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More thoughts on the Labour-Greens Budget Responsibility Rules

Written By: - Date published: 8:39 am, March 25th, 2017 - 111 comments
Categories: capital gains, Economy, grant robertson, greens, james shaw, labour, Politics, tax - Tags:

One of the biggest themes that helped sink the possibility of a Labour-Greens coalition in the 2014 election was National’s successful campaign that such a coalition would lead to disunity. Televisually, the two were equal. Nice. The two parties’ budgetary leaders, Grant Robertson and James Shaw, launched the following principles this week:

Budget responsibility rules

• Government will deliver sustainable operating surplus across economic cycle.

• The Government will reduce the level of Net Core Crown Debt to 20 per cent of GDP within five years of taking office.

• Government will prioritise investments to address the long-term financial and sustainability challenges facing New Zealand.

• The Government will take a prudent approach to ensure expenditure is phased, controlled and directed to maximise its benefits. The Government will maintain its expenditure to within the recent historical range of spending to GDP ratio.

• The Government will ensure a progressive taxation system that is fair, balanced, and promotes the long-term sustainability and productivity of the economy.

For a whole bunch of reasons, this is good political money in the bank at this time in the electoral cycle.

It reminds people that government budgets are not a simple distribution of funding to Department and projects; they should be a nationwide moment to stocktake and reallocate the goods and services to measure and improve over the long term. It’s also a reminder that in recent decades, Labour governments have been better at that surplus thing than National.

The second and third points remind us that either a government has enough in the kitty to pay for the good stuff, or it puts it on tick. Which mounts and mounts and mounts over time, and weakens us collectively when it remains unaddressed. One of the best illustrations of this both to ourselves as citizens and as the government, is NZSuper. Invest wisely for the long term, and you really can sustain your life and your welfare. Don’t invest, don’t save, and you live in a fantasy that really runs out in a hurry.

The fourth point that they will “take a prudent approach to expenditure” which is “phased, controlled, and directed to maximise its benefits”. That is a hard signal both to any potential coalition Minister who can’t muster evidence to make a really convincing case, and also a signal to any major corporates that there won’t be any more Sky City or Ruataniwha deals under that kind of rule. You want public money, not only will you have to jump through the Treasury investment approach templates, you will have multiple coalition parties scrutinising your proposal. Which I hope makes for far less wasteful interventions into business than we have seen under this governments’ three terms.

The final one is the biggie for New Zealanders. Tax. You can figure out from the surrounding commentary that this will mean addressing the different ways to tax capital, without calling it a Capital Gains Tax.

The collective points remind us that budgets are the vital government instrument of shaping the whole redistribution of our common wealth. We haven’t had that kind of reminder for a bit, and I’ve missed it. The announcement was an excellent signal of a mature and settled coalition relationship from both Labour and the Greens.

111 comments on “More thoughts on the Labour-Greens Budget Responsibility Rules ”

  1. One Two 1

    Points one and two are austerity

    Point four could also be

    Where is the point regarding ‘education and explanation’ of the money/ debt system and the transparent opening of the nations ‘debt book’, and who controls the Office of Debt Management?

    The final point regarding tax has been repeated ad nauseum for almost 40 years

    • Nope 1.1

      Running surpluses across an economic cycle is not austerity, it is Keynesianism. Note the words economic cycle.

      Similarly, paying down debt st a time of economic growth is sensible Keynesianism.

      The economic illiteracy of some of my comrades is deeply worrying.

      • weka 1.1.1

        Labour have a reputation for being good at this but they did cut social services spending to do it right?

        • No, they just didn’t raise it as high as some of us would like AFAIR, there may have been a few “real” cuts by not keeping up with inflation in certain areas of course.

          While Labour’s approach has been very clear that they don’t want to raise taxes too much, you’ll note there’s actually no talk of bans on new revenue in these rules- those are all Labour Party policy points that will be open for negotiation.

          They would need additional revenue to meet a lot of the spending priorities some of us here want, but in terms of what both Labour and the Greens are likely to promise in the short-term, I’m sure they can easily not touch taxes in Term 1 and still hit surplus while re-prioritising spending from wasteful areas like highways and defense and into worthwhile areas.

          • weka

            They cut welfare. I haven’t seen that analysed through a budget though.

            • Matthew Whitehead

              Oh Labour cut it further? Excuse me, the fourth Labour government was when I was a wee political baby just getting started so I don’t remember every single thing they did. 🙂

              • weka


                They removed Special Benefit and replaced it with TAS. I think they did other stealth cuts like making it harder getting from Sickness Benefit onto Invalids (which is a higher rate). So not big obvious cuts like National in the 90s, but stuff that went largely under the radar if you weren’t affected or paying attention. I’m guessing this happened in other areas too.

                • Right, that sounds like the sort of thing I’d expect of Labour in the welfare area.

                • Chris

                  In a way what Labour under Clark did is worse than what the nats did in the 1990s because they attacked and removed fundamental cornerstones of the basic welfare system. This trend continued into 2014 when it voted with the government to remove MSD’s ability to decide not to recover debt in situations where doing so is unfair. What’s worrying is that Labour remain silent on all of this suggesting we’re in for more of the same.

                  • weka

                    Thanks Chris, I was hoping you might be around.

                    My other concern is that TOP seem to have similar intentions in mind, despite their overall intention being to lessen the poverty/wealth gap. If they get in with 5% and that number of MPs, there is another whole chunk of people who don’t understand welfare and don’t support it as a basic human right. As bad as the current system is, taking away more from that system isn’t a fix.

                    • red-blooded

                      I don’t think it’s quite fair to make sweeping statements like “they cut welfare”, weka. Certainly, beneficiaries were excluded from Working for Families (not a “cut”, as such, but not fair – although they had brought in the Parental, Child and Family Tax Credits when they were first elected and I think these applied to beneficiaries along with all others). They did reinstate income-related rents for state housing and income-related rent assistance for community housing tenants, and reintroduced the link between super and wage rates. Plus, as I recall it, the unemployment benefit and other benefits had been axed by the previous lot (everyone was on a “community wage” or something similar and had to prove they were actively looking for work) – Labour reinstated the unemployment and (non work-tested) sickness benefit. You say “they made it harder to get the invalids’ benefit” – you may be right, but it’s my understanding that the previous lot had everyone tested for work-readiness and supposedly looking for work, whereas Labour categorised some people as needing the (short-term, non work-tested) sickness benefit and some as needing the (ongoing) invalids’ benefit, and this was still work tested.

                      I guess I’m saying that it wasn’t a bonanza for people on benefits – it’s certainly possible to argue that Clark and Cullen could have gone further to help raise the standard of living for beneficiaries, but the argument they made was that they were focusing most on helping families with children and they did do things that were aimed at getting housing costs under control.

                    • Chris

                      I haven’t seen any detail on what TOP’s saying other than everyone gets $10,000 topped up on the basis of need and funded by means-testing NZS. I don’t know how Morgan plans to avoid the perennial difficulty that’s been part of the UBI debate forever of making sure nobody’s worse off, which is an extremely lowly ask because we can’t lose the objective of ensuring the poorest are significantly better off. It would be an own goal if a UBI were introduced that meant no change for the poor while at the same time smothering cries for basic benefit rates to be increased “because we now have a UBI!”

                      It’d be very easy for a UBI to mean less for the most vulnerable not only because of where the current benchmark for so-called adequacy now sits (for reasons you’ve mentioned) but that for many, for example Morgan, a UBI is seen as “freeing” therefore people can “choose” to do all sorts of things to increase income without the hard arm of the state reaching down. For some that might be true, but for others it won’t be at all. The problem is that other old chestnut when it comes to welfare which is the assumption that everybody is the same.

                      The only answer is to bite the bullet and fund a proper UBI that has enough fat on it to make sure the lives of the poorest are vastly improved, and let the flow on effects for everyone take their course. Morgan’s looking to changes to NZS to help fund it. That’ll be peanuts. The only thing to do to get the kind of dough to fund a proper UBI is by cutting the military spend. But it’s worth it. Everything would change. The sheer weight taken from peoples’ shoulders would be immense. What would then follow would be truly remarkable in so may ways.

                    • weka

                      I don’t think it’s quite fair to make sweeping statements like “they cut welfare”, weka.

                      Are you saying that removing Special Benefit wasn’t a cut?

