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Admitting that austerity has failed

Written By: - Date published: 8:10 am, June 16th, 2012 - 56 comments
Categories: economy, john key, national, uk politics - Tags: , ,

We’ve written before about how misguided a program of economic austerity is, and in particular how the fantasy of expansionary austerity doesn’t work in the real world. In both the UK and NZ recently elected tory governments have doomed their countries to years of austerity and cuts, and in both cases the results have been dismal. Now it looks like the Cameron’s government has woken up:

£140bn kiss of life for Britain

Chancellor and Bank of England in ‘panic’ bid to hand small firms and house-buyers cheap loans – but will this gamble kick-start the economy?

  • Banks will be loaned money on condition they pass it on in the form of cheaper loans and mortgages
  • Huge sum represents 1/5 of all Government spending
  • Scheme aimed at limiting impact of ‘Eurozone debt storm’ which is blamed for raising the cost of lending
  • Government will soon announce another initiative to underwrite tens of billions of pounds on spending on housing and infrastructure

So much for austerity. I’m no economist, but the package looks panicky and poorly designed to me.  Housing and infrastructure is good – where is the education (reverse the cuts!), where is the research and development? Where is the green, sustainable investment?  The main moves seem destined to just feed another housing bubble, surely we know by now where that ends.  The UK Labour Party weighs in:

Throwing money at banks won’t solve economic crisis, Ed Balls says

Shadow chancellor says banking stimulus package announced by Osborne and King fails to address lack of confidence

Ed Balls has warned that an emergency multibillion-pound package to inject lending into the British economy still fails to address the lack of economic confidence and demand. … He said the measures announced on Thursday night at the Mansion House in London by the chancellor, George Osborne, and the bank’s governor, Mervyn King, should have been implemented two years ago and would not work if businesses were not investing.

So is it too little too late? Probably. But credit to Cameron’s government, they recognised (eventually) that austerity wasn’t working, they’ve ditched it, and they haven’t dithered with half measures. The impact of this package will be watched by the world.

Compare and contrast with our local Nats. They’ve given up on their economic programme too. You can see it in Bill English’s admission that (summarised) “The desired rebalancing of New Zealand’s economy has not been as sufficient as the government would like” and “the government expected its 2010 tax switch to be beneficial following a 5-7 year period” (yeah right). You can see it in John Key’s reaction to the Reserve Bank’s assessment, based on better data, that the economy will not grow as predicted in the budget, and we won’t achieve surplus by 2014/15. Key said “There is nothing different we would want to do at this time”. A total failure of leadership.

Austerity has failed in both the UK and NZ. But at least Cameron’s Conservatives have the wit to realise it, and the courage to act. Key and the Nats are capable of nothing but looking on as the economy spirals slowly down the gurgler…

56 comments on “Admitting that austerity has failed ”

  1. ghostwhowalksnz 1

    The clever Conservatives at least dont have to put the extra borrowing ‘on the books’ as its not borrowing in the usual sense, they are merely printing the money.

  2. tsmithfield 2

    Irresponsible spending eventually leads to austerity because people will stop lending the money to fund the irresponsible spending. In Europe it is not so much that austerity has failed, but rather that people aren’t lending the money to fund it. Look at the trends in yields on sovereign debt in many of those countries and you will see what I mean.

    • RedLogix 2.1

      Irresponsible spending eventually leads to austerity because people will stop lending the money to fund the irresponsible spending.

      Absolute arse about face. The goods and services people purchased with that money were all produced. The materials, the machinery, the labour and organisation that produced all these goods and services existed. The houses, the cars, the household goods and so on were all produced with means that existed.. That’s a really important point.

      The idea that as an economy we were ‘living beyond our means’ is an utter nonsense. Because demonstrably the means were all there. There were two main drivers for why people tended to borrow money.

      1. Workers pay as a portion of GDP is too low. In a stable economy it should be close to 70%, but in many Western countries it has fallen below that… in this country to a miserable 45%. This prompts a rise in household credit to buy the goods and services that the economy is producing.

      2. The bankers and financiers make money by lending money. By deregulation they succeeded in expanding their fraction of GDP activity from under 5% to much higher levels. At one point some 50% of the entire GDP of the UK was in the City of London. This parasitic function squeezes out legitimate productive activity; everyone starts speculating on the rising price of second-hand goods and assets like houses and land… with money that the bankers are lending them.

      There is no need for an economy to ‘borrow money’. Like most right-wingers you keep making the mistake of confusing a household with an economy. While households may have short-term needs to save and borrow… an economy does not.

      If you doubt this proposition consider this. For all practical purposes the whole world is one single economy. From whom do you think the planetary economy needs to ‘borrow money’ to fund itself? Martians?

