The Sword of Damocles Budget

Written By: - Date published: 11:22 pm, May 16th, 2011 - 40 comments
Categories: budget 2011, slippery - Tags:

John Key is fond of saying “there is a constituency for every dollar you spend”. So, having borrowed to the hilt for tax cuts for the rich, and refusing to reverse that folly, how can Key cut enough to satisfy the credit ratings agencies without pissing off too many voters? He can’t, but he’s gonna say he can and leave the hard choices to his successor.

Trev reports:

When I was Associate Minister of Finance cuts had to be confirmed before they were booked in the budget. Looks like the rules have changed to the extent that cuts aren’t even allocated to individual departments, that’s a long way away from saying where the money is coming from.

And this was the government that campaigned on increasing transparency.

So the new policy is – pretend you have reduced the deficit but wait until after the election to say what the cuts are.

Will be interesting to see the media and especially the financial medias take on this.

Also interesting will be whether the Brash/Douglas party will vote for it.

Report from Key’s presser today :-

Targets for individual agencies would be finalised after the Budget and it would then be up to chief executives to identify how to meet them.

“We believe people who understand their own operations are in the best position to make financial tradeoffs and to introduce innovation which genuinely improves public services.”

I guess Trev is quoting newsroom. Stuff has the same thing:

He said the budget would set an overall saving target for the Government which would start to be realised over the three years beginning on July 1, 2012.

”I think you will be surprised by how much we are looking to save overall from a couple of public sector initiatives,” he said.

”Targets for individual agencies will be finalised after the budget based on size and current funding, then it will be over to chief executives to identify how exactly to meet these targets.”

What this tells us, in essence, is that Key and English couldn’t work out how to get the deficit reduction track they need to avoid a credit downgrade without making politically impossible cuts. But decided to promise big enough cuts to reduce the deficit anyway without saying where the money would be cut from.

I’m no expert on the Budget but according to what is still laughingly called our constitution, the Crown cannot raise or spend money without the authority of Parliament, which is sovereign.

(in fact, as every schoolchild knows, an obese former woodwork teacher is actually sovereign now, but that’s by the by)

So, every year, the government lays out in mammoth detail in the Budget howmuch money it intends to raise and how it will spend it – $70,000,000,000 of spending broken down into thousands of appropriations, some as small as a couple of thousand dollars.

Given all that detail, how do they account for cuts that aren’t allocated? I’m guessing here but maybe at the end of all those books with the carefully worked out spending plans for exactly how much will be spent on everything from “Invalid’s Benefit” to “Administration of Part II Tariff Concessions” there will be a single line saying something banal like “unallocated baseline reductions” with a very big number beside it.

Basically, they’re going to ask us and our international creditors to accept a promise that they have the solution to cutting without causing pain and they will sort out the details later to everyone’s satisfaction.

Yeah, I don’t believe it either.

All we’ll really get out of this Budget is more uncertainty. If the credit ratings agencies buy Key’s line, they’ll still be hovering to see if the cuts eventuate. And every person with an interest in a programme or service that breaths a sigh of relief when its still there in the Budget better not relax too much, because the Sword of Damocles will still hang over them.

40 comments on “The Sword of Damocles Budget”

  1. Lanthanide 1

    There’s been a spate of government department CEO’s resigning in the last few months. I think something like 5 of them, and a bunch of other top executives have left too. Can’t find any stories on it (google is failing me), but it was on TV 1 news 2 or 3 weeks ago I think.

    There was speculation at the time that the budget has something to do with it. This outline would tend to reinforce that idea.

  2. Afewknowthetruth 2

    1. All money creation in western societies is a giant pyramid scheme, due to fractional reserve banking and the fraud associated with the international bond market. Like all pyramid schemes it must collapse. In fact it is in the process of collapsing right now.

    2. Oil extraction peaked 2005-2006 and is falling. Industrial activity cannot be sustained on a declining energy supply, so it’s curtain for the industrial economy fairly soon …. substantail collpase by 2015. Game over by 2020.

