Treasury predictions – not good

Written By: - Date published: 8:08 am, November 27th, 2016 - 66 comments
Categories: economy, national, useless - Tags: , , , , ,

Brian Fallow in The Herald summarises the take-home messages from the latest Treasury report:

Future written in red ink

Want to cheer yourself down? Take a look at the Treasury’s newly updated projections for the long-run outlook for the Government’s finances.

What the Treasury officials do is take existing policy settings as given, then make projections about big drivers like the age structure of the population and labour productivity growth. They assume the tax take relative to the size of the economy will remain about where it is (29 per cent of gross domestic product).

Then they extrapolate forward, to see what happens to big fiscal numbers like the primary balance (revenue minus spending, excluding interest costs) and the size of the public debt.

It is OK for a few years and then it gets ugly.

Right now, the primary balance is slightly in the black and net Government debt about 25 per cent of GDP.

But if nothing changes on the policy front, and if the projection’s assumptions hold good, we would be looking at a primary deficit of 4 per cent of GDP in 30 years’ time and net debt of 94 per cent of GDP.

By 2060 the deficit will have widened to 6.3 per cent and the debt will exceed 200 per cent of GDP.

And it is worth remembering that the primary deficit excludes the interest bill on the Government’s debt. In reality, it would have to borrow not only to cover the primary deficits, but to pay interest on the growing stock of debt as well. By 2060, on these projections, that would push the operating balance into the red to the tune of 16 per cent of GDP.

That sort of trajectory is not remotely sustainable, especially when most NZ government debt is held by non-residents and the household sector is up to its nostrils in debt.

Some assumptions may be conservative. The projections assume that the net migration gain will revert to a long-run average of 12,000 a year. It is over 70,000 now.

The projections also assume labour productivity will improve at an average annual rate of 1.5 per cent. Unfortunately, the average over the past decade was just 0.9 per cent. The difference between 1.5 and 0.9 per cent gets pretty material if it continues, compounding for 30-40 years. …

Fallow then spends time exploring the policy changes in tax and spending that would be needed to turn this mess around. The cost of Super is a major factor. He concludes by assessing the Nats’ fiscal objective of reducing net debt down to 20 per cent of GDP by 2020 – he doesn’t fancy their chances, especially if a tax cut bribe bites.

So, even with “optimistic” assumptions, National have us on track to disaster. The sooner we face up to certain realities, the easier it will be to turn things around.

66 comments on “Treasury predictions – not good ”

  1. Sacha 1

    Lengthy transcript of PM’s blustering denial of the above on The Nation: https://www.nbr.co.nz/article/key-treasurys-long-term-predictions-nonsense-197203

  2. Gosh – I guess Key rejecting this means National finally accept that the “Treasury predictions showed Labour would have delivered a decade of deficits” bullshit they peddled for years after taking over from the Clark government was a load of old cobblers.

    • Draco T Bastard 2.1

      😈

    • mosa 2.2

      That decade of deficits line was a lie when John Key first spoke it.

      And was never challenged once by anyone on that claim setting the tone for his government and leadership to date.

      • Bob 2.2.1

        “That decade of deficits line was a lie when John Key first spoke it.”
        Not entirely true there mosa. Treasury predicted OBEGAL to be in deficit for the entirety of their forecast period (5 years), peaking at that point. If you made the assumption it would take as long to turn the economy around as it did to hit rock bottom, that would be a decade (of deficits)

        Page 33:
        “The OBEGAL, which represents the
        operating balances before gains and
        losses, is also expected to remain in a
        deficit position over the forecast period,
        peaking at around $6.3 billion in the June
        2013 year”
        http://www.treasury.govt.nz/budget/forecasts/eff2008/eff08.pdf

      • Gosman 2.2.2

        Ummmm… it pretty much occurred as predicted.

        • framu 2.2.2.1

          you mean the were able to predict things that hadnt happened yet like the GFC and what people might have done differently in light of that??

