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Government in turmoil over spending cap

Written By: - Date published: 9:39 am, August 31st, 2012 - 20 comments
Categories: act, economy, election 2011, election 2014, national, Parliament - Tags: ,

Conflict between support parties. The government without the majority needed for legislation. The Nats’ economic plans in turmoil. Confusion reigned yesterday.

The so-called “spending cap” was cooked up by National and ACT in their 2011 confidence and supply agreement. Somehow forgetting the fact that the Nats had borrowed their way through their first term, the proposed legal cap would limit the growth of core government spending: “Under this limit expenditure will grow no faster than the annual increase in the rate of population growth multiplied by the rate of inflation”. While any such legislation would be more symbolic than binding (see the good post and discussion on Pundit here) the intention was clearly to provide their supposed next term in office with political cover for starving the state. Sorry voters, we can’t pay for that, our hands are tied!

Yesterday the proposal was dropped, amidst some confusion, and accounts which changed as the evening progressed. At time of writing it was reported that:

Budget spending cap shelved

The Government has shelved a cornerstone of its support deal with ACT that would have capped spending after Revenue Minister Peter Dunne refused to back the move. … He said yesterday the spending cap was ”part of an unnecessary right-wing agenda” and was not consistent with constitutional principles which prevented one parliament binding another.

While he would listen to the arguments ”I am not eminently persuadable”. ”Discussions are ongoing, but I am sceptical about caps as an attempt to bind future Parliaments,” he said. …

So the cap is off? Or is it?

But Banks would put forward a separate Government Bill, containing the spending cap provisions, and it had the support of the Maori Party and Dunne to first reading. “It does not make sense for any centre-right Government not to support this bill.”

But Dunne said he had not pledged to support it to first reading, because he had not yet seen a draft. “As a rule I might support a first reading … it depends what it said.” Dunne said his comments critical of a spending cap still stood.

With the landscape changed since the 2011 election, do the Nats actually still want the cap or not? If they still think they’ll win the next election then (with their promise of a balanced budget by 2014-2015 in tatters) it looks like more borrowing will be needed and the cap will only end up embarrassing them. But if they think they will loose then the answer is yes, because then it will be Labour’s problem. At the moment they don’t seem to know what they’re doing:

Labour leader David Shearer said three days ago English had told him the Government would not proceed with the spending cap. But now he had released a statement from overseas saying the spending cap is back on. “Bill English has done a complete u-turn in the space of three days and now his support partners Banks and Dunne are having a public spat.

Are we clear now? No? Me neither. Thank goodness the economy is in such safe, steady hands.

20 comments on “Government in turmoil over spending cap ”

  1. aerobubble 1

    How to not deal with reality. You are overspending, say your faily have two cars and petrol prices are
    rising, so instead of cutting, dropping a car off at the tip, you buy a moped to commute to work.
    But its freezing this time of year, and your boss takes pity, lends you the work ute to get to work, so now most of the day two cars sitting outside doing nothing most of the time, wof running down. All government and private business needs to do is to set up car pooling, lower bus ticket prices, even provide employees with mopeds, but what Government is doing, because its anti-public transport, anti-picking car-pooling winners, anti-councils incentive’s for buses by free transport to car-poolers and moped riders (lowering the risk when they need an alternative, its very cold). But no, what happens is the council, or business, pays even more cash out running the heavy work ute for the worker who uses it to commute. We have these modes of transport, and do not see that they don’t contradict and compete, they actually have synergy. Helping families to retain only one car, rather than the spending cap which just pushed the cost onto the employer when they loaned out a work vehicle to commute to work (and also a gift that needs to be declared to the taxman). The choice of taking the bus, or the moped, or car-pooling the one car, allows for lowering of cost. What National are doing is just saying cut cut cut, and so provide managers with the incentive to push the risk off the book, oops, look petrol costs are up because we are getting more miles out of our existing fleet, exposing us to more wear and tear, and tax claims for undeclared bonus (use of a company vehicle).

  2. Rich 2

    Seen the news coming out of China? Construction’s crashing, so the steel industry’s slowing down and coal/iron ore related commodity prices are collapsing.