    • Olwyn 2.2

      Money is not sacred; in the history of the world whole currencies have been dropped and debts cancelled. Apart from rapidly dwindling fossil fuels, (which certainly makes a difference to modern ways of getting out of economic holes), the same land, people and things are there, whatever else money is doing. Bankers can be brought to heel, debts cancelled, and new ways of going about things considered. Rome had to cancel debt at one stage, following on a revolt. According to Simone Weil, “…even if there had been no revolt, a partial cancellation of debt had become imperative, because with every plebian reduced to a slave, Rome lost a soldier.” In modern terms, for every person that falls into the recently minted “underclass” society loses a contributor.

      • Foreign Waka 2.2.1

        You have to ask the question whether the upper class really cares. Look at India or China where you have a vast amount of very poor people and life is cheap. Literally, in the mind of the named societies dead is not such a big affair. Neither is life.
        It seems to me that the push is to create a lot of fear and with that the willingness to accept anything that looks better than the painted picture. Only very few overcome this fear as we see on TV i.e. the man that stood in front of the panzer.
        Many things that are being presented are done via the media which heeds to its master, the one who pays the bills (who might that be?) I personally don’t belief that all this is about money as money is just a means to get what a small group want: power. Power over land, commodities, and people.

        • RedLogix

          Literally, in the mind of the named societies dead is not such a big affair. Neither is life.

          Exactly. Which is why politics is essentially a morality business. What we believe in is really, really important.

          • Olwyn

            Foreign Waka: It is true that I may have been a bit over-optimistic in assuming that people may care whether other people are members of an underclass or social contributors. However, on purely instrumental grounds, the well being of those who have it relies upon a modicum of order. The more abandoned people within its ranks, the more that order is liable to break down. And taking on board what RedLogix says, which I think is true, where morality is overridden, it has a habit of biting people later. Zygmunt Bauman has said, of those who later felt ashamed of not helping others during the terrible events of World War II, “I am sure…that had I refused shelter, I would be fully able to justify to others and to myself that…turning the stranger away was an entirely rational decision. And yet I am sure as well, that were it not for this feeling of shame, my decision to turn away the stranger would go on corrupting me for the rest of my days.” Instrumental rationality has its limits, and they are in many cases moral limits.

          • ianmac

            Redlogix: I read of life and death in the slums of India. A community was close knit, cooperative and sympathetic but with nothing except a few fancy clothes for special occasions. When one died there was grief and sadness, but such was the pressure to survive that the day after the funeral life carried on. It seems that the effect of death in a Western society lingers on and on on and on. Do some here indulge in grief as a badge and because in an affluent society you can afford the “luxury”?

        • fatty

          “Look at India or China where you have a vast amount of very poor people and life is cheap. Literally, in the mind of the named societies dead is not such a big affair. Neither is life.”

          they do have about 40% of the world’s population and India has religious influences their perspective on life/death…its wrong to say ‘life is cheap’ in those countries

          • Olwyn

            I agree Fatty. I think it is easy to mistakenly conclude that the acceptance of death in poor, crowded places shows that life there is cheap. Affluent Western countries have more defences against death, so it comes as more of a shock to the people who live in them. But this does not mean that life is less valued in the former and more valued in the latter.

            • Foreign Waka

              fatty and Olwyn – Did I say that I find it acceptable that in poor countries life is cheap (?????).
              It is great that you try to take the high moral ground – good on you – because I hope you can hold it when poverty surround you and all the fine qualities go out the window. As they do in any society I may add. It is human nature to protect one self and kin before the country or god forbid its ruler.
              As for my comment, it is in India the belief that a person is on a life/death journey but also the atheistic aproach in China that leads to the notion that life is either a/ a repeat experience or b/ replaceable by the next person. And by the way, both of these answers did come from individuals of these cultures. Just saying……

              • Olwyn

                Sorry Foreign Waka, my answer was to Fatty & ianmac, not you in that instance. I accepted your point that the upper class might not care if other people are deprived, and your use of those countries as examples. And I took ianmac’s point about life and death in India & Fatty’s response as a sub-topic, rather than a denial of what you were saying. I agree that life can seem cheap to the upper classes looking on, but not necessarily to the people who are living it.

              • fatty

                “Did I say that I find it acceptable that in poor countries life is cheap (?????).”

                No you didn’t, and neither did I.
                I am saying that assuming ‘life is cheap’ in China and India is wrong.
                They value life no more or less than Kiwi’s do, I don’t know where you get that idea from?
                …in fact I would argue that that global North cheapens the lives of those in the global South.
                We buy the i-phones – Chinese workers kill themselves…they lose their quality of life to pay for our greed.
                If their lives are ‘cheapened’…it is us that is driving the price down. We make sure their life is cheap.