          • Gosman 2.2.2.1.1

            The 2008 PREFU was made after the start of the GFC

            • framu 2.2.2.1.1.1

              and somehow it was also able to take into account actions that people could have taken during and afterwards, and all other future events such as earthquakes

              thats what every single promoter of the decade of deficits line is actually claiming

  3. Ad 3

    While so many Treasury predictions have been as useful as a Mad Max truck tyre constructed entirely of goose duckling feathers, their general hazy point about government tax income being too dependent upon taxes from domestic spending induced by really high immigration is reasonable. But also useless.

    I have yet to see in this entire governments’ term any report from MBIE or Treasury or any other government agency showing how more people are going to get richer longer and how the whole country will get more prosperous into the long term.

    The last ideological burp out of MBIE was the study that showed which sectors were growing and which ones had the highest incomes. Top of the list was the oil and gas industry. From which came the huge government effort to attract more of those to the country by selling off marine exploration blocks. Like any other dumb export commodity, the market has crushed all of that like a 700 metre high steamroller.

    We need a low-immigration, high-income, low-mass, high-imagination economy.
    Treasury is going to have to do the last thing it’s shown it can do. It’s going to have to really think. That is what the public service is for.

    • r0b 3.1

      While so many Treasury predictions have been as useful as a Mad Max truck tyre constructed entirely of goose duckling feathers,

      OK – I laughed out loud!

  4. Draco T Bastard 4

    The only realistic option we have is:

    1. Implementing a sovereign monetary system
    2. Massive amounts of R&D to develop our economy – especially in manufacturing and extraction and processing of our resources (this excludes having foreign companies digging it up and selling it offshore)

    In other words, the only option is for the government to become active in the economy.

  5. Oh look, ballooning super costs, quelle suprise. Every millenial has known that it wouldn’t be around for us in anything resembling its current form. Most likely Boomers will maintain it as long as they practically can but still manage to tear the whole ediface down in plenty of time before it’s available to younger generations, like they’ve done with practically every other institutionalised source of wealth. (That’s not to say that every Boomer supported this sort of intergenerational warfare, just that it’s the reality that a majority of them did)

    As for the rest of the post- this is why I have been insisting that this election is Labour’s to lose. They’ve got close polling, a highly competent coalition partner that they are actually unified with now, no rebellious caucus to sabotage things, all they need to do is give a coherent campaign to New Zealanders who want some economic and social security in their lives, some positive ideas from Government that will make things easier for them. They know National aren’t offering them, but they haven’t been convinced yet that Labour will.

    • Draco T Bastard 5.1

      Labour’s still of the belief that the market will provide.

    • KJT 5.2

      Funny that millenials out number boomers in voting National.
      As for “we cant afford super” is basically saying we cannot afford old people.
      A mantra which those who want to privitise superannuation have been repeating for 50 years, until even those who should know better repeat it.
      As if the resources to feed and house old people will magically disappear if we don’t feed the finance industry.

      The fact is, that taxes are too low for a sustainable society.
      The tax switch gave too much money to the wealthy and not enough invested in New Zealand.

      • Andrea 5.2.1

        People in many countries, including this one, are proposing a Universal Benefit.

        That’s what Super is, surely?

        And as for wailing about ‘can’t afford it’ – we’d better afford it if we want to keep small towns and enterprises going.

        Most of those Evil Boomers on a Freebie pension, plus their undead parents, help make up the numbers and revenue streams/cash flow for the hilariously-named ‘health’ services, plus public transport, and supporting businesses.

        And, the silly old twits do Free Stuff – such as raising grandkids, volunteering, helping others out, or even working at jobs no one else wants at pay no one else would accept. All that for less than the Adult Minimal Wage – around $700 a fortnight for a single person sharing accommodation.

        If it is cut – would each separate ‘we can’t afford it’ moaner tell us in glowing terms about Soylent Green; or how we will see the oldies through to their increasingly unaffordable funerals and graves?

        • Super isn’t a universal benefit.

          Super is an age-based benefit. It still incurs a lot of the “gatekeeping” costs a UBI avoids because we need to check age for eligibility, so the best thing to do with Super is to simply set the benefit of the UBI at a level comparable to NZ Super, and then disestablish the entire Super infrastructure, so that lowering the UBI benefit by necessity will anger seniors and encourage them into political solidarity with the rest of the country, rather than simply voting in their own interests the entire time.

