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S&P downgrades defenceless, exposed NZ

Written By: - Date published: 11:41 am, November 23rd, 2010 - 69 comments
Categories: Economy, tax - Tags: , , ,

Standard and Poor’s shock move to downgrade our credit rating caused markets to plunge late yesterday. Bill English’s reaction, predictably, is to pretend nothing is wrong. John Key says it’s about debt, even as he borrows for tax cuts. But let’s look at what S&P says is wrong with us:

“The outlook revision on the foreign currency ratings reflect our recognition of the risks stemming from New Zealand’s projected widening external imbalances in the context of the country’s weakened fiscal flexibility,”

In English, that says the government has got itself in a bind by cutting taxes so much (without cutting spending as much). Even if the Treasury’s rosy scenario comes true, to stop running deficits by the middle of the decade the government is going to have to keep its budgets so tight for so long into the future that it can’t afford to implement new policies to encourage private savings. This was confirmed when English told the Savings Working Group that there would be no new money for any of their proposals.

And how did the budgets get so tight? The main driver is the recession, to be sure but an orgy of three rounds of tax cuts in 24 months, the last two directed mostly at the rich, has saddled the country with billions of extra debt. Rather than encouraging savings, the Nats have actually borrowed more to give the elite massive income tax cuts (remember Key’s campaign slogan: New Zealand doesn’t have a debt problem, it has a growth problem? – well he sure sorted that, now we’ve got both). Borrowing for tax cuts is a policy that’s almost custom designed to push up our indebtedness both from the government issuing debt and the wealthy spending their tax cuts on imports and overseas travel.

“New Zealand’s vulnerability to external shocks, arising from its open and relatively undiversified economy, also raises risks to the country’s economic recovery and credit quality.”

The fact that S&P is even talking about shocks tells us that those at the very heart of the capitalist system know it is broken and we’re still in a period when things are going to go wrong big time. S&P is saying that by taking away our trade barriers when no-one else did and letting our manufacturing base go overseas, instead turning to dairy and tourism for an income, we’ve exposed ourselves to problems in the international economy. We’re too globalised, too exposed to what is happening in the rest of the world.

S&P is conceding what the Left has been saying for years: if we want to choose our own future, we have to be more economically self-sufficient.

Phil Goff has raised the contributions to the Cullen Fund again. We know that Key and English’s move to suspend contributions to the Fund will be one of the biggest mistakes in New Zealand economic history – Treasury says it will cost $8 billion in a decade. Already the country’s net debt is $150 million worse than it would be if the contributions had continued. Key and English are costing us $10 million a month and its getting worse.

It’s clear that Key and English have no plan (and it’s not clear that Goff has much of one). But just as bad is that the Nats seem to be unable to accept there is a problem.

69 comments on “S&P downgrades defenceless, exposed NZ”

  1. Lanthanide 1

    “Standard and Poor’s shock move to downgrade our credit rating caused markets to plunge late yesterday. ”

    Sorry, but you were getting all anal about the Nat’s crowing after the budget that they had avoided a rating downgrade.

    S&P have not downgraded the credit rating, it remains at AA+. They have set a negative ratings outlook.

    “We know that Key and English’s move to suspend contributions to the Fund will be one of the biggest mistakes in New Zealand economic history – Treasury says it will cost $8 billion in a decade.”

    Or, given the uncertain future due to peak oil and climate change, borrowing money to invest it into the capitalistic environment which you, a few paragraphs above, say is broken, could have been a boneheaded move and the Nats have accidentally done something good by stopping the investment.

    • Marty G 1.1

      They were actually claiming an upgrade for being moved from negative to stable to S&P. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10575135

      But yeah, I did think that was a bit rich until Key conceded that Fitch’s move to negative outlook was a downgrade and I changed my mind.

      As long as he’s being consistent I don’t mind adopting the same definition in this regard.

      • Marty G 1.1.1

        here it is http://www.parliament.nz/en-NZ/PB/Business/QOA/e/b/3/49HansQ_20090721_00000001-1-Budget-2009-Credit-Rating-Upgrade.htm

        1. Hon PHIL GOFF (Leader of the Opposition) to the Prime Minister: Does he stand by his statement that “we have actually delivered a Budget that saw a credit rating upgrade in New Zealand”?

        Hon JOHN KEY (Prime Minister) : Yes.

