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In the hole and still digging

Written By: - Date published: 8:03 am, November 9th, 2010 - 65 comments
Categories: Economy - Tags:

Tax take is down due to reduced spending and the government’s response is to urge “restraint” and keep cutting.

These cuts will, of course, help fuel higher unemployment and further reduced spending, which will probably result in calls for further cuts.

We’ll also see asset sales if the Nats win a second term, which will be justified as necessary to pay down debt. These sales will mean reduced revenue to the government which will lead to, you guessed it, more cuts.

Finance Minister Bill English knows this full well because it is exactly what happened under the last National government in which he was a minister and it was precisely the kind of economic vicious cycle that made the 90’s a living hell for so many New Zealanders as unemployment hit record levels, social services were run down and out economic sovereignty was eroded.

I know Bill is not a stupid man which can only lead me to conclude that he is doing this deliberately.

My question is “why?”

65 comments on “In the hole and still digging ”

  1. Chris Slane 1

    Because he wants a smaller state.

    • Colonial Viper 1.1

      A “smaller state” = a WEAKER POORER STATE.

      Less able to care for its people and less able to act as a counterbalancing voice for the people.

      And smaller, weaker, sicker people, unable to oppose the wealthy power holders. How handy.

      • john 1.1.1

        HI! CV Again you’re 100% right, What the ACT-nat party want is undemocratic where eventually we will become serfs to their corporate kleptocracy.This process has already happened in the US, so badly only a revolution could overthrow the established rule of the super rich.

  2. I know Bill is not a stupid man which can only lead me to conclude that he is doing this deliberately.

    My question is “why?”

    …hell hath no fury like a politician scorned.

    • Fisiani 2.1

      Thanks for the link. Try actually reading it. It destroys your entire post. Not a word there about cuts. In fact Bill English is committed to INCREASED government spending by $1,100,000 in 2011. Financial restraints does not mean cuts. It means spending cautiously and more appropriately. For instance there will still be thousands of homes insulated and thousands of state houses upgraded and made more liveable. There will be more spend on health and education. 2,500 more places at University. Already increased pensions and benefits. Canterbury will be rebuilt. The Hobbit has been saved from the union wreckers.
      All we need is another 4 or 5 terms of National to resuscitate the scorched earth NZ abandoned by Labour and bring about the much needed reforms.
      Labour did to NZ what the earthquake did to Canterbury. Complaining about the rebuilding is pathetic.

      • Bright Red 2.1.1

        $1.1 billion is a cut after inflation.

        And look at the coming years – real (that’s after-inflation, fizzy) spending will continue to be cut.

      • bbfloyd 2.1.2

        i thought you were just deluded before fiiiisi… now i know that you can’t read… i apologise for mocking the afflicted.

      • ghostwhowalksnz 2.1.3

        So Bill English spending ‘more than Labour’ is OK, funny that before the election those nasty labour people were spending ‘far too much’ and racking up the debt.

        The magician ( english) has pulled his rabbits out of the hat too often and all is left is the ‘eye candy’ ( aka John Key)

  3. at the bottom of it, he is seeking to achieve very different objectives from us. His values are so different that understanding his answer to why means trying to understand a totally different moral system.

    • Dave 3.1

      We all serve different masters 🙂 I really don’t think the true question is what he thinks – perhaps it should be “Who is he obligated to..”?

  4. tc 4

    He does it because this is exactly what the Nat’s always do….same old dog different suit.

    The pervasive atitude is me and me mates are doing fine….screw the rest of you, just like in the 90’s and then before that with piggy at the helm.

    If they blag another term you can put the worlds biggest ‘FOR SALE’ sign on NZ……it’s the only trick they know.

    • M 4.1

      ‘‘FOR SALE’ sign on NZ’

      Could be used for Labour election posters showing what NACT really espouses.

    • Treetop 4.2

      Put another way, a champagne life style on a beer budget. When the bill comes in, the solution is to sell the family silver.