                      Plus, as I recall it, the unemployment benefit and other benefits had been axed by the previous lot (everyone was on a “community wage” or something similar and had to prove they were actively looking for work)” – Labour reinstated the unemployment and (non work-tested) sickness benefit.

                      I don’t think so. The dole and sickness benefit were first removed by the current National govt.

                      You say “they made it harder to get the invalids’ benefit” – you may be right, but it’s my understanding that the previous lot had everyone tested for work-readiness and supposedly looking for work, whereas Labour categorised some people as needing the (short-term, non work-tested) sickness benefit and some as needing the (ongoing) invalids’ benefit, and this was still work tested.

                      No, even now not everyone is work tested and we have the strictest work testing ever. If you want to talk about policy, rather than cuts, it’s even easier to be damning of Labour and the Clark govt did some pretty disgusting stuff.

                      I don’t think they were worse than National re welfare overall, I just pointed out above that it’s likely part of the reason Labour were able to run surpluses is because they were cutting spending by stealth.

                      I guess I’m saying that it wasn’t a bonanza for people on benefits – it’s certainly possible to argue that Clark and Cullen could have gone further to help raise the standard of living for beneficiaries, but the argument they made was that they were focusing most on helping families with children and they did do things that were aimed at getting housing costs under control.

                      If they were focussed on families they wouldn’t have excluded non-working beneficiaries from WFF. And tbh I think there are huge problems when you say that families are the most important thing. I see a direct line between Clark/Cullen and David Shearer’s bene bashing. Every time someone steps up and defends Clark’s Labour on welfare they reinforce TINA, and they promote the idea that it’s ok to harm some people so long as you help others. Current Labour have changed tack a bit, and their focus is on working people, which is fine until they start making policies that harm non-working people. They need to be called out on this regularly or it will never change.

                  • Chris

                    red-blooded –

                    Clark’s government replaced the statutory purpose of social security from meeting the needs of the poorest, to basically pushing people into jobs that don’t exist. While welfare generally has always been about helping those without work, this has always been an underlying reason why people need help, whether because of sickness, caring for children or just plainly not being able to find a job.

                    What Labour did was to introduce a set of principles that say things like “employment is the best way for people to get by” and “people must look to their own resources before looking to the state”.

                    There’s nothing objectionable about these ideas in themselves, but what happens on the ground is that in situations where there may be the slightest room within the rules for judgement the applicant is refused the benefit because these statutory principles get translated into “work is the answer, not welfare, so no, it’s for your own good”, and “you need to ask your friends or family or perhaps go the bank before you come here, so the answer’s no”.

                    This is just one example of a fundamental change Labour was responsible for that’s significantly changed how welfare is administered overall, and which were largely unnoticed by most people despite impacting hugely on peoples’ lives.

                    Another was axing the special benefit which was a major change because it used to act as the basic safety net which could help the poorest regardless of circumstances. Getting rid of it has meant that people can quite legally have nothing through no fault of their own and be entitled to nothing more. I personally think the cumulative effect of its absence since 2004 has had a massive part to play in how things are for the poor right now.

                    • weka

                      Do you know if it was a budgetary issue for Labour? I’m assuming yes, but haven’t seen any figures on that.

                      (It being removal of Special Benefit).

                    • Chris

                      Yes, pretty much. Ironically Labour pledged to make sure people who were entitled to the special benefit got it and did a whole bunch of things to try to make that happen. This was a response to what the nats did in the 1990s which was kick everyone off on the basis it was only a temporary and discretionary benefit, which they weren’t allowed to do of course, but did. (This happened after they tried to effectively abolish the special benefit in 1995 but failed. Labour was part of the group that opposed this happening.) So the numbers went right down and Labour tried to get people back on who were entitled, then after seeing how many people actually were entitled, which showed just how many people had been missing out, got frightened by Treasury and so abolished it themselves under urgency, which they arguably couldn’t have done otherwise because it was such an important benefit. That said, I suppose they could’ve relied on help from the nats, like Labour’s done for the nats as recent as 2014.

                  • Chris


                    You’re correct that the nats were responsible for getting rid of the unemployment and sickness benefits, but that was in fact done based on work already done on Labour’s “single core benefit”. Labour would’ve done that if it hadn’t lost the 2008 election. Labour pretty much handed the baton to the nats on that one.

                  • Chris


                    The nats introduced the community wage for a short time in the late 1990s. It was a sop to NZ First and McCardle’s work-for-the dole, which never happened. The change was in name only, and affected the unemployment and sickness benefits, not all of the other benefits at all. In every other respect there were no changes. Being available for work and actively seeking work have been part of the criteria for the unemployment benefit for as long as it’s existed (as far back as 1938 no doubt) and it wasn’t part of what was the very short-lived “community wage – sickness” benefit. So all Labour needed to do was change the name back, which it did. This was well before Labour’s horribly ill-conceived notion of the “single core benefit” began to emerge, which of course the current mob were hugely appreciative of and, as we’ve all now see, have made it their own.

          • exkiwiforces

            Where would you make your cuts to defence since these Muppets have almost done a repeat of the 90’s to NZDF?

            • Matthew Whitehead

              Well, both Labour and the Greens already have policy proposals to cut from proposed Defense budgets, so I’d certainly start there.

              I was pretty pleased with Clark’s policy of making our defense force primarily focused on goodwill missions abroad and potential civil defense assistance. I think honestly that maintaining a reputation as fair dealers internationally is the most effective defense New Zealand has.

              • exkiwiforces

                What would you cut in terms of capability NZ should cut? As the RNZAF are flying in 50yr aircraft, the Navy won’t have the ability to down south from 2018 as the ice classification on the OPV’s changes from 2018 and the Army is about the size you would need to peacekeeping if you use East Timor 99 as a bench mark for future peacekeeping operations.

                We have foreign fishing fleets from China turning up in places where they have never been spotted before and they putting pressure on South Pacific nations to under report their catches.

                Weka’s post about climate change post last week pretty well summed up, but labour and the greens want to cut the NZDF budget when climate change is happing and the add pressure it brings to the environment/ resources.

                Antarctica treaty is up for renewal in the next decade I think and god knows what that will bring?

                New Zealand is looking at doubling the of its EZZ from 3.2m ski’s to 6.4m sq km’s or just under it. Ireland did the same a few yrs ago and realize it had to few Navy and Army Air Corp assets to patrol it. NZDF will end up in the same as the paddy’s.

                Personally if you want the NZDF to down the Peacekeeping route then the NZ Army should be based around the Irish Army and the Airforce/ Navy on the Danish Airforce /Navy.

                Helen Clark’s view on defence was very army centric ( I’m ex Army/ RNZAC) at the expense of the other services and project protector was in I mind well under funded in light what happen in the region at the time incl the current peacekeeping operation in East Timor. The Lessons Learnt from ET and peacekeeping ops have been forgetting why? Because of the funding cost to bring up the NZDF to require standard to maintain a peacekeeping force and to maintain its other mandated tasks require by Government. Because the NZDF realize it couldn’t do both at the same without something falling off along the wayside and you now throw in Climate Change. Where is labour and the greens going to cut defence now?

      • Nic the NZer 1.1.2

        “The economic illiteracy of some of my comrades is deeply worrying”

        Including yourself?

        “Running surpluses across an economic cycle is not austerity, it is Keynesianism. ”

        Its definitely not Keynesianism. Its a position taken by the Neo-classical synthesis which tried to absorb ‘The General Theory’ into what is now the mainstream. In doing so most of the insights of Keynes General Theory were (necessarily) lost. Look up John Hicks and the history of IS/LM for details on this, including his later conclusion to reject that model as having any application to a real economy.

        What Keynes actually said in ‘The General Theory’ is that a government could always afford to increase spending in order to eliminate what is called involuntary unemployment (that is unemployment caused by there being insufficient jobs due to insufficient demand). It could do that without putting the economy under any particular risk. Further he said that the government could therefore act in a counter-cyclical manner to the non-government part of the economy.

        However this contrasts with what you said because its possible that even a budget surplus and government budget deficit may not coincide with the elimination of involuntary unemployment in the economy, e.g despite the boom full capacity utilization may not be reached never the less. In particular a current account deficit will be a drain on that so acting counter-cyclically may still require a government to be in deficit for the entire of an economic cycle for countries which typically run current account deficits.

        What One Two said originally is far closer to it in fact.

