Budget punditry round-up spectacular!

Written By: - Date published: 11:57 pm, May 20th, 2010 - 62 comments
Categories: budget 2010, Media - Tags: , , , ,

“It is easy, in the first blush of excitement about a Budget, to miss a tiny bit of fine print that really matters.

The government says that most people would be better off after taking into account the GST rise and the income tax cuts. Their calculator uses the estimate of 2.02 percent inflation arising from GST alone.

Turn the page and there is the forecast inflation figure for 2011 5.9 percent! Run that number back across household incomes and add in the ECE cuts, and here are some conservative numbers we can hang our hats on:

• An average family with 2 kids at kindy on $76,000 per annum, gets a $25 tax cut, but after GST, ECE costs, inflation and an average wage rise, they are $55 per week worse off.

• Even a higher income family with 3 kids: $140,000 income, $62 tax cut, is $23 per week worse off.

Moral of story: check the fine print before opening the champagne.

Which brings me to debt.

There was once a promise that the tax package would be “broadly fiscally neutral”. Now we know what Bill English means by “broadly” – $450 million a year, or over $1 billion for the forecast period.

Trivial? Not if it were my money! And not when interest servicing costs are due to double and not start declining until 2021.

And on the subject of broken (or at least extremely elastic) promises, lets not forget:

• “I did not raise GST with that electorate”
• “I shall restore superannuation prefunding when the books return to surplus” (No surplus forecast in 2016, prefunding restarts 2019)
• “I will compensate pensioners for the rise in GST” (No it’s a one-off, soon absorbed by the wage indexation they had anyway)
• “Pensioners can have all the benefits they have today or I’ll resign” (Sure…)
• “No cuts to front line health services” (how about the $270 million hole relative to next year’s inflation?)
• “We’ll rebalance the economy to level the property tax playing field” (Really no CGT, no ring fencing, only half the depreciation allowance, no bright line)
• And my personal favourite: “We’ll stop the rorts”. Yeah, right.

This Budget is full of holes.

We will be working alongside Kiwi families to try to understand what the fine print means for them.” David Cunliffe

———

Politically safe, yet economically timid and fiscally vulnerable – that’s the initial verdict on Bill English’s second and perhaps most crucial Budget….

He has also been bold by his standards in cutting company tax from 30 per cent to 28 per cent.

It is after that the Budget suddenly stops dead in its tracks. Those looking for the bright ideas and initiatives to galvanise economic growth are going to be hugely disappointed…

He will also be praying even harder that the world does not teeter back into recession as a result of the current debt turmoil,

To borrow from Oscar Wilde, to postpone tax cuts once could be seen as unfortunate. To have to do it twice might be regarded as carelessness. John Armstrong

———

The Government will save about $400 million over four years in abolishing the top two funding rates for early childhood centres – the funding rates depend on qualified staff.

Officials tell me that will affect about 2000 centres, or about 50 per cent of them.

English justified the cut in the lock-up for journalists by saying funding for the centres had trebled in recent years, even if they had kept the same number of staff and children.

On that basis he figures there are a lot of centres that will have the “freeboard” to absorb the cut in funding.

But exactly how parents will be affected will depend on how their centre responds to the funding cut. If all the costs are passed on in fees, parents will have to pay another $400 million over four years. Audrey Young

———

“If a landlord could put up a rent, wouldn’t they put it up now?” he said.

Real estate firm Bayleys said watch out for rising rents in coming months.

“I believe that property investors will not be happy to, or indeed in many cases be able to, absorb the changes in depreciation expenses claims on their properties,” said John Freeman from Bayleys Valuations Ltd.” Industry warns rents will rise

———
“However by choosing not to increase total tertiary funding, the Government has failed to build a strong sustained recovery and deliver on its vision. It has failed to meaningfully tackle the real issues of underfunding and student debt.” NZUSA Co-President David Do

———

The early childhood education sector is “devastated” by the Government’s decision to remove recognition for fully qualified centres, saying it would “dumb down” early childhood education.

The Labour Party said the change would push costs of up to $25 a week on to parents and affect more than 100,000 children.

Education Minister Anne Tolley today annouced an extra $107 million would be spent on ECE in 2010-11 – about half what had been expected previously.

The savings would come from removing extra funding for centres that had more than 80 per cent qualified staff, Ms Tolley said….

Labour Party early childhood education spokeswoman Sue Moroney said 108,000 children would be affected by the policy change.