    • mike e 2.3

      THe Stupid Monetarist irresponsible lending by big banks with Goldman Sachs corrupting practises .
      Loan sharks knowing full and well those countries and their banks weren’t able to pay them back.
      Now Goldman Sachs has ex Conmen[Goldman Sachs employees] in every major country as their finance ministers the gouging of Europe continues..
      Austerity for the peasants
      Massive bonuses for the robber barons.
      Lets hope Hollande has some balls to do the same to the bankers as they’ve done to overpaid public servants.

      • Colonial Viper 2.3.1

        THe Stupid Monetarist irresponsible lending by big banks with Goldman Sachs corrupting practises .

        Worthwhile remembering that this has all been empowered by the Federal Reserve printing money at massive quantities, and then lending it out to major institutions like Goldman Sachs at record low (essentially zero i.e. ZIRP) interest rates.

        Oh yah, the Federal Reserve is staffed from top to bottom with alumni from Goldman Sachs and JP Morgan. As is the White House economic council. What a co-incidence.

        NZ does almost as well with an alumni of Merill Lynch as PM.

  3. ianmac 3

    “In modern terms, for every person that falls into the recently minted “underclass” society loses a contributor.”
    In a nutshell. Yes Olwyn. This Government seems to pride itself on creating more “underclass.”

  4. DS 4

    This isn’t an end to austerity in the UK: Cameron and Osborne (and Clegg) are wedded to the idea that slashing government spending in a depressed economy somehow stimulates growth. This is just a significant easing of monetary policy to prevent a credit crunch is (or when) Greece (or Spain) leaves the Euro. Mervyn King and the Bank of England have been the only thing preventing Britain from economic catastrophe since the austerity madness started.

    • RedLogix 4.1

      This is just a significant easing of monetary policy to prevent a credit crunch

      Which will of course not work. Giving banks the credit to create more lending cannot achieve anything when everyone is debt saturated. The are literally injecting the money to exactly the wrong point in the economy.

      Everyone makes the valid point that the solution to too much debt is not more debt. We get that. The only valid answer is to get rid of the debt… especially debt that was created dishonourably in the first place.

      There are only two ways to get rid of it. One is to spend the next few decades in austerity mode painfully paying it all back. Many nations have Debt to GDP ratios over 200%; if we divert say 5% of GDP ( a huge de-leveraging hit) to paying this down to a more sustainable 30% then logically it could take something in the order of 30-40 years to unwind. That is an insanely unstable and risky proposition… societies everywhere, especially in the face of peaking resources, will simply collapse.

      Alternately you could just treat this dishonourable debt with the contempt it deserves. Cancel it and get on with life.

      • Colonial Viper 4.1.1

        Alternately you could just treat this dishonourable debt with the contempt it deserves. Cancel it and get on with life.

        While placing future lending under very strict central controls.

      • Draco T Bastard 4.1.2

        Doesn’t even matter if it was “dishonourable debt” or not either – just cancel it and, as CV points out, put in place some very strict lending rules.

  5. Foreign Waka 5

    The problem is a created one. Once the gold value was disestablished as a benchmark, money became a commodity in itself. Look at all the currency traders and the hedging of money value as well. When they loose, every one of us does too, with a stroke of a pen. When they win, dividends galore. In that way money is being sucked out of any economy with the more unstable ones suffering most. Inflation rides up no matter what and there are only one group of winners, and they are the same all the time.
    Instinctively people realise that savings can be lost in that way but housing and land, once paid off, is logistically and politically a heck of a lot more difficult to grab.
    No matter how much the tell us to invest and save I am suspicious that we are being told to prop up the very ones that devalue our lives. How many times have the oldies paid the price for the politicians short sightedness and the banks greed by saving for old age. In my lifetime I heard stories of already 2 generations experiencing the same debacle.

    • Draco T Bastard 5.1

      Once the gold value was disestablished as a benchmark, money became a commodity in itself.

      This is what happened but you’re looking at the wrong cause. In fact, I think you’ll find that money was a commodity before and partially led to the dropping of the Gold Standard. What makes money a commodity rather than the tool that it should be is interest. Get rid of that and money will no longer be a commodity.