      • One Two 1.1.3

        I’m no comrade of yours

        What you’re not hiding behind the blatant projection is the spin you offered

        It’s the lies of public servants that is the problem

        Your comment indicates being part of the problem


      • Draco T Bastard 1.1.4

        The problem, of course, is that Keynesianism didn’t fix capitalism either. Of course, that may have been because it was misinterpreted. It may have worked if the government was the sole creator of money, aka, The Chicago Plan.

        But that would have removed the power of control of the nation from unelected and unknown private interests.

    • Ad 1.2

      A state exits as a collective to do what individuals and families can’t.

      States raise debt, and raise surpluses, and pay down debt, to run the policies that keep us all going when we need it.

      • adam 1.2.1

        And yet the state becomes the blunt instrument with which to hurt individuals and families.

        Is it you don’t want to look at the state as the problem? Or that the state is the best option for killing on a industrial level? Why does the state destroy culture if you believe it is nothing more than a collective?

        Even Marx thought the state should wither. And he was a statist.

        Should we be working on ways for the state to wither, in a progressive manner -rather than let those on the right wreak it, to leave working people out in the cold.

        I’d like to see more from the left on this, but when their economic policy is center right – ‘ll probably see hell freeze over first.

        • Ad

          It’s a pretty broad set of points about fiscal policy. It’s not an iron cage of rationality.

          Try not to reach for theories of the state from Marx. There’s been a few goes at basing state frameworks on his ideas and they never ended well.

          You’re welcome to invent an alternative to the state. I haven’t seen any alternative I’d actually want to base a political party on, or actually live in.

          Current theories on eradicating the state belong to the Libertarians, ISIS, and Steve Bannon. I’m happy to stick with what we have here.

          • adam

            Happy to disagree, but I think you need to stop calling the state a collective.

            And I see you agree with my statement on the right owning the destruction of the state. And again happy to disagree on solutions.

  2. Keith 2

    Its all eminently sensible late 20th Century politics and economic thinking and were it 2014 it would have countered National lying advertisements.

    But its 2017 and Nationals tens of millions will just think up some new lie to smear Labour and the Greens with.

    Question I have is why we have to live in the straight jacket that the National Party and its rich supporters think fits us, the same one that we more or less have had to wear since Roger Douglas set about destroying this country. The one where spending is kept below a minimum, where productivity is low but people work themselves to death for poor pay because that’s just the way it has to be. Where taxation and public spending increasingly favours the wealthy.

    Labour/Greens should be looking to the best examples of Europe, the Nordic states etc, not the worst that US and the UK give us on a daily basis. We don’t have to live in indebted misery like we are sado masochists, yet our mainstream political parties seem to think we have to be like this. We do not!

    It worry’s me that Labour especially do not have a person that can simply tell things the way they are. Andrew Little is drowning in some politico speak media training where he now talks past the question (media trainers think that is very clever) and Grant Robertson is a man with a script, not a pulse. For fuck sake, become humans who speak to humans, flaws and all, not academic twats!

    Come on Labour and Greens, we can do better than strict Milton Friedman.

    • Ad 2.1

      This isn’t going to win the left the election.
      It’s not designed to.
      It’s designed and aimed principally at a subset of the media and of banking analysts with paid columns in newspapers, television, and radio.

      The left failed to do this last time, and National made them pay for it, hard.

      It’s not a new economic theory.

      It’s simply a small, well formed political device to help win the 2017 election, nothing more.

    • While I agree Labour isn’t being anywhere near populist enough for the 2017 electorate, I don’t think anything they’ve announced in these rules are what’s going to stop them being populist. It’s the triangulating add-ons they’ve got, like doubling down by extending the stupid “brightline test” rather than actually taxing all types of wealth, or refusing to talk about rebalancing taxes, and running left-wing conservatives without making any effort to bring in some really punchy left-wing liberals or, you know, actually proficient left-wing economic thinkers in general.

      I agree that Andrew Little has seemed a little too sensible recently. I liked him better when he was angry at the government for what they’re doing to the country, that would play much better. He needs to be honest, he needs to look like he gets it, and he needs to appeal to the ordinary voter, which is precisely why Jacinda is much more popular than him.

      That said, Grant Robertson at #3 and in the finance portfolio can afford to be boring, can afford to be sensible, and can afford to talk about being in overall surplus taken over the length of an economic cycle. That’s fair, and it’s the way Labour’s budgets have always operated, and they’ve had room to fund some very good stuff in them. They just need to avoid boxing themselves into a corner by completely eliminating the revenue side of the equation, which is going to need to be addressed if they want to keep Super as-is.

  3. saveNZ 3

    I doubt voter’s care whether what economic ideology it fall’s under. They care how it effect’s them.

    The secret of Trump. He made it simple. He empathised with middle America. He was in tune with an idea that resonated with many disillusioned American’s who had been screwed over by neoliberalism and globalism for decades. He did not care about the banks or the finance community or the economists, because they were not the voters.

    He got elected.

  4. Bill 4

    Can someone please explain to me how this does not amount to embracing austerity policies?

    I get that if the economy was all ‘go-ahead’ then it can make sense to pay down debt. But I also get, that if debt is going to paid down regardless, then it’s austerity.

    Or is there something I’m not getting?

    • weka 4.1

      I thought austerity was when a govt chose to cut spending into social services and the like, force wages down etc, in order to manage the economy. Are you saying that L/G intend to work within the rules by doing that?

      • Bill 4.1.1

        If the intention is to pay down debt regardless (which is what I understand they’re saying) then yes, they’ll have to be running austerity policies to do that if the economy isn’t booming.

        • Nic the NZer

          Oh no, in fact there is an alternative (demonstrated by Greece, the UK and Australia). You run the austerity policies anyway, pay down the debt etc… and (despite the IMF forecast for Greece at the time) you have a recession (for Greece GDP shrank by 25% so govt debt to GDP actually grew, for the UK they went through a double dip recession, for Australia they initially went through the GFC without a recession but by now are worse off than following the GFC).

          This announcement would have been vaguely sensible if they had instead stated that the government budget outcome (surplus or deficit) is a residual of the state of the economy and not a goal in and of itself. The government should be focusing on the state of the economy to decide on their spending and taxing priorities. A primary priority should be putting all the productive capacity of the economy into use (probably with strong slant towards transforming the economy into environmentally sustainable paths). If the economy has reached that point then govt budget surpluses may be an outcome of that but are not otherwise significant.

          • Bill

            Aren’t we saying the same thing here Nic?

            If the debt is paid down when the economy is ‘sluggish’ (by enacting austerity policies,) then the economy slows down even more….so recession or depression beckons and debt as a ratio to GDP stays stubbornly high or increases.

            I think we agree that if the economy is sluggish, then best to ‘borrow like a banana’ and put that money into stimulating the economy and watch the debt to GDP ration drop by way of growth…and then pay it down painlessly.

            • Nic the NZer

              Yes, I think we are both saying the same things. I like to highlight that these ‘things’ actually happen in real economies and we can observe that they match up with actual history.

        • weka

          “• The Government will reduce the level of Net Core Crown Debt to 20 per cent of GDP within five years of taking office.”

          I assumed that meant under current economic conditions. They claim that they can pay for their social policies and pay down debt based on how the govts books look at the moment. Do you think they are lying, or mistaken?

          • Bill

            ‘Current economic conditions’ don’t mean a damned thing. They are no more meaningful than the weather today and about as changeable. Would you undertake to go sunbathing on the third Tuesday of next month based on the weather today?

            This idiotic capitulation to liberalism from Labour/Greens is fueled by naive or wishful thinking, and is an undertaking that could easily lead to us freezing our arses off on a windswept beach in the rain (as it were).

            But that’s ideologues for you…full steam ahead and hold to the present course.

            What Labour/Greens are proposing hasn’t been ending well for …well, Sally McManus lays it out quite well in a piece in The Guardian. You’ll have to read the whole article (it’s worth the read) to get the full context of the bit I’ve cut and pasted. (I’d have added in Scottish Labour at 15% in the polls while the anti-austerity/non-liberal SNP still rides high in the polls after 10 years, but hey…)

            All it’s done is conceded the ideological playing field to neoliberalism as the only “serious” way to order society and sold out the people labour movements are meant to protect.

            And before someone starts going on about how naive and politically suicidal it is to raise big questions about labour and capital, how’s that optics-above-all-else strategy faring for progressives lately? At the same time this fart in a thimble is brewing, results from the Dutch election show that the Dutch Labour party has collapsed to an abysmal seventh place after years of helping to implement austerity policies on an electorate that thought it was voting for a party of economic justice.