          A UBI by comparison doesn’t need to check anything as the most efficient way to handle it generally just piggybacks a payment method onto IRD, then you get paid the benefit less the income tax amount indicated by PAYE information sent onto IRD. (which coincidentally means that employers paying people who are net UBI beneficiaries wouldn’t even need to bother with tax deduction, further simplifying things for what could be a rather large segment of the workforce under a UBI with a benefit comparable to Super)

          Boomers have largely been net beneficiaries as a generation. They had largely free tertiary education, they actually got paid for it if they did well in secondary school, they were better off in the workforce than the generation before them and any generation before that, and they’re also probably going to be the wealthiest generation in modern NZ history, wheras Gen X and Millenials will, by and large, need to inherit from Boomers to even compete in the wealth department, and for Millenials even affording a mortgage often means you’re doing very well, in a generation where most people are simply measuring how many figures are still in their student loans.

          I don’t mind giving boomers free stuff when it’s both a good policy idea and an equitable distribution of society’s resources. What I mind is that they have continuously been some of the biggest net beneficiaries of government policy, and then they begrudge it to the rest of us any treatment that’s even remotely similar, and think we’re benefit bashers or that we don’t understand the real world when actually things have been going downhill for the generations that came after them.

          They’re not inter-generational thieves, they’re just a generation that has an outsized share of people who are selfish and out-of-touch, and ruining it for the Boomers who actually get it, of which there are actually plenty, just not enough to stop political parties from pandering to a “middle class” that in reality usually means baby boomers.

      • Draco T Bastard 5.2.2

        As for “we cant afford super” is basically saying we cannot afford old people.

        Same applies to a UBI. By saying that we can’t afford it is saying that we can’t afford the population that we have.

        When we fully extend the complain that we can’t afford something it most often translates to we cannot afford the poor but it’s only the rich who are saying it and it’s truly the rich that we cannot afford.

      • I agree with you that the tax base is too low. We could afford a comparable UBI to Super today (which also means as a benefit we can phase out Super and any difference can be moved into whatever successor agency we develop for WINZ as part of the UBI policy) if we implement a couple of extra taxes (say, a CGT and a financial transaction tax) without any other new spending, and we could even afford that while still doing the flat tax a lot of the Right want to come with it. I think Super is absolutely the right policy direction, I’m just shocked that it’s this huge political priority compared to other important things we could be doing with the money. Seniors are an incredibly well-serviced demographic in New Zealand, and while they still have problems and concerns, those problems are over-resourced compared to the problems of every other age demographic.

        My cynicism about Super is more that it’s going to be sacred until Boomers are largely either fiscally OK or already dead, THEN they’re going to reform it so that it won’t be around for Gen X. If Gen X gets Super in its current form for any siginificant time I’d be mildly surprised, but it’s millenials who definitely will not benefit from any policy that resembles today’s Super. I support keeping it, I just don’t believe we’ll keep it.

        • KJT 5.2.3.1

          They were saying the same things 40 years ago. “That super was unaffordable and our generation would not get it”. Of course, then, as now, the finance industry was keen to privatise it.

          We still have super.

          Several of the memes about boomers are inaccurate.

          Just to mention one.

          The ‘free tertiary education” was not free. it was paid for by a 60% top tax rate which cut in at the level of Builders, Teachers, doctors etc.
          And it financed the children of the wealthy to go to university while the rest of us, who did not, paid the extra taxes.

          Only about 10% of boomers went to University. Less than 20% got the “free” tertiary education. including the hypocritical politicians.

          Though I agree the UBI should be extended to everyone.

          • Matthew Whitehead 5.2.3.1.1

            Um, not having to pay for something yourself directly is pretty much the definition of free. It was free to boomers, it wasn’t free to taxpayers as a whole. It was a better policy model to fund tertiary education through high-bracket income tax rather than student loans, as it allowed people to get an education in important subjects that didn’t lead to lucrative careers, but the people who benefited most from their educations paid back into the system for everyone else.

            It’s a fair point that less people went to tertiary education at the time, but that should only have reduced the per-capita costs. It’s also considered a virtual necessity in most fields to have some sort of relevant tertiary-level qualafication to hold down a middle-class job now, so it’s actually a much bigger deal that it’s so expensive (to students) to get one. So much for the myth that more education would make us all wealthier.