      • Foreign Waka 5.1.1

        just some history of money:
        Many cultures around the world eventually developed the use of commodity money. The shekel was originally a unit of weight, and referred to a specific weight of barley, which was used as currency. The first usage of the term came from Mesopotamia circa 3000 BC. Societies in the Americas, Asia, Africa and Australia used shell money – often, the shells of the money cowry (Cypraea moneta L. or C. annulus L.). According to Herodotus, the Lydians were the first people to introduce the use of gold and silver coins.[14] It is thought by modern scholars that these first stamped coins were minted around 650–600 BC.[15]
        Song Dynasty Jiaozi, the world’s earliest paper money
        The system of commodity money eventually evolved into a system of representative money.This occurred because gold and silver merchants or banks would issue receipts to their depositors – redeemable for the commodity money deposited. Eventually, these receipts became generally accepted as a means of payment and were used as money. Paper money or banknotes were first used in China during the Song Dynasty. These banknotes, known as “jiaozi”, evolved from promissory notes that had been used since the 7th century. However, they did not displace commodity money, and were used alongside coins. Banknotes were first issued in Europe by Stockholms Banco in 1661, and were again also used alongside coins. The gold standard, a monetary system where the medium of exchange are paper notes that are convertible into pre-set, fixed quantities of gold, replaced the use of gold coins as currency in the 17th-19th centuries in Europe. These gold standard notes were made legal tender, and redemption into gold coins was discouraged. By the beginning of the 20th century almost all countries had adopted the gold standard, backing their legal tender notes with fixed amounts of gold.
        After World War II, at the Bretton Woods Conference, most countries adopted fiat currencies that were fixed to the US dollar. The US dollar was in turn fixed to gold. In 1971 the US government suspended the convertibility of the US dollar to gold. After this many countries de-pegged their currencies from the US dollar, and most of the world’s currencies became unbacked by anything except the governments’ fiat of legal tender and the ability to convert the money into goods via payment.

        • Draco T Bastard

          Yes, I’m quite aware of the history. Now what was your point in quoting it? What, specifically, were you addressing in my comment?

          The first usage of the term came from Mesopotamia circa 3000 BC.

          And that’s about the first record of debt, interest and financial collapse due to over accumulation by a few as well and probably the main reason why nearly every religion (including Christianity) bans interest as it always results in that over accumulation.

          The gold standard, a monetary system where the medium of exchange are paper notes that are convertible into pre-set, fixed quantities of gold, replaced the use of gold coins as currency in the 17th-19th centuries in Europe.

          Yeah, it took 2 centuries to implement because it kept failing. In fact, after full implementation in ~1891 it was then dropped, again, ~1911 so that the build up for WW1 could be paid for.

          After World War II, at the Bretton Woods Conference, most countries adopted fiat currencies that were fixed to the US dollar. The US dollar was in turn fixed to gold.

          Which was why the US$ became the reserve currency and why it should no longer be considered that. The reasons why it still is seems to be a) habit and b) the US managed to persuade OPEC (Specifically, Saudi Arabia) to price oil in US$.

  6. captain hook 6

    gosh they will all be able to buy hardly davisons and leaf blowers and chainsaws now.

  7. NattyM 7

    I’d really appreciate it if someone could explain if there is any benefit to countries or their ordinary people in currency trading or is it just another way of greedy people and greedy companies making money out of actually producing nothing of any tangible worth or benefit?

    • RedLogix 7.1

      It is vital to understand that virtually all money is nothing more than ‘credit’. Credit is simply a ‘promise to pay’.

      Let’s put it this way. You go to Mitre 10 and grab a leaf-blower off the shelf, stroll up to the check-out and whip out your EFTPOS card. No actual money changes hands. What happens is a bit of double entry bookkeeping. Credit is swapped from your bank account to Mitre 10’s. An equal and opposite debt travels back the other way. Essentially the bank has acted as a trusted bookkeeper tracking a credit transaction. That is their legitimate role and they are entitled to charge a modest fee for doing so.

      We stopped using gold or silver coins ages ago. Even paper notes are clumsy compared to this remarkably elegant system of pure credit transactions.

      At the same time however it places the bankers in a position of privilege, or Seigniorage as the technical term goes. The core problem is that when bankers are allowed to exploit seigniorage and make too much money as a result. They use that wealth and power to capture the political system in order to give themselves more privilege, and thus more wealth. And as the above article states, one of the most lucrative forms of illegitimate seigniorage is the trading in currencies. Money changing is one of the oldest evils.

      In a just economy people are paid enough to buy the goods and services they produce. If you cannot do this then by definition you are a slave. Being forced to borrow money in order to buy goods and services is simply a form of debt-servitude. In effect we have not really moved all that far from the Company Town model.

      This again is an ancient evil but rife in the modern world.

      Money is a necessary tool. But like all tools it must be used with discipline and restraint.

      • Olwyn 7.1.1

        Beautifully said, RedLogix!

      • Colonial Viper 7.1.2

        The nature and role of money (Steve Keen)


        Thus, suppose Tom would like a pig from Jane but Tom’s wheat crop is not yet ready to harvest. If Jane trusts Tom she might be willing to give him the pig now and have Tom give her the wheat when it’s ready. But suppose Tom is a stickler, and he writes a formal little note that says “Tom owes Jane one pig’s worth of wheat” and gives it to Jane in exchange for the pig. Later, at harvest time, Tom delivers the wheat to Jane and she gives him the note in exchange, since she doesn’t want to claim any more wheat from Tom. Tom can throw the note in the fire, because he has fulfilled his promise and the note has no more purpose. Figure 10.1 is a little diagram of the two-part exchange. Tom’s note is depicted as IOU (I owe you: Tom’s promise to Jane).