            Why might that be, I wonder? Could it be the same reason Hillary Clinton lost the unloseable presidential election to a reality show host, amoral bigot and serial sex pest? Might it have something to do with the collapse in support for centre-left parties across Europe that embraced Third Way economics and austerity?

            • weka

              (haven’t read the link yet).

              That doesn’t really answer the question though, and to be honest it looks like a replacement set of ideology. Which may very well be a vast improvement except for the fact that Labour can’t do it.

              So if L/G are saying that in the context of how mainstream politics and government works in NZ, this is what we would like to do, all things being equal. Then if something changes substantially, wouldn’t that plan have to be revisited just like for any other kind of govt? Or are you saying that for instance a social democratic govt would be able to run an economy that took into account the unknown future? Maybe I’m missing something here, but don’t all parties campaigning do so based on current conditions?

              I’m seeing a lot of criticism of this announcement from the left, but very little in the way of what L/G could have done instead given the constraints they work under (and no, that doesn’t included a big swing left ideologically). Best stuff I’ve seen says talk about people (within the FR context or instead of). But that doesn’t actually address the need for L/G to present as a financially competent govt.

              • weka

                I’d still like to know if you think they are lying or mistaken. Because they are saying that they want to prioritise spending on a whole bunch of things that lefties hold as important. If you think they can’t do that, I’d like to know what you think they are doing.

                • Bill

                  I don’t think they are mistaken and I don’t think they are lying. I think they are running a with a liberal agenda. And I can’t see how I can write anything by way of being clearer. My previous comments are straight forward enough.

                  • weka

                    “I don’t think they are mistaken and I don’t think they are lying”

                    Thanks for clarifying directly (I hadn’t gotten that from your previous comments).

                    Ok, so they’re not mistaken in their rules and being able to spend on social services. I don’t see how that is austerity.

                    • Bill

                      Last attempt at this.

                      If the idea is to cut debt regardless (as it seems to be from what they’ve said) and the economy isn’t doing too well, then the only way that debt can be reduced is by unleashing austerity on people (and throwing monies saved at the debt)…and the debt as a percentage of GDP usually spirals in that case anyway.

                    • weka

                      Matthew has addressed this elsewhere in the thread and referencing the actual announcement (basically they’re talking about running a surplus over time, not absolutely no matter what. This means they can run a deficit for part of that time).

                      More thoughts on the Labour-Greens Budget Responsibility Rules

                      Even so, I still don’t see why they would cut social spending if they couldn’t meet the debt repayment. Why not use other measures?

                      You are saying that a commitment to debt reduction must equate to austerity, I’m suggesting there are choices (i.e. austerity is a political choice not a matter of TINA) and why would L/G choose austerity when they’ve said they want to prioritise people’s wellbeing?

                    • Bill

                      Matthews comment doesn’t address the fact that Lab/Greens have donned the economic straight jacket of liberalism (paying down the debt). Matthew’s comment is essentially ‘crossed fingers and hoping’ that nothing much happens economically over the life span of the next parliament.

                      What choices do you have in mind btw? Because within a capitalist framework there have only ever been two choices worked out with regards slowdowns/recession as far as I know.

                      One is the social democratic or Keynesian avenue (borrow).
                      T’other is the liberal avenue (cut).

                      You know of any others, I’m all ears.

                    • weka

                      Sure, but that’s the ideological argument. Which I find interesting and think needs to happen as well, I just don’t see how it would even be possible for this election for Labour to work outside of a neoliberal framework (and I haven’t seen anyone suggest how it could be done).

                      “What choices do you have in mind btw?”

                      Put funds into health instead of increased roading or irrigation subsidies.

      • Siobhan 4.1.2

        The way I see it…if a Government ‘inherits’ a situation/policies/system (whatever) created under austerity, and then doesn’t ‘undo’ those policies…they are still enacting ‘austerity’, whether or not they bring in any ‘new’ austerity policies.

        Its rather like Labours so called embarrassment over Roger Douglas and his ‘revolution’. The Labour Party are keen to distance themselves from it all, but there is no intention of ever undoing his work and the neo liberal climate he created..

        • red-blooded

          Siobhan (and others), let’s remember that when Labour and the Greens have gone into elections promising to increase social spending by increasing various forms of tax, they’ve been roundly rejected. You may want to fundamentally alter the economic status quo, but you’re not in the majority in this matter.

          This is what Clark and Cullen understood. It meant that they had to progress their social and environmental policies step by step, but it also meant that they were re-elected and so had the chance to get to those bigger changes like Kiwisaver and the NZ Super scheme. And yes, I also wish that they’d raised basic benefit rates rather than bringing in the various targeted top-ups that they did; although I give them credit for even doing that against the howls of outrage from the right.

          I see this as smart thinking by Labour and the Greens, and good timing, too. It spikes the guns of the right and gets the media talking about unity well before the election.

          • Adrian Thornton

            When was the last time Labour went into an election promising to increase tax on the wealthy and reform tax ( I assume meant to make big business and corporations actually pay their tax obligations in real terms) to increase social spending?
            When was the last time Labour came to the defense of minimum and low paid workers in an election cycle, campaigning on a fair days work for a fair days wage?
            When was the last time a Labour leader stood up for the renter class and promised them security and rights in their housing futures?
            When was the last time Labour promised affordable housing that workers can afford?

            With this foppish centrist platform the absolute best scenario for Labour is that it scrape in with NZ First and the Greens…well done Labour, what a joke.

            Just look at the polls over the past eight years, no one wants this centrist Labour bullshit, so stop saying it is their leftist policies that have been damaging it, it is the reverse, it is that no one knows what Labour stands for anymore, the neo Liberal project has sucked all credibility and public goodwill from the carcass of Labour, leaving only the pathetic remains dangling before us today.

            • red-blooded

              Adrian, have a little think (and/or do a bit of googling) before you launch into an array of rhetorical questions like this. When did Labour last propose tax reform, including increasing taxes on the wealthy? 2014! If you recall, they campaigned on:
              1) Capital gains tax of 15% on all realised assets (except the family home) including businesses, shares and investment property.
              2) Introduce new top rate of 36c on income over $150,000 (dubbed an “envy tax” by Key but justified by Labour saying the top 2% of taxpayers had an average income of $260 000 per year and had received billions of dollars of tax cuts from the Nats).
              3) Increase trust rate to 36c.
              … Note, each of these would have increased taxes for the wealthy.

              They also wanted to make KiwiSaver universal (attacked as a “tax on business” because of the employer contribution) and, from 2016, gradually raise contributions from six per cent to nine per cent (4.5% each from employer and employee).


              The focus in all discussions of the tax plan was on funding government spending, with the priority on supporting their social policies.

              And BTW, Adrian, I have not said “it was their leftist policies that have been damaging it” – that’s in your head, not mine. I actually supported all of these policies and I still do. I just recognise that you don’t get to change anything if you’re not in government. Labour have presented plans to raise taxes in each of the last 3 elections. They’re doing something different this time. Their social goals haven’t changed, but they’re saying that they’ll review the tax system as a whole once in government and take any plans into the next election. That’s called taking the electorate with you, AKA democracy.

              • Siobhan

                “I just recognise that you don’t get to change anything if you’re not in government”….and you don’t get to change anything if you get voted in desperately assuring voters you aren’t planning to change anything.(apart from one or two little adjustments on the edges).

                Are Labour actually ‘going to take the electorate with them’ by, presumably ‘pretending’ they are for no change this election…and then making some big reveal for the voter next time round??

                That’s a dangerous game…

                • red-blooded

                  Siobhan, they’ve been perfectly open about the fact that they want to review the tax system and take any recommendations from that review into the 2020 election. That’s not a “big reveal” or any pretence. It’s been part of the policy discussion and is being openly discussed in the media. It’s also central to the working relationship with the Greens.

            • lprent

              When was the last time Labour went into an election promising to increase tax on the wealthy and reform tax

              I guess that you have some rather severe medium term memory issues. Try 2008, 2011, and 2014. There is a common factor in all of those years. Voters didn’t vote in a Labour led government.

              I do hope there is some treatment for this level of cognitive dissonance.

              Otherwise I would suggest that you need to try to figure out why the bukk of voters simply haven’t brought the message that more taxes will bring them benefits as a society.