  6. Wayne 6

    Disaster in 2060! And there is only 15 elections before then!

    Nothing can be done! It is all John Key’s fault!

    I wonder how relevant we would consider Treasury forecasts made in 1971 are to the present. Because 2060 is 44 years from now.

    There are many, many choices that can be made before then, and many, many unknowables.

    While I think forecasts out to say 2030 are pretty important to current planners, it seems pretty hard to worry too much about the right tax and spend mix 45 years from now, or even 30 years from now.

    Too many immediate things can happen. A decade of surpluses (1998 to 2008) can turn into deficits because things happen such as huge spending commitments and the GFC. That has taken 6 years to work through to get back to surpluses. And commenters on this site have protested at every single measure that was used to get back to surplus.

    It is a bit different for policies that have much longer time frames, for instance planting forests, climate change, long term savings. But most things are not in that category.

    • Incognito 6.1

      Don’t’ be so melodramatic and disingenuous Wayne.

      Brian Fallow was very clear and upfront about the assumptions and potential errors underlying Treasury’s forecasts and did not once mention John Key and neither did the OP.

      Gabriel Makhlouf wrote that New Zealand needs to buffer itself against future shocks by being adaptable and resilient. Treasury uses evidence-based information and options as one possible way to achieve this goal.

      Fallow writes:

      This [the Government’s “social investment” approach] is the idea that early and well targeted interventions can improve the life prospects of the most vulnerable children. That is not only desirable per se, but should save the taxpayer money in the long run.

      This makes immanent sense to me but John Key labels it “nonsense”!?

      National has just entered its ninth year in Government and cherry-picks its way through facts & evidence whilst distorting & obfuscating the truth and making panicked policy on the hoof AKA John Key’s infamous “pragmatism”.

      John Key has been PM for over 8 years but with infantile stubbornness refuses to even debate the looming superannuation problem, for example. He does not want to measure child poverty because it is too hard!? He does not want legalise assisted suicide because some National MPs are against it!? I could go on for hours …

      • Wellfedweta 6.1.1

        “This makes immanent sense to me but John Key labels it “nonsense”!?”

        No, he didn’t. The social investment approach is one of his own governments policies.

        • Incognito 6.1.1.1

          John Key called the medium-to-long-term predictions by Treasury “nonsense”.

          So far, so familiar. What is new about the latest Treasury projections is the consideration given the long-run fiscal savings from the Government’s “social investment” approach.

          Modelling the net fiscal gains, driven mainly by lower lifetime welfare and justice system costs, is tricky, officials concede. They consider a range of scenarios.

          So, what you’re trying to tell me, I think, is that John Key is supportive of long-term policies by his own Cabinet but not supportive of the modelling by Treasury that underpins these policies!?

          You’re going to have to do much better explaining this or you could just make a Key-hash job of it.

          • wellfedweta 6.1.1.1.1

            You are either dishonest or stupid.

            I will quote your post directly:

            “Fallow writes:

            This [the Government’s “social investment” approach] is the idea that early and well targeted interventions can improve the life prospects of the most vulnerable children. That is not only desirable per se, but should save the taxpayer money in the long run.

            This makes immanent sense to me but John Key labels it “nonsense”!?”

            So, you claimed Key denied that the governments social investment approach was desirable. He didn’t. You got it wrong.

      • Nic the NZer 6.1.2

        “Treasury uses evidence-based information and options as one possible way to achieve this goal.”

        Ba, ha, ha, ha, ha! Its certain that these (and other) treasury forecasts are based on some kind of ‘equilibrium’ model of the economy. Equilibrium is a state that the economy supposedly reaches if you start from what ever state the economy is in, and then make no changes to or surprises about in the economy going forward. In that circumstance eventually (maybe infinitely far in the future, maybe sooner) the economy is supposed to reach equilibrium. The issue about evidence here is that the state your measuring or using for evidence doesn’t actually occur in the real world. The other issue(s) being that there is little evidence that equilibrium is where the economy is actually heading to begin with, and that the assumptions are so un-realistic and they are absolutely essential to the conclusions.

        Is this evidence based forecasting? Or is it repeating variations on the same kinds of nonsense since forever?