Affected centres would be reluctant to fire their qualified staff and would likely pass on extra costs to parents, Ms Moroney said.

Three of five children in ECE centres would be affected, she said.

Labour’s education spokesman, Trevor Mallard, said the $100 million shortfall in ECE funding amounted to about $25 a week per parent.

The teachers’ union, NZEI, said the changes would “dumb down” the sector. Herald reporters

———

“Bill English has written a one-dimensional tax-shuffle Budget… The Government will no doubt still be accused of skewing the cuts to the well-off, bearing in mind that those on high incomes pick up all the cuts from rates lower down. And when someone on the minimum wage gets a net $4.85 a week against $56 for someone on $120,000 it is a free hit for the opposition.” Vernon Small

———

“Those earning over $150,000, the top 2%, pocket $430 million, about 11.5% of the total. This is almost exactly the amount the government has to borrow to fund this package. The people of New Zealand will be saddled with further debt to pay for the greed of the few at the top.

The effects of increased GST will effectively claw back everything gained by those earning under $20,000, and most of what is gained by those earning under $70,000. Only the rich will be better off. And that’s without even getting into the effects of higher ACC charges or reduced government services.

Basically, the vast majority of New Zealanders have just been screwed over for the benefit of a tiny percentage of parasites at the top. John Key is right – we shouldn’t be envious: we should be angry.” No Right Turn

———

“Whatever you think of the budget itself we have to admit that it was a masterpiece of media strategy: they got the issue of tax-cuts for the rich out well in advance, set expectations around it, took the critique from the opposition and then reversed all the expectations. The rich still get massive, MASSIVE tax cuts but the story is around the larger than expected changes to lower and middle income brackets because those are news, the changes to the top end aren’t.

Part of the strategy was a disinformation campaign: English has been solemnly telling us for months that tax changes had to be ‘revenue neutral’. The package he released today is not even remotely revenue neutral. He’s borrowing around half a billion dollars a year (at least) to pay for all of this. Naturally all the the pundits that criticised Labour’s plans to borrow for more government spending as ‘irresponsible’ are falling over themselves to praise English’s ‘solid’, ‘sensible’, etc borrowing for tax cuts. Jackasses.” Dimpost

62 comments on “Budget punditry round-up spectacular! ”

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  1. pollywog 1
    21 May 2010 at 1:17 am

    If the increase in the virtual payrise, the tax cuts provide, is for those who make a goodly income…ie the mildly wealthy and well to do. I suppose it’s because they have higher living costs, more expensive food and liquor tastes, dearer private school fees for the kiddlies, flasher cars to pay off and higher mortgage payments to make, not only on their designer house but their investment properties and holiday homes as well.

    fair enough i suppose, cos the working poor don’t need that much more in the way of taxcuts and money in their pocket as they cant afford to buy a house anyway, let alone afford luxury food items, pay school donations or gas up the car as is, so a few dollars more a week isn’t going to make that much difference.

    but for those truly ‘rich pricks’ who need a taxcut least and wont even notice it…good on ya mate, buy yourself a new bigboy toy, shout the missus some blingage and the kids a holiday, you’ve earnt it. Just please stick around, so we can benefit of the huge tax bill you pay as is, and tell ya fatcat mates to move here as well !

    🙂

  2. Margaret 2
    21 May 2010 at 8:21 am

    Eddie- the Stuff website had the first article up with a Vernon Small byline but it is actually written by David Cunliffe and they have changed that now…

    • Marty G 2.1
      21 May 2010 at 8:42 am

      lolz. When I read that in the post I thought ‘jeez, that’s strongly worded Vernon’. Corrected it for ya Eddie.

      • mickysavage 2.1.1
        21 May 2010 at 8:59 am

        Vernon went up in my estimation for a while. Oh well …

        • George D 2.1.1.1
          21 May 2010 at 6:16 pm

          I was amazed to see some actual critical commentary from Small. I was feeling like the comments I’d made earlier in the day about the NZ media were slightly unfair. Now I feel vindicated again, sadly.

  3. joe bloggs 3
    21 May 2010 at 8:58 am

    Interesting selection of commentary, if a little selective – you might as well have quoted a few choice blogs from that bastion of impartiality – The Standard.