      • Colonial Viper 4.2.1

        Not quite: give our country’s wealth to the rich first, then acquire stacks of debt to compensate, *then* sell off the silverware.

  5. Colonial Viper 5

    A complete disconnection to every day NZ’ers combined with an over-connection to rich wealthy NZ’ers, financiers and business people who give him reinforcing messages approving of his actions.

    Also a total buy in into the elite to rule mindset – and that people who do not do as well in society are morally responsible for the consequences themselves, irrespective of economic, societal and political context which forces people into corners and disempowers them.

  6. Chris Slane 6

    It also helps labour ‘labour market flexibility’ (a higher level of unemployment) to encourage ‘wage stability’ (lowered wages).

  7. Bored 7

    Welcome to the real world, the economy as it really is.

    Its a downward spiral, and the same old responses are in play through out the economy. In business it is cut costs, and drive down suppliers prices, whilst concurrently cutting margins to keep the business. Result shrinking economy.

    Lower tax takes, well same prescription for government, result shrinking economy.

    In the past we had circuit breakers, such as “Keynesian” priming the pump. Unfortunately we are in a Ponzi collapse, we have too little underlying wealth to bring us out of this death dive.

    Dont look to Key or the current politico economic nexus, thats a zero sum game. Look to yourself, do what you can with what you have got.

    • Colonial Viper 7.1

      Welcome to the real world, the economy as it really is.

      Why does this sound like a line from The Matrix? 😯

    • pollywog 7.2

      bright and cheery this morning aren’t ya 🙂

      here’s my take…

      people are slowly waking up to the fact that as ‘consumers’, we don’t need half as much shit as the ads would have us believe we need or desire, and all those high price brands they pitch to middle class people wanting to be upperclass don’t neccessarily reflect quality.

      it’s looking to be a tough christmas season for retailers

      i would expect a lot more homeware and upmarket designer brand clotheswear chains to hit the wall in the new year with a shitload of barely used gear hitting trademe courtesy of the middle classes realising a lot of it is essentially useless crap.

      • Bored 7.2.1

        Bright and chirpy per normal Polly, Christmas will be great because we will all have the friends and whanau round for a feed and a few wet tipples. its a good day to forget that reality is not always user friendly, especially if you are a retailer.

        One of the things (looking to myself) I have done in recent years for Christmas gifts is hand crafted some food give aways…preserves / fresh stuff from the garden etc. Might take up brewing / moonshining forthe next christmas presents, pleasure all round!

        • Vicky32 7.2.1.1

          I have done a lot of “re-gifting” in recent years.. and had one moment of supreme embarassment, when I sent to my sister a photo frame that had belonged to my late brother, only to find out that she had given it to him! (He’d never used it, never even taken it out of the package – as a rep for a photography company, he already had frames and albums for Africa…)
          I won’t be helping retailers out this Christmas!
          Deb

      • M 7.2.2

        Excellent Polly, you’re right on the money.

        Last year me and my sibs didn’t exchange gifts and the kids got something small because things were tight for everyone and we know we don’t need to buy into the consumer bs.

        We had a simple meal with ham and roast veg and I made a pavlova for desert and were replete and happy.

    • Draco T Bastard 7.3

      Dont look to Key or the current politico economic nexus, thats a zero sum game.

      The real economy is a zero sum game limited to the renewable resource base.The economic theory that we labour under has tried to persuade people that it isn’t though and to try and prove that the banksters have been printing money hand over fist the natural result of which is a collapse in the financial economy which carried over to the productive economy.

  8. Why? Good question and IMHO there are a few answers.

    There is a sense of superiority which means that they do not care what happens to those less fortunate than them.

    They have a hatred of the collective and will undermine it even though this is not in their best interests. The Cullen Fund’s performance helped the latest figures look a lot better than they could do.

    And they do not have a policy response. They spent 9 long years in opposition decrying Nanny State and maintaining the mantra that the market knows best.