              • Mike Smith

                The last time Labour went into an election promising to increase tax on the wealthy and reform taxation was the last time Labour won an election to go into government from opposition.
                In 1999 Labour campaigned on an increase in the top rate of taxation from 33 cents to 39 cents on income above $60,000. From memory this was intended to raise sufficient revenue to allow for abolishing market rents for low-income tenants. They won the election.

                • red-blooded

                  And last time they campaigned to raise the top tax rate to 36% (and introduce other new taxes – as per my comment at, above). They lost the election.

              • Siobhan

                Because the ‘more taxes’, and I presume one of the biggies there is ‘Capital Gains Tax’ is viewed by most of the home owning baby boomers that I talk to, as a massive threat to THEIR PERCEIVED security.

                They do not seem to actually look at taxes through the ‘whats best for society’ prism.

                In my opinion it is Labours job to actually fight that selfish gene we are so proud to display these days.

                Too much policy is aimed at keeping sweet with Home owners and landlords. Or people who plan on being a home owners or a landlords. Labours ‘Kiwi Dream’.
                With a few crumbs for the homeless…because they bum everyone out. That’s ignoring a large…and growing number of potential voters.

                And sure, there will be some voters who will not see past this taxation issue, but then, if Labour also came forward with policies that would actually have a real impact on struggling workers lives…like dealing with the issues faced by renters, and especially life time renters, then they could make up for the small number of lost middle class voters with the currently ‘disengaged’ voters…rather than this pointless toing and froing trying to win over soft National supporters.

                (I’m ignoring the issue of proper taxation of Corporations for the sake of this argument, though clearly thats the biggest issue).

    • One Two 4.2

      You’re getting it, Bill

      Economic theory is not a requirement to read through weasel words

      The question is how many more ‘cycles’ are there until ‘tipping point’

    • You’re missing the “over an economic cycle” part. They’re allowed to go into deficit if there’s a recession, or if there’s a disaster. James Shaw actually specifically outlined that in the talk on the new rules.

      There’s also plenty of room in the budget to pay for every single 2014 Green Party policy right now, while still having a surplus, and I don’t expect the 2017 policy mix to be that much more expensive. It’s worth noting that there are some expensive line-items in there, like benefit raises, or keeping super at its current settings.

      You’ll also note that there is a commitment not to resort to “artificial surplus” by underfunding necessary services that actually save money long-term, which essentially rules out any significant austerity program in the first place, as most involve cutting long-term projects for short-term budgetary goals. They explicitly stated that they feel National is currently under-funding the public service in several key areas in this fashion.

      It’s possible Grant’s lying, sure. It’s even possible James thinks he’s telling the truth but is wrong. But I would expect the Greens to revolt if they were given a budget that amounted to an austerity program in any significant sense, and I think it’s absolutely possible to follow these rules and delivery a strong set of social services, it just requires good prioritisation and some discipline in the expenses allowed for coalition promises. (which could mean that coalition partners end up demanding revenue policies that Labour officially “doesn’t want” in order to fund everything 😉 )

      • weka 4.3.1

        thanks for that. I’d been feeling like I was reading a different announcement to those critiquing.

        • I’ve been having the same feeling whenever I listen to James Shaw selling it and compare that with what we’re hearing on say twitter, although I understand a lot more if the critiques are coming from people who are primarily listening to Grant Robertson, who is also talking Labour-specific policy about not raising taxes. (and you’d be forgiven for assuming that not raising taxes from the current low level and commiting to surpluses (when netted over an entire normal economic cycle) implies a certain level of austerity, even with cuts to defense, but it’s important to note that these rules themselves don’t contain any “don’t raise taxes” provision, so it’s open to negotiation in coalition deals. If you want to be 100% certain you don’t get austerity, that now means it’s Green or Bust, sadly)

          It’s important to note that if we change the government while we’re guaranteed Grant Robertson as Minister of Finance, we’re also highly likely to get James Shaw as his associate minister, which means that the economic policy will likely look more like a compromise than just listening to Grant Robertson makes it appear at the moment.

      • One Two 4.3.2

        ‘Economic Cylces’…

        ‘New Rules’…

        Box Thinking is the requirement to pretend TINA!

        TINA if you if you believe in the miracle of inverting the destructive frameworks into constructive framesworks…

  5. Antoine 5

    Get NZ 1st to sign up to it too and I’ll really be impressed

    • In their announcement Q&A that question came up- basically Labour said:
      a) It’s only the Greens atm because other parties aren’t up for pre-election discussions right now as a mater of political strategy
      b) this is basic fiscal bottom lines stuff that any government should be signing up for and they’ll be requiring coalition deals to fall within those parameters,
      c) but they also said it’s such good policy they don’t see why any of their potential coalition partners wouldn’t want to sign up to the rules voluntarily anyway. 😉

  6. Nic the NZer 6

    This really is a terrible attempt to justify these practically foolish budget announcements. In writing this many false, household budget = government budget myths and equivalencies are pushed forward. In reality a government budget is quite different from a household budget and this has implications for the economy.

    The government should be empowered to act in a counter-cyclical manner, and the problem with these announcements is that they are premised on the government being able to do this and to run a budget surplus at the same time. If the country runs a current account deficit (among other causes) over the surplus period then already the goals of acting counter-cyclically and the goal of running a budget surplus are in conflict. At that stage it depends if they prioritize surplus or economic stabilization. It would be reasonable to suggest National has prioritized surplus in these circumstances with many cost cutting measures resulting.

    One of the more problematic myths (imported here) is that the government is financially constrained and needs to ‘save’ and repay debt to maintain its spending capacity or it will not be ‘loaned funds’ by the non-government sector. This is entirely untrue, and government spending happens when it credits bank accounts with funds in accounts maintained by the reserve bank (or debits the same for taxation purposes). Of course the RBNZ is a part of the government, and is even consolidated into the government accounts. This demonstrates the government does not face a budget constraint. The fact that the government regularly borrows is used to drain the excess (to requirements for functional inter-bank payments) reserves back out of the banking system and so to prevent the 90-day bank bills rate falling towards zero (e.g probably cheaper bank interest rates). Another fact coincident with this state of affairs is that money as well as debt sit in the liability side of the government accounts (and money and government debt are both assets of the non-government). The main consequence of reducing such liabilities which the government must consider is that it is draining assets from the non-government, either interest paying assets (government debt) or non-interest paying assets (money).

    • As an opponent of the “government budgets are like household budgets” myth, I actually support these rules on the assumption that the Labour Party is being completely honest with them. (I know the GP are being because that’s their style anyway)

      The rules do state that they want surpluses over the cycle. That means the government is empowered to run counter-cyclical deficits, they just expect to make back a net surplus over the length of the entire cycle once the economy is out of recession. (and they will have independent reporting to keep them honest on whether they manage it to incentivise going back into a net cyclical surplus when out of recession)

      In the short term, the government isn’t financially constrained by deficit spending, however in the long term, it is financially constrained by large government debt, as it has to service the interest, and the larger you let that debt grow, the more difficult it becomes to do all the long-term investment you need to run a beneficial economy while still staying on top of all the interest payments. Thus it is better to know how much debt you’re comfortable having the country in and aim to keep it below that level- Labour is saying that’s 20% of GDP under normal circumstances, which is arguably a little low when looking at things with short-term eyes, but then again, gives us some room to breathe if we have say, a volcano eruption, or damage due to climate change, or another bloody earthquake anytime soon and need to temporarily run deficits regardless of the economic cycle, so in the long-term, it’s sensible.

      • Nic the NZer 6.1.1

        You should note I am explicitly criticizing the surpluses over the cycle position. It is simply not good economic policy to expect the government budget to produce a particular outcome (surplus or deficit) and target that outcome. Expecting the government budget to produce net surpluses over the economic cycle means (and this is guaranteed by accounting) that non-government debt (including the current account) has increased by both the net increase in GDP and the net budget surpluses over that same cycle. Because of the differences between a household and government budget this will eventually collapse. You simply can’t keep running your economy off increasing net non-government debt, it doesn’t work. The cost of repairing that is far far greater than the cost of avoiding it and obviously we should look at the actual impacts on the economy. In NZ this primarily means an on-going housing bubble and burgeoning student loan debt, and their impacts on inequality (given its L/G government).