        Hon Phil Goff: If a change in outlook by Standard and Poor’s is a credit upgrade, as the Prime Minister has claimed, is he now admitting that a downwards change in outlook from Fitch Ratings is a downgrade in New Zealand’s credit rating?

        Hon JOHN KEY: Yes.

        • Lanthanide 1.1.1.1

          Fair enough then.

          But I do still note that you like to say Treasury’s predictions are pure hocus pocus (such as the growth for this year and next), so why do you take Treasury’s assurance that it’ll be an $8b loss at face value? Surely they’re again being optimistic, and the loss could be much less, or it could actually even be a gain by following the path we are now following.

          • Marty G 1.1.1.1.1

            got me there, Lan 🙂 I guess the thing is that Treasury’s forecasts on the Cullen Fund are being proven accurate, whereas their forecasts on the deficit and growth are not.

            Just because they’re wrong on a lot of stuff doesn’t mean they’re always wrong.

          • Colonial Viper 1.1.1.1.2

            Lanth this is where it breaks down: Treasury can forecast very accurately movements in Mediocre-stan. That is ordinary year by year linear trends. It can even add a few different linear trends together and come up with fairly accurate forecasts.

            But guess what: having accurate Mediocre-stan forecasts are completely unhelpful for the country because it is the shock of Extremistan events which are extremely damaging to us. That is, events like the GFC, kiwi fruit vine infections etc.

            And Treasury has NFI about forecasting in conditions of Extremistan (and I don’t blame them for this, no one does). Treasury also has NFI if the linear trends they are working to are actually the relatively linear portions of rapidly changing exponential trends. All Treasury can do is make big fat assumptions.

            Now, is Treasury being too optimistic or pessimistic with its forecasts? (ie which direction is the forecast error probably in?) The argument goes, in Extremistan maybe the price of wool and milk powder will quadruple over the next year and things will end up much better for NZ than Treasury is forecasting. Sure, it might. Or, the US may have a failed sale of Treasury bonds followed up by some massive terrorist incident and an overthrow of the government in China. All of which might cause a meltdown of international banking institutions, make it impossible for NZ to get funds for Government and things might be much worse.

            We don’t know.

            All S&P is saying in their negative outlook is that IF we have a negative event like the latter, NZ is going to be bad shape for it. Our economy is not robust, it is not resilient, we have not built up a reserve capacity and actually Key and English have made our economy far more fragile.

            captcha: fatal

        • lprent 1.1.1.2

          Ummm John Key is an idiot is about all that you can say after reading that exchange…

          Update: Ok – maybe he can argue that (having read the rest of the conv). I still think he is an idiot for expecting that tax cuts for the wealthy will cause a rise in productivity and wealth generation sufficient to offset the governments borrowing to finance those tax cuts. It won’t and I’ve never seen an example where it has actually happened.

          • Bazar 1.1.1.2.1

            An idiot, for giving a straght and direct answer to a straght and direct question?

            There were 3 outcomes.
            He denies it, which leaves him in a contrdicting position
            He ignores it and talks around the question
            He answers up front and states the obvious. Which shouldn’t even need to be asked, but it was, so there.

        • Fisiani 1.1.1.3

          Today

          1. Hon DAVID CUNLIFFE (Labour—New Lynn) to the Minister of Finance: What factors were identified by Standard and Poor’s that led to them placing New Zealand’s sovereign credit rating on negative watch?

          Hon BILL ENGLISH (Minister of Finance) : In fact, the question is not correct. Standard and Poor’s has not placed New Zealand on negative watch. It has affirmed New Zealand’s existing AA+ rating for foreign currency debt but has placed it on negative outlook, and those are considerably different labels. Standard and Poor’s has focused its concerns on two issues: one is the bank credit quality of our Australian banks and the second is New Zealand’s high overseas debt level. Both of those have improved in the last 12 months since Standard and Poor’s last lifted the negative outlook status.

          • Bright Red 1.1.1.3.1

            I agree Fizzy, it was pretty sad watching English contradict himself and S&P.

            did you hear the part when he claimed his tax cuts were fiscally neutral? It’s like he’s forgotten his own budget, which clearly states they will cost an extra billion over four years.

            captcha: sufferings – I know you must be, Fizzy, but vote Left and the pain will begin to ease.