    Here are a couple of observations that you omitted:

    Patrick Smellie – What makes the Budget particularly strong is the extraordinary state of the Crown accounts. If net Crown debt is to peak at less than 30% of GDP after the most wrenching debt crisis ever to hit the developed world, then we’re looking in reasonable shape.
    http://business.scoop.co.nz/2010/05/20/smellie-briefly-sniffs-a-successful-budget/

    Interesting phrase that – the most gut-wrenching debt crisis ever to hit the developed world…

    TVNZ – Close Up’s survey found that 80% believed in the new Budget, as opposed to the 20% who voted that they disagreed with it.
    http://tvnz.co.nz/close-up/analysing-budget-your-say-3561301

    What’s also missing from the jaundiced views you’ve selected is that 70% of New Zealanders will now be paying a top personal rate of only 17.5%///

    … and that those rich pricks who use personal trusts as tax dodges don’t have that haven any more.

    Never let the truth get in the way of a good bitch session huh?

    • Marty G 3.1
      21 May 2010 at 9:06 am

      Yeah, it’s really lucky that labour didn’t spend the surpluses on tax cuts like you wanted and paid down debt instead

    • Adrian 3.2
      21 May 2010 at 10:00 am

      No havens? Form a $100 company, ‘work from home’ and get the a big share of the cars, rates, power, rent etc etc at a 5% discount. Sharpen up, JB.

      • joe bloggs 3.2.1
        21 May 2010 at 1:53 pm

        If you read my post you will see clearly that I refered to one specific tax haven being removed – that being trusts. Sharpen up Adrian.

    • Draco T Bastard 3.3
      21 May 2010 at 10:33 am

      …and that those rich pricks who use personal trusts as tax dodges don’t have that haven any more.

      Actually, NACT ensured that such a tax loophole with the same relative benefits still exists – company tax rates down to 28%. It’s probably a little harder to work than trusts but those 50 in the top 100 highest earners still won’t be paying the top tax rate.

      • Clarke 3.3.1
        21 May 2010 at 11:28 am

        This will be a piece of piss to rort if you’re already self-employed … just leave the income in the company, pay tax on it there at 28%, then disburse it to the family trust tax-paid. Anyone who is in the position to arbitrage the rates between personal, trust and company income can continue to do so – and rather than equalising the rates, English has provided an incentive to ensure it happens.

        • joe bloggs 3.3.1.1
          21 May 2010 at 1:58 pm

          That disbursement (more correctly called a dividend) would be paid to the trust with a 28% tax imputation – the trust is obliged to top up that imputation to total 33% – no advantage obtained.

          Why put it into the trust? Much easier and cheaper to leave it in the company

          • Clarke 3.3.1.1.1
            21 May 2010 at 2:14 pm

            Yes, you’re right about the imputation – my bad. And you’re also right that most people will simply leave the income in the company, as it’s the cheapest thing to do. Rather undermines the meme that the normalisation of rates was going to solve the arbitrage between different entities, though …

    • Fisiani 3.4
      21 May 2010 at 10:44 am

      Here Eddie
      Have another straw to clutch at.
      The vast majority of commentatators are claiming this to be the step change to progress Budget that we dreamed of.
      Arise Sir Bill.

  4. mickysavage 4
    21 May 2010 at 9:03 am

    Joe Bloggs

    If net Crown debt is to peak at less than 30% of GDP after the most wrenching debt crisis ever to hit the developed world, then we’re looking in reasonable shape.

    I think we should thank Michael Cullen profusely for the country’s debt situation.

    What’s also missing from the jaundiced views you’ve selected is that 70% of New Zealanders will now be paying a top personal rate of only 17.5%

    And 2.5% GST while their wages will decrease in value by 6% in the next 12 months and if they have kids in a preschool or teenagers wanting to get into University this will be more difficult and if they intend to live past the age of 65 years the chance of a reasonable superannuation scheme being in existence has all but gone.

    Bitchy I know but actually really important.

  5. pollywog 5
    21 May 2010 at 9:14 am

    70% of New Zealanders will now be paying a top personal rate of only 17.5%

    just seen that apparently means, we are low wage economy/country with 70% on less that 48k a year ?

    • Indiana 5.1
      21 May 2010 at 9:25 am

      Your not seriously suggesting we should be a high wage economy/country are you? I mean if I become one of the 30% earning over $48k, I’ll be paying over 17.5% in tax….screw that!

      • pollywog 5.1.1
        21 May 2010 at 9:52 am

        So how does one ‘get ahead’ and go from 48k to the above 70 bracket…work harder, work smarter, re-train, become self employed, take risks ?

