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Hickey on borrowing

Written By: - Date published: 6:58 am, March 28th, 2011 - 91 comments
Categories: capitalism, economy, monetary policy - Tags: , ,

The latest piece from recently enlightened Bernard Hickey is a despairing warning on the subject of borrowing:

We are borrowing ourselves into permanent poverty

New Zealanders learned this week that our output did not increase in the second half of last year. Yet our spending in total and our wages rose over that period, as did population and spending per capita. How did we spend more per person than we earned per person? Essentially, we borrowed from offshore or we sold assets to foreigners.

Other figures out this week showed we ran a current account deficit of 2.3 per cent in the December quarter. That’s much less than the 8.8 per cent hit in the December quarter of 2008, but it’s still a deficit and means we imported capital equivalent to 2.3 per cent of gross domestic product and spent it. Importing capital is another way of saying we borrowed money or sold assets. … Yet again, we engaged in a national delusion we could spend more than we earned.

New Zealand’s real GDP per capita is now below where it was in 2004. … Over the 10 years of the naughty oughties (2000s), New Zealand borrowed or sold off a total of $350.3 billion. That’s about two times GDP. We used that money to increase our wages and income. We didn’t use that money to reinvest in new equipment or skills to boost our ability to produce more in the future. …

Now, the government has taken over as the borrower-in-chief. On Thursday the Treasury’s Debt Management Office took advantage of a gap in the financial market turmoil to borrow $950 million in one week on international markets. … The upshot of all this borrowing is now whenever our economy looks like recovering, the benefits of any growth are shipped offshore as profits and dividends from now foreign-owned assets here and as interest payments on the debt incurred over the last decade.

Last year, New Zealand paid $15.5 billion in profits and interest payments to foreign investors and creditors. Only $3.3 billion was reinvested. That is the size of the drag on the New Zealand economy. It is unsustainable.

We have to stop spending money we aren’t earning. If we don’t, we will get poorer and poorer until either there is nothing left to sell or we can’t pay the interest on the debt. It’s time we stopped kidding ourselves.

I have some despair of my own to add. First, the economic policies of the current government (borrow to cover tax cuts to the already rich, sell more assets) are guaranteed to make the problem worse, not better. The longer the Nats are in power, the worse it will get.

Second, fixing the problems will require New Zealand to accept that the party is over, that changes are needed, and that some sectors are going to experience some short term economic pain (e.g. raising tax rates for the highest earners again).

Third, that’s a difficult message to sell to the voting public. National are part of the problem, so it’s up to Labour to lead the solution. Will they be bold enough to try?

Fourth, finally, and combining these points, unless the electorate clearly understands the downwards spiral that we’re in, they are likely to vote for the stuffed suit with the smile and wave, rather than the economic medicine. It’s hard to see where an electorate that is educated and informed on the economy is going to come from, especially as the media devotes most of its slobbering attention to sex, scandal and gossip, and spends so very little time on the issues that shape our lives and future.

It is time to think about radical alternatives. How can New Zealand break out of this downwards spiral?

All of my posts for March will finish with this note. While life goes on as usual outside Christchurch, let our thoughts be with those who are coping with the aftermath, with the sorrow of so many who were lost, and with the challenges ahead.

91 comments on “Hickey on borrowing ”

  1. ghostwhowalksnz 1

    Since when has Hickey been an economist ?
    However, he makes a lot more sense than most

    • Jim Nald 1.1

      His analysis is better than that from self-proclaimed experts and glorified rorters who have been claiming to be economists.

  2. Anthony C 2

    I wonder if a significant percentage of the $15.5 billion would be structured financial transactions for tax minimisation.

  3. Shane Gallagher 3

    You know is seems to me the problem with Labour is that they don’t seem to have a coherent plan to get us out of this situation – I had a good look around their website and apart from things like increasing the minimum wage to $15 (another policy stolen “borrowed” from the Greens) there isn’t anything there. If they actually had a big economic plan/vision thing then maybe they would be able to articulate responses better?

    Again it just reinforces the impression that they are not really planning to get back into power – just to hold on to their seats until 2014 when NACT have truly f***ed things up.

    • Bored 3.1

      Getting “us” out of the problem…seems to me the international rich have taken advantage of the poor “us” and saddled “us” with their bad debts…such as the bail out in the USA. We, the “us” need to say to them forget asking our governments to pay for private debts (or public where the wealthy have had the benefit such as tax cuts)…and force the Wisdom of Solon upon them. Make it their problem, we might be deemed to “owe” but that should be “their” problem.