          • Pascal's bookie 1.1.1.3.2

            “John Key’s statement is no longer operational”

  2. Bored 2

    How f**kin dull and boring: this from the guys who did the ratings for economies and corporations prior to the crash and got it completely wrong. If Jonkey was much of a man he would stand in their face and tell them to leave off his manor.

    The jokes is on us, these guys should be in court and up against the wall for professional misconduct and negligence, along with all the acolytes and economists who prop up their rotten system.

    • Bright Red 2.1

      the technical stuff might be boring but this is actually all about how we choose to organise our economy, and this is another example of us being told that we’ve gone down the wrong path of selling our assets, letting our manufacturing go overseas, and cutting taxes rather than investing in our future.

      Seems like that’s a pretty important message to hammer again and again.

  3. Draco T Bastard 4

    S&P is conceding what the Left has been saying for years: if we want to choose our own future, we have to be more economically self-sufficient.

    Well, the left exclusive of Labour who still seem to want to hold on to the delusional and irrational free-market that only benefits the rich.

  4. deemac 5

    this ought to be headline news but our MSM either doesn’t understand its significance or is too keen to cover the govt’s butt

  5. prism 6

    S&P also indicated problems with government entities ie The organisation also put on a negative outlook were New Plymouth District Council, Wellington City Council, Auckland District Health Board, Counties Manukau District Health Board, Housing New Zealand Corp, and Housing New Zealand Ltd..

    So why the Housing – they should have the houses as collateral? And what’s the difference between Corp and Ltd and what’s the purpose of having two? Then the two health boards in Auckland, and Wellington and New Plymouth Councils – what’s the problem tbere. I would have thought that Dunedin Council would have been a prime target for fiscal nose sniffing.

  6. It’s only is shocking if you have not paid attention.

    This was a predictable and planned outcome of the housing bubble (and other bubbles created by the NY fed) It is the final plundering of whatever is left and the destruction of the middle class world wide to go back to a feudal system.

    The repeal of the Glass Steagall act, the decoupling of the fiat money system of the gold standard and the total abandonment of every restriction placed on the Wall street thugs (of which I remind you our Smiling Assassin was one) left no other outcome other than this.

    Here is a link to the series called the financial tsunami by economist Engdahl spelling it out.

    And here is an American Senator asking Ben Bernanke why the Federal Reserve had to secretly give the NZ reserve bank $ 9 billion US in the same month and the same year John Key and his International minders took control of NZ policies.

    Why? BEcause the big banks knew they were up doodoo river and wanted to keep us going just that little bit longer before it collapsed. Now it’s payback time so bend over and take it New Zealand.

    Welcome to the New World Order. You’re royally screwed.

    • Draco T Bastard 7.1

      Fiat currency, when properly used, is better than a gold standard. The fiat system that the world uses with it’s unlimited printing by private banksters is a fiat currency that isn’t properly used. This shouldn’t be surprising as it was designed by the banksters to benefit the banksters.

      • Colonial Viper 7.1.1

        DTB you know I like your style. Our Govt needs to exercise its sovereign right to produce the money of the land in a debt free, interest free manner.

      • travellerev 7.1.2

        I agree. What I wanted to say is that they knew damn well that they were going to scam the system with their fiat money. That is why we should never leave the creation of money or the monopolisation of currency in whatever form by a few individuals. Money is only useful if it is used to facilitate trade. As they say for the love of money is the source of all evil. We are seeing a few very greedy money junkies perpetrating evil on all of us.

  7. smhead 8

    You are an economidiot. Negative watch is not a downgrade.

    • Colonial Viper 8.1

      So now you are smarter and more knowledgeable than John Key, who himself claimed it was a downgrade?

      S&P downgrades defenceless, exposed NZ

    • Bright Red 8.2

      Hon Phil Goff: If a change in outlook by Standard and Poor’s is a credit upgrade, as the Prime Minister has claimed, is he now admitting that a downwards change in outlook from Fitch Ratings is a downgrade in New Zealand’s credit rating?

      Hon JOHN KEY: Yes.

      smhead: You are an economidiot.

    • The Voice of Reason 8.3

      Jaysus, Smeggy. We’re used to you not understanding the posts, but if you can’t even understand the comments, what’s the use of you?

      Mind you, monetary confusion seems to be the order of the day on the right. Marty G points out that Key reckons it’s a downgrade and Fisi reports that, quelle surprise, Blinglish reckons its not. A House divided …

  8. Jeremy Harris 9

    What percentage of our $12,000,000,000 deficit this year is from borrowing for the tax cuts..?