        It just seems like we’re a nation of sheep and cattle. Give us a prod every now and then, train us to walk to the dairy shed around milking time with little or no fuss or just stick us in a big paddock and move us around to supposedly greener pastures every now and then with everyone playing follow the leader.

        It’s all very well to want to grow the economy but how ? Theres to many NZers with surplus income who have played it safe by investing in property that they couldn’t even think how to grow a business, let alone have the vision to identify a niche market they could exploit to get ahead or risk any capital to give it a good crack in the first place.

        I just can’t see that cutting company tax rates and closing property speculating loopholes is gonna make anyone want to invest in the sharemarket/financial sector or start a business and produce anything or employ anyone.

        we’re just not that type of people, are we ? I mean, give me some examples of new breed leaders who have cracked the 48k bracket and gone on to become captains of industry. I need some inspiring role models.

        • Draco T Bastard 5.1.1.1
          21 May 2010 at 10:39 am

          Theres to many NZers with surplus income who have played it safe by investing in property that they couldn’t even think how to grow a business, let alone have the vision to identify a niche market they could exploit to get ahead or risk any capital to give it a good crack in the first place.

          And those people with the vision don’t have access to the capital because it’s all tucked away nice and safe in NACTS rich mates pockets.

          • pollywog 5.1.1.1.1
            21 May 2010 at 11:07 am

            Yeah, tell me about it Draco.

            I got visions to burn with not a shit show of ever being able to do anything about them…oh well, at least i’ve still got my health and sanity 🙂

        • Indiana 5.1.1.2
          21 May 2010 at 10:46 am

          Brian Tamaki

        • joe bloggs 5.1.1.3
          21 May 2010 at 2:04 pm

          Graeme Hart left school at 15, became a towie, panel beater, and was named 110th richest man in the world by Forbes in 2009

          • pollywog 5.1.1.3.1
            21 May 2010 at 3:53 pm

            captcha : doubt (graeme hart could do it in todays economic climate)

            I get the feeling that if you didn’t make it ‘big’ before now you never will, if you dont own a house by now, your best chance is to inherit one and cracking on from 48k a year to the next bracket just got a whole lot harder too.

    • joe bloggs 5.2
      21 May 2010 at 1:59 pm

      you’re correct Pollywog – we are a low wage economy and have been for a long time

  6. gingercrush 6
    21 May 2010 at 9:26 am

    Shut up Mickey Savage. The paying down of debt happened under Bolger and Shipley as did decent growth forecasts and unemployment tracking downwards and surpluses to top it off. Cullen left us with unemployment going upwards, growth rates forecasted gone and no surpluses. Hardly the same thing. For all that Clark and Cullen did well and I’m not going to dispute them. They relied on a massive increase in house prices and an initial low dollar to grow the economy. That isn’t sustainable for long and saw more rent and less own houses. So while paying down government debt they allowed the Current Deficit to grow and grow. Eventually things change and what we got was a self-induced recession. Thanks to the government causing people to gorge themselves personal debts ballooned.

    • Zaphod Beeblebrox 6.1
      21 May 2010 at 9:35 am

      Quite true, but you didn’t answer the question- should Cullen have cut personal taxes? What do you think our crown debt/GDP ratio would be now if he did what Brash was advocating?

      Personally, I think they were stupid not to restrict investment in property (therefore pushing up the current account), but you ignore the fact that no-one was advocating doing anything about it. Now that English is taking baby steps, but you have to admit its a pretty tepid response.

      • gingercrush 6.1.1
        21 May 2010 at 10:05 am

        I think cutting taxes is a good thing for the economy. But no Cullen should not have cut taxes because he never believed cutting taxes was a good thing. What Cullen failed to do was transform the economy. That is a fact. That’s why we saw vast overinvesting in housing and low investment in our export markets. And this happened in a decade that was our best since the 50s and Cullen failed to do it. That’s disgusting.

        Hence why of everything National have this done this budget I don’t understand the left’s attack on depreciation. If anything the left should be screaming about how they haven’t done enough in this area.

        As for what would have happened under Brash. Remember Brash would have cut a lot of government meaning we’d still be likely to have surpluses though Government debt would have been higher. I find government debt particular interesting since last budget Auckland Economists wrote a post here saying we shouldn’t worry about the level of government debt.

        • Draco T Bastard 6.1.1.1
          21 May 2010 at 10:44 am

          What Cullen failed to do was transform the economy. That is a fact.