        “In the short term, the government isn’t financially constrained by deficit spending, however in the long term, it is financially constrained by large government debt, as it has to service the interest, and the larger you let that debt grow, the more difficult it becomes to do all the long-term investment you need to run a beneficial economy while still staying on top of all the interest payments.”

        If you were actually against household = government budget debt analogies you would not be spouting this nonsense either. The government debt doesn’t constrain its spending, so it doesn’t matter what the interest payments are at all. On the other hand the government actually doesn’t need to sell debt anyway, that is an optional part of the system. Instead it could run an OCR near zero by just issuing payments through the RBNZ directly and not matching debts, or issue interest on reserves or make sure the RBNZ owns a large portion of the debt (meaning the interest payments go to the government), which countries do to various degrees. In addition the CB can pretty much control the actual interest rates the government pays on its debt anyway.

        So does this work in the real world? It turns out it does. No country which controls its own central bank faced any problems with large government debt what-so-ever, none. The highest government debt to GDP ratio in the world is presently Japan (more than 200%), and it seems the biggest problem it faces is getting its private sector to stop lending the government money (no really its central bank has been trying to get the private sector to lend elsewhere, without much success, including negative interest rates causing some government debt rates to go negative).

        • Interest payments do constrain spending if you want to keep inflation within a certain margin, although there are options to slow that down, they all have their own consequences, the worst of which is fueling non-inflationary long-term debt through strategic use of unemployment. The household budget myth breaks down waaaay before that particular debating point, however, as there’s no such thing as a counter-cyclical household budget.

          I don’t disagree that we can go into larger amount of government debt and still manage it using the tools of an independent central bank, I just disagree that there might not be certain trade-offs in the long term. (The US actually seems the most likely to run into them, being politically unable to run any significant surpluses even when they try, but they’ve handily avoided the issue by having so much of their debt with China that it’s caused them to have a lot of fiscal leverage in return. Japan is doing astoundingly well for their level of indebtedness, but I’d be curious to see if they don’t start running into confidence issues in the future) The issue is that this is likely to be one of those exponential-growth type problems: government debt seems like no big issue to countries with sovereignty over an independent central bank, until suddenly the side-effects all kick in at 250% of GDP or wherever people no longer feel confident. (And sure, theoretically, if people feel cofident with any level of indebtedness, you can go forever- but I think that ignores the reality of human psychology.)

          That said, I’ll certainly look into it some more and see if my mind changes. It could certainly be that some of the surplus-related mythology has rubbed off on me even though I’m not super keen on them being Mandatory All The Time. If I had my way, I would actually prefer a net neutral budget over the long term barring exceptional circumstances, and a much higher level of debt than Robertson wants. (I’m quite happy to push it all the way up to 75% of GDP if there’s a good reason to)

          • Nic the NZer

            “Interest payments do constrain spending if you want to keep inflation within a certain margin”

            False. Inflation is driven by capacity utilization of the real economy (primarily at the macro level it looks like very low unemployment rates), or other unavoidable cost increases to businesses (petrol import prices being an obvious one). This has little to nothing to do with paying interest on debt. It has everything to do with how effectively the government monitors these factors and attenuates its purchases accordingly or increases taxation to attenuate private sector purchases of the same (or regulates credit to attenuate private sector purchases of the same).

            “I don’t disagree that we can go into larger amount of government debt and still manage it using the tools of an independent central bank, I just disagree that there might not be certain trade-offs in the long term. (The US actually seems the most likely to run into them, being politically unable to run any significant surpluses even when they try, but they’ve handily avoided the issue by having so much of their debt with China that it’s caused them to have a lot of fiscal leverage in return. Japan is doing astoundingly well for their level of indebtedness, but I’d be curious to see if they don’t start running into confidence issues in the future) The issue is that this is likely to be one of those exponential-growth type problems: government debt seems like no big issue to countries with sovereignty over an independent central bank, until suddenly the side-effects all kick in at 250% of GDP or wherever people no longer feel confident. (And sure, theoretically, if people feel cofident with any level of indebtedness, you can go forever- but I think that ignores the reality of human psychology.)”

            Or it could just be that your using a non-sense economic theory which doesn’t describe how the economy actually works?

            If you look at main-stream models there are basically two varieties. 1) Neo-classical, which uses an inflation theory based around the quantity-theory of money in both the ‘short-term’ and ‘long-term’. The claim is that government money is multiplied into non-government capacity to create money using some multiplier so government deficits are therefore inflationary. This was literally tried as ‘Monetarism’ ala Friedman where the government tried to limit its spending and therefore supposedly limit the rate of money growth. That collapsed as a theory shortly after it was tried, because there was no correlation between government spending and non-government money creation (this process actually works in reverse with non-government money creation driving reserve creation to settle, as was actually well understood at the time regardless of the theory). After this failure the theory was ‘modified’ to imagine that the same outcome happens due to central bank interest rate policy. The idea here is called the ‘Natural rate of interest’ but was already refuted several times through history, maybe most thoroughly in the ‘Cambridge Capital Controversy’ debates. As you can imagine Chicago economists don’t really go in for testing the forecasting veracity of their economic models.
            The other variety is 2) New-Keynesian (but not exactly following Keynes). These guys modify the ‘short-term’ of their models, adding things called frictions, resulting in slightly better forecasting veracity of their economic models. In the long-run (when the frictions disappear) the results are the same as the Neo-Classical outcomes.
            The other thing to note about the long-run is its not in a year, or a few years, or a decade or whatever. Its when the economy reaches equilibrium, and when does that happen, or does it even happen at all? Who knows, there is simply no evidence for it being a relevant state of the economy to worry about.

  7. Adrian Thornton 7

    Predictable, but still very sad to see Labour doubling down on it’s neo liberal economic platform, and all to stupidly chase the centre vote in almost complete disregard for most workers, renters and students.

    When are Labour finally going to understand,that this futile game is up, the centre don’t want them,as the dismal numbers in the polls from that demographic for the last 8 years have plainly made clear.

    Turn Labour Left.

  8. Red Hand 8

    To Nic the NZer. Apologies in advance for this, I’m no economist and am very concerned at the wealth divide.

    “money as well as debt sit in the liability side of the government accounts (and money and government debt are both assets of the non-government).”

    Does this mean that the more money and government debt the non-government have the more it will want a government that preserves the value of the money and can pay the interest ?

    Would the converse be true ? Less non-government support for governments who devalue the money and issue less debt ?

    I’m struggling here, but it seems like careful management to preserve the status quo benefits government and the non-government holders of money and government debt ie, the wealthy people and organisations. So, not much room for the changes needed to spread wealth more evenly among the non-government.

    • Nic the NZer 8.1

      “Does this mean that the more money and government debt the non-government have the more it will want a government that preserves the value of the money and can pay the interest ?”

      Basically what the non-government wants is irrelevant here, though that inflation rate may be relevant to politics. But on that, so is the unemployment rate and we are presently having a political policy where we use unemployment to target inflation (via wage suppression). In terms of funding the government the non-government sector can choose to not trade their surplus holdings of ‘money’ (more correctly central bank reserves) for debt at any time (for which under current policy they will earn no interest). This does not impact the governments spending capacity which can always be arranged via the reserve bank (which manages these bank accounts). That in turn means that the government can always pay the interest (making government extremely safe, a default would necessarily have to be a voluntary act). I should point out that doesn’t apply in the same way to governments which don’t control their central bank, such as those in the Euro-zone. The inbuilt safety of government debt generally means there are plenty of lenders regardless. There are also other ways this could be organised which could produce less debt, such as just accepting an OCR nearer to zero. It could also just be made more transparent by paying interest on central bank reserves rather than borrowing).

      In terms of inequality the issues are a bit different, but one of the big ones is that having significant unemployment (due to using it as a policy tool to target low inflation), has significant long term impacts on inequality (such as creating a large low wage sector, making parts of society depend mostly on benefits for income). In addition higher inflation tends to reduce wealth inequality over time, not that you want a particularly high inflation rate.

      One of the big questions around government debt is if the non-government sector is going to save for its own retirement then that means it will need to be maintaining its income without increasing its debt levels (or maybe while reducing its debt levels). That income boost can come from (or in reverse be drained by) two other sectors, the government deficit or the current account surplus. That is a somewhat correct way of thinking about what this money/debt actually is its a stock of the non-governments savings.

      • Red Hand 8.1.1

        Thanks for this. If we had full employment with high wages and the wages were saved rather than spent, would that reduce the inflation effect ? The savings pooled and invested in education and new, environmentally sustainable, high wage paying enterprises. Creating a virtuous circle.

