Written By: - Date published: 3:50 pm, October 6th, 2008 - 115 comments
Categories: economy, election 2008 -
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The Pre-election Fiscal Update projects that gross debt will rise from 17.4% today to 24.3% of GDP in five years. Fortunately, we are facing these tough economic times starting from a solid position due the the Government’s policy of running surpluses and paying down debt, rather than slashing taxes. 24.3% debt is right at the upper edge of even National’s comfort zone but it won’t be disastrous. We shouldn’t choose to increase our debt to such a level but we can deal with it when economic conditions force it on us.
The same goes for unemployment. It is projected to rise to 5% but the rise is coming of a very low base and, because low unemployment is self-reinforcing, the rise will not be as bad as it has been during other economic crises.
These are the rainy days. Fortunately, we’ve acted wisely during the good times. We face the storm in much better condition than countries like Australia who allowed their banks to become exposed to risk on the international credit market, run higher unemployment policies, and undercut their tax base.
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QtR
I agree entirely.
Govt’s can only do what the people let them. I believe the constant braying by the media etc for tax cuts has forced Cullen into this. The wff way is the much better approach it targets relief where it is needed most. But the vociferous dinkies etc who miss out on wff want even more. If your not elected – you can’t do anything about it. The country gets the govt it deserves in the end, and if the country doesn’t want to pay taxes – with all its encumbent pitfalls (and you know them as much as I) then that’s what the country will get.
Scoop now features links to Farrar and KiwiBlog.
http://www.scoop.co.nz
10.29 PM
6/10/09
[it has done so for a few months. They're in buisness together, along with Public Address - scoop media. Basically, scoop organises their advertising and skims a bit off the top. Bit of a sell out on scoop's part but there you go. SP]
Actually the piece I liked was from Paul Buchanan
Death Of Neoliberalism, From A New Zealand Angle
That was a much better piece than kiwiblogs crying over missing out on unneeded taxcuts
Macro said:
I appreciate your intellectual integrity Macro. That is the crux of the real debate we should be having on the economy macro: what is a prudent level of debt?
National’s argument for some time has been that New Zealand doesn’t have a debt problem: 17.4% of GDP is not a high level of debt. Key was promoting increasing debt by about 2% to fund infrastructure. The Labour Party would have had it, a couple of months ago, that this was reckless gambling on the New Zealand economy. They have today published the PREFU, forecasting debt to rise to 24.3% of GDP. That has pretty much killed Labour’s argument.
There are three things you can do when the government’s balance sheet is worsening: cut spending, increase taxes, or increase debt. Even 30% debt-to-GDP is very low by OECD standards. If you cut spending or increase taxes in a recession, you risk worsening the recession. If debt isn’t a problem, then you can maintain spending and revenue, and increase debt in the short term.
I don’t think debt is a problem in the short term. I think National would like to see a lower long-term spending track, and a higher long-term growth path. We’re not going to get the latter unless we significantly increase infrastructure spending. The only way to fund that higher growth path in the medium term is by increasing debt. I don’t have a problem with that.
macro: Just as an example, the current top search terms for this site are:-
The Standard, tax cuts calculator, tax cuts 2008
The first has been the long-term favourite, the latter ones kicked in big time last week.
Macro says”
Of course that’s true. If you ask even the most dedicated socialist if s/he wants to pay any more tax than is necessary, they’d answer no. The argument revolves around what’s necessary. But when a politician’s telling us what needs to be taken from our wage packets their answers can’t be trusted because (aside from PREFUs) we’re getting spun.
Yes there are Budgets, but Treasurer of the day can pretty much make them say what s/he wants them to. The PREFU is the closest we come to direct, unfiltered reporting from Treasury to the NZ public.
At times I’ve lived on the dole and at others I’ve owned a business and been fairly comfortable. Whenever the financial situation has changed I’ve sat down with my family and put all the cards on the table – the new income, the fixed expenses, and the variables.
Assuming there’s a surplus after fixed expenses everyone has a say in what should be spent, and how, and what should be saved. The kids have learned that if they go nuts when there’s a bit of extra cash, then the hard times will be really hard.
So if I can trust my children, why can’t the politicians trust us?
