The treading water budget

Written By: - Date published: 7:46 am, May 18th, 2011 - 24 comments
Categories: budget 2011 - Tags:

Bryan Gould writes:

“The fact that this week’s Budget will do no more than mark time should come as no surprise. We now have getting on for three years’ experience of a government whose idea of managing the economy is simply to wait and see what turns up.”

“Some of what has turned up has not been very helpful. The Christchurch earthquakes, in particular, plus the collapse of a couple of dozen finance companies, have not made things any easier.

The Government, of course, has seized on these factors to explain why its do-nothing policy has not produced better results.

But other developments have been very advantageous. World commodity prices – and prices for our commodities in particular – have soared to record levels. Our major export markets – Australia and China – have been the two economies that have best been able to shrug off the global recession. “

This is the amazing thing. Our biggest trading partners are rocketing along, and yet we’re not. Why not? You can’t blame the earthquake, as David Cunliffe got Bill English to acknowledge:

Hon DAVID CUNLIFFE (Labour—New Lynn) to the Minister of Finance: What was the annual rate of GDP growth for the year ended December 2010 projected in Budget 2010, and what was the actual rate of growth for that period according to Statistics New Zealand?

Hon BILL ENGLISH (Minister of Finance) : Three percent, and 1.5 percent.

Hon David Cunliffe: Is it correct that his Budget 2010 projected that growth in the first three quarters of 2010, nearly all of which was before the first earthquake, would be 0.8 percent, 0.8 percent, and 1.6 percent respectively, whereas actual growth was 0.7 percent, 0.2 percent, and minus 0.2 percent, which means that by the end of September 2010 economic output was $1.6 billion below the forecast he produced in May 2010?

Hon BILL ENGLISH: Yes, growth was slower than expected, and the reason for that was mainly that New Zealanders were saving more than was expected. That is now showing up in a fast-rising household savings rate.

Uh, huh. So people are desperately trying to get their debt down before they lose their jobs, and English thinks it’s a good thing.

Back to Gould:

our public finances are, historically and comparatively, in a reasonably healthy state, reflecting the prudent management and repayment of public debt carried out by earlier finance ministers.

These factors should surely have meant that we, too, like our two major trading partners, were able to rebound from recession and resume a rate of growth that would restore something like full employment and – with higher tax revenues – achieve an immediate improvement in the Government’s accounts. But, disappointingly, having fallen into recession before most other countries, we are still bumping along on the bottom.

Economies are robust things. You can kick them, neglect them, starve them, but sooner or later their natural buoyancy will bring about a recovery of sorts. But that recovery will be longer delayed, and will be from a lower base and less strong and sustainable than it should have been.

The failure to get the economy moving is in other words not a cost-free dereliction of duty. Over a three-year period, the failure to move forward could well have cost us up to $20 billion in lost national income and will mean that growth, when it does resume, will be from a lower base and on a lower trajectory – penalising us for years to come…

…John Key has another characteristic, which he shares with my former colleague, Tony Blair. His basic pitch to the electorate is that he is a nice guy who can be trusted to take the pain out of politics – and, to some degree, the politics out of politics.

A winning smile and a telegenic personality – both possessed in large measure by Blair and Key – will get you a long way; but that advantage is put at risk when hard decisions have to be made and people are disappointed.

We need a Budget this week that faces the tough issues, that sets us on course to save and invest, to reduce our national indebtedness, and to improve the competitiveness of our productive sector – and to use the comparative strength of the Government’s finances to help us achieve these goals. It seems unlikely that we will get it.

The ‘smile and wave’, ‘do nothing’ government is letting this country go down the toilet not only from malign neglect but through bad decisions like borrowing for tax cuts. Who is content to let this continue?

24 comments on “The treading water budget”

  1. Bill English is a turd polisher !!!

  2. PeteG 2

    There’s more interesting comments on this theme with relevant links from Bryce Edwards.

    While those involved in political parties still obsess over big ideological moves in their preferred direction maybe the general voting public are quite happy with a steady incremental approach – current polls suggest this could be the case.

    There might be a bit of an increase in support for the radicals like Brash and Harawira but really National and Labour in the centre are gradualy being joined by Dunne, Peters, Maori and Greens.

    Maybe we have to get used to the cautious tinkering approach rather than tsunami lurches.