        • Nic the NZer

          If the extra income is saved (rather than invested, or consumed) then this doesn’t impact demand at all so should have no impact on inflation. Otherwise inflation is largely a result of full-or-higher capacity utilization of the economy (including the unemployment as idle capacity). Its also complicated as its sector by sector, its not balanced over-all and there are shifts. Rebuilding Christchurch (largely necessary because of the earthquake) did impact quite directly on rebuilding costs and capacity for this kind of building work was highly utilized. I don’t think inflation needs be prioritized as much as it is, but you do want to focus the government spending on the otherwise idle capacity (for example creating a job-guarantee scheme, allowing those who are otherwise unemployed to find an employer, the government essentially, who will hire them) should avoid hitting problems. Less discriminant spending will be more prone to creating inflation. The other point about a job-guarantee is that if people are already employed in a job-guarantee it resolves some kinds of inflationary constraints, making it easier for people to shift from their guarantee job to fully private sector work, this makes the economy more resilient to inflationary constraints (than otherwise).

          Investment is a bit more complicated, it does impact on demand directly, but it also creates capacity (hopefully). As long as productivity is increasing higher more than wages (or ideally roughly in line with) then there is no need for there to be an price impacts but it depends. What happens presently is wages do not keep up with productivity changes and the result of that is capital gets a higher profit out of that presently, which impacts inequality (as different party of society earn more or less of their income via wages or capital).

          We should not conclude however that by any means low unemployment and high savings rates (to pay back debt), and increasing government liabilities means higher inflation. An actual example of this is Japan which has had several decades of the non-government sector repaying debt (following the Asian financial crisis in the 90’s), significant government deficits (facilitating this), but has maintained low unemployment rates. They have also seen pretty low inflation rates over the period while this occurs.

          • Red Hand

            I thought that if consumers were reluctant to spend, sellers would lower prices and so reduce inflation.

            Your posts are eye opening. It looks like it is known what effect various government policies will have on wages and employment.

            I’m waiting for Labour and Greens to define what they see as –

            “the long-term financial and sustainability challenges facing New Zealand.”

            And then spell out in language that the economically illiterate can understand, what they are going to do to address them.

            I hope that one of the long term challenges will be avoiding a low wage, low skill economy.

            Thanks again for your comments.

            • Nic the NZer

              “I thought that if consumers were reluctant to spend, sellers would lower prices and so reduce inflation.”

              That is one possible outcome, demand or aggregate demand being a measure of consumer purchasing, but its not well defined. There are typically two ways prices work it depends what kind of thing is being priced how businesses set prices however. One is supply and demand pricing and these tend to rise and fall according to trading volume. In some models its assumed all prices work that way, or in effect work that way. The other model is mark up pricing, where sellers add up all the costs of delivering goods and services, add a markup and that is the price set. These will be less likely to change with demand, and is (based on survey evidence) probably how a majority of prices are set. Sellers will typically increase or decrease working hours based on fluctuations in demand.

              “Your posts are eye opening. It looks like it is known what effect various government policies will have on wages and employment.”

              NZ on screen has a program (from the 90’s) called ‘In the Land of Plenty’. People in our economic institutions are interviewed and you can see quite clearly that in some circumstances they want wages lower, or unemployment higher, or benefits lower due to the anticipated macro economic effects of that. Its certainly worth watching.

  9. The way forward is one New Zealand First has been espousing for years and unapologetically so.

    1) Diversify exports so that we are not just running on dairy etc – the old saying about all the eggs in one basket and it breaks, applies here
    2) Invest in research, science and technology – right now we spend only about 0.9% of the G.D.P. on science, whereas the more wealthy nations spend in some cases more than 2.0%

    You might have seen Tracey Martin talking about the Party’s tertiary education policy. She unveiled it at the New Zealand First convention in 2016.


    Given that tertiary education was estimated to cost N.Z.$4.2 billion per annum, this is not a massive increase on that.

    • Antoine 9.1

      The article says that NZ First policy alone is going to cost $4.6 billion, how is the Labour-led govt going to fund that while following the budget responsibility rules?


      • They’ll either have to propose a new revenue stream to fund it, wait for a $5 billion surplus, (lol) or propose it as part of alleviating a recession when the rules allow for deficit spending, and then hope it becomes self-funding/revenue offsets are implemented by the time they’re back out of recession.

        A $5b policy isn’t unaffordable, but it is a siginificant drain on the government. That’s about 40% of NZ Super right now, and it’s about 20% of our income tax take to give context.

        It’s affordable if we implement a CGT and don’t go for a UBI just yet, though.

        The self-funding part isn’t totally out of the ballpark if you just essentially consider this a repeal of the “repayment obligation” and slowly write-off the student loan balance the longer ex-students stay in the country, as the increased tax take from people staying who might otherwise be incentivized to leave could potentially make the policy revenue-neutral in the long-term.

      • RedBaronCV 9.1.2

        Dump a couple of Nacts low cost benefit roads

        Slow down low quality immigration so that we employ our local unemployed at reasonable wages reducing family support & unemployment benefits.

        Build state housing and have the money invested not keep paying accommodation supplements which is money into private hands. Pay reasonable wages to decrease accommodation payments.

        And there is heaps more. Invest not subsidize private interests

  10. Skeptic 10

    Two of the comments here need a lot more discussion.
    1. The notion that Lab/Green has bought into the Chicago School of Economics theory lock, stock and barrel and can’t see past it for fear of ridicule by the Nats.
    2. That the same dumbed down Mr Joe Public will turn to any Trump like populist party that the MSM puts up in front of them.

    On the first, the differences between Keynesianism and the theories of Milton Friedman are in the results much more than in the practices. In both theories government intervenes, but it is how and for what purpose that the two are poles apart. There are quite a few other models for economic prosperity and economic control, few of which seem to be debated today. That’s a great pity, because it is the root cause of point two. Lab/Greens need to put up a credible alternative. Is what they’ve done either credible or an alternative?

    Mr JP, especially those born after 1977 (and were 10 when 1987 came around), have little or no concept of the multiplicity of economic theories and there outcomes because the MSM has been captured by and large by the Murdock media. You can’t blame them – they know no different. The fact that Friedman’s theory is based on a mis-read of Adam Smith’s Wealth of Nations (as is typical of poorly educated Americans) seems to have been largely forgotten by most. The fact that Adam Smith also wrote another book, The Theory of Moral Sentiments, where he clearly and unequivocally consigns WON strictly to the market place, and states that market-place practices have no place in man’s relationship with family, community and church, has been ignored by both Friedman and others of the CSE mindset.

    All Mr JP can see is what MSM and the Nats put up in front of them – populist household cost accounting with winners & losers – while offering hefty bribes in the form of tax cuts to keep the ignorant onside.

    How is Lab/Green coalition supposed to counter this?

    I suggest we ignore the theory and concentrate on desired results, while at the same time ramming home the message as to what has caused the depredations in society today. Don’t buy into THEIR arguments – sidestep them with down-to-earth factual examples of how THEIR theories and practices have failed. Keep on hammering home the message “That their policies have failed – in Health – in Education – in Employment – in Housing – in Fairness for All Kiwis”

    It better to attack than defend – this is what the Lab/Green campaign needs to understand.


    Then read this , and exchange oil for water .

    Our water.

    Venezuela and Saudi Arabia: Sharing wealth | The Gisborne Herald

    • Ad 11.1

      The link does not appear to be working.

      What is the point you are trying to make?

      If as I suspect you want a tax on large water takes, well, Labour policy has been on to that since 2014:

      “We are committed to encouraging the fair and efficient use of our precious public freshwater resource through a fair priced resource rental on large takes for irrigation. That is just being fair and cannot be seen as an attack on our farmers.”

      • WILD KATIPO 11.1.1

        Copy , then paste the link onto google. Voila ! you’ll come to the site.

        And the point?

        As far as I can see , this latest by Labour and the Greens is more of the same neo liberal formula we’ve had for the last 33 years. Just tweaked.

        As for the water?… have a little ponder how our mineral resources have been flogged off rather than the profits redistributed to the population.

        Its OUR resources , to be administered by OUR govt , to be redistributed to US.

        Not forked off to company’s that donate to a political party then onsell overseas at handsome profits.

        Its OUR water . Got it?