        • Colonial Viper 6.1.2.1

          These people are so sucked into this parallel universe reality that it does not even occur to them to ask the basic question: why are you still giving credence to these false tarot card and palm readers who call themselves “bankers” and “economists”.

        • KJT 6.1.2.2

          Economists are the modern version of chicken entrails.

    • Wellfedweta 6.2

      Agreed. Forecasts out that far are meaningless, particularly as they are based on no changes to existing policy settings. I really do wonder why Treasury wastes money on this nonsense.

      • The Chairman 6.2.1

        Perhaps it’s a further attempt to scare us and soften our stance on excepting cuts to welfare/super etc…

    • KJT 6.3

      Just as well National wasn’t in power in the 9 years preceding the GFC.

      Their tax cuts, selling off income earning assets, borrowing for election bribes and support for offshore business, would have ensured New Zealands bankruptcy, by now.

  7. Cinny 7

    OK so if this is the case.. “What the Treasury officials do is take existing policy settings as given, then make projections”

    Can someone please explain if part of the surplus is created from bogus predictions for state housing sales that haven’t and don’t appear to be happening? Or other intended asset sales?

    • KJT 7.1

      Obviously they are saying that if we continue with Nationals policy settings it will be a disaster.

      We knew that already!

  8. The Chairman 8

    While Key largely disagrees with Treasury’s conclusions, it presents another opportunity for Labour to tell voters exactly what they will do to overcome the challenges going forward.

    Step up Little and sell it well.

  9. Colonial Viper 9

    All the lefties here still pretending that projected electronic digits circa 2060 mean something?

    Tell you what, let’s stop our financial sector exporting $5B in cash to foreign investors every year. Would that help?

    Maybe people think that is too radical for many lefties to seriously consider. I mean, the NBR would be outraged!

    How about reducing the import of items that we can make for ourselves here in NZ? NZ has done it before and it could do it again.

    Not to mention slashing the import of fuel by 50%.

    Both steps would do wonders to reduce our trade deficit.

    But again, perhaps that is too radical for many lefties to consider.

    So what shall we default to doing instead? I know, let’s impoverish the financial position of the elderly, of family households and of small businesses in NZ, so that the public sector books look better.

    To push the Crown’s accounts further into the black, we can shrink education and health budgets too. Wonderful!

    Awesome solution!!!

    Should it surprise anyone that tying the entire nation into an orthodox (neoclassical) monetary system will lead to situations where the entire country ends up in hock to big foreign lenders, who end up profiting handsomely while we sensibly slash benefits to Kiwis and apply austerity.

    In reality, the NZ government never need run out of the NZ dollars it can issue into the economy via strokes of a keyboard.

    Unless of course we choose to construct and operate a system where the only place the Government can get money from is from foreign lenders and from taking it from Kiwis’ savings and their retirement income.

    But again, I suspect such thoughts are far too radical to consider.

    • Gosman 9.1

      You fail to understand the point of foreign trade. Your suggestion is the economic equivalent of shooting yourself in your foot to encourage you to run faster.

  10. The Chairman 10

    While trade can produce benefits. It’s the selling of assets into offshore hands that is detrimental.

    Effectively, it results in offshore owners exporting our once owned resources to themselves while reaping the majority of the return. As we work harder and harder to stay afloat.

    Hows that for shooting yourself in the foot.

    • Gosman 10.1

      Except you fail to take in to account the importance of capital in driving economic growth. You simply see investment as a means to extract profit not to grow it.

      • The Chairman 10.1.1

        There is no denying investment can add to economic growth. But the core point of investing is to generate a return.

        And it’s the return going offshore that’s bleeding us dry.
        http://www.rbnz.govt.nz/statistics/key-graphs/key-graph-current-account

        • Gosman 10.1.1.1

          Countries which make foreign investment harder don’t tend to do better than countries that are more open to it. Taking extreme examples like Zimbabwe highlights this. Ask yourself why can’t nations like Cuba develop their own tourist sector without foreign investment?

          • The Chairman 10.1.1.1.1

            Relying on offshore investment is an easy way for governments to stimulate economic growth. And of course merely viewing the signs of growth without taking into consideration who is largely benefiting from that growth is shortsighted.