    • ghostwhowalksnz 3.2

      Its election year, as they say more will be revealed.

      National waited till 2 months before the election before releasing their major tax policies and then claimed circumstances had changed 3 months after

      • Jim Nald 3.2.1

        One thing can be observed to be consistent – John Key and Bill English try to keep changing their lines and tricks.

      • Colonial Viper 3.2.2

        Waiting until 2 months before the elections may be tactical to stop National copying policy (NB National is never going to copy true Left leaning policy anyway), but it is also not enough time to explain major direction changes and major new policies to voters.

        I agree that moving the minimum wage to $15/hr will be of help, but it will also do nothing to alter a capitalist system fundamentally set up to transfer and direct wealth upwards.

        • Shane Gallagher

          CV- you bring up a very good point – if Labour have a radical new economy in mind then they need to signal that far ahead of the election so that voters get a chance to absorb those ideas and concepts .

          Addressing things like inequality for example needs a bit of lead in time for voters to absorb as an issue. Sure, leave details like tax rates etc. to the end, but if Labour’s idea is to move the country in a different direction with a different vision to NACT then that needs to be articulated well before the election and repeated again and again. I hope that I am both pleasantly surprised and wrong.

  4. Afewknowthetruth 4

    NZ was set up as a colony in the early 1800s. The whole purpose of a colony is to extract wealth. Governments are installed to oversee the loooting exercise. It makes no difference whether they are Natioanl or Labour: the game remains exactly the same: keep the poulace dumbed down and keep transfering wealth upwards and overseas.

    Nothing has changed in 200 years, though the amount of wealth left to extract has declined substantially; practically all the gold has gone, much of the oil and natural gas, fish, native forests etc. are gone. There are still a few pockets of oil and gas left … the global corporations are working hard to extract that wealth as quickly as possible.

    The other way to extract wealth is via debt slavery, so governments implement policies that increase indebtedness of individuals, local communities and the nation.

    The really clever move is to get ordinary folk to vote for the their own impoverishment. It is easily achieved at election times: just tell the proles you are offering a better, brighter future. That hoax works every time.

    • Colonial Viper 4.1

      The fact that you haven’t realised that things have changed substantially in the last 200 years, particularly the decline of nation states as effective economic agents, means that it is you who are behind the times.

      • Lanthanide 4.1.1

        Yes, there are many companies in the world that have larger revenues and networths than many small countries.

        • dave brown

          What’s your point CV and Lanth? The Bank of England was the biggest suckerouter in the late 19th century. Its always firms backed by states then and now. NZ was a colony then now a rapidly declining semi-colony. In essence nothing has changed over that period.
          The mistake most people make is to talk about NZ as ‘us’. Its not its ‘them’ and ‘us’. That comes from the so-called decolonisation of NZ under the 1st Lab Govt in the name of a united classless nation. We are still trapped in this myth when its obvious we never were and never will be classless while part of the capitalist global economy. NZs ruling class is made up of US/Aussie/China lackeys who profit from privatising what is left of NZ assets.
          Labour will continue to try to manage NZ semi-colonial capitalism going down the drain. And it will precede it with barely a wimper. It hopes to prop itself up by winning some middle class votes and to hell with low paid workers. But that middle class is in rapid decline and lots of pissed off workers who can borrow the fare from an Aussie bank are joining the Aussie middle class.
          We need a Socialist Party to socialise the key sectors of the economy under workers control, with no indemnification of banks, finance houses or pension funds. Socialise the F&S with non-alienable customary use rights to Maori. Plan the economy for use and not profit. Join forces with other countries going down the socialist road. Survival not servitude.

  5. Bored 5

    It’s hard to see where an electorate that is educated and informed on the economy is going to come from, especially as the media devotes most of its slobbering attention to sex, scandal and gossip, and spends so very little time on the issues that shape our lives and future

    R0B, thats a good summary BUT I think we have actually passed the point where our votes and “democratic” process will actually make any difference. Worldwide the neo lib concensus and their robber baron rule set are in the ascendant, despite more challenge. To expect the elected representatives to rck the boat …well 9 years of Laour might tell you something.

  6. Lanthanide 6

    “We used that money to increase our wages and income.”

    Most of it went to the already-rich.

  7. randal 7

    hey dude it is my god given right to book up a hardly davison, leaf blower, angle grinder, orbital sander and trip to mongolia on the never never.

    • mcflock 7.1

      Would that we were buyng only luxuries on credit – lots of people are maxing out cards and personal loans in the hope that their personal lot improves before the debt collectors come calling.