    The tax cuts were ill advised but it is a spending problem in the main…

    • Lanthanide 9.1

      The question shows a lack of understand of the subject.

      The deficit is larger than it would be simply because of tax cuts. Tax cuts = lower revenue for the crown = larger deficit spending. The deficit doesn’t increase because of borrowing, the borrowing is required because of the deficit.

      Also, you seem to be trying to pin the current deficit on National’s last lot of tax cuts. But we had tax cuts back in Oct 2008, April 2009 and again in October 2010. The 2008 taxcuts were Labour’s, but ONLY in response to National beating the ‘tax cuts’ drum as their one true path to electoral victory, and Labour were forced to roll out cuts of their own. The cuts in 2009 and 2010 have mostly gone to the wealthy, whereas Labour’s cuts were move even across the board, skewing to the poorest in society.

      captcha: knowing

      • Jeremy Harris 9.1.1

        The point I was making via the question is that, while tax cuts were/are part of the problem, they are relatively small part of our deficit…

        The deficit doesn’t increase because of borrowing, the borrowing is required because of the deficit.

        It’s not that I don’t understand, I fundamentally disagree with how you view the budget – the deficit does increase due to borrowing that is what a deficit is, and while it is okay to run small deficits for a budget or two (freom memory even Keynes only recommended a maximum of 4%, much less than we are running) the main cause of this downgrade is spending greatly exceeds revenue…

        Quite simply we need to find spending cuts and preferably not from staff costs but other government expenditure…

        • Pascal's bookie 9.1.1.1

          Thing is Jeremy, you’ve got a rather large blind spot. It is simply not the case that “we need to find spending cuts and preferably not from staff costs but other government expenditure”.

          There are two variables you identified here:

          “the main cause of this downgrade is spending greatly exceeds revenue”.

          not one.

          It begs the question to say that the solution must be on the spending side, and begs it in a way that is quite possibly the actual cause of the ongoing deficit issues.

          Right wingers might hate them some taxes, but their problem is that they can’t find enough politically viable spending to cut to justify the cuts they want.

          That would strongly suggest that the actual problem is that the electorate prefer the spending to the tax cuts. They really are prepared to live in a higher taxing country than you would like.

          If that was not the case, then the spending cuts would be as easy as the tax cutting.

          But it’s not, is it?

          The tax cutting is easy, if you can convince the punters that you can cut taxes responsibly, or that you can afford them. If you can do that, then of course they will like tax cuts. But ‘responsible’ and ‘afford’ means ‘without cutting the spending we like’. When the right fails to manage this, which they always do, we end up with a public sector trying to do too much with too little, thereby delivering a shit and inefficient service that is politically unsustainable. We also may get a structural deficit.

          When the service levels deteriorate enough, or the spin runs out and people see what’s going on, then the left win an election based on tax hikes and the restoration of the public service.

          Rinse, repeat.

          But cutting tax cuts before you cut the spending to pay for them, and without a mandate for the spending cuts, is intellectually dishonest. And politically and economically deeply unserious. It really is theft from the future. No free lunches also applies to tax cuts.

          • Colonial Viper 9.1.1.1.1

            The top income tax rate in the US in the 1950’s and 1960’s was 91%. It was applied on every dollar earnt by someone above the equivalent of ~US$2M per year, in today’s dollars.

            Notice how this tax rate did not stop IBM, Boeing, GM, RCA etc from being global leaders, nor did it stop their top executives from building global leading brands and technology.

          • Jeremy Harris 9.1.1.1.2

            @pascal, have you ever heard the saying, “everyone wants low taxes, high government spending and no debt to pay for it all”…

            When we are running such hideous deficits it is irresponsible to:

            – Lower taxes
            – Maintain or increase spending

            • Pascal's bookie 9.1.1.1.2.1

              “everyone wants low taxes, high government spending and no debt to pay for it all”

              seems trite and obvious enough, but it’s also true that everyone knows they can’t have that, and it also seems to be true that when given the choice they tend to want the govt spending and are prepared to pay for it.

              If right wingers would just quit the bullshit and stop with the tax cuts they can’t pay for, things would probably run alot smoother and more efficiently.