    If that’s the start of the China Crash, we’ll see problems from reduced imports of all commodities including food, reduced overseas investment (which funds much of our borrowing) and bank failures (both in China and Australia => NZ).

    The political situation would change quite drastically with milk payouts at $2, Westpac going bust and 10% fixed mortgage rates.

    • Colonial Viper 2.1

      If that’s the start of the China Crash

      China crash started 6-8 months ago. Its become so severe now that even the fiddling of Chinese statistics can no longer hide it. Predictions are for a moderately hard landing over the next 6-12 months.

      Global consumer demand for Chinese production has fallen through the floor, and the Chinese govt has had to stop spending big on local infrastructure projects and easing of the money supply because food inflation is killing ordinary Chinese living standards.

  3. Tom Gould 3

    Don’t expect this to covered properly in the MSM or even the political media. Had it been a Labour coalition in charge, of course, the “government mayhem” headlines would have screamed from every billboard.

    • ak 3.1

      Right on Tom. During the Helenhate frenzy, any one of the current 532 imbroglia would have been grounds for Herald-led revolution and public hangings.

      Remember the red front page and Helen/Lenin pix over proposed restrictions to election-buyers? – and the “fart tax” hysteria over around $200 per cocky?

      Ahh the bliss, at the terminal demise of the filthy, tory-owned rags of exploitation.

  4. BernyD 4

    Petition the UN to stop the Illegitamate Imbargo on Iranian oil ….. no spending caps required.
    GFC solved

    Greece and Spain would get it a few signatures

    Let alone Russia,China, Iran , and many other countries suffering as a result of American inspired “Oil Price Inflation”

    • Lanthanide 4.1

      Yep, high oil prices over $80 is entirely the fault of the embargo on Iranian oil, and nothing to do with the peaking of conventional oil back in 2005.

      • BernyD 4.1.1

        “The United States has had sanctions on Iran for most of the period since the 1979 Islamic revolution, with sanctions becoming broader since 1995 and expanded further since 2005.”

      • Colonial Viper 4.1.2

        Yep. Given that oil prices spiked to US$140/bb in 2008, way before the Iranian oil embargo.

  5. BernyD 5

    Iran managed to move some oil earlier this year, America jumped on them
    Check out http://www.oil-price.net it was close to $90 a barrel , now it’s $112.65

    Transport costs are up, that’s why Solid Energy can’t move any product, more Jobs lost because of Americas’ current agenda.

    A lot of countries are going to be paying back Gemany / France and America for all the Bailouts for quite some time …. make u think?

    • Colonial Viper 5.1

      Iran is still able to move a fair bit of oil to customers via intermediaries and third party traders. But yeah, the US led sanctions (essentially an act of war) are causing massive hurt to the Iranian economy.

      • BernyD 5.1.1

        A lot more than Iran

      • ak 5.1.2

        Never forgetting that the previous Iraq sanctions caused the agonising deaths of half a million Iraqi children.

        Gotta luv that dying empire of the “free” world.

        • Dr Terry

          That is the immorality of sanctions, they they strike at the poor, children, innocent. The powerful suffer nothing, and care not too much about the underlings.

      • BernyD 5.1.3

        The people of Spain , Greece and any other country being impoverished by this should immigrate to France, Germany or America, follow the money I say.

        Since the power mongers of those countries (Not the citizens) are so hell bent on their own agendas, you might as well profit from them, no one else in the Civilised world is going to go up against them.

        Just look at the replies to my comment, people actually believe that “Natural” fluctuations are to blame. A lie engineered by the international “News Wire”.
        Iran has only ever responded to attackes from America and Israel, they Never instigate the attacks. From what I can see they are the more Civilised party in this.

  6. millsy 6

    Hopefully the spending cap will end up discreetly sliding off the agenda.

    This will more or less impose hardship on thousands of people, and will destroy what is left of our social security/welfare state.

    Hospitals, schools, polytechs will close all over the country, and state housing will be run into the ground.

    The goal of John Archibald Banks to impose US style health care would have been fulfilled.

  7. millsy 7

    No school milk, universal education, school dental services, NZBS/NZBC, no rural electrification, DSIR, rail, roads, Correspondence School, community roads , school buses, school journals, Karitane hospitals, health camps, etc

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