      • True Freedom is Self-Governance 7.1.3

        “In a just economy people are paid enough to buy the goods and services they produce. If you cannot do this then by definition you are a slave. Being forced to borrow money in order to buy goods and services is simply a form of debt-servitude.”

        Nicely put, now if only more people would accept that people in debt aren’t neccessarily blowing it all on excessive luxury items, that many of them simply had no choice but to borrow to live.

      • ianmac 7.1.4


    • Foreign Waka 7.2


      Essentially traders take advantage of fluctuations in the value of currencies. The better the prediction (political and economical) the more money one makes from – money. So in that sense Money is a commodity.

  8. Colonial Viper 8

    OMG what a screw up.

    Loading households down with more debt is absolutely the wrong way to go. Trying to get “growth” with debt. It’s just more of the same: pretend and extend.

    Steve Keen has the right idea. Issue every household with a $10,000 credit. If the household has debt, that credit must be used first and foremost to pay that debt down. If that household does not have debt, it can use that bonus as a cash injection.

    And make it much harder for ponzi loans to be made ever again.

  9. DH 9

    The pommy initiative does sound pretty stupid and ill-advised. Banks have caused the economic problems, you don’t give them more money to make things even worse. The Govt will carry the cost of the low interest and the banks will still whack on their usual high margins & lend into the property market.

    The problem is fairly straightforward IMO. NZ banks don’t do venture capital, they haven’t since they were privatised. They only lend against secured assets which with a business is usually shareholder capital or the private assets of the owner(s). When you get a recession the asset base of a business tends to shrink and banks won’t lend against depreciating assets so businesses get hit with a shortage of capital and higher interest rates. At a time when businesses need to cut costs they’re instead faced with higher interest rates on borrowing or no access to funding at all.

    IMO the best way to kickstart the economy is to bypass the private banks and start lending more to small & medium business direct at low interest rates. Go back to the old ways when banks lent on the back of a good business plan and responsible risk evaluation. Forget the tax breaks, Govt subsidies & handouts, make businesses earn their keep just give them access to reasonably priced capital and the good ones will start thriving.

    It would be costly to do that, we don’t have the BNZ infrastructure any more, to begin with the Govt would end up writing off a good percentage of the lending due to incompetence but it would still more than pay for itself IMO.

  10. Money lend to banks under the condition they would lend it to main street and you believe that?
    Here is what Mervyn King said about the banks unwillingness to loan money to small businesses in February of this year. The unregulated wilderness that is the UK banking system is collapsing under a ridiculous mountain of debt created with the Derivative scams and this is just a banking bailout UK style. 
    Austerity is fine for the plebs in the street just so long as it isn’t for the perpetrators of the banking Short Change con artists!

    • joe90 10.1

      In this interview Paul Buchanan notes how the lenders refuse to take a haircut by conveniently ignoring the inherent risks of capitalism.


    • DH 10.2

      Yeah King has it right and it’s even worse in NZ. NZ banks are risk averse, I can’t even get a simple business overdraft without putting up 150% security to cover it. And if I did get an overdraft the interest rates are usurious. The banks have strangled our economy with their refusal to take any risks with business lending.

    • Johnm 10.3


      You’re 100% right! This is Bankster Insurance as the Euro zone heads deeper and deeper into crisis. Pete Pom won’t see a bean of it!

      Want to get the economy moving? Then start transferring the 1%’s illgotten gains down to the ordinary people reduce inequality big time. Getting the rich to part with their huge surplus wealth to help Pete Pom would cause the most almighty howling uproar! But it’s the way to go.

  11. Draco T Bastard 11

    We’ve written before about how misguided a program of economic austerity is,

    Get it right, it’s not economic austerity but financial austerity and the poor are having it imposed upon them by the rich.

    Key and the Nats are capable of nothing but looking on as the economy spirals slowly down the gurgler…

    Which is, apparently, what they want as it would allow them to sell even more of NZ off in a firesale to their rich mates.

  12. captain hook 12

    money is quite simply a lien on future production but unfortunately is absolutely vital to the maintenance of life in industrial countries.
    It also keeps the score for psychopaths who use it to keep the populace cowed, obedient and in awe of expensive gew gaws that they will never be able to afford.
    we right up the old wittgensteinian ladder now kiddies.

  13. OneTrack 13

    Just keep borrowing and spending. What could go wrong?

    • RedLogix 13.1

      Not read the thread much?

      I’ll give you a clue. I agree that the answer to too much debt is not more debt.