    It will make no difference who is in charge at this late stage in the game. The clowns and criminals we’ve had as leaders for the past 3 decades have ensured that appropriate strategies were not followed and that all our resources were squandered.

    Anyone with any sense will be looking to provide food for themselves. People with sense currently seem to comprise about 1% of the population.

  3. ZeeBop 3

    If you ask the same question over and over eventually you’ll get the answer your looking for. A false positive, but then all you wanted was a reason to do want you wanted anyway.

    It was easy to spin false positives when the economy was growing and voters were happy, oil was cheap credit easy to come by, who was listening to the cranks who rightly pointed out the policy was flawed. Industry just kept asking the same question of government, help us grow, help us grow, so government created bad policy that let them grow.

    Mad cows, one of countless examples of deregulation, the markets need government out of the way, so what’s the problem having cows eating cows brains! Even when the boffins said its a bad idea, still Thatchers government went ahead.

    Same can be said for Rogernomics, the wealth created went overseas, and we never stored it up like a mining boom built lavish solid buildings, we just let it go overseas without a word.
    Our homes leak, our children live in poverty, diseases like rheumatic fever should not be occurring here.

    The NZ tax regime is failing to collect taxes to cover the needs of society, Key does not care, the NZ economy is failing to keep wealth here (we need investment capital), Key does not care, and the budget is not going to do anything but more of the same ‘keep digging’ theirs gold in them their cupboards.

    National are unlikely to win the next election, even business voters don’t want asset sales.
    The lie that tax cuts help make fitter capitalists is wrong, it makes lazy capitalists who have
    farmed capital growth bubbles rather than build a strong NZ economy. What’s worse is the tax cut was actually a tax hike for most, compounded with oil and food price rises, it dragged many who thought they were wealthy into worrying about how to just stay where they are.
    Whatever happened to being able to get ahead? Why isn’t Key worried about that?

  4. Colonial Viper 4

    Whatever happened to being able to get ahead? Why isn’t Key worried about that?

    Well, John Key’s manage to get ahead in the last couple of years and since he doesn’t care about you, why would he be worried?

    • Kevin Welsh 4.1

      Exactly CV, in fact John Key has gotten (a)head very nicely for the last two-and-a-half years and the New Zealand public has foolishly given it.

  5. Draco T Bastard 5

    It seems that Blinglish went to the departments and asked for savings and got told that there wasn’t any and that if NACT cut the budget government services were going to collapse the same way that they did last time National were in power. As NACT had already promised their base (the 20% of the population that make up the psychopaths and their direct supporters) cuts to government spending so that they could have more tax cuts later. This left them in a bit of a bind – they had to make the cuts that they’d promised but there was no way to that without damaging government services and they’d promised (to the general population and not their base) not to do that either.

    So they’re going to go into the new year with promises of cuts to keep their base and the credit rating agencies happy but no plans to make any and probably lots of plans for retrospective validation as “budgets” blow-out all over core government services. This is most likely to cause some sort of financial crises within the next year as the government books sink further and further into the red. If NACT are still in power they’ll probably use it as an excuse to urgently sell the power generators – and that’s 100% of them and not 49% – and probably Kiwibank as well. On top of that they’ll probably blame the departments for not finding the necessary savings that they demanded when there was no savings available. That would be why Key came out and said that the savings would be up to the departments – covering their own arse.

    If this is their plan, and I can’t see any other possibility, it’s a desperate gamble on timing as the crisis can’t happen before the election because if it did there’s no way NACT would get back in. Of course, NACT can always, and probably will, try to keep the books hidden before the election so that the crisis can happen just after.

  6. It’s the “we’ll have to wait until Thursday to find out” budget. Speculation like this – Budget cuts set to hit big families (“experts” believe) – is pointless until we know the detail.

    Colin James has a reasonable general idea…

    This encapsulates the politics of Thursday’s election-year Budget: to trade simultaneously on toughness and hope.