    If Labour do manage to pull of a suprise and cobble together a coalition in December they will be limited by their many coalition partners.

    • pollywog 2.1

      While those involved in political parties still obsess over big ideological moves in their preferred direction maybe the general voting public are quite happy with a steady incremental approach – current polls suggest this could be the case.

      the general public are happy enough as long as they don’t know it’s a turd that English is polishing…

      …except the shines fast coming off and it’s hard to hide the stink of shit on Bill’s hands

  3. TightyRighty 3

    Uh, huh. So people are desperately trying to get their debt down before they lose their jobs, and English thinks it’s a good thing.

    Where does it say that that people are going to lose their jobs because people are paying down debt or saving? It’s a good thing that people are saving or paying down debt. it will make domestic investment possible again. it will also reduce inflation as demand will not be so rampant. these are lagging effects though, not immediately noticeable in the economy. in time they will be show their usefulness. then labour will encourage another false boom and destroy all the good work by spending profligately.

    • RedLogix 3.1

      It’s a good thing that people are saving or paying down debt. it will make domestic investment possible again. it will also reduce inflation as demand will not be so rampant. these are lagging effects though, not immediately noticeable in the economy. in time they will be show their usefulness.

      Domestic debt is around 160% of GDP, while the long-term historic and sustainable value is probably about 40% or less. This means that we have a lump of debt to unwind that is the equivalent of 120% of GDP.

      If we paid that debt down at a massive 5% of GDP pa …which would be a tremendous hit on the economy…. it would take at least 24 years to get back into some sort of desirable position again. That’s two to threee decades of sustained recession and stagnation just to pay this debt back. Get it?

      • Colonial Viper 3.1.1

        24 years to pay down the debt? But…National barely think a year ahead in terms of what is good for themselves, what do Key and English care about 24 years time? 🙂

      • TightyRighty 3.1.2

        if it only worked only as you described it.

        Not all people are in debt, some are only in debt a little. As these people save a proportion of their income they make money available for investment which can provide returns to the economy at a greater rate. which increases GDP and reduces the ratio of domestic debt to GDP. As the ratio reduces, the time taking to get domestic debt to this rather arbitrary figure of 40%, one which i think is a good goal regardless of who set it, falls. GDP growth also accelerates, and the circle of life continues.

        what your saying is though is that we are fucked, there is nothing we can do about it except be fucked, but we won’t become a hooker, because getting fucked and paid has no dignity, so we should just give it away.

        • Lanthanide 3.1.2.1

          Ok, so what happens with your virtuous cycle of economic growth when we hit petrol of $4/litre in 3 years time?

          • TightyRighty 3.1.2.1.1

            It becomes economically feasible to drill for oil in the great southern basin and NZ gets rich off oil royalties. growth!!!!r

            • Colonial Viper 3.1.2.1.1.1

              You forget that a few people will get rich, everyone else gets fraked over because it will cost $350 to fill up their car so they can go to work at the supermarket or at the cafe for about, oh $350 wages/week.

              • TightyRighty

                really? what about if there was a new royalty regime where the crown was a half owner in the project, with all the associated risks and rewards AND creamed a 12.5% royalty on top? then the income was used to either fund further infrastructure projects to provide the framework for future growth or to reduce taxes for all new zealand citizens?

                Alternatively, you could piss any surplus away by providing tax relief in the form of welfare for those with jobs already and encourage people to live outside their means because the government guarantees their lifestyle and expects them to become state dependent. this then sets the environment for a structural deficit when the tax take goes down due to a global recession and four natural disasters domestically

                • terryg

                  TightyRighty, on what basis do you think such an event might occur? Clearly not a historical basis (presuming, of course, that you inhabvit the same universe as the rest of NZ does). Methinks ’tis not based on NACTs efforts to date either, whereby they bend over backwards to provide corporate welfare to the rich and powerful – especially (foreign) multinationals.

                  Ergo you’re just making shit up.

                  If you’re going to hypothesise highly improbable events, why stop there? how about simply assuming Rodney Hiding perfects cold fusion whilst Deborah Codswallop patents a functional antigravity device?