      So what are our choices do you imagine?

      • OneTrack 13.1.1

        Cut wasteful government spending ( useless quangos such as the Race Relations Conciliator), enable more revenue generation (hydrocarbon exploration, coal and other mining), reduce government barriers to development (excessive RMA restrictions, etc).

        How about them for starters?

        • BernyD

          We’d be better declaring ourselves part of Australia go over there if you want to work in a mine.
          It’d be a hard sell , but if we tell them our government is crap they might take pitty on us.

        • RedLogix

          A government exists to serve all the people, not just you. Everyone has particular interests and needs, so what is useless to you is certain to be vital to someone else. The National party made great noise about ‘cutting wasteful’ spending before it came to power, but despite every opportunity and motivation to do so in the last four years it has found relatively few genuinely ‘wasteful’ areas to cut.

          You’re welcome to the warm fuzzies you get from ranting about it… but in reality the big four government expenditures are super, education, welfare and health which alone account for around 80% of all expenditure. Fritzing about with tiny quangos on the margins is pointless and insignificant.

          New Zealand is one of the easiest places in the developed world to do business; if you can’t do business here you shouldn’t be in the game.

        • Draco T Bastard

          Ah, typical RWNJ answer – it’s all the guvumints fault, WAAAAAH.

          Hey, did you know that private surplus more or less equals the government deficit? See, contrary to the neo-liberal BS that you’ve swallowed the government is actually the source of wealth and not the rich or private enterprise.

          • RedLogix

            That is one hell of an interesting link DtB. Keith Rankin was my first economic lodestar. In particular Keith has done a lot of interesting work around Universal Income over the years….and it’s great to see him out there with this.

    • Draco T Bastard 13.2

      Well, that does seem to be this governments reaction to the GFC. Cut taxes, borrow heaps and hope like hell that things come right through the magic of the market.

  14. Huginn 14

    Here is a similar conclusion from the IMF

    ‘. . . the evidence from the past is clear: fiscal consolidations typically have the short-run effect of reducing incomes and raising unemployment. A fiscal consolidation of 1 percent of GDP reduces inflation-adjusted incomes by about 0.6 percent and raises the unemployment rate by almost 0.5 percentage point (see Chart 2) within two years, with some recovery thereafter. Spending by households and firms also declines, with little evidence of a hand­over from public to private sector demand.

    In economists’ jargon, fiscal consolidations are contractionary, not expansionary. This conclusion reverses earlier suggestions in the literature that cutting the budget deficit can spur growth in the short term.’