            • Jeremy Harris 9.1.1.1.2.2

              I think you’re oversimplifying a complex mindset the average voter has… If you ask an American if they should cut state funded health benefits to illegal immigrants to recieve tax cuts they usually say, “Hell yeah”, with the follow up question, “So we should turn away pregnant illegal immigrant women in labour at hospital doors..?”, they usually reply “Of course not”…

              There is a disconnect between the service people expect and the taxes they are willing to pay for them…

              • Pascal's bookie

                This is sort of what I’m talking about re ‘bullshit’. It’s really easy to find some sort of spending that you can point the finger at and tutt tutt and dog whistle a meery tune to, and the dogs will merrily jig!

                But, and this would be by way of the point, those bits of spending invariably amount to exactly sweet fuck all in terms of a tax cut.

                It’s margin of error stuff.

                Look at the examples you had to reach for. What would that be worth in terms of a tax cut?

                If you want to actually make a significant cut in taes, you have to find significant cuts in expensive services. If that could be done in such a way that population would accept the spending cuts, (ie apolitically viable way) it would get done.

              • Jeremy Harris

                There are two points:

                Margins of error add up, as they say, “$10,000,000 here, $5,000,000 there and soon you’re starting to talk about real money”…

                Welfare, Health and Education are 66% of spending so yes you have to find cuts or ways of doing it cheaper… I recommend shamelessly copying the top performers overseas…

                • KJT

                  In many ways in these things we are the top performer.

                  We have a health system which covers everyone for much less cost than the USA. which does not.

                  Our education system comes near the top internationally by most measures.

                  ACC is known as one of the cheapest and most effective accident compensation schemes in the world.

                  The worst performing part of the system is the part that relieves child poverty and inequality.
                  We could fix that without a deficit by taxing the high earners a bit more.

                  • Colonial Viper

                    Read and weep boys and girls

                    New York, NY, June 23, 2010—Despite having the most expensive health care system, the United States ranks last overall compared to six other industrialized countries—Australia, Canada, Germany, the Netherlands, New Zealand, and the United Kingdom—on measures of health system performance in five areas: quality, efficiency, access to care, equity and the ability to lead long, healthy, productive lives, according to a new Commonwealth Fund report. While there is room for improvement in every country, the U.S. stands out for not getting good value for its health care dollars, ranking last despite spending $7,290 per capita on health care in 2007 compared to the $3,837 spent per capita in the Netherlands, which ranked first overall.

                    http://www.commonwealthfund.org/Content/News/News-Releases/2010/Jun/US-Ranks-Last-Among-Seven-Countries.aspx

                    So Jeremy, why is it that an intensely private and competitive health system in the US leads to such poor results per dollar spent? This would seem to be in opposition to your stated belief that competition leads to decreased healthcare costs.

                • Jeremy Harris

                  In the WHO rankings the NZ Health system came in 41st from memory – below the USA… The French have the best health system, the Germans is good too…

                  Finland and Singapore have the best school systems, teacher quality and training is the key…

                  In both Education and Health competition is a part of reducing costs…

                  I’d replace welfare with a negative income tax…

                  • Rosy

                    “In the WHO rankings the NZ Health system came in 41st from memory – below the USA… The French have the best health system, the Germans is good too”
                    That’s 1999 figures! In 1999 US was 37, New Zealand 41. The US expenditiure/GDP was 2 and NZ’s 28th so I guess the weighting for this variable might have made a difference rather than the quality and efficiency of healthcare. (Preventable deaths US 14th, NZ 10th) WHO no longer produces these tables due to their complexity.

                • Colonial Viper

                  And what do we do if we are already the top performers e.g. results per dollar spent in education?

                  By the way there is an alternative to spending cuts: raising taxes. Just saying.

                  In the WHO rankings the NZ Health system came in 41st from memory – below the USA…

                  Of course the US does better than us: 30 million people uninsured with no real access to healthcare for starters. You have to be bloody kidding Jeremy to even suggest the US surpasses NZ in health outcomes and life expectancy per dollar spent in the health system.

                  In both Education and Health competition is a part of reducing costs…

                  No its not. You just said that the French have the best health system yeah? Single public provider health system that is, yeah?

                  You do know that in the US publicly provided medicare has roughly 1/6 the overhead costs of private insurance provided healthcare yeah? That’s may be because more dollars spent in the public system gets put towards delivering healthcare, not towards shareholder payouts and administrative overheads.

