Who would have thought that austerity would stuff up the economy

Written By: - Date published: 1:48 pm, December 18th, 2024 - 47 comments
Categories: economy, national, nicola willis, treasury - Tags:

The HYEFU has been released and the results are pretty ugly.

There is a big dent in