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    2 days ago
  • Speech to APEC business event
    E ngā tumu herenga waka, ākina ā ngaru, ākina ā tai ka whakatere ngā waka ki te whakapapa pounamu, otirā, ki Tamaki o ngā waka Tena koutou katoa… To the great leaders assembled, who guided your waka through turbulent times, challenging waters and you continue to navigate your respective waka ...
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    2 days ago
  • Pause on Quarantine Free Travel with Victoria extended
    Following an assessment of the COVID-19 outbreak in greater Melbourne, New Zealand’s Quarantine Free Travel pause with Victoria will continue for a further seven days, COVID-19 Response Minister Chris Hipkins says. There are now 93 cases associated with the outbreak in greater Melbourne, spread over four clusters. Contact tracing efforts ...
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    2 days ago
  • Supplier Diversity Aotearoa Summit: Navigate 2021
    *** Check with delivery *** A mihi to all who have contributed to making today a success – starting with you! As you have explored and navigated government procurement today you will hopefully have reflected on the journey of our people so far – and how you can make a ...
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    2 days ago
  • Pukemiro School to close
    Pukemiro Primary School near Huntly will close following years of declining roll numbers, Education Minister Chris Hipkins announced today. “I’ve consulted with the School Commissioner, and this decision acknowledges the fact that the few remaining students from last term are now settled at other nearby schools. “I want to thank ...
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    2 days ago
  • Govt acts to protect NZers from harmful content
    New Zealanders will be better protected from harmful or illegal content as a result of work to design a modern, flexible and coherent regulatory framework, Minister of Internal Affairs Jan Tinetti announced today. New Zealand currently has a content regulatory system that is comprised of six different arrangements covering some ...
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    2 days ago
  • Consultation on exemption of new builds from proposed tax rules
    The Government has today confirmed new builds will be exempt from planned changes to the tax treatment of residential investment property.  Public consultation is now open on details of the proposals, which stop interest deductions being claimed for residential investment properties other than new builds.   “The Government’s goal is to ...
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    2 days ago
  • Speech for Predator Free 2050 Conference
    Introduction E ngā mana E ngā reo E ngā iwi Tēnā koutou katoa   Ka huri ki ngā mana whenua o te rohe nei. Tēnā koutou He mihi hoki ki a tatou kua tau mai nei i raro i te kaupapa o te rā Ko Ayesha Verrall toku ingoa No ...
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    3 days ago
  • New stock exchange to help grow small businesses
    A new share trading market, designed as a gateway to the NZX for small-to-medium-sized enterprises (SMEs), has been granted a licence by the Government. Commerce and Consumer Affairs Minister, David Clark said Catalist Markets Ltd will provide a simpler and more affordable ‘stepping stone’ for SMEs to raise capital. “This ...
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    3 days ago
  • Visa extensions provide certainty to employers and 10,000 visa holders
    Changes to onshore visas will provide employers and visa holders with more certainty, Immigration Minister Kris Faafoi has announced. Around 10,000 Working Holiday visas and Supplementary Seasonal Employment (SSE) work visas due to expire between 21 June 2021 and 31 December 2021 will be extended for another six months to ...
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    3 days ago
  • Border class exceptions approved for more farm workers and vets
    The Government has approved border class exceptions for an additional 200 dairy workers and 50 veterinarians to enter New Zealand, Agriculture Minister Damien O’Connor announced today.  “It is clear from conversations with the dairy and veterinarian sectors that they are facing workforce pressures. These border exceptions will go a long ...
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    3 days ago
  • More freezers and South Island hub to support vaccine roll-out
    A South Island hub and 17 new ultra-low temperature freezers will help further prepare New Zealand for the ramp up of the vaccination programme in the second half of this year, COVID-19 Response Minister Chris Hipkins says. The new freezers arrived in New Zealand on 27 May. They’re currently being ...
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    3 days ago
  • Speech at the release of Climate Change Commission's final advice
    Good morning – and thank you Prime Minister. Over the last three and half years we have been putting in place the foundations for a low-carbon Aotearoa that will be a catalyst for job creation, innovation, and prosperity for decades to come. In that future, many of our everyday tasks ...
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    3 days ago
  • Achievable blueprint for addressing climate change released
    Report says Government making good progress on emissions reduction, but more action required Meeting climate targets achievable and affordable with existing technology Economic cost of delaying action higher than taking action now Benefits from climate action include health improvements and lower energy bills All Ministers to help meet climate targets ...
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    3 days ago
  • Speech to release of Climate Commission final report
    A few years ago in a speech in Auckland, I compared climate change to the nuclear free movement of roughly four decades ago. And I did so for a few reasons. Firstly, because the movement of the 1980s represented a life or death situation for the Pacific, and so does ...
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    3 days ago
  • Appointment of Judge of the High Court
    Auckland Barrister Michael Robinson has been appointed a Judge of the High Court, Attorney‑General David Parker announced today. Justice Robinson graduated with a BA and an LLB (Hons) from the University of Auckland in 1996, and commenced practice as a solicitor with Brookfields in Auckland.  In 1998 he travelled to London ...
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    4 days ago
  • Government takes action to improve protections for subcontractors
    The Construction Contracts (Retention Money) Amendment Bill – which provides greater financial protection for subcontractors, has passed its first reading today. The Bill amends the retention provisions in the Construction Contracts Act 2002 (CCA) to provide increased confidence and transparency for subcontractors that retention money they are owed is safe. ...
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    4 days ago
  • 1 million more Pfizer doses to arrive in July
    Pfizer has scheduled delivery of an estimated 1 million doses of vaccine to New Zealand during July, COVID1-9 Response Minister Chris Hipkins said today. “These consignments will double the total number of Pfizer doses we have received this year to more than 1,900,000 – enough to fully vaccinate almost 1 ...
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    4 days ago
  • Long-term home of the Independent Children’s Monitor identified