          True, the 5th Labour government maintained the delusional neo-liberal economic paradigm. The same delusion that the present NACT government is engaging in.

        • Zaphod Beeblebrox 6.1.1.2
          21 May 2010 at 12:24 pm

          How does cutting government spending help us? Our major problem has been (and still is) the current account deficit. Is English doing anything about that? Not really- treasury is projecting it to keep rising.

          If want to criticise Cullen for letting borrowing blow out, you need to be equally critical of the current government.

    • mickysavage 6.2
      21 May 2010 at 9:41 am

      GC

      Never let the facts get in the way of a good story.

      Core Crown Net Debt including NZSF as a proportion of GDP in 1999 – 22%
      Core Crown Net Surplus including NZSF as a proportion of GDP in 2007 – 8%

      Source: http://www.treasury.govt.nz/government/financialstatements/yearend/jun07

      Clark and Cullen chose a massive infrastructure investment by the Crown to get the economy going.

      The current deficit grew because of the actions of individuals and companies. Are you saying they should have been regulated?

      • gingercrush 6.2.1
        21 May 2010 at 10:06 am

        Did I criticise Cullen for paying down debt? Where did I do that? I don’t think so. Shut up.

        • Pascal's bookie 6.2.1.1
          21 May 2010 at 10:22 am

          “Where did I do that?”

          “Shut up Mickey Savage. The paying down of debt happened under Bolger and Shipley…”

          That’s where you did that. Right there. Or rather, you denied he paid back debt, for some weird reason.

    • Pascal's bookie 6.3
      21 May 2010 at 9:57 am

      Nah ginger, your talking shit.

      The economy gives the govt of the day options. Cullen chose to pay down debt with the surpluses and prepare for the coming bust. National, at the time, was screaming for tax cuts and saying that small operating deficits would have been fine and sensible. thank fucking christ they weren’t in power.

      If you want to argue for a command economy where the govt is responsible for private sector debt blowouts and the like then go for it, but don’t pretend that National would have done anything at all to prevent the bust from happenning, and please explain how the govt forced people to gorge themselves on debt.

      • gingercrush 6.3.1
        21 May 2010 at 10:09 am

        Cullen wasn’t preparing for a bust he was just preparing to have the coffers bare for when National came into office. Nobody in New Zealand foresaw the 2008/2009 world recession did they? I don’t recall it at the time. But Cullen could have prevented a self-induced recession.

        • Pascal's bookie 6.3.1.1
          21 May 2010 at 10:19 am

          Cullen wasn’t preparing for a bust he was just preparing to have the coffers bare for when National came into office

          Wtf? Cullen using a surplus to pay back debt instead of just cutting taxes was a diaboloical plan to leave the cupboards bare?

          Any idea how daft that sounds?

          Nobody in New Zealand foresaw the 2008/2009 world recession did they?

          I’m sure there were some. At the beginning of 08 I was certainly concerned, and there are probably comments around to back that up, but that’s not the point.

          Everyone who isn’t an idiot knows that economies turn south at some point. Therefore, while they are going gangbusters the govt should prepare for that downturn by making sure it’s own books are in good stead, rather than just cutting taxes and assumming deficits will remain manageable.

          But Cullen could have prevented a self-induced recession

          How. Be specific about policy and explain what those policies would have down to the crowns books. At the moment all you’ve got is a stupid talking point. You should know better than to bring that weak shit here.

        • prism 6.3.1.2
          21 May 2010 at 10:29 am

          gc What’s this approach, saying shut up for having a different viewpoint than yours?
          “Shut up Mickey Savage. The paying down of debt happened under Bolger and Shipley as did decent growth forecasts and unemployment tracking downwards and surpluses to top it off.”

          Then “Did I criticise Cullen for paying down debt? Where did I do that? I don’t think so. Shut up.”
          You implied that Only Bolger and Shipley paid down debt. That’s how it reads. Did you mean to say that not only did they do this but also achieved…”decent growth forecasts and unemployment tracking downwards and surpluses to top it off.”

        • mickysavage 6.3.1.3
          21 May 2010 at 11:36 am

          Nobody in New Zealand foresaw the 2008/2009 world recession did they?

          Cullen did. He kept saying the surpluses were cyclical. Labour also campaigned on the basis the shit was going to hit the fan and it would have been irresponsible to offer either further tax cuts or further expenditure.