    …but if standard pre-budget procedure has been followed it probably won’t be as tough as has been intimated, the old “phew, it’s not as bad as we thought” trick.

    In the end it will probably all be based on hope. National will be hoping the now more frequently predicted recovery will be underway (big hopes that it’s evident by November) – Budget will forecast wage and job growth: PM – and Labour will hoping that the economy dives further, their dire warnings are proven correct, and they will be given back the government reins by an electorate desperate for a noble rescue – or bigger handouts.

    • RobC 6.1

      “Labour will hoping that the economy dives further”

      What a retarded statement. You’re suggesting that opposition politicians want the country to get into an even bigger mess than we are currently in, just to gain power??? LOL

      • PeteG 6.1.1

        So I may have exaggerated, that’s normal on blogs – but do you think Labour want to see an economic recovery under way by November? They certainly won’t be trying to raise economic confidence before then, they will still be doom and glooming for all they’re worth.

        • mickysavage 6.1.1.1

          So the fact that the economy is tanking because of the current clueless mismanagement is all Labour’s fault.  ALL LABOUR’s FAULT HEAR ME, ALL LABOUR’s FAULT.

          So PeteG how about commenting on National’s strategy to get us out of the mire.  I will give you a hint.  It goes like this:

          1.  Give tax cuts to the wealthy.
          2.  Build a cycleway.
          3.  Hope.

          • PeteG 6.1.1.1.1

            Calm down MS, I don’t think it’s all Labour’s fault.

            • billy fish 6.1.1.1.1.1

              But the “NactNarrative” is “Its all Labours Fault”
              So you are wrong, so there, but thats Labours fault

        • RobC 6.1.1.2

          Who gives a fuck what “Labour wants to see”? I think 99.9% of the country would be glad to see an economic recovery by November but on the balance of probabilities the ship ain’t going to turn around that fast.

          PeteG, all Labour are doing is expressing “doom and gloom” that some of us feel. Or do you think all is rosy and the lack of “economic confidence” is a figment of their imagination?

          • PeteG 6.1.1.2.1

            I don’t think everything is “rosy” but neither do I share your feelings of doom and gloom. Trying to continually talk down the population and promoting hard-done-by-ness risks portraying the messengers as pessimists, and that’s not a good look for leadership out of recession.

            • mickysavage 6.1.1.2.1.1

              Do you know any poor people PeteG?
               
              Have you talked to someone on the minimum wage or a solo mum lately to see how they are coping?
               
              John Key certainly has not.
               
              Remember him visiting McGehan Close before the election and making such a major fuss about the under class?  I bet he has not been back there recently.
               
               

            • RobC 6.1.1.2.1.2

              LOL. Using overly-bullish forecasts as a basis for optimism isn’t necessarily good leadership either.

              “We now have our debt under control and unemployment is beginning to fall. We will emerge as one of the countries that other nations aspire to be more like” – Bill English, Budget Speech 2010

              He also projected a $6.8 billion deficit for 2010/11 (now looks like $16 billion) and said there’d be 170,000 new jobs over the next 4 years. And other rose-tinted statements that bear little resemblance to reality. Keep believing the bullshit PeteG, we know how gullible you are.

              • PeteG

                Using overly-bullish forecasts as a basis for optimism isn’t necessarily good leadership either.

                I agree, which makes your closing snipe look a bit silly.

                We’ll see what this budget actually says. In contrast to nine years of strong leadership Key has been leader lite. I’ve cut him some slack becasue he inherited a tough economic situation and we’ve had some abnormally adverse events since, but I this budget will influence his first term legacy a lot – will he end up having been a limp leader or a growing leader.

                He also gets some help from Goff who provides another contrast, less leadership, more bleeding worship. He is going to have a tough job convincing enough voters that he can suddenly transform from “bile and rave” into leading us to a bright future if he wins in November.

                • Colonial Viper

                  Goff who provides another contrast, less leadership, more bleeding worship. He is going to have a tough job convincing enough voters that he can suddenly transform from “bile and rave”

                  Fuck you make some shit up.