    Bernard Hickey is bright enough to figure that the free market model is failing and is being used by the wealthy and greedy to amass even more wealth. The tories either through beligerent ignorance or through planned calculation are refusing to acknowledge this.

    • Olwyn 8.1

      I think they have just two opposing aims to balance: (1) Do as much of your financial backers’ bidding as you can get away with, and (2) At the same time, remain electable.

      Their problem is, if they don’t do what their backers want, they may not get the money they need to win and election, and if they do too much of what their backers want, people won’t vote for them, despite the glossy ads and bill boards they have been able to afford. As to matters like the New Zealand economy, and poor people and so on, there is just not room on the program for them.

    • Dave 8.2

      Bernard has demonstrated that he is smart enough to now be “enlightened”. The true question however (fully recognising that National aren’t) is which opposition party is equally enlightened? I assume Micky that you would have us believe that Labour are fully ” in that space” but after our previous Labour government forgive me for being sceptical. Rest assured that I am however all ears as to how all/any parties propose to operate in the new financial landscape for the betterment of New Zealand as a whole…

      I wait with baited breath 🙂

      • Colonial Viper 8.2.1

        Labour has part of the solution, and it has shifted leftwards and more progressive. Modifying the RBA, widening the brief of the Reserve Bank to increase employment, heavy investment in R&D, capital/currency controls, increasing the savings rate, recognising the importance of high tech manufacturing and advanced services to provide well paying + interesting jobs, deflating the property asset bubble (which has only just started the 25% deflation it needs to achieve), Government procurement directed towards NZ firms,…

        There is way more I think needs to be done but this is a start.

  9. erentz 9

    Regarding asset sales. Would it be feasible to legislate so that state owned assets cannot be sold without some kind of super majority required to vote for it, e.g. 75% of the house must say yes? (And of course is it feasible to write a law that requires that same majority before it can be overturned.)

    I’ve always wondered about whether that kind of law is possible, and if so why other Governments opposed to asset sales have never enacted such a thing. I think most NZers would be onside for that.

    • Marty G 9.1

      parliament can legislate for supermajorities – but it takes a supermajority to put the law in place. So, we would need national to vote for it, basically.

      Parts of the electoral act are protected by supermajority.

    • Pascal's bookie 9.2

      The problem is that once you start doing that sort of thing, it’s fair enough for others to start doing it to.

      “Super majority needed to increase the deficit” might be a fatal and popular measure, for example.

    • Colonial Viper 9.3

      No need for legislation.

      Simply poison pill the SOEs. That will make them extremely unattractive targets for private purchase.

      Do this by singing a contract with the Cullen Fund with each SOE: in the event of shares in the SOE being sold off, the Cullen Fund can exercise options to buy double that quantity of shares in the SOE at a 95% discount to defined fair market value.

  10. ianmac 10

    Don’t the income and business tax cuts mean less revenue for Government?
    Doesn’t this mean that less revenue means less able to fund essential services?
    Doesn’t this explain Bill saying last week that he expect tightening up on State Services? ie cuts
    Doesn’t “tax cut down” give Bill the excuse to make the cuts? Just what he wanted!

    • Zeroque 10.1

      Ianmac I’m with you on this one. There seems to be a lot of talk from the Nats about no money and growing debt etc but surely reducing taxation was predictably going to mean less ability to pay for stuff? The last Govt did it too I note. I dont think the cuts from either Govt were necessary or good economically and it all seemed to be about getting elected/relected. It didnt really even temporarily masked the low wage/high living cost problem we have. It may have sounded feasible at the time but a decade down the track it wont seem so good when you want a public service and cant get one.

  11. Draco T Bastard 11

    We’ll also see asset sales if the Nats win a second term,

    We’d see asset sales by NACT even we weren’t in a depression.

    I know Bill is not a stupid man which can only lead me to conclude that he is doing this deliberately.

    My question is “why?”

    To give our wealth to the wealthy.