How many people would demand tax cuts if they really understood how their taxes were spent and had a say in it? Perhaps they might want a cut, but a lesser one than politicians think they need to promise to get elected. Perhaps they’d be happy with a reallocation of resources to things they feel matter. Perhaps they’d still want a large cut, as is their right. In PR parlance they’d call it “getting buy-in”.
Technology has evolved to the extent that we can now have this sort of national conversation, so there’s no excuse for not involving us more.
It’s our money, and it’s our country.
Surely someone from the Government has to come out swinging at this crap from Key?
Labour is responsible for the current down turn in the economy?
That is a mighty brave thing for an ex-Merrill Lynch man to say, when he has been awfully quiet about the rest of the problems of speculation on Wall Street.
The New Zealand markets have had some resiliency so far because in part of the availability of NZ capital through the savings schemes introuduced, and taken up in large numbers, by this Labour government.
Surely someone has to come out show this rubbish for what it is? Lame politicking, from someone who has married themselves to tax cuts on the speculative gamble that this will buy them the election, damn the circumstances.
If we had already taken the tax cuts and measures backed by finance spokesman Key at the last election how would we be sailing now?
“If we had already taken the tax cuts and measures backed by finance spokesman Key at the last election how would we be sailing now?”
Exactly.
Tim? What say you?
Goodness me, PB, it’s a bit early on a Tuesday morning to be nominated as the spokesperson for the Right.
I don’t know how we would be sailing now. Right now we are in recession. It is going to be deep. Australia is not in recession. It is safe to say that if I were living in Australia right now, I would not be living in an economic recession. I wouldn’t go so far as to say that if Don Brash were Prime Minister, we would not be in a recession, but I don’t know what his policy response would have been.
I am confident though that as John Armstrong says in this morning’s herald:
I think Armstrong is spot-on with that analysis.
I’ve just listened to the international financial news and right across Europe and the US governments are panicking and desperately blowing out debt forecasts to bailout their failing banks and markets. It seems pretty sweet here by comparison…
I agree Robinsod, the ongoing news from the US seems to be very, very messy right now. I don’t think we’re anywhere near immune from it though. About the only thing in our favour is that our banks (yes, the Australian-owned ones) are the safest banks in the world.
“About the only thing in our favour is that our banks (yes, the Australian-owned ones) are the safest banks in the world.”
According to standard and poors and we KNOW how good their track record is of late.
Lil ole NZ will play late catchup on this global recession, we dont lead demand we follow it.
The diminished size of the NZX also reduces our exposure. Which kinda makes a joke of the right’s frequent claims the damn thing needed “saving” by way of partial floats of SOEs…
I don’t follow that logic Robinsod. The SOE floats were about increasing private savings and investment in New Zealand assets. If there were more quality domestic assets for New Zealanders to put their private money into, they would have been more likely to invest in those high quality, local assets, rather than put their money into offshore funds and/or risky New Zealand asset classes.
Thanks Tim, I wasn’t nominating you for anything, just asking your opinion.
Not sure what Australia’s got to do with anything. You say that you don’t know what Brash would have done, and that’s true. But we do know what he campaigned on.
He thought that the surpluses we were running three years ago were theft, and that they should be payed back via tax cuts, and that we could have afforded to be running small deficits back then. Key was his finance spokesman.
You didn’t seem to address this aspect at all, for understandible reasons, prefering to think that Brash might’ve somehow made us Australia.
The SOE floats were about increasing private savings and investment in New Zealand assets.
What faith you have in rational economic individuals. All an asset float would have done is further expose productive New Zealand assets to the speculative and emotive vagaries of the market…
PB
Australia has had a raft of cutting tax cuts over several terms now – comparisons between countries with different economies and reliance on varying sectors makes all inter-country comparisons very difficult.
“He thought that the surpluses we were running three years ago were theft, and that they should be payed back via tax cuts, and that we could have afforded to be running small deficits back then. Key was his finance spokesman.”
Depends what really what National would have done with those surpluses – how much would have gone to fund infrastructure, how much would have been returned to the taxpayer – what would they have used it for what effect would that have had on the economy – who knows ?
Perhaps whoever’s in charge of the economy after the election can ring the Canadians and ask if they still want to drop 2 billion into the NZ economy for a 40% share of AIA Ltd – seems we’re going to need it rather badly.
sod
Talking of vagaries what’s going on with the liabilities under Kyoto.
http://www.treasury.govt.nz/government/liabilities/kyoto
hs, The US has also had tax cuts aplenty over the last decade and all their stats are looking worse than when Bush took office. I agree that these comparisons are hard, but I didn’t bring them up.