                  Goff nails Key in the House on National’s lies and general smarmy ignorance and disrespect of the rapidly growing underclass in this country.

                  Confidence in the Key led Government is going to continue to decline, Labour is going to continue to push National’s buttons and the NATs are going to continue their long slow decline below levels which lost Helen Clark 2008.

  7. KJT 7

    I expect the budget will be milder than forecast. National will not want to scare the horses before the election while still nodding towards the extreme side of their support.
    With some doubt now about the seats ACT and the Maori Moneyocracy party will pick up they cannot rely on ACT mopping up the nut job votes to get support from the right.

    • RobC 7.1

      It will appear mild because it will be based on aggressive growth assumptions in future years. Assumptions that, as Mr Key acknowledges, are “a degree of putting one’s finger in the air when it comes to these things”.

      PeteG is right about one thing, it will be a budget of hope, in the “close eyes, pray everything will turn out OK” hope.

      • joe90 7.1.1

        aggressive growth assumptions in future years.

        I hope they’re not relying on a continuing commodities boom.

        The commodity boom may seem like a recent phenomenon, but in fact, it started 115 months ago, in 2001, according to Michael Darda, chief economist and chief market strategist at MKM Partners.

        That time frame is worth noting, because it’s about how long the tech boom lasted (114 months) and how long the housing boom lasted (113 months), Darda said in a Friday research note.

        “Most observers think ‘it’s different this time’ for commodity prices,” Darda said. And while it may be, he cautions that, in the past, “’it’s different this time’ has proven to be a costly mantra.”

        • Colonial Viper 7.1.1.1

          Australia is on the verge of a downturn. Job growth strength there is seriously down compared to 12-18 months ago.

  8. Colonial Viper 8

    English and Key are brilliant.

    Can we be clear that their method of not specifying the exact programmes where cuts will be made is not lazy, or cowardly, its smart. Very smart.

    They will be making deep cuts in the budget – satisfying their base. But because those cuts have not be figured out in terms of detail – they will only be enacted slowly – sparing people pain for now.

    Elections Nov 26, and only ***then*** the full effects of the cuts comes in.

    Fraking smart Key and English, well played.

    • Armchair Critic 8.1

      It’s a tactic they’ve used successfully before – the full cost impacts of the reorganisation of local government in Auckland won’t come through until after the 26 November 2011 election.
      Will Labour find a way to counter it? I’m not holding my breath.

      • PeteG 8.1.1

        Fran frowned on this approach – Ministers deaf to cocktail circuit chatter:

        It’s notable that the only serious revenue-raising measures which Key and Finance Minister Bill English have been talking about – such as the partial privatisation of state-owned power companies – are also consigned to the post-election basket.

        Yet, despite the fact that Key says the Government lacks the mandate to implement these big ticket policy changes – they are still expected to feature in the Budget rhetoric.

        I think this is wrong.

        Budgets should surely be based on what a Government knows it can implement. Not measures for which it says it first needs to first gain another electoral mandate.

        But going down this route, the Government is shifting the Budget dangerously close to being a party manifesto.

        The telling point will be whether the Budget does include Treasury forecasts which take into effect the impact on the Government’s finances if it implements these changes in a post-election environment.

        Budgets do have to take into account what may happen after elections, and seeking mandates isn’t a bad idea, but if there’s too much future fluff it may be a fizzler.

        • Armchair Critic 8.1.1.1

          Thanks for the link. Things can’t be good when the cheerleaders aren’t cheering.

  9. vto 9

    I think you’re all deluded. World growth will pick up further as the people of the world become weathier and are able to buy more and more goods and services that various industrious and innovative business people produce thereby filling their homes and lives with lots of goods and services. In fact probably so full of goods and services that the innovative and industrious business people produce that they will have to buy more storage and houses. This will allow people and governments to both create further wealth through innovative and aspirational financing structures and also to reduce debt to manageable levels. John Key understands all of this with his experience in the innovative and industrious money manufacture industry. John Key approves of all of this and correctly suggests that the world will continue to grow and grow and grow and grow… so much so that John Key believes there is no end in sight.