  12. Sanctuary 12

    During a recession, consumers take fright for their jobs and put their wallets and purses away, instead seeking to reduce their vulnerability to debt. This leads to a further downturn in the economy when demand falls, and the economy falls with it. If the one remaining big player in the economy, the government, also puts away its chequebook and instead cuts jobs and slashes spending then consumers stop being frightened and instead start to panic, all spending stops and the economy goes into freefall.

    Bill English does not appear to have the faintest acquaintence with this common sense economic observation, despite it being common knowledge for almost seventy five years. If our finance minister can’t grasp this simple bit of economic reality, what hope have we got?? Bill English is an economic creationist who refuses to believe facts because they don’t square with his holy texts. Like Richardson, he is taking a downturn, making it worse than it might have been, and then is planning to choke the recovery to ensure low inflation and wages. We are being set up to be condemned to another “lost decade” of anaemic growth, stalled wages, high unemployment and economic mismanagement by a National government representative of it’s base of narrow minded, unimaginative, fearful, small town shop keepers.

    Personally, my girlfriend and I are now seeking to tidy things up here and look at Australia. We don’t want to go, but we have lost hope in the economic direction of New Zealand and we can’t see how our recovery from the recession can match Australia, and I can’t see what mechanism exists for our pay and conditions to improve.

    I can go to Aussie and get an immediate 10-15% payrise. My girlfriend will get even more, 20% more, as member of well unionised (in Aussie) workforce. That is now, today. If New Zealand continues to fall behind on wage growth – which it will as long as the likes of Bill English, John Key and Stephen Joyce are in charge as those economic Quisilings cannot imagine anything but running NZ as a dismal latifunda for a increasingly absentee landlord class – then the wage gap that will exist after another lost decade of National government will probably mean the level immigration to Australia will ultimately become unsustainable for both countries, and it will have to be stopped.

    • Chris Slane 12.1

      Exactly. Bill English, former treasury man.

    • Kenny 12.2

      Sanctuary,

      Sad situation, but all too true.

      Why can’t the mainstream media (our so-called public watchdogs) see this and do their jobs?

    • Colonial Viper 12.3

      Bill English does not appear to have the faintest acquaintence with this common sense economic observation, despite it being common knowledge for almost seventy five years. If our finance minister can’t grasp this simple bit of economic reality, what hope have we got??

      Only explanation is that he wants NZ to go further into debt as an excuse to cut Govt spending/services further; this is facilitated by no real recovery in the economy and by contracting aggregate demand even more.

      NAT are self serving economic vandals.

      • Dave 12.3.1

        Quite true CV. Debt is money – without debt (at a macro level) there is no money. By allowing banks (in our case foreign owned) to create money one would have to draw the logical conclusion that available supply – and therefore control, doesn’t sit with the government but rather with external entities. Is that an oversimplification? (Irrespective of what the political outflows of that scenario are)

        • Colonial Viper 12.3.1.1

          In a society where debt backed cash/credit is the power behind aggregate consumer and business demand a withdrawal of that credit will cause a sudden reduction in the money supply and an almost immediate recession.

          In the US where a huge proportion of the economy is fueled by consumerism a reduction in available credit combined with high unemployment is a death spiral. We also see some effect here, however not as much as consumer spending was never as high % wise.

          And yes, apart from the 2-3% of money in the system which are made of coins and notes, the Govt has limited control over the money supply, the private banks in combination with the fractional reserve system and hot liquid capital inflows from foreign institutions they can tap into have way more.

          • Dave 12.3.1.1.1

            So I’ll ask the obviously question… Which of our erstwhile opposition parties has enough fiscal and economic nous to actually LEAD us into what is a very uncertain future – with a specific focus on what is good for NZ citizens and further isolates us from the international maelstrom? Perhaps I have a forlorn hope that there will be some constructive NZ-centric economic policies over the next few years. In “Tui speak” – “Yeah Right”… 😉

  13. randal 13

    got in last night about about a quarter to four.
    key wouldnt fit that lock no more.
    one trick pony.