    • lprent 9.2

      Making cuts in the revenue you can collect (ie taxes) when it was clear that there was going to be an major increase in spending (ie unemployed) and when the revenue was going to reduce (less employed and lower profits during a recession) is rather worse than being ill-advised. I’d have described it as being idiotic.

      • KJT 9.2.1

        I would describe it as being criminally negligent.

        When are Douglas and Co going to be charged with the initial theft of the countries assets?

  9. William Joyce 10

    Why are we listening to the likes of S&P? The emperor wears no clothes.
    Didn’t these deregulated ratings people start offering tailored, reports to order to the likes of Lehman Brothers et al. leading to the GFC?
    As for NZ being “defenceless, exposed”, since the eighties NZ has been like someone bent over a stall in a San Francisco bathhouse and offering to hold the jar of KY for the punters while naively thinking others will follow our “charitable” example.

  10. Gary 11

    I sometimes wonder if these guys are running the economy into the ground to make it easier to sell us the idea of getting rid of state-owned assets. The cupboard is bare, let’s sell off some stuff.

    • Pascal's bookie 11.1

      That’s the usual outcome, but it’s only indirectly the point. The point is simply to cut taxes. They hate them and see them as immoral. But cutting them causes problems with the books which they cannot see ‘raising taxes’ as being a solution to, because it’s axiomatic that taxes are wrong. Hence: asset sales, deficits, user pays with it’s added layers of inefficient bookkeeping, jihads against solo mothers, endless ‘restructuring’ to hide service cuts and the whole panoply of assorted bullshit.

      • Herodotus 11.1.1

        increasing taxes on a stagent economy as Lab did was of no help either. Think of tax creep, increases in petrol tax, increases in ACC and reduced public services = making life more difficult for the real Kiwi.
        The only thing that keep this issue hidden were those fortunate to own multi properties. Remember them crowing on at BBQ’s of how much $$$ they had made that day/week/month. The rest of us were bemoning of increases of interest rates, dairy etc. And that dear Finance minister, bless him, Michael Cullen allowing those to profit without contributing to the tax take and in some cases also benefiting from the likes of WFF. We were screwed for the benefit of the wealthy. Keep the tax rates as they are and attack those non tax contributors.

        • Colonial Viper 11.1.1.1

          Increasing taxes on those who can afford it (and addressing non-tax contributors) is extremely helpful for economic activity if the revenue raised goes directly into getting people off the dole queues and into carrying out necessary civil and societal work. Educate people, get state houses built, manufacture train carriages in NZ, even build cycle ways for tourists if you really must.

          Otherwise your points are definitely well taken Herod.

          • Herodotus 11.1.1.1.1

            What gets me is this pre-occupation with PAYE taxes and the assumption (perhaps wrongly) that when increasing the tax take people immediately associate that with personnel taxes. Nat has done some initial good things, but lacked the fortitude (ideology) to take this further. irt widening the tax scope;
            Attack housing as a profit making venture required to go further
            As did closing some loopholes, many more are required to close (it would not take much, a special tax task force with extremely wide scope),
            Align coy, trust and the personnel tax rate @ 30 or 33%. But have in place a high earners tax say 38% for $200k+. As at this level you are paying 30%, so for an average 33% the earning would have to earn about $300k before other options would be worth while then there is the employee:contractor tests and the compliance costs to keep execs honest. But don’t place teachers/police/nursing staff and the like on the highest marginal tax rate
            Increasing GST is valid as it taxes consumerism and promotes savings (assists in being a solution to our woeful current account issues). I have not heard of any alt. to solving our ability to spend.
            The ’11 govt needs to communicate what behaviours it supports, justify them and why -ve behaviours can either be reduced thru tax/price or those pay a premium. But don’t place the tax burdon people for working, place it on behaviour.

            • Colonial Viper 11.1.1.1.1.1

              The wealthiest people naturally have a lot more capital than they can spend at the grocery store or even at the mercedes dealership, they invest most of it for capital gains/ROI. In these situations a consumption tax misses the mark and hence why GST is considered regressive – it hits those in the lower incomes who have to spend all of their monies on basic goods and services for survival.

              But don’t place teachers/police/nursing staff and the like on the highest marginal tax rate

              Yeah this is a no-brainer, agree with you there. My belief is that a severe top marginal tax rate should apply at many times the median income however. Whether this is @ 5x, 10x or 15x, someone else can decide.

              Increasing GST is valid as it taxes consumerism and promotes savings (assists in being a solution to our woeful current account issues). I have not heard of any alt. to solving our ability to spend.