                  • TightyRighty

                    Really terry, the proposal is not as ludicrous as you make it seem. as long as there is sufficient profit in it for whoever the partner of the government may be, it is a feasible project. It’s your blind hatred that prevents you from seeing this. The proposal hasn’t even been aired by anyone except me and already you loudly proclaim it’s bullshit. was it you who programmed the budget poll on silent t’s website by chance?

                    • terryg

                      TightyRighty, there is a world of difference between you hypothesising something, and that something actually occurring. As I said in my post, it has never happened that way in the past – the exact opposite in fact.

                      On what possible basis can you assume that your preferred government (NACT right? youre not a labour/green voter are you now) would EVER want half-ownership in a business, when their ideology is specifically to reduce/remove government ownership of everything.

                      Despite the fact that it *might* be feasible, based on their previous policies to date and in fact their core ideology, NACT will never implement that. Did you pay any attention whatsoever to King Gerrys Coromandel Mining debacle? clearly not.

                      And I havent even begun to discuss the practicalities of actually drilling for oil in the Great Southern basin. FFS have you even SEEN NZ’s oil spill response equipment? Most dinghies are bigger than those three pieces of junk (literally). Heard of Deepwater Horizon? Our oil “isnt commercially viable” because its a shitload harder to extract, and look how well that turned out.

                      Peak oil passed in 2006…. time to look forward not backward.

                • Draco T Bastard

                  …become state dependent.

                  People are always dependent upon the state – it’s not an option. I’d go so far as to say that it’s the states responsibility to ensure that people aren’t living in poverty with the concurrent and necessary responsibility to ensure that we’re living within the renewable resource base (ie, not living beyond our means which is what we’re doing ATM as the pollution in our rivers and lakes proves).

                  Nact and the RWNJs seem to think that we should punish people for being poor despite there not being any jobs available and that we should sell off all our resources ASAP so that a few people can have more money in the bank.

                  • Colonial Viper

                    Better to have the backing of a state present to serve the people, than to rely on the compassion of corporate power and their monied major shareholders.

                    • terryg

                      dont you just love the cognitive dissonance of the RW? the only time they seem able to cease shouting their “government is bad” mantra is demand the police/army apprehend anyone with the temerity to download duplicates of digital dross.

      • Lanthanide 3.1.3

        Red, where do you get your 160% of GDP figure? The total indebtedness is reported to be ~85% of GDP, and that’s with 15-20% of that being government debt. Seems like private debt is more like ~60% of GDP? That’s a big difference from 160%.

  4. side show bob 4

    So we are “treading water”, no it’s called socialism. We are now a third world country pretending to be first world. To pay for the so called first world lifestyle requires greater wealth redistribution on a greater and greater scale. Both Lab/Nats have built the country like a house of cards, treading water my arse, we are closet to drowning.

    • Colonial Viper 4.1

      Uh wealth redistribution has been exactly what has been happening over the last 30 years.

      Wealth redistribution from the poor and the working, to the top 1%-2% wealthiest in society.

      And you are right this has not worked for anyone – except the top 1%-2%, naturally.

  5. randal 5

    keep it simple dudes. this governments agenda is to hang in there till they can get a clear shot at selling anything and everything they can to their pals and then splitting back to london or miami or somewhere with there ill gotten gains.
    we’re just fodder for their plans to acquire enough wealth to keep them in the style to which they want o become acustomed.
    basically they are just parvenus on the make.

    • Treetop 5.1

      Just over 23 hours until it is revealed how rooted the country is. It only took them three years. Another Nact budget will be the finish.

  6. Jenny 6

    This government in it’s first term has been a “Treading Water Government” not because they have no ideas on what they want to do.

    They know exactly what they want to do. But they also know that they have no mandate for the sort of extreme neo-liberal policies that they wish to impose, and so they wait, and bide their time.

    Clearly the Nats feel that they will have gained this mandate after the next election.

    Even the cuts announced in the budget are only to come into force after the election, (that is if they win).

    A left leaning Labour led administration on being returned instead of the Nats would be honour bound to reverse all Bill English’s cuts and put the cost of the recession back on to those who caused it.

    • Draco T Bastard 6.1

      A left leaning Labour led administration on being returned instead of the Nats would be honour bound to reverse all Bill English’s cuts and put the cost of the recession back on to those who caused it.

      You would think so but I won’t be holding my breath waiting for them to do so.

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