          Key and National totally ignored the impending crash. They even offered tax cuts north of $50 per week.

          Talk about irresponsible.

          But Cullen could have prevented a self-induced recession.

          So he was responsible for the drought? Boy he has more powers than even I thought he had.

    • Draco T Bastard 6.4
      21 May 2010 at 10:42 am

      Thanks to the government causing people to gorge themselves personal debts ballooned.

      So, you think that capital controls need to be brought back in?

      • gingercrush 6.4.1
        21 May 2010 at 11:03 am

        No. I do think we need a better tax regime that rewards savings. It seems pathetic to me that a low income family that is saving say 20 dollars a week (and that would be a real stretch for many) and put that into a savings account week on week then get a shitty low return on that money and having to pay tax on top of it.

        • pollywog 6.4.1.1
          21 May 2010 at 11:21 am

          20 dollars doesn’t even pay for an emergency doctors visit and doesn’t cover the cost of a dishonour fee if a direct debit or automatic payment can’t be made due to reprioritisng funds towards a sick child… Banks suck !!!

  7. ianmac 7
    21 May 2010 at 10:55 am

    Keith Ng said on Public Address:

    “People on higher income take a bite out of the low bracket cuts *and* the high bracket cuts. Even very high income earners have a “first $14,000″ of income.”

    Thats interesting! So high income earners get not just a cut at the top rates but cuts all the way up from the bottom.

    • gingercrush 7.1
      21 May 2010 at 10:59 am

      Well duh that is how all taxes work.

      • ianmac 7.1.1
        21 May 2010 at 11:10 am

        Pardon me Ginger but we are not very clever like you. Drawing attention to that is important to we little folk in our struggle to keep up.

        • Pat 7.1.1.1
          21 May 2010 at 1:02 pm

          Is ianmac David Cunliffe?

          • The Voice of Reason 7.1.1.1.1
            21 May 2010 at 1:44 pm

            Is Pat a Twat?

            [lprent: Probably not. Is there a point to the ‘question’? Pointless insults violate the policy. ]

            • The Voice of Reason 7.1.1.1.1.1
              21 May 2010 at 3:49 pm

              Yes, there is a point, LP. The ‘question’ was an sarcastic pop at Pat’s typically moronic comment*, which attempted to trivialise ianmac’s comments above, the first of which is actually quite pertinent to the post. Twat is probably not the most sensitive choice of word, but it rhymes with Pat.

              *I looked Pat up in the search bar and yes, moronic is a fair description. But then I’ve always been fond of this ditty:

              See the happy moron, he doesn’t give a damn.
              I wish I were a moron. My God! … perhaps I am.

              Eugenics Review, July 1929

              See, John? That’s self deprecating, eh.

  8. gingercrush 8
    21 May 2010 at 10:58 am

    Because the left seem to have this idea that paying down debt only happened when Clark and Cullen came into government. That isn’t true. Paying back debt happened before they arrived. It was something the Bolger then subsequently the Shipley government had at the forefront of budgets. Its why when Clark and Cullen came into government they had surpluses to work with.

    So next time the left harps on and on about debt and debt repayment just remember it was the National government of the nineties that started the whole thing.

    • Clarke 8.1
      21 May 2010 at 11:42 am

      No, it was a National government in the 1980s that started the whole thing – it was Muldoon’s economic incompetence that saw NZ’s debt balloon upwards, by spending money on Think Big projects that never produced an economic return for the country.

      So the National politicians you’re praising were really only paying back the debt from an early generation of National politicians.

    • mickysavage 8.2
      21 May 2010 at 11:44 am

      Surplus in 1997 $1.1b
      Surplus in 1998 $1.3b
      Surplus in 1999 $1.1b
      Surplus in 2004 $8b
      Surplus in 2005 $6.2b
      Surplus in 2006 $11b
      Surplus in 2007 $9b

      They started it but not by much.

  9. WH 9
    21 May 2010 at 11:05 am

    To clarify for a number of confused people – Cullen never paid down debt – what did happen was the the size of the economy grew (GDP) but the dollar amount of debt remained the same. Therefore the percentage of debt to gdp decreased, however when the recession kicked in (2008 before the elections) and GDP plunged and borrow costs increased the size of debt relative to GDP grew. Dr Cullen did many good things, investment in NZSF, infrastructure expenditure and other stuff, but it is largely mythology that actual debt was paid back. We just stopped borrowing against the house.