            Therefore, while we can boast we have good growth in comparison to other nations, one only has to look at who is largely benefiting from that growth to see our shortcomings.

            Therefore, the challenge isn’t merely getting harder on offshore investment alone, but to also look how we can fill that local investment void.

            This is where the Government and local private sector has to step up to the plate.

            • Gosman 10.1.1.1.1.1

              First off it isn’t really the job of government to fill gaps in investment in the productive sectors. If the private sector in a country is not investing in areas that foreign investors are you have to ask yourself why local investors are shying away. Having government doing it just takes money away from the privzate sector and thus makes it even more difficult to invest. It also reduces money from areas where government can really make a difference such as social policies.

              • I don’t think Chairman’s point is entirely about foreign investment so much as it is about privatisation of state assets and offshoring of profit.

                I don’t mind foreign investment so long as it results in an equitable amount of the profit being re-invested into New Zealand and being paid out as wages. It’s when everything goes to the multinational part of the business, or the CEOs get outsized shares, that it starts to look like loot-and-pillage capitalism.

                • The Chairman

                  It’s not only state assets. A number of our most lucrative sectors are foreign owned or dominated.

                  Capital controls preventing or limiting returns heading offshore would help. But we still lose local control.

                  The best interest of offshore owners seldom aligns with whats in our own local best interest.

                  • Gosman

                    What basis do you stop individuals in NZ selling their control in something to the highest bidder?

                    • The Chairman

                      You make it policy, campaign on it and put it to the voters. Giving one the overall mandate to set the rules.

                  • Hence “entirely.” I agree with the thrust of your point, I’m just saying we don’t necessarily even need to kick the investors out or make it difficult for them. We just need to set the rules so that it encourages reasonable re-investment, which means we can then rely on their self interest.

                • Gosman

                  Who decides what equitable is? I presume you want some government controlled agency to do this job.

                  • Agency? Nah, I’d be happy with a tax hike on all corporations that don’t spend a significant proportion of their revenue on re-investment and/or wages. That’s simple to administer, and punishes home-grown parasites just as badly as multi-national parasites. We only need Parliament to do that, not an agency.

                    I say “equitable” and “significant” because it’s a matter for party policy committees to work out, after they’ve actually researched it and come up with a balance that doesn’t overly hurt business, but still functions as a sufficient stick.

                    If we’re going to have corporate tax loopholes, they should be loopholes that actually encourage ethical behaviour.

                    • Gosman

                      Who determines if a company is meeting the ‘significant’ and ‘equitable’ targets that some policy committee sets?

                    • IRD as part of calculating corporation tax, please read a post before you repeat verbatim a question that I directly answered.

                    • Gosman

                      An organisation that can’t collect 5 – 6 billion worth of tax every year according to some estimates is going to be able to determine if people are meeting reinvestment and wage targets. Good luck with that.

                    • McFlock

                      If we can’t do it perfectly don’t attempt it? Is that your excuse for being a moral vacuum?

                    • We don’t need IRD to do all the legwork. You make the punishment rate a general rule and then people submit evidence they qualify for an exemption down to the current rate, which means that if they get it wrong it’s more likely to be erring on the side of collecting too much tax.

                      Besides, it’s less about the revenue in that particular case and more about corporate incentive to actually build our economy.

              • The Chairman

                “First off it isn’t really the job of government to fill gaps in investment”

                How did you come to that conclusion? Is it ideological?

                If the private sector in a country is not investing in vital areas, of course it’s the Government’s job to help fill that void.

                There are numerous reasons why the private sector won’t or can’t step up. In NZ’s case scale is a factor. Our economy is largely made up of SMEs.

                “Having government doing it just takes money away from the private sector…”

                Not if the private sector is unwilling or unable to fill that void.

                “It also reduces money from areas where government can really make a difference such as social policies.”

                Return from investments helps government broaden their revenue stream. Ultimately giving them more to spend. Or providing them with the fiscal capacity to cut taxes going forward. Whilst further stimulating and growing economy. Helping them to create more work and opportunities for the private sector.

                • Gosman

                  If domestic private individuals and businesses are not investing in an area of the economy then the reason is either because they aren’t interested in the area or aren’t capable. In either case it makes more sense to allow foreign capital to take the risk if they are willing to do so rather than force people to do so via the State.