        Hence the Saudi Arabian example. National talks about what cannot be done?…

        That article demonstrates WHY.

        And if Labour and the Greens bang on about using the same old tired neo liberal methods as National ( the National lite syndrome ) – then they are going to be just as bad.

        • Ad

          Who’s water exactly?

          – Maori have claims to big chunks, including whole rivers, under Treaty settlements.

          – Electricity generators have massive use rights over whole catchments, which haven’t been much of a problem while we have been able to turn on the lights.

          – Consumers who pay for it in metropolitan areas – such as Auckland where about a third of our population lives. They aren’t necessarily citizens, or whoever you are defining as “ours”.

          – Maybe it doesn’t belong to people, but instead belong to the earth and should not be owned. Perhaps we are but stewards who manage on behalf.

          – What about irrigating farmers who pay a fee for it – how much to they own it any more than others?

          – What about bottling companies, adding value as breweries or soft drink or juice companies, who pay for it quite legitimately?

          Your rhetoric is hollow.

          Labour already has a policy ready to go: a simple bulk user resource rental. But even that has a whole bunch of policy areas to navigate, even if they got into power this time.

          • WILD KATIPO

            I notice you only talk about said industry’s in the context of the free market. Missing the point entirely.

            And as stated. Its owned by the govt as a resource and they own that right above and below the ground ( try working a gold mine on your own property) and that includes water. As well as exercising the same rights as far out as our 200 K exclusion zone that borders the land.

            Thus the govt only represents , we the people who elected them. Thus also there never was a mandate for them to give the OK for company’s to whatever they like with it. Thus we have every right to have it nationalized and for us to reap the financial benefits in a consolidation fund or some other mechanism.

            Thus in principle the same way as the Saudis redistribute wealth back into the community from their oil wealth.

            No hollow rhetoric there, old chum.

            We can dictate whatever we like with our own resources because WE own it. And NO govt has any right to flog off our resources without our say so. And it remains to be seen if Labour or anyone else has the gumption to follow through with regulating OUR resources for the benefit of ALL New Zealanders.

            We’ve all heard the ‘ promises’ before.

            • Ad

              if you want to propose nationalizing water, you should find a party who will do it. The Labour-Greens announcement is not part of an elaborate James Bond-scale vast conspiracy.

              They’re not going to tax anything more or less than they say, and no, water is neither the sole miracle or primary dystopia. Nor is it to be commanded by the state.

  12. Incognito 12

    I too have some more thoughts on the LP/GP BRR. I am an ordinary eligible voter and as economically literate as the average person in the street.

    To me it appears as if they are trying to beat Bill English at his own (!) game: to be an astute manager of the NZ economy with a social conscience. The feel good vibes are just that rather than critical milestones on the way of undoing years of neo-liberalism for the sake of a better society. To put it bluntly and provocatively, e.g. swimmable rivers are on par with John Key’s cycle ways.

    Instead of trying to play the same game they could have come up with an alternative, or at least something that sounded more different. However, they chose to stay within the current framework and narrative as set out by years of neo-liberalism; the status quo.

    Whether this is a wise move I don’t know but I do know that it is a self-imposed limitation on what they can and cannot do once in government.

    There are too many questions that remain unanswered and some will hopefully be addressed before the election and some after. I for one don’t really know whether this can and will deliver a progressive agenda that goes far enough for my liking.

    The message I’m getting is that it will be business as usual with possibly some subtle differences here and there if/when the economy allows it. Not what I am hoping for though …

    • Ad 12.1

      I can see your point.

      MMP is designed to stop significant reform completely.
      This announcement is a clear example of MMP in action.

  13. McFlock 13

    I like it.

    Firstly, the objection we see every fucking time from tories is “tax and spend” and that the left are poor economic managers. Fuck those guys, this is a clear statement that their hyperbole is imaginary bullshit.

    Secondly, a few of the points as “mum & apple pie” stuff – would any government promise to waste an immense amount of money, rather than “maximise its benefits”?

    Thirdly, there’s wriggle-room to stay within the principles. “Economic cycle” rather than “surpluses every quarter or year”.

    Between the wriggle-room and the platitudes, there’s a lot of projection going on from folks who think it flags austerity or neoliberalism, imo.

    • One Two 13.1

      It’s a bad joke, and transparently protects the status quo of these establishment gatekeepers

      It requires imagination and desire to understand alternatives..

      Such traits do not exist inside the establishment

    • Bill 13.2

      Well, it could be projection, or it could just be a recognition of where the obsession with debt reduction comes from 😉

      • McFlock 13.2.1

        That’s one of five points, and has wriggle-room to boot. So hardly an obsession.

        Frankly, I’m more concerned about the wee line about remaining in the range of recent gdp:govt expenditure ratios. But even then that just rules out going back to govt of 40% of GDP inside of three years – it could still include billions of more dollars expenditure.

        • Bill

          Because 40% of GDP is bad? Only to liberal economic thought. And if there’s another global melt down, then 40% could well be on the cards. And they’d deal with that…how? By borrowing and pumping the economy? Apparently not. Not in the liberal play book that one. (Gotta pay down debt any time any how)

          • McFlock

            See, that’s the nice thing. If there’s another global meltdown, that’s “exigent circumstances” for any pre-election promise.

            And 40% isn’t bad. But it’s approaching the level where people start with the dancing cossacks if you promise it in the 2018 budget- which sort of defeats the purpose of the entire statement.

            We’re entering an election campaign. The recurring club that the left(ish) get hit with is “tax and spend by big government”, because at the moment people have been trained to be scared of that. We can’t throw them in the deep end, because you can’t throw voters anywhere. They need to ease back into it.

            • Antoine

              Win an election, get the country into good economic shape, and then and only then, can you start splurging.


              • One Anonymous Bloke

                Stop voting for a party that wastes money while every single social measure gets worse, and then, and only then, you’ll be able to run your mouth without looking like a massive hypocrite.

            • KJT

              Not mentioning, of course, that successful economies, long term, all have a high level of State spending to GDP.

              No country has ever joined the first world, without, high levels of State spending to GDP.
              Private enterprise will never put money into the investment necessary. Especially at present, gambling on existing assets is preferred.
              Successful private enterprise in New Zealand has been wholly supported, if not started, by Government.

              By that measure New Zealand’s Government investment is way too low for long term success.

              Spending on the sort of long term investment, (Education, housing, health, infrastructure, equity, sustainability and social cohesion) is only possible by Government. And not by one who restricts itself, to lower than normal Government share of GDP.

              That is still austerity. A failure!

              A Labour /Green Government that limits itself to success in Neo-liberal monetarist terms, is simply promising “business as usual”.

              Very disappointing.

              • weka

                “A Labour /Green Government that limits itself to success in Neo-liberal monetarist terms, is simply promising “business as usual”.”

                Shaw says,

                “Building on the Greens’ past work around transparency and economic credibility, the Budget Responsibility Rules include a promise to put the environment and quality of life at the core of the way we measure our success in government.”


                Do you think he is lying about that?

                Have you looked at Shaw’s work on not relying on the GDP as the main indicator of economic health?

              • McFlock

                OK, how would you go about adding another $15billion to annual government expenditure in the next budget, without wasting most of it?

                Because at the moment most ministries are so understaffed that they can barely manage their current expenditure and requirements. So they’d need to be boosted gradually to train the supervisory staff, so you don’t get new supervisors in sole charge of all new staff. Otherwise you’ll end up with more winz kiosk / novapay bullshit.

                It’s easy to cut. Rebuilding takes time.

                • KJT

                  Destruction over 30 years, is very hard to reverse.

                  It will have to be done sooner or later, before we become another third world client state of either the USA or China.

                  • McFlock

                    Yeah, but my point is that reconstruction takes time. More than three years. Placing vague limits on what the next government will do in three years is practically meaningless when those limits might be well outside what is achievable in the same three years.

                    It does, however, reassure the pearl-clutchers that their fears of imminent collapse are irrational. Then, in the next three years, they can be pushed a little farther.

  14. xanthe 14

    all this talk about Taxes, no-one seems to consider the effect of all money being interest bearing debt, and inequality between managerial and worker class

    untill we tackle the fact that all money in use is interest bearing debt and the CEO earns 20 zillion dollars while employees are minimum wage. the only option is austerity. you can put a smiley face on it but it is still austerity. The Tax take is a very small trickle into a bucket with no bottom!

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