  14. burt 14

    Yes the recession that was already stuffing the NZ economy before the global economic crisis is taking some time to fix. The failed policies of the 00’s will take decades to unwind.

    • Bright Red 14.1

      burt. when did NZ enter recession?

      When did the US enter recession?

      When did the sub-prime crisis hit?

      When did oil break USD$100 a barrel?

      When was the 07/08 summer drought?

      I think you’ll find the NZ recession happened after all these other recessionary events.

    • Colonial Viper 14.2

      Stupid Reserve Bank was still anticipating growth led inflationary pressure in Jun/Jul of 2008. In Sept 2008 the GFC hit and everything went down the tubes. Idiots. Taxi drivers would have a better idea than these ‘economists’.

      • Zaphod Beeblebrox 14.2.1

        They were too busy trying to dampen down the property boom, thinking inflation was the enemy that they missed the looming GFC. Too bad about NZ manufacturing.

        • Colonial Viper 14.2.1.1

          Too bad about NZ manufacturing.

          Indeed. The story of the last three decades. Instead we now have an economy full of shite service industry jobs paying $13.50/hr.

          • Dave 14.2.1.1.1

            And as much as it pains me to say it – we’re not alone. It would seem that all so-called “developed” nations have been exporting manufacturing jobs for quite some time.

            What a short sighted world we live in..

  15. prism 15

    A good slogan for NACTs reacting to complainers ““If you knows of a better ‘ole go to it.”

    I think this was one from the trenches in WW1. Hope we can work out things before we have another one of those. What would the SAS be fighting for?

  16. Adrian 16

    It is ideological and English being a good Catholic boy won’t change ideologies in mid-stream or torrent as this case is. He is just like hundreds of others bought up on Chicago School economics, all they have is belief even though others have moved on. For him to change his ideas would be like a GCB turning Islamic terrorist or Hindu holyman, it’s not going to happen. I don’t think he is deliberatly trying to root the country, but any other belief system is just anathema to him.

    • Colonial Viper 16.1

      Fair observations Adrian, he’s probably thinking “if only we could have a couple more years for these free market reforms and asset sales to kick in we’ll be up with Oz in no time…”

  17. MrSmith 17

    I totally agree with you Adrian, once you are brought up to unconditionally believe in something never mind all the evidence to the contrary, you have trouble changing tack, I have a few catholic friends still and even though they know there religion is a load of nonsense, they still have that doubt in the back of there mind, what they don’t see is it was planted there early on, as the catholics do so very well, just believe my son.

    • Vicky32 17.1

      That’s a very bigoted remark, MrSmith. I am not a Catholic but I can see that. Your friends (for whom you frankly seem to have contempt) are entitled to believe “there” religion even if you think it’s pants, as they obviously don’t agree with you – and how is it you’re so sure they’re wrong and you’re right? (No, don’t tell me, I have argued with atheists for years, online and in person, I know all the arguments, and they are all pants.)
      Deb

  18. Bob Stanforth 18

    Wow, it must be the very worst possible thing to do, to try and reduce expenditure when the cycle is down. Exactly what those blue bastards are doing in Australia right now as well…

    Oh, hang on…

    Well dang, they are red, not blue. Wow, wonder what that means then? How silly of them…

    Just think, with little ol’ UnZud having to borrow $240M a week to stay afloat, the best way to get out of that is to, erm, borrow more, and faster, and spend more!! Yeah, great thinking!!

    Oh, hang on…

    • Zorr 18.1

      As has been stated over and over again in previous threads, governments don’t work like businesses

      But, to more directly take on your point – what do regular startup businesses do? They find someone to finance their project through some form of lending. Now, you wouldn’t blame that same company for then going ahead and borrowing more to ride out a bad patch or to expand their business to meet further demand or explore new markets, would you? Because that is essentially what needs to happen and why it is called “stimulus spending” because the money spent by the government (even though they have to borrow it) is being paid back many times over by the investment made in services and infrastructure. Or we can just choose to have the government strangle the economy by leaving it to rot so we can’t even finance the current debt.