We do know what Brash campaigned on though. He said that Cullen was a thief for running surpluses and that they should be returned via tax cuts. We all know what this would have done to the NZ government books in hindsight. It’s about judgment. No comparisons with Australia are needed.
PB
In terms of the US – it’s a very simple combination of greed and stupidity that many commentators saw coming over a decade ago – it’s happened before it’ll happen again.
“I agree that these comparisons are hard, but I didn’t bring them up.”
Quickly followed by ……
“We do know what Brash campaigned on though. He said that Cullen was a thief for running surpluses and that they should be returned via tax cuts. We all know what this would have done to the NZ government books in hindsight. It’s about judgment. No comparisons with Australia are needed.”
This is very muddy thinking – we do not know what this would have done to the government books in hindsight unless you are assuming that Brash and his government would have embarked on exactly the same spending as the Labour led government of the day and that the money put back into the economy in the form of tax cuts would have had no effect.
Hey Y’all,
I really would like a “shit, trav told us this ooh, about 5 months ago and we told her she was nuts” right about now.
Now please watch money masters and money as debt
We don’t own anybody anything. It’s a rip off and a scam perpetrated by the banksters and a very good reason to throw John Key, Don Brash and their ilk out of this country. Nuff said.
By the way, the idjit who said that Oz was not in a recession should tell that to all the kiwi’s who are trying to find a job back here.
Hey Trav,
I’ll concede that you did tell us all about this 5 months ago.
I’ll also bet all the money (as debt) in my pockets against all the money (as debt) in your pockets that you made the same “cry-wolfist” claims six months ago… and 1 year ago… and 2 years before that…
That’s the beauty of shotgun doomsday predictions. Eventually you’re going to be right, but that doesn’t make you Nostradamus.
Cast your minds back, just one month….
Economy over the worst: Cullen
So who wants to say they trust this man to guide us through the rainy times ahead? He has no F$#king idea what he is doing.
[burt, it's you that has no idea what is going on. The indicators, including business confidence, is that our economy is picking up. But month ago, was before the wall st meltdown and Cullen's opinion has changed since then. National's plans have not changed. SP]
What’s the difference between an investment banker and a pigeon?
A pigeon can still put a deposit on a Porsche.
Oh, it me that has no idea . Well just as well I’m not the Finance Minister then isn’t it – but really Steve, it’s not about me.
Do you think that Dr. Cullen actually thought (just one month back) that the worst was over or do you think he was just making stuff up as he went along to make people think that Labour are prudent managers of the economy?
These are the rainy days. Fortunately, we’ve acted wisely during the good times. We face the storm in much better condition than countries like Australia who allowed their banks to become exposed to risk on the international credit market, run higher unemployment policies, and undercut their tax base.
Mr. Pierson or whoever you are, that must be the most ridiculous statement of 2008, and therefore I award you the Nobel Prize of Economics with emphasis on Stupidity.
Only a Labour supporter could write that in defense of a pathetih Dr. Cullen.
noxxano said “Fortunately, we?ve acted wisely during the good times”
Really? So buying a train set at way over value just when the country clearly couldn’t afford it was acting wisely?
The problem with having a history teacher running the economy is that he can tell you everything about what happened yesterday but wouldn’t have a clue about what to do about tomorrow.
When Cullen said he was out of his comfort zone that was code for “way out of his depth and scared totally shitless”.
NZ’s heart services lagging behind
OK, so the money spent on health over the last 9 years has achieved a negative result. What else has Labour made a pudding of?
captcha: bondi bridges – Oh yes.
[lprent: Now that is silly of you. Tell me what is a primary characteristic of an aging population.... They tend to have more people wanting health services. That means that the health budget has to spread further so just increasing spending doesn't mean that the dollar per person wanting services goes up. The solution - raise taxes to pay for more spending.]
lprent
“The solution – raise taxes to pay for more spending”
That is not what Labour are doing ? Do Labour not understand this as well as you?
Really? So buying a train set at way over value just when the country clearly couldn’t afford it was acting wisely?
Troll speak – calling it a “train set” is a pretty good indicator of the quality of your “thinking”. Governments are supposed to invest in infrastructure, remember? And it doesn’t get much more fundamental than rail infrastructure, especially as we start to ponder a low emissions future.
