.

              Individuals who own significant wealth can then swoop in and purchase those struggling businesses for pennies on the pound.

              On the economic upturn, the wealthy proceed to benefit from their cheap as chips investments.

          • freedom 5.1.1.1.2

            more billionaires have been created in the last three years than the previous ten so how does your theory work?

            • Colonial Viper 5.1.1.1.2.1

              The billionaire class have returned to roughly the same levels of wealth as in 2007, pre GFC.

              Of course, huge numbers of workers are still unemployed and entire countries about to fall over due to sovereign debt default.

              But the billionaires are doing just fine for themselves.

              • freedom

                in case it wasn’t clear,  it was the increasing numbers of Billionaires not their individual wealth i was bringing attention to,

              • freedom

                in case it wasn’t clear,  it was the increasing numbers of Billionaires not their individual wealth i was bringing attention to,

                • McFlock

                  It just reflects your inability to distinguish between general improvement and the improvement for only a few.

      • Rusty Shackleford 5.1.2

        National are baddies! rabble, rabble, rabble (another South Park quote, in case TVOR is around).

        • Colonial Viper 5.1.2.1

          National are not baddies if you happen to be in the top 5% of wealth owners and income earners and do not have an interest in the long term development of an ecoomically sovereign NZ.

    • MarkM 5.2

      What a dumb ill informed comment

      [lprent: But you didn’t say why. One would have to presume that you don’t know? In which case that makes this a comment by an ignorant person. Don’t make pointless statements. If you do it too often then I start classing you as a troll. And you know how I love trolls. ]

      • Colonial Viper 5.2.1

        A continued recession allows owners of wealth and capital to pick up hard assets for pennies on the pound; it also forces down the price of labour.

        Seems like quite a good money making rationale.

  6. Zaphod Beeblebrox 6

    Changing the tax/gst base and raising the minimum wage may help the retail and property sectors but you need to look a bit wider than that IMO.

    1. Australia has compulsary private superannuation. NZ loads all the future obligations on the government. No offence to Kiwisaver but it needs to be beefed up.
    2. Australia has a CGT and most states levy land taxes (on top of council rates) for commercial businesses.
    3. Australia has a lot tougher rules re: trusts. hence they are used as a vehicle for hiding assets anywhere near as much as in NZ.
    4. In Australia health insurance premiums are balanced so that premiums do not increase as you get older. This allows a lot more elderly people to stay insured- which takes a lot of stress off your financial planning. Not to mention the public health system. Middle class elderly at least ahve achoice which health system to use (most use a combination of both).

    • Draco T Bastard 6.1

      Re 4: You do understand that private health insurance is more expensive don’t you?

      • Zaphod Beeblebrox 6.1.1

        The point is that private health insurance is affordable for the middle classes in Oz as they age whereas in NZ is becomes more unaffordable as you get older. Result- more financial insecurity and the need to self insure for future medical problems.

        It also means the Nz government needs to spend a higher proportion of its taxation on health vis-a-vis the State Governments. This coupled with the Super debt (which makes the rest of the welfare spend look inconsequential) meas big financial problems for future NZ taxpayers (well those that can’t dodge tax through trusts and creative accounting).

        • Vinsin 6.1.1.1

          Referring to point 4 Zaphod, I actually sell insurance in Australia and as a result of them not having anything like ACC most people need at least three to four policies to cover them, Injury, Income Protection, Trauma plus the Super which can be seen as some sort of coverage. Recent surveys show most Australians don’t have enough cover as covering 3 or four policies becomes very costly, an individual will normally be paying anywhere between $40 and in some cases $80 weekly if they want to be completely covered. Of course the pricing doubles if you want joint cover and if we factor in car insurance you could see how un-affordable being completely covered may be. If there’s one thing we don’t want to emulate from Australia is their privatized health insurance.

          A couple of other things I thought i should mention is that whilst premiums may not increase with age, the benefit is normally cut in half, ie, if your covered for up to 100,000 then you reach the age of 75 the premium would stay the same, however your cover would become up to 50,000. Also premiums being balanced and affordable is not technically true, an underwritten policy may be less after all risk factors had been assessed; however, if the risks are high then so are the premiums. A policy that isn’t an underwritten policy tends to inflate the premiums as no risks or past history are allowed to be taken into account.

  7. KJT 7

    Have a look at this graph. Shows exactly why NACT are pushing their agenda.

    http://kjt-kt.blogspot.com/2011/06/kia-ora-who-really-benefits-from-neo.html

  8. Draco T Bastard 8

    Yes, NAct are using their position in government to shift more of our wealth to the few, yes NAct are destroying the economy but…

    you can’t support growth in the retail and construction industry,

    Using up more of our limited resources isn’t exactly the way to a sustainable economy.

  9. freedom 9

    The greedy are nothing if not brazen.  Some are willing to hold out their greed for all to see.  The free market at its finest.  Preying on the most desperate and  selling it as a social service that will help people.  ggrrrrrrrrr!!!
    http://www.stuff.co.nz/business/money/5166566/Text-a-loan-rings-alarm-bells
     
    This does not help an economy, this only helps the bankers, and the bankers do not care about the economy as long as they get theirs

    • Deadly_NZ 9.1

      And yet there are STLL NO LAWS banning this sort of financial predation.

    • millsy 9.2

      From the report:

      “….Country Manager Richard Yoon says is ‘hugely beneficial’, allowing consumers to complete purchases, which may have otherwise been declined, on the spot in a ‘couple of minutes’…..

      Instead of being hit with over $400 dollars from taking a $100 dollar loan, it would be far easier and less costly, to get an overdraft from your bank (my bank has an OD function, so far I have managed it quite well — saved me at the checkout quite a few times – and ensures everything that needs to be paid is paid.)

      Now if only someone would start mucking round with paying for things via txt message from phone credit. That would be a winner. :-)

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