      • Bob Stanforth 18.1.1

        All well and good, cept for those whole fact things…

        1. Economy isn’t being strangled. Its heading up, check the latest downward trend (yes, trend) in unemployment stats

        2. Every single economist worth his or her salt is already stating 2011 growth – CHC recovery, RWC being two kick starts – and then slowing again in 2012

        We are in recovery, watch the next few months to confirm, and as it grows in to the new year – and the election. 🙂

        Oh, and how come my startup hasn’t borrowed a cent? And is expanding in to 2 new countries over the next few months, and potentially 10 more in 2011 / 2012? Thats cos we is smart, funding via free cash flow 😉

        • Colonial Viper 18.1.1.1

          1. Economy is grinding along painfully. Ask any retailer or real estate agent. Improvement in unemployment is like being kicked in the stomach instead of being kicked in the balls. Nothing to crow about, yeah?

          2. “Every single economist worth his or her salt” There is no such thing. Taxi drivers are better at estimating where the economy will be at. RWC, meh. Anything less than $1B p.a. additional local spend in local businesses can be ignored.

          We are in recovery, watch the next few months to confirm, and as it grows in to the new year – and the election. 🙂

          US real economy collapses further next year.

          Thats cos we is smart, funding via free cash flow 😉

          Oh bragging and self promotion! Such class! 😉

        • Zorr 18.1.1.2

          1. It remains to be seen whether or not the uptick in the job market is going to be sustainable. My money is on not due mainly because of why the job market tanked in the first place. When the crisis hit, businesses reduced their expenditure and operated from the balances of their stock to survive the lean times and the production sector responded by powering down. With no significant change since the crash but relying on the fact that people do spend money, businesses are needing to regularly buy stock again. Without a return to the spending habits from before the crisis or a change to the way we do business now there is unlikely to be a significantly stable recovery for the level of economy we became accustomed to. Hence, less jobs and a viewpoint that any change in employment statistics will be open to swings.

          2. Several points here that need to be smacked down. Firstly, broken windows fallacy – no economist worth their salt should ever use it as a reason for kick starting growth. Hell, they didn’t even try it with Katrina right in the middle of the Bush years so not a good time to start now. RWC is a once off that is going to provide temporary employment around it but will be unlikely to sustain those jobs past the final whistle. Also, after the despicable showing by league fans at Eden Park over the weekend, it is important to remember that it can be a double-edged sword. And finally, despite several notable NZ economists finally seeing the light and making good their conversions, I have seen no evidence that would mean I could place trust in their predictions.

          Finally, on “free cash flow”. How did you start your business? With what money? Through issuing private shares? Your savings? Somehow you paid to start it up and despite not actually having necessarily borrowed the money from the bank, in all but one case (your own savings) you have essentially borrowed the money from an interested party with cash in return for a significant slice of your pie.

  19. ghostwhowalksnz 19

    It could be worse …. much worse. That wonderland Ireland for example. That would have been us if national had been in power in the 00’s. Remember when their growth in GDP was the wonder of the western smaller countries.

    Of course something 10-15% of GDP is just ‘washed’ through the country, like Google who run their worldwide advertising through their Irish subsidiary. And thats just the financials. No benefit for Irish workers, but does the GDP wonders to have a mega corp passing their revenue overnight through Ireland. And others do the same.

    Toyota makes shit all money actually making cars apart from a few markets. But when it comes to Toyota Finance thats were most of the profits are, which just so happens to be the way to avoid transfer pricing regs and have your leases and HP on cars run by a company based in the Cayman Is
    http://www.thetruthaboutcars.com/2010/11/toyota%E2%80%99s-profits-whodunnit/

    Of course Ireland had shithead bankers that made Iceland seem like Switerland

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