                  If it is because they are unwilling to invest then the prospective rewards are not sufficient to entice them in and therefore the risk to the State is likely too high.

                  If they don’t have sufficient capital or skills then it is unlikely the government will be able to have the sufficient skills either and getting together the sufficient capital will just take it from other areas where it is likely needed more.

                  In both those cases if a foreign investor wishes to take the risk with their own money why are you trying to stop them?

                  I will ask you the question again – Why wouldn’t the private sector in NZ be able or willing to invest in the key areas of the economy you think they should?

                  • The reason is quite often that individuals aren’t capable or that their investments are locked up in retirement schemes. It’s perfectly reasonable under the circumstances of a market failure or simply a recession for the government to do some investing, there’s a long history of it working out quite well for everyone, in fact.

                  • The Chairman

                    “In either case it makes more sense to allow foreign capital to take the risk if they are willing to do so rather than force people to do so via the State.”

                    While it allows foreign capital to take the risk, it also allows them to reap the rewards. Robbing us of the opportunity and the resources (which tend to be limited).

                    “If it is because they are unwilling to invest then the prospective rewards are not sufficient to entice them in and therefore the risk to the State is likely too high.”

                    Not necessarily. As most lack the scale and resources of the state, they may not be best suited to make it work. For example their higher cost of borrowing (opposed to that of the government) may make unfeasible, hence their unwillingness.

                    When it comes to skills, the government can ensure the required training course are provided to up-skill the masses.

                    Any immediate skill requirements can be brought in or hired temporarily to meet the short-term shortfall.

                    The Government still has the capacity to borrow above and beyond what’s required to maintain other areas of expenditure.

                    And as the Government has more resources available to them, such as excess land, buildings etc.. they may not have to borrow as much.

                    “In both those cases if a foreign investor wishes to take the risk with their own money why are you trying to stop them?”

                    As explained throughout our discussion, what you are advocating for is largely what we’ve been doing since the Douglas reforms and it’s just not working out for us.

                    We haven’t had a current account surplus since 1973 (see earlier link above).

                  • KJT

                    Without State investment Gossie, we would have no export markets. Look up the origins of all our largest companies.

                    And our infrastructure.

                    All started with State investment and protection. Fonterra being the prime example.

  11. Nic the NZer 11

    Something about this area completely flummoxes supposed left wingers, and causes them to become raving ACT bigots (for whatever reason).

    Firstly we should start by pointing out that Treasury forecasts are good to the nearest Billion dollars or two over a quarter (that would be not very accurate), so what ever they say is going to happen in more than 40 years is in all probability completely irrelevant! That applies even when treasury appears critical of the Government!

    The major point here however is that cutting back spending to avoid a deficit (or taxing yourself to surplus) is typically an effort to reduce government participation in the economy. Also (incontrovertibly by accounting) every dollar of surplus reduces non-government savings by a dollar (exactly). This didn’t stop the prior Labour government from running half a decade of surplus, and the corollary the prior Labour government oversaw a substantial fall in NZ’s savings rate. Never the less apparently its every left wingers primary demand that the government now must focus on running a surplus extracting more potential savings from the private sectors hands (at exactly a time when the private sector started to lower its debt and increase its savings rate). Also from what I can observe from the commentary this is the primary focus (the forecast decade of deficits must be made a lie) and any spending ambitions must be put on hold even for a potential Labour government. So according to our narrative then the government should be taking savings out of the economy, and at the same time a more desperate game of musical savings is supposed to happen in the private sector which should (on top of a dwindling pool of available savings) be stocking up for its retirement!

    Further the question about the Treasury forecast is, if it comes to pass what exactly is the harm? It would appear that the harm is that a certain generation of New Zealanders are able to afford their retirement, and another generation or two will be able to earn a living providing that to them. The ‘solution’ proposed is instead that one generation should be forced into a late retirement, starved of income and un-able to afford such a retirement and at the same time the income opportunity for other generations should not be created. In this scenario we should really be referring to the retirement ‘solution’ as the proposed problem. We have enough problems already, we don’t need any more created by the polity.

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