The problem with having a history teacher
More troll speak (Key is an accountant eh?). Dr Cullen has a PhD in Social and Economic History, and has been Finance Minister for 9 years.
When Cullen said he was out of his comfort zone that was code for “way out of his depth and scared totally shitless’.
Or, possibly, he meant that he was out of his comfort zone.
r0b said “Governments are supposed to invest in infrastructure, remember?”
No problems with investing in infrastructure. What I do have a problem with is paying way above the odds for the assets. Even Cullen at the time admitted he had paid a premium for it. For him to admit that suggests, as some commentators suggest, that he had paid hundreds of millions too much.
“Dr Cullen has a PhD in Social and Economic History,”
Exactly my point.
“Or, possibly, he meant that he was out of his comfort zone.”
No, I think my description is better. He has only known bountiful economic times. I think he would definitely have been looking at the future with fear and trepidation.
r0b, don’t be so sensitive about the terse language. Afterall, a lot of people, including myself, are feeling pretty pissed off about the state of the accounts. I don’t think blaming it all on market conditions really washes IMO.
SP said:
In my haste this morning I didn’t read this, and agree with noxxano that it is absolute nonsense. New Zealand is in recession. Australia isn’t. New Zealand banks are owned by Australian banks, which happen to be the safest in the world, due in a very large part to a mixture of a very strong economy, very large savings records, and sound fiscal management.
We will be facing much tougher times in New Zealand. If our banks weren’t Australian-owned, we would be in much more trouble.
No problems with investing in infrastructure.
Pleased to hear it.
What I do have a problem with is paying way above the odds for the assets. Even Cullen at the time admitted he had paid a premium for it.
Do you have a reference for Cullen’s comment? I’d be interested to see it.
“Dr Cullen has a PhD in Social and Economic History,’
Exactly my point.
So we can describe Key as an accountant then?
r0b, don’t be so sensitive about the terse language.
I have no problem with terse language, been known to be terse myself. But there are certain phrases which are just cut and paste KiwiBlog right troll speak – “train set”, “history teacher” – if you have serious points to make you don’t do yourself any favours with troll speak.
I don’t think blaming it all on market conditions really washes IMO
Why not? It would have been a great deal worse without Cullen’s prudent management – I won’t repeat it all but see the second comment in the thread.
burt: Sorry that last should have been as a message rather than a note (I was rushed for time before a meeting).
Labour does understand this. They have already massively increased spending on health and have more still in the budget. However the political reality is that the Nat’s have been politically irresponsible for their short-term electoral advantage. They’ve been pushing major tax-cuts into public perception (because it is frankly their only really popular policy platform). Of course they don’t bother to detail the ongoing costs of doing that.
Cullens ‘tax-cuts’ are effectively just removing accumulated fiscal drag (and I’d love a way of doing that as a routine system rather than as ‘taxcuts’). Much of the money from the slow increase in taxes from fiscal drag has gone into dropping old Muldoon-related debt (finally) which is good because it also has dropped the interest payments out of the cost side.
Most of the increase in the revenue from reduced unemployment and interest payments, and a better tax-take from a growing economy has gone into preparing for a aging population in the future, eg Cullen fund, Kiwisaver, WFF (be nice to have young ones to help pay for it in 30 years), Health, and Education (be nice if the young ones are able to pay for it).
However it still isn’t enough. The super system is still not fully prefunded for the peak. Increased funding for health still isn’t keeping up with demands on the health system due to an aging population that lives longer.
Nationals usual solution is to say “Bugger all of that – lets put it into the pocket now and let productivity increases take care of the future”. That is fiscally irresponsible because to date they haven’t shown a single way that those productivity gains are going to happen (and if anyone mentions their broadband solution again I’ll have fun explaining again why it is a waste on money). They sound to me like used car salesmen – but I prefer AA reports because they’re MUCH more reliable.
The responsibility of government is to be fiscally prudent, not only for now, but also into the future generations. Cullen has been. English/Key looks like they just want to load debt on to a future smaller tax base.
I’d prefer to tax now to pay for it. After all the taxpayers now are going to be the pensioners who receive the benefit.
r0b said:
Google it, r0b. There are literally dozens of references for it. At the risk of sounding terse, I’m not: there are just too many references to the statement to list here.