              The problem here is that you are assuming an Homo Economicus model of peoples’ consumer behaviour. Provide financial disincentives to consuming and they will consume less. But this does not work. Who in their right economically rational mind would pay 19% p.a. interest on a credit card or hire purchase to buy a piece of consumer crap that they really dont need? The ans: a heck of a lot of people.

              Therefore IMO consumerism is not primarily about activity inside a retail store, nor has it ever been that. It is a behaviour driving context about cultural values, driven by perceived societal expectations and norms. For example, it is about the good old fashioned “Keeping up with the Joneses’ down the street” and varying GST up and down is not going to dissuade people who have been sold that mindset from doing just that.

              PS if you want to make unaffordable consumption much less attractive, make receiving credit/going into debt, extremely difficult to do and very unattractive to participate in.

              • Jim Nald

                You’re onto something there, Econocrates.
                Hmm, a govt that takes on such a policy (in your postscript) would not be a good friend of banks, lenders, folks who issue credit. In fact, if they get wind of a govt about to do that, there will be some very strong lobbying against such a policy. I can’t see the national party or a right leaning party adopting such a policy. Oh wait, they would be in the pocket of the bankers/lenders/etc.

                • Colonial Viper

                  We should remember that 30 years ago only rich people were given credit cards. That it was virtually impossible to get a mortgage with less than 15-20% deposit and a very very solid decent paying job. Then banks figured out there was a lot of money to be made in pushing debt on to people and kids without jobs were being given credit cards and ordinary peoples’ credit card limits were pushed sky high by banks without even being asked. Huge foreign capital inflows helped fuel NZ’s massive property bubble as banks pushed this foreign money on to NZ’ers in the form of more and more debt. Now the value of housing all around NZ is falling: but peoples’ mortgages are as high as ever.

                  In the US it is even more extreme. In multiple US territories, >50% of house owners are ‘underwater’: they owe more on their mortgages now than their houses are worth.

                  • Jim Nald

                    Ahh, so the response to this ‘new’ disease is not new medicine, but a return to the old healthier/stricter diet

              • Herodotus

                If making going into debt unattractive (I take it personel debt as opposed to corporate), there also has to be for me some incentive to invest in NZ, otherwise we have the failing of the Cullen fund with what little $ we have to invest is invested offshore, this coupled with profits and elobrate means for multi nationals to transfer $$ offshore e.g. google
                http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-lost-to-tax-loopholes.html
                this offshore investment adds nothing to NZ and is a backhanded slap in the face that investors cannot find adequate opportunities within NZ. Also the investment cliament has to be improved on a reproting and compliance means. it is no good for the likes of the finance coys to go under and we find poor disclosure and the authorities are trying hard to hit the Fin coys with a wet bus ticket. We in NZ have crap regulations regarding protecting the investor. Rant Over

  11. Robert M 12

    Excuse me, I don’t get the logic. It seems what is being suggested that we should never have opened our economy up and remained in the straightjacket of the Fraser Government of l948 or the Nash Holloway one of l959. If we had we would have been in the postion of Cuba or North Korea today. Opening the economy was essential after Britain moved to enter the EEC( and it was a close deal that we got more than minimal concessions of access and many tories didn’t want to).
    Also changes such as the end of Brenton Woods and the move off the gold standard made it inevitable. Muldoons opening to the world markets in l967 and the relaxation of censorship laws and liquor laws about that time were essential if we were to remain part of the modern world. One could argue, that if was fatal we didn’t follow Whitlam and Aussie treasury sec John Stones eg and scrap import licensing and reduce tarrifs in l973. We would have done better if the Douglas- Richardson reforms had been introduced over a longer period from l970-2000. The problem today is we are not open orliberated enough yet to attract global tourists and europeans on their OE.

    • Colonial Viper 12.1

      The problem today is we are not open orliberated enough yet to attract global tourists and europeans on their OE.

      Disagree 100%. Singapore is just about the only remaining country which is more open and liberal than NZ, business wise. By your reasoning we should be ahead of just about every other tourist destination in the world. But we aren’t. Further, when was the last time you looked at a tourist brochure which said “Come to XYZ, their main attraction is that they have a really open free market deregulated economy!”