    The world is not coming to an end, it is merely doing a little bump across some rocks. It is about to surge forward again in another golden era of growth and prosperity based on innovation, aspiration and industry. Shame on you doubters.

    Meantime, we are making sure we have crops and shelter at the ready and out of sight. Good luck everyone…

    • Colonial Viper 9.1

      I’m really not quite sure how to take that 🙂

      • PeteG 9.1.1

        I wondered a bit too – but it illustrates the kack that Key and English aren’t the only ones who hope that future growth will miraculously sort things out, there is a general tendency for everyone to hope there problems will be resolved by someone or something else.

        Lotto Of Life Syndrome.

        • Colonial Viper 9.1.1.1

          there is a general tendency for everyone to hope there problems will be resolved by someone or something else.

          Yeah and people are slowly figuring out that that’s not really working out 🙂

      • Puddleglum 9.1.2

        I am. It was ironic/sarcastic.

        It is one thing to ‘hope’ that human ingenuity will save the day – it’s another thing altogether to blithely assume it will without trying to be – or showing how you will be – ingenious.

        • terryg 9.1.2.1

          Yep, I reckon you’re right Puddleglum.

          everything but the last sentence is a Poe

  10. aj 10

    My pick is that economic growth will be strangled so far as the masses are concerned, by an ever rising trend to fuel prices…

  11. randal 11

    hey Eddie if he is going to leave the hard choices to his successor then I would say that will be on November the 26th.

  12. Craig Young 12

    Does the econometric data substantiate his claims of a ‘recovery’ or is it another piece of media hype from “Spinning Johnny?”

    • “Spinning Johnny” – brilliant. This is what the original ‘Spinning Jenny’ achieved:

      The device reduced the amount of work needed to produce [a] yarn, with a worker able to work eight or more spools at once.” (brackets added).

      John Key of course leaves it in the dust – it could only spin eight yarns at a time onto endless spools but a good ‘worker’ of Key can more than double that using the photo-op accessory tool.

  13. neoleftie 13

    The poor bumbling duo, we have as pressie and finance mucker upper, cant get the mandate for what needs to be done – sell assets and slash and burn services – or national will lose the election, but must do something drastic to cut the deficit. More smoke and mirrors from the patrons of spin.
    Seriously this recession we are in, has if anyhting got worse now, things are extremely tight in the deep south, retail struggling with margins slashed.
    This lets hide the concequences until after the election is surerly the last gasp of a failed and badly tarneshed govt.
    I’ll say it again, no cash to spend after 2008 period as all locked up and a very bad thirple dip economic recession has created the situation where if the public actaully saw our emperors and jesters all dressed up and honest like then bye bye national come november.
    That leaves us with labour under Goff – Where’s the Plan boys i wana see the plan, the vision and sheer guts it will need the next govt as some seriously hard decisions will need to be made.
    1) reign in govt borrowing real soon.
    2) generate some productivity and investment
    3) big picture stuff like a ten year plan.

    Commodity prices will only get worse when more demand come on stream after the downturn.

  14. MrSmith 14

    Cuts, will we be seeing a cut the the treasuries budget, the treasury that employed Brash to spin the bottle for years, the treasury that couldn’t predict the sun coming up in the next 24 hours.

    These useless stuffed suits at treasury need to be sacked and their work passed on to a Philippines call centre at-least they can speck “some” english.

  15. Afewknowthetruth 15

    One only need read about what is happening in Greece, Spain, Ireland etc. right now (20%+ unemploymnet, collapsing property values, no capacity to repay overseas loans) to see where NZ will be two or three years from now.

    There is a kind of inevitablity about it all at this stage, since the opportunity to prevent economic collapse has been squandered by successive Labour-National governments (that’s asuming there is any diffence between Labour and National: I’m not sure on that point) working in the best interests of global corporations and money lenders.

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