  8. Zaphod Beeblebrox 8

    All the money be sucked out by foreign companies such as the big four Aussie banks must have a lot to do with declining GDP.

    The governments solution? Bring in overseas partners to part own our public assets and sell down the public share of our eseential SOEs so even more profit gets sucked out of NZ.

    Talk about becoming serfs in our own country.

  9. PeteG 9

    It is time to think about radical alternatives. How can New Zealand break out of this downwards spiral?

    I think it does need radical alternatives. National haven’t shown (yet) that they are in to considering radical, and voting back Tweedlecentreright is hardly going to make inroads into the borrowing levels, with or without tweaking the higher tax brackets.

    It’s hard to see where an electorate that is educated and informed on the economy is going to come from

    It’s hard to see where enough MPs that are educated and informed on the economy are going to come from. If we could fix the quality of MP problem we may then start to make headway on policies. Things like the Hughes debacle will hardly encourage people to join the fishbowl.

    • pollywog 9.1

      yeah…it doesn’t help when the ruling parties keep voting in patsies, careerists and celebrities as candidates with no life experience and no ideas on how to do much more than sit on their hands, nod and make the odd grunting noise of disapproval…

  10. The Baron 10

    So I think everyone agrees that this whole debt thing is a bit f*cked up. But hold on – Philly G wants to give away another $3b a year in tax cuts in terms of the tax free zone, right? So first off, that is going to make things far bloody worse.

    Now maybe they’ll reverse the cuts on those “rich pricks” who earn over the whopping total of $70k a year (god, what a high life). But if my understanding of the maths is right, that won’t be enough to recover the new hole blown by Labour’s low end bribe.

    So if debt is a problem, Rob, then surely you see that Labour is intent on making it worse.

    Ah but then there is the last part – Labour will do better managing the economy, right? And how exactly will they do that, given that we have absolutely NO DETAIL about labour’s economic policy in the lead up to the election. So one has to assume that they don’t really have a plan yet either.

    So which one out of “making things worse” or “we will tell you how to fix it later” do you think will be Labour’s campaign slogan? Or are you ready to admit that Labour getting us to a solution is probably a bridge too far?

    Please enlighten me Rob, cos I am struggling to reconcile your politics of faith against the cold hard facts here.

    • lprent 10.1

      And how exactly will they do that, given that we have absolutely NO DETAIL about labour’s economic policy in the lead up to the election.

      I can’t recall you getting worried by that when National did exactly the same thing in 2008 6 months out from an election and authors here were pointing that out. In fact, I seem to recall, you seemed to think that tax cuts were all the economic policy that was required – even when authors here were saying that they’d cause a budget blowout.

      Perhaps you have a double standard? Perhaps you’d better clarify your position first on the last election so we can decide if your worry is credible.

      I’d say that you should start on your support for unaffordable taxcuts.

      • The Baron 10.1.1

        Perhaps I’m not the one who is looking to win an election. Perhaps, therefore, those that are looking to win one are the ones that need to do this explaining. Which, might I add, is exactly the line that you and your fellow authors pull out whenever anyone asks you these questions, perhaps?

        Rob put a partisan posting up saying how this is all National’s fault. My response is that Labour will a) make that situation worse; and b) has not yet articulated any plan that will make that better.

        Whatever the f*ck that has to do with 2008 or my opinions of National’s previous policies is beyond me, Lynn. But nice try at an ad hominem misdirection.

        • lprent

          Whatever the f*ck that has to do with 2008 or my opinions of National’s previous policies is beyond me

          It cuts directly to your credibility. You’re saying that Labour should follow a political path that National didn’t.

          National didn’t release any policy in 2008 that was much more than a few paragraphs per topic. Almost all of that got released within the campaign period just before the election. You seemed very happy with that at the time (would you like me to look some of those comments up?). Why exactly do you think that? Why do you think that Labour should do something different?

          Personally I think it is just a hypocritical stance to say it is ok for National to lie to the electorate by omission as they did all the way up to the election, and then castigate Labour for not releasing detailed policy more than 6 months from an election.

          If you think that is an ad hominem misdirection then you’re severely mistaken. That is me saying that you’re a hypocritical arsehole

          Update: Apologies – I was incorrect. http://thestandard.org.nz/hickey-on-borrowing/#comment-313631

          • The Baron


            You know that I am not the National party, right? So what does my credibility matter? And how does that at all influence the validity of these questions? What, it means I can’t ask them anymore? When did those rules enter your policy?