    The Independent Children’s Monitor (Te Mana Whakamaru Tamariki Motuhake), which is currently located within the Ministry of Social Development (MSD), will become its own departmental agency within Government. “Following the recommendations of several reviews, Cabinet agreed in 2019 to build a significantly expanded independent monitor for children in care,” Carmel ...
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    4 days ago
  • Racing Integrity Board members announced
    The new Racing Integrity Board will be up and running from July 1 to ensure high standards of animal welfare, integrity and professionalism in the racing industry. Racing Minister Grant Robertson today announced the appointments to the new Board: Sir Bruce Robertson KNZM – Chair Kristy McDonald ONZM QC Penelope ...
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    4 days ago
  • Govt crackdown on organised crime continues
    A major operation against multiple organised crime groups with international links will make a significant dent in drug harm and violent offending linked to organised crime networks, Police Minister Poto Williams says. “I want to take an opportunity to congratulate the Police for their role in Operation Trojan Shield. This ...
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    4 days ago
  • Farm planning framework supports farmers into the future
    A new framework, agreed between Government and industry, will make it easier for farmers and growers to integrate future greenhouse gas emissions and freshwater regulatory requirements into their farm planning, Agriculture Minister Damien O’Connor said. “The Good Farm Planning Principles Guide out today, provides guidance for how farmers can organise ...
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    4 days ago
  • Enhanced Task Force Green Approved for Canterbury
    The Government has activated Enhanced Taskforce Green (ETFG) in response to the Canterbury floods. The Minister of Social Development and Employment, Hon Carmel Sepuloni says $500,000 will be made available to help with the clean-up. The flooding in Canterbury has been a significant and adverse event damaging farmland, homes, roads ...
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    4 days ago
  • Connecting rangatahi to the soil
    A Jobs for Nature project to raise 480,000 native plants in nurseries across South Auckland will provide work for communities disproportionately affected by the economic impacts of COVID-19, Acting Conservation Minister Ayesha Verrall says. The Mana in Kaimahi project is being run by Te Whāngai Trust Board and will establish ...
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    5 days ago
  • Roll out of high-resolution elevation mapping begins
    The first tranche of mapping data from the Provincial Growth Fund (PGF)-LiDAR project is now available to the public from Toitū Te Whenua Land Information New Zealand. LiDAR data, which creates 3D baseline elevation information, will deliver multiple uses over the coming decades to councils and regional industries. “This mapping ...
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    5 days ago
  • Champions of Pacific education rewarded in Queen’s Birthday Honours
    Minister for Pacific Peoples, Aupito William Sio said the Queen’s Birthday 2021 Honours list show that across Aotearoa New Zealand there were many champions of Pacific education. “Education is so vital to the success of Pacific people that it’s truly fitting that a number of educators have been honoured this ...
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    6 days ago
  • PM congratulates Queen’s Birthday Honours recipients
    Prime Minister Jacinda Ardern has added her congratulations to the New Zealanders recognised for their contributions to their communities and the country in the Queen’s Birthday 2021 Honours List. “This group represents decades of services across many areas, and those honoured highlight how many New Zealanders are going above and ...
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    6 days ago
  • Change of status for Rangiriri kura
    A change of status for Te Kura o Rangiriri sees it become a designated character school within the Māori-medium network, Associate Minister of Education Kelvin Davis announced today. “This kura has been providing Māori immersion learning since 2003 in the historic town of Rangiriri, so I’m delighted that it is ...
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    7 days ago
  • APEC trade ministers’ unite on COVID-19 vaccine steps and rejuvenating the WTO
    APEC trade ministers today committed to speeding up the cross-border flow of vaccines and related goods to fight the COVID-19 pandemic. This followed the completion of the APEC Ministers Responsible for Trade Meeting chaired by Minister for Trade and Export Growth Damien O’Connor early this morning. “As we face the ...
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    7 days ago
  • Further consultation for Melville schools
    Formal consultation is set to begin on specific options for the future of schooling in South West Hamilton, Education Minister Chris Hipkins says. “Recent engagement has shown that the schools and community want a change to Year 7-13 schooling for the area.  “I am now asking the Boards of Melville ...
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    1 week ago
  • Primary schoolkids dig trees for Arbor Day
    A new Arbor Day initiative announced by Forestry Minister Stuart Nash will see thousands of primary school children get the chance to plant native trees in their communities. The initiative is open to more than 2,400 primary schools. It is a partnership between Te Uru Rākau/NZ Forest Service and the ...
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    1 week ago
  • NZ Upgrade Programme kept on track
    The Government is increasing its investment in the New Zealand Upgrade Programme (NZUP) to support New Zealand’s economic recovery. Over two thirds of the projects will proceed as announced despite increased costs due to COVID, with modifications being made to others. “NZUP is already supporting over 1,000 jobs with 13 ...
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    1 week ago
  • New Northern Pathway gets green light
    The Government is committed to the Northern Pathway with its preferred option being a separate structure for walking and cycling alongside the Auckland Harbour Bridge, Transport Minister Michael Wood announced today. Geotechnical investigations and testing has determined that building a structure connected to the Auckland Harbour Bridge is not possible ...
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    1 week ago
  • Quarantine Free Travel pause with Victoria to continue, planning underway for managed return flights
    Following the Victorian Government’s decision to extend their lockdown restrictions,  New Zealand’s Quarantine Free Travel pause with Victoria will also be extended for a further six days, with a further review due on Wednesday 9 June, COVID-19 Response Minister Chris Hipkins says. I acknowledge this extension will cause further inconvenience ...
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    1 week ago
  • Housing supply to be sped up in major changes to New Zealand’s building laws
    New building laws passed today will support housing supply and affordability, improve trust and confidence in the building sector and support the use of new, innovative and efficient building methods, Building and Construction Minister Poto Williams announced today. The changes passed in Parliament today are the first phase of a ...
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    1 week ago