    • lprent 9.1
      21 May 2010 at 11:54 am

      You’re incorrect – and it is obvious if you bothered to engage your brain before using your fingers.

      Debt carries interest which invariably exceeds the rate of inflation of whatever currency it is denominated in. Otherwise the people doing the lending don’t make a profit. What you’re asserting is that the interest rates on government debt was less than the rate of GDP growth when inflation is removed. Bearing in mind that GDP growth has very small percentages in NZ – typically 2-3% at maximum, and the real interest rate after inflation is in a similar range for government debt, there simply wasn’t time for that kind of drag to happen in a decade.

      So either you’re spinning a bullshit line with no substance, or you don’t use your brains. I suspect that it is the latter.

      (I’m sure you’ll get more erudite responses. But I’m in a hurry on a moderation sweep..)

      • WH 9.1.1
        21 May 2010 at 12:16 pm

        Welcome to the world of large and small numbers and percentages. If you have a large number – lets take a large number say GDP and it grows by 1-3% pa real (that is after inflation is deducted) and then you have a small (but still big number) which we call debt- we can assume it increases at the same pa real rate as GDP or even slightly more. Now back to the argument – Debt in real dollar amounts remained the same – but and this is important we didn’t borrow more and ten year bond rates dropped in the period 1999 – 2008. This meant that as a country we had a slightly rising income (GDP) where even with a small percentage increase, in dollar terms that was large. Therefore size of GDP increased significantly compared to Debt. Or another way too look at it, A 10% increase on $100 is $10, a 10% increase on $10 is $1. So the effect on the large number outweighs the effect on the relatively smaller number.

        So my argument (and the evidence) holds true. Maybe if your in less of a hurry you might have realised this, I realise that this is a problem due to having to moderate quickly and sometimes mistakes occur.

        What really matters is what we do next – but its useful first to have the history straight, otherwise we end up seeing the 1970’s and early 1980’s as a golden era and miss the point that Rob Muldoon borrowed massively to create the pretense it was a golden era. We need to avoid future Rob Muldoons.

        • lprent 9.1.1.1
          21 May 2010 at 1:08 pm

          You said that the debt didn’t get paid down in the last Labour government, but that the debt reduction was by attrition by GDP growth.

          It doesn’t matter which way you cut it – there wasn’t time for effective attrition of the debt during those 9 years. Even if you ignore all other factors, there wasn’t sufficient growth rate in GDP during that period to even start to achieve what you’re asserting.

          If you want to prove your assertions – put some checkable numbers (or better still a link) up showing the total government debt and total GDP for those 9 years.

          At present, you sound like a pontificating dickhead. No amount of bullshit verbiage can disguise that.

          • WH 9.1.1.1.1
            21 May 2010 at 2:37 pm

            Well as a starter try the DMO debt programme for 2007 outlining the 2007 debt programme
            http://www.nzdmo.govt.nz/publications/mediastatements/debtprogramme/2007-12-18/

            or better try RBNZ historical series of government securities for Jan 1990 to Apr 2010 http://www.rbnz.govt.nz/statistics/govfin/d1/hd1.xls you might notice column S (being total government securities) for Dec 1999 there is $31.933 B in securities (that is debt) and in Dec 2008 there is $31.626 B debt.

            now for GDP we can use statistics National accounts series http://www.stats.govt.nz/methods_and_services/information-releases/national-accounts.aspx – using year ending March (and only for 2004 – 2009 so I don’t crowd the comment, but it illustrates the point.
            we have the following GDP $m
            2004 2005 2006 2007 2008 2009

            141,702 151,701 160,273 168,328 181,259 184,802
            So in 2004 GDP is $141B and it rises to $184B in 2009 – see a large number getting larger

            Whereas as shown above the debt number is largely the same – so Debt to GDP reduces, but the Debt still existed and was not paid down.

            I’m trying to be polite but suggest your reply aggression is missed placed and unhelpful to informed commentary.

            • Puddleglum 9.1.1.1.1.1
              21 May 2010 at 3:30 pm

              Hi WH,

              Apart from pedantry, I’m not really sure what your point is. Are you advocating any particular action that Cullen should have made or that Bill English should now make? For example, given that, in literal dollar terms, Cullen did not ‘pay down debt’, should he have done so (in literal dollar terms)? Should the general aim of fiscal management be to eliminate the issuing of government stock and treasury bonds?