            But to move this on I will say I am a hypocrite, if in exchange you will then answer for me:

            A) How Labour’s borrowing plan for $3b in new tax cuts won’t make things worse;


            B) Why you have faith in Labour’s completely invisible alternative economic strategy.


            • lprent

              Notice it was not moderation. Moderation has a pretty clear signature, bold, square brackets, moderator name etc. I guess that is you trying for a misdirection since you’ve seen it several times before.

              This is me expressing my personal opinion of your comment. Yeah I know you support neither National or Labour. But you’ve commented on both in the now and in past. What I’m pointing out is that you are using a double standard (one of your favorite statements in the past about this site as I recall)

              Your credibility matters when you say that
              So one has to assume that they don’t really have a plan yet either.

              You didn’t make that assessment of National when they did exactly the same thing in 2008. They didn’t release virtually any of their policy until just before the election

              I’ve postulated a reason why you have this difference in your standards – that you are a hypocritical arsehole. I haven’t seen you say why I should consider you to not be.

              In particular why you think that Labour should be different in political strategy from National.

              Update: Apologies – I was incorrect. http://thestandard.org.nz/hickey-on-borrowing/#comment-313631

              • The Baron

                Actually Lynn, I am going to call you on that after all – I started commenting on this site in Feb 2009, if the search I just did is accurate, and if my memory serves me correctly.

                So goodbye hypocrisy, goodbye double standards, goodbye the substance of your response thus far.

                Wanna try answering my questions now?

                A) How does Labour’s $3B bribe make things better?
                B) Why do you have faith in a non-existent plan from Labour?

                Oh and any other faithful, please feel free to enlighten me too!

                • Colonial Viper

                  Funny how the Right still think that the billions in tax cuts for the rich are still OK

                  Fact of the matter is that taxes are going UP mate not down.

                  • The Baron

                    Funny how you think $70k per year is “rich”.

                    Sorry – which taxes are going up? GST has been put up by this Govt – but all Goff has committed to thus far is more tax cuts, not tax rises.

                    Sooo unless you have some sort of psychic mind reading powers, you’re just HOPING that Labour has a plan that digs us out – whereas all we know for sure is that Goff will definitely throw us $3b further into a hole.

                    Thanks for confirming that then. Wow, what a plan!

                    • Colonial Viper

                      $70K p.a. is a pathetic income you are right I was on more than that when I was a wee blighter today its nothing

                      Thing is that NZ is full of families trying to raise children on half that amount

                      Taxes gotta go up big time on those earning 4x and 20x the median income, also those with net worths of over $1,000,000

                      Things gotta change Baron

                      I’m not HOPING that LABs got a plan to dig us out, I have SEEN the remits and the Policy Council documents, the plans are there, just up to caucus to ante up and swerve left to make it happen.

                    • The Baron

                      Righto then – last time I looked those tax plans exist only in your head.

                      SO unless your dreams start turning into reality, which I highly doubt, it STILL looks like Labour’s alternative plan is to make things far worse by borrowing more.

                      Maybe Rob knows something on the inside to justify his fanboi-ism then, and answer how Hickey won’t be even more worried once Goff starts borrowing even more for further tax cuts. Cos everyone else seems to be coming up short.

                    • Colonial Viper

                      Baron what ever it looks like to you, it’s just YOUR imagination

                      Your mates Bill and John borrow and spend, that’s all they know how to do, oh yeah, and give big tax breaks to the wealthy of course

                      National are making this country poorer and poorer by the day, under Labour the Government had negligible net debt, Bill and John come in and they start by being fiscally irresponsible from day one.

                    • The Baron

                      So borrowing another $3 billion for tax cuts would be even more irresponsible, wouldn’t it?

                    • KJT

                      70k is the median family income. I agree it is hardly rich. Progressive taxation should start about 140k. Equivalent to 30k, about the level of the top rate in 1980. Cuts to the top rate plus leaving the tax on middle incomes to go up by bracket creep and user pays has resulted in a decreasing disposable income for 80% of New Zealanders.

                      “The so called reforms in the 80′s and 90′s resulted in a drop in income for the majority, 80%, over the period”

                      “Since there was little income growth, the net effect of the fiscal changes was to switch income from the poor and those on middle incomes to the rich”.



                      “Weekly incomes have stagnated since 2008.”


                      “Incomes for most people, have dropped since the 70′s”.

                      “Almost constantly apart from a brief slow down of the drop from 2000/2008”.

                      “For the middle class in skilled jobs it has dropped 40%.”

                      People are borrowing to live because NZ incomes have dropped below costs..