      Seriously we do not need an economy focussed on bringing more tourists on to our shores, because we do not need an economy predicated on low wage jobs making hotel beds, driving taxis and serving cuppucinos. Tourism is an important part of our economy and it should remain so but its time to diversify into highly technical and added value industries.

    • William Joyce 12.2

      The issue was not the matter of dropping protections – but how much, how fast, not before every one else did it, not before we had an economy mature enough to withstand the changes.
      Lowering protections should have been like a disarmaments summit – “I’ll give up this if you give up that.”
      The arrogance was that the reformers thought that they were the “enlightened ones” and there was “There is no other way!” and they boasted about how they could manipulate cabinet and parliament and taking great pride in being more radical and faster than anyone else.

      The irony is that they thought they would be hailed as such world leaders and get to sit in Ronald’s lap or suckle from Maggie’s breast. I think Maggie found Roger one day in her handbag all covered in lint and Ronnie just scraped Richard from under his shoe.

      This is a form of arrogance that comes when the “reformers” cross some moral/traditional boundary to do “what others are too frightened” to do and that those who oppose them do so because “they just don’t understand” but “history will prove us right” and the opposer, moaner, complainer and the blind will one day thank them for their courage.
      The greater their audacity – the greater their conceit.

      The same sort of reforming attitude of those who wanted a Jew free Europe.

      • Colonial Viper 12.2.1

        Douglas and co. were deliberately practicing an early form of ‘Disaster Capitalism’. They saw a window of opportunity and wanted to get everything done before opposition could organise to their plans.

    • KJT 13.1

      Wait and see if NACT gets a second term.

    • Pascal's bookie 13.2

      Good thing brash never got his chance to drag us along in the celtic tigers footsteps then eh.

      • Colonial Viper 13.2.1

        The top guy from the EMA speaking at Labour’s Conference in Auckland (at one of the ‘Edge’ sessions – not as part of the official Labour line up) was waxing lyrical about how Ireland’s tax cuts created the miracle of the Celtic Tiger and how NZ should follow in their footsteps. Moron.

  12. Adrian 14

    Colonial V, keeping you posted, my man in Ak says that waste volumes are flat or below last year, but even his should be higher because a quite a few bin firms have closed down in Ak and he’s picking up their business. All this 6 weeks from Xmas, not good. Remember these figures are not only whats happening today but are an indication of what is happening in 2-3 months because the rubbish comes from production entities and won’t show up until sold at retail or accounts become payable. We are seriously in the shit. In Marlborough , housing consents for the last few months are HALF of same months last year and last year they were the worst for decades.

    • Colonial Viper 14.1

      Adrian, I appreciate you keeping tabs on this. Your mate has a kind of real economy forecasting beyond anything the standard economists understand, and which the policy wonks in Treasury have no idea of.

      Where I am I have heard that bin pick ups from restaurants and cafes continues to be unseasonally low. It certainly is not looking good.

      So you know, I do not buy into any talk of a “Double Dip” (sic) recession, simply because for most ordinary NZ’ers there was never any discontinuation of the first dip. I agree this country is deep in the ****, I think English understands but he doesn’t know one jot what to do about it apart from wait and pray. I hope Labour puts forward a very strong case for political change and a radically courageous new economic plan next year – we need it.

      • M 14.1.1

        The rubbish metaphor for the state of the economy is brilliant and agreed that there will be no double dip recession we’re just grinding on with the original dip, dare I say it depression?

        My guess is that March will show more vultures circling.

  13. Ed 15

    Another reason for reduced flexibility is surely that private savings continue to be poor. The tax cuts that were slanted towards the wealthy (2009 and 2010) will have resulted in some reduction of personal debt for the wealthy, but reduced savings by the majority, at the same time that drops in property values make outstanding mortgages riskier on average – with increasing defaults banks will have to increase provisions for bad debts in percentage terms; contributions to Kiwisaver are possibly falling (at least from those up to and a bit above median earnings); especially as National made that easier by reducing minimum contributions.

    The net result is that the banks are still having to roll over large foreign borrowings, while government debt just keeps on going up, and productivity goes down.

  14. Adrian 16

    Agreed CV. My rubbish mate voted Nat last time as did my brother, now when discussing current conditions there is no strong defence of their position as before, it seems to have been replaced with a mildly embarrassed resignation. IMO they are probably susceptible, in a few more of these appalling “do nothing, wait and hope, smile and wave ” months to a good rational “lets get the country back to work ” plan. It’s Labours to make and run with.

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