              Is your point of clarification anything more than a concern with the precise use of ordinary language terms? If it isn’t, then do you perhaps object to reducing the debt to GDP ratio because it is only ‘smoke and mirrors’ and is not a substantive achievement in and of itself??? Presumably if a private company reduced it’s debt to assett/income ratio banks at least would see that as reasonably ‘good’? Similarly for countries and credit rating agencies?

              Where are you going with this?

              • WH …
                21 May 2010 at 3:55 pm

                Hi Puddlegum – good questions and what has been missing from the debate. Governments have choices (just like a homeowner) when they have an expenditure surplus or use it to a) pay down debt, b)consume, c) investment in other activities. Now investment might provide a better long term return for the government/household e.g., retirement savings, better capital equipment so the business is more productive or education to increase human capital – all of this being done to increase productivity. However the risk is that the underlying debt remains so in making the tradeoff there is a legitimate question that if you think the future is more risky then maybe paying down debt would be a better option as it reduces your interest costs and also makes sure your less subject to the whims of the financial sector.

                Currently the main parties are simply using a debt to gdp ratio in order to determine how much they are willing to spend (tax cuts or more services), but what is missing is the debate (when we are concerned about the future) of whether that is the best choice, or if short term we should actually pay off the debt and be in a better position in the event of a further recession and thereby being able to invest.

                Otherwise we can fool ourselves into thinking that the water is warm and a house by the beach is going out and miss the fact that the water is receeding and your waterfront property is now going to be built out by a multiplex.

              • Pascal's bookie …
                21 May 2010 at 4:14 pm

                They do have choices, just like a household or a business. But they have broader range of choices, because they are not, in fact, anything like a household or a business.

                One problem with assuming they are similar things, is that you can fall into
                the trap of thinking it’s rational for them to make to the same choices at any given point in time.

                That’s part of why the ratio to gdp is used over the raw number, because all the questions that matter, are about the options available. The raw number doesn’t tell us anything about that really, as only shifting the ratio adjusts the options.

                I guess you’d agree that it would be foolish for a govt to focus on paying back all the dollar debt, if to do so caused gdp to shrink through reducing aggregate demand at a time when the private business sector was itself trying to pay off it’s own debts, consumers were doing the same, and export markets were fragile?

    • prism 9.2
      21 May 2010 at 12:07 pm

      Wikipedia – I think this will be factual –
      Further, New Zealand has a very large current account deficit of 8-9% of GDP. However, despite this, its public debt stands at only 21.2% (2006 est.) [5] of the total GDP, which is small compared to many developed nations.
      However, It has also been noted that net foreign debt has increased 11-fold between 1984 and 2006, now reaching NZ $182 billion, NZ $45,000 for each person.[1]
      The combination of a modest public debt and a large net foreign debt reflects that most of the net foreign debt is held by the private sector.
      One reason why New Zealand runs persistent current account deficits, that drives the net foreign debt upwards, is that earnings from agricultural exports and tourism fail to cover the imports of advanced manufactured goods and other imports (such as imported fuels) required to sustain the New Zealand economy. However, this trade imbalance is much smaller than the investment income imbalance which makes up the vast majority of New Zealand’s current account deficit.[

      Those talking about national debt should make it clear whether they are referring to public debt (government) or net foreign debt held by private interests.

  10. I dreamed a dream 10
    21 May 2010 at 11:17 am

    In addition to borrowing, English has gambled on economic recovery to pay for the tax cuts for the rich. But today several headlines screamed at me:

    – Global markets in tailspin – http://www.stuff.co.nz/business/market-data/3723146/Global-markets-in-tailspin

    – NZ dollar continues downward slide – http://www.stuff.co.nz/business/market-data/currencies/3723123/NZ-dollar-continues-downward-slide

    – Tax changes could lead to rate hikes – http://www.stuff.co.nz/business/budget-2010/3723745/Tax-changes-could-lead-to-rate-hikes

    It’ll be interesting to see if his gamble will pay off by Election 2011.

  11. prism 11
    21 May 2010 at 11:51 am

    Like John Bridges joke on Radnz about the budget. His confused gran thought King John was talking about budgies, but she was closer than you might think.
    It wouldn’t fly and made a large mess down your newspaper.

  12. ianmac 12
    21 May 2010 at 2:44 pm

    Was hoping that when John Key was talking about closing Trust loopholes, someone would ask how much of his $50+ million was in trusts and how much avoided tax? Suppose you can’t ask that – can you?

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