                      A better option may be to simplify all welfare, tax and tax rebates into a minimum individual income administered through IRD. With a flat rate up to 200k after that. Those earning over 200K are benefiting the most from our society, so should pay the most towards it.
                      The difference can be made up with FTT’s, a CGT on all but the family home (up to twice the mean house price) and pigonian capital control taxes.

                • lprent

                  Damn. You’re correct – 26/02/2009. I profusely apologize.

                  For some reason I had you confused with another commentator with “The” in their name who no longer comments here. Cancel the “hypocritical arsehole” statements because you do not deserve them (at least not for the reason I gave).

                  The answer to your query is just the same though. Wait for the economic policy to be released. It is more than 6 months from the election. There is a budget that needs to be released first and which is likely to affect the available revenue and expenditure.

                  If National didn’t feel it was necessary to release policy until just before the election, then I can’t see any reason for Labour to do it differently. If you can find a valid reason why Labour should release detailed policy early in the campaign – then please lets hear it?

                  Then explain why you think that National are also guilty of the same sin.

                  For that matter when did Act release their economic policy in 2008? Have they done so yet?

                  • The Baron

                    Lynn – apology isn’t really necessary, but appreciated all the same. Hell, I attribute things to other commenters all the time to help my argument, so I would indeed be a hypocrite if I got upset about you doing the same.

                  • PeteG

                    If you can find a valid reason why Labour should release detailed policy early in the campaign – then please lets hear it?

                    Depends on how much risk Labour wants to take, especially considering how much ground they need to make up. They’re unlikely to win on leader’s charisma.

                    If they put everything into policy to pull it off they need to hope that they get the formula just right (major turnaround needed), they need to hope voters will care to take notice of it, and hope like hell that at the vital time the news isn’t taken over by something major that won’t stop the election from taking place, like the Japan earthquake.

                  • The Baron

                    For the record, I’m not actually asking for Labour to do anything. I’m asking R0B to justify his fanboi-ism in terms of attacking National’s record of borrowing, when Labour wants to borrow another $3 billion a year for tax cuts, and has as yet articulated no plan for the economy.

                    So to me, onus is on Rob and his fellow fanbois. Labour actually having a plan would help them justify their faith based politics in the face of more disasterously irresponsible borrowing from Labour.

                    • lprent

                      Firstly: Labour isn’t proposing to borrow $3bn. If you’re talking about a Labour proposal then shouldn’t you use their figures rather than some made up crap? Perhaps you’d care to point out the Labour statement on how much it will cost and start from that as a basis? Quite simply if you don’t know what in the hell you’re talking about, then why should I argue with you? It’d be pointless.

                      Secondly: The onus is on you as far as I’m concerned. You raised Labour’s policies in a post about Nationals debt creation. You haven’t linked to anything, and you haven’t bothered to show why a future possible policy is relevant to a post talking about debt being irresponsibly generated now by the wastrels in NAct. Why is Labours press release relevant to this post?

                    • The Baron

                      Well look at that. Tax free zone will cost only $1.3 billion, according to this: http://www.3news.co.nz/Labour-proposes-5000-tax-free-zone/tabid/419/articleID/195788/Default.aspx

                      But then again, Labour have already gone on the attack regarding a “0 increase being a cut”. So that’s $1.3 billion plus whatever else Goff wants to throw around.

                      So yes, corrected. Labour only wants to put us $1.3b further into the debt hole through tax cuts, and another couple of hundred million at least in additional services that we can’t afford. Either way, debt grows irresponsibly larger under Labour – but then again, they have to keep their powder dry on their winning economic strategy that will make all this borrowing and hoping a-ok, right?

                      Happy now? If anyone is a hypocrite, it is the Labour party – arguing how irresponsible borrowing is when they want to borrow more themselves. And again, you’re cheering them on? I don’t get it.

                    • r0b

                      Sorry, in haste. But, umm – when did Labour say they would borrow for that? Did you read your own link? It will be paid for by progressive taxation and closing loopholes, not borrowing.

                      Won’t be here again until late tonight…

              • PeteG

                In particular why you think that Labour should be different in political strategy from National.

                2008 and 20011 are quite different situations.

                Some of the key National planks last time were what they wouldn’t do as opposed to what the would do. All they had to do was assure the electorate that they wouldn’t make drastic changes and let Labour fatigue do the rest.

                This time National could take the same approach (not scaring the horses) and maybe not disgruntle too many last time voters. Their task is not much more difficult than 2008.

                This time Labour need to convince the electorate that they have recovered and refreshed since they were rejected last time. Not putting forward significant policy and people changes means that they are not doing that. Far too risky and too soon to just sit back and rely on National fatigue.

                Greens+NZF could = Labour if they aren’t careful.

                • RobC

                  “Their task is not much more difficult than 2008.”

                  Yes it is. At some point, they will need to mention two words:

                  Asset Sales

                  • The Baron

                    And the Labour alternative is an extra $3b per year in debt. Neither sound that flash, do they?

                    • Colonial Viper

                      Sorry pal the rich are gonna get soaked that’s it

                      I hope LAB have the guts to bring in a CGT as well as an asset tax

                    • The Baron

                      Uhuh. The $70k+ rich that is, right?

                      And still more faith based politicing huh CV. I’d rather wait and see whether Goff has plans to offset his $3billion in extra tax cuts, which will make things FAR WORSE in terms of what Hickey is talking about in this article.

                    • Lanthanide

                      For the record, under Labour’s tax cut policy, which National repealed, the top threshold would be $75k today, and $80k this Friday on April 1st.

                      So if you want to bitch at anyone for considering “$70k” rich based on the tax threshold, blame National.

                      Labour are proposing to raise the threshold, or introduce another one, up over $100k. National aren’t – they’re happy with the “rich” cutoff being $70k right now.

                      Here’s my attempt to define ‘rich’, btw: http://thestandard.org.nz/crisis-but-tax-cuts-for-the-rich-keep-coming/#comment-311513

                    • Colonial Viper

                      Hey Baron you moron I said $70K p.a. is a pathetic income

                      And its doubly pathetic that so many NZ families are having to raise children on HALF that amount

                    • The Baron

                      Well you’ve got to set it at $70k or there abouts in order to make up for the $3 billion Goff wants to give away – otherwise you’re further down the hole.

                      There isn’t enough people who are “really rich” to make it revenue neutral otherwise.

                      So, ah, I guess it won’t be team Philly G leading us anywhere new any time soon – unless thats even further into the poor house.

                    • Colonial Viper

                      Baron, income taxes for the most wealthy have to go up, and we have to introduce ASSET taxes. CGT etc. That will raise plenty.

                    • Herodotus

                      CV hard for “… income taxes for the most wealthy have to go up, and we have to introduce ASSET taxes. CGT etc. That will raise plenty.”
                      to raise plenty when we are not producing much. That just divides the existing pizza into smaller bits. Not opposed to CGT & increased taxes as PART of a comprehensive package, but no as the Final Solution which is how it appears to be marketed by the left. Just displays how little thought is going into it- just PR vote grabbing. How will this benefit Current Acct, ability for coys to grow ….etc No vision = no destiny = crap outcomes as the only question is how quickly or slowly do we sink.

                    • Colonial Viper

                      Herod. you are quite correct.

                      My response is that it boils down to investing monies obtained into productive technologies and infrastructure, moving capital out of the financialised game system into productive enterprises which can both export and employ.

                  • PeteG

                    A handful of part sales of assets is hardly going to signal the end of socialism. It is senseless to rule out ever evaluating whether assets are best retained by the state or not.

                    But there are risks, for both main parties, as this is likely to get drowned out by a slanging with things like “selling the silver” dominating the “debate”.

                    Do you think that op assets should ever be sold?
                    Do you think asset sales seems like a viable wedge issue?

                    • RobC

                      What I think (and what you think) is beside the point. The lack of comprehension of economic matters that a significant part of the voting public has, mixed with the level of political debate we have, means such nuances are unimportant.

                    • PeteG

                      Yep, sadly you’re right, hence our political PR parasites.

                      Cheaper hamburgers with free upsizing would probably get more votes than dropping GST on fresh fruit and veg.

    • Zaphod Beeblebrox 10.2

      Your agrument that Goff has not produced anything so far to turn this problem around is fair enough. But what defence do you have of Key?

      I think Hickey’s argument establishes that neither the Clark or Key government’s did/are doing much to improve our productivity/GDP/national debt.

      We’ve seen Key’s plan and Goff’s plan is sketchy. Do you have any suggestions or do you simply want to see things go on as they are?

      • The Baron 10.2.1

        Sorry pal, not what I’m here for. You may dislike that, but all I want to know is how Rob justifies his partisan fanboi-ism against $3b of making the problem worse, and a non-existent plan for a better economy.

        Apart from that, I have no idea. But then again, I’m not asking you for your vote either.

        • Colonial Viper

          Hey mate sometimes you gotta borrow more to invest in society

          Unlike National who borrow more to give to the rich (I guess they see that as a kind of investment)

          • The Baron

            Look, unless Labour is going to be buying into the CV/Draco “just print it” theory, that money has to be paid back. And Hickey’s article is about just how hard and stupid that is.

            Goff wants to put us $3 billion further into the paupers debt house because he wants some “me too” tax cuts. And you’re clapping him on?

            • RedLogix

              CV/Draco “just print it” theory,

              Well who do you think does it now?

              • Colonial Viper

                Exactly. The Baron has no idea about the “funny money” bank credit money supply system western economies have become reliant on, so I wouldn’t expect him to know.

                • The Baron

                  Exactly. Everyone else in the world, including every minister of finance and more relevantly to this post, Bernard Hickey, agrees with me.

                  Talking about some sort of bizarro revolution in world economics is hardly relevant to this post is it? Well, either that or it is just as relevant as everywhere else you bring it up as a solution.

                • Colonial Viper

                  Hey Baron, you asked the question on who is printing money and I told you, its happening right now under your very nose, and this is the same system that YOU support.

                  Exactly. Everyone else in the world, including every minister of finance and more relevantly to this post, Bernard Hickey, agrees with me.

                  What, all of a sudden world financial leaders every where agree with The Baron?

                  Fuck off you’re deluded.

  11. mikesh 11

    Bernard doesn’t make clear how the 950 million is to be spent, but if it is to be spent locally it would surely be preferable to borrow interest free from the Reserve Bank. Both courses of action would be about equally inflatioary. And if Bollard won’t go along with this, repeal the Reserve Bank act and bring the bank back under ministerial control.

  12. MrSmith 12

    This might answer your earlier question Baron.

    Goff said:

    “The first area we’ll look at is how to crack down on tax evasion and avoidance. No one knows exactly how much is lost by people dodging their tax – but it’s been estimated in the billions.

    The Tax Working Group pointed out that only about half of the wealthiest individuals in New Zealand are paying the top tax rate.

    It said that many with wealth can restructure their affairs through trusts and companies to shelter income from taxes and even to receive social support they shouldn’t be entitled to.

    The Tax Working Group points out that $200 billion worth of rental property doesn’t provide any net tax revenue – it actually generates tax losses.

    The incoming Labour Government will immediately set up a highpowered Anti-Avoidance Tax Taskforce to close tax loopholes. A second source of funds to allow us to create a tax free zone will be to claim back some of the windfall tax cuts from the very top income earners. We haven’t yet set a new top tax rate.

    Nor have we determined the level of income that it will apply to. But it will only affect incomes comfortably into six figures, the top few per cent of earners.

    We will also make sure these very highest earners do not use trusts to avoid paying the top tax rate. We are waiting with interest to see the Law Commission ’s work in this area.

    How big we can make the tax-free zone will depend on how much we get back by making the tax system fairer and closing the loopholes. I fully expect those who have arranged their affairs to avoid paying their fair share of tax to come after me”.

    • RedLogix 12.1


      If all the wealth in the world actually paid it’s fair share of tax, governments everywhere would be rolling in so much money they really would be able to cut tax rates meaningfully.

    • PeteG 12.2

      I applaud any reasonable attempts to cut down on tax evasion and loopholes, but I’ve heard it all before, and it doesn’t seem anyone is able or willing to get on top of it.

      I wouldn’t rely on any substantial recovery claims. As quoted Goff says “No one knows exactly how much is lost by people dodging their tax” – and even less is known about how much can be prevented, nor what the flow on effects would be.

      • MrSmith 12.2.1

        PeteG: Tax evasion in New Zealand is bigger than Rugby. The banks are a classic example.
        By the way they make about 3 billion profit every year. So you think they would leave if the profits where halved, well I doubt it.
        We give them the right to create money and loan it out at no risk (as we have just seen with the government guarantee) to themselves, so why would they cut that money tree down? they won’t will they.

        • Peter

          Too right, did Bill English thank the IRD’s Civil Servants for winning back 2 billion from the Australian banks in 2009? Yes 2 billion, you can do a lot of re-building with that amount.

          Incredible that they take our money as deposits, which earns Kiwis a paltry amount after tax, create credit with it to earn profits and then they attempt to embezzle their collective customers by not paying tax.

          The total wage bill of all Government employees is some 18 billion. The IRD’s court success of 2 billion gives a 11% ROI. He should be employing more Civil Servants not less,

          Where would Bill be today without his employees? Borrowing even more to make up for his tax cuts!

  13. Greg 13

    On the very slight chance you want a serious answer for the long term, here’s one. Everyone will hate it for one reason or another, so it’s got Buckley’s chance of being implemented. But we really do need some reality in the discourse. If we want to keep the incomes we’ve got, let alone get ahead, these are the things we’ve got to do. The alternative is a health system worse than Bangladesh’s (no offence, but BD is undeniably short of money).

    First, manage for a low exchange rate. This might mean capital controls, currency transaction taxes, whatever else as well as the standard tools. But get the exchange rate down. Tell the RBNZ to forget the … simplistic … (original adjective redacted) focus on inflation. It’s been ruinous.

    Second, have a better industrial policy. Yes, pick winners, but do it cleverly. South Korea, Singapore, Taiwan, etc. prove it can be done. But more importantly, pick losers. Discourage investment in real estate — especially residential. Have a land tax. Get rid of the abomination known as the LAQC, and trusts that are mainly about real estate capital gain. Tax holiday homes and absentee owners.

    Third, encourage savings. Change the pension from being linked to the average wage to being inflation-adjusted, and raise the age of general eligibility. Tax capital gains, like the rest of the developed world does.

    Fourth, grow Auckland. Improve its links to Hamilton and Tauranga. Change the rules in inner-city areas so people can build as tightly as they want subject to noise and traffic performance standards. Consider a “special economic zone”. People need to read Brian Easton’s “Globalization and the Wealth of Nations” to properly understand why this is crucial, but the basics are these: Auckland is one of the second-tier cities in Australasia, along with Perth, Adelaide, and Brisbane — but smaller than Brizzie. The big money is made in the big cities, not the small ones; we need to encourage businesses to stay here when they get big. It will benefit the regions in the long run if the Auckland-Hamilton-Tauranga triangle gets all the love for a couple of decades.

    Fifth, change business culture. For the same reasons as we need Auckland to get big, we need our businesses to get big. We’ve got to work better in big teams. One part of this is improving the quality of our managers. I suggest a “manager’s license” system, analogous to the driver’s license.

    Sixth, look to the future. Over the next few decades commodities are expected to rise in price, so our farmers, fishers, and foresters will do well (if we don’t stuff things up by letting our exchange rate rise too much, or letting all the gain flow to land prices). We need to plan how to make use of that.

    Seventh, get out of the way of scientists and science entrepreneurs. Annual or per-project contestability of research funding has been extremely counterproductive. Fund for a decade at a time.

    As I said, something for just about everyone to hate: things would get worse before they got better. And possibly they won’t get better, just not as bad as the alternative.

    Buckley’s chance.

    • rosy 13.1

      “Everyone will hate it for one reason or another”….. nah, sounds good… add FTT and CGT and it’s a winner

      • Colonial Viper 13.1.1

        And a basic asset tax. 1% p.a. on all net assets held over $1M.

        You own $5M in net assets, including property, stocks, bonds, etc. that’s $40,000 in tax per year thank you very much.

    • Afewknowthetruth 13.2

      Sorry Greg, you really are utterly deluded.

      We are living in a post peak oil world, which means the only growth there will be is growth of poverty. The Great Unravelling has commenced and it will pick up speed after 2012. As Richard Hienberg said several years ago, ‘The Party’s Over’. Petrol has gone from under $1 a litre to well over $2 a litre in a short time. And that’s just the start. Unfortunately most people still don’t ‘get it’ and still think we are living in the Age Of Entitlement.

      In view of the fact that every city in NZ is, to varying degrees, unsustainable, your suggestion of growing Auckland is completely insane.

      As for ‘Over the next few decades commodities are expected to rise in price’, sorry mate, there won’t even be an economy in a few decades because there won’t be any oil to run an economy, and humans will have rendered most of the Earth uninhabitable via abrupt climate change anyway.

  14. logie97 14

    Key slip-up on Breakfast this morning. Petra asked him about matters financial.

    “Achully, government debt isn’t too serious…” or words to that effect
    Quite sure that’s what he said – and he needs to be nailed on that, because for too long he and English have been lumping government and private debt together.

    Anyone else hear it?

    • logie97 14.1

      Just replayed Breakfast and
      “… we don’t carry a lot of debt as government…” is precisely what Key said. Now that needs to be nailed home again, and again and again.

  15. johnm 15

    The end of growth is here now! (Refer Richard Heinberg’s book coming out this year explaining why? titled “The End of Growth” and refer http://www.postcarbon.org). Borrowing is based on future growth(with increased income and wealth) which won’t happen therefore borrowing which entails paying back compound interest on top of principal must makes us POORER in the future. Rather we must tax the rich to help pay for CHCH. JKeyll could start by selling that house in Hawaii and chucking the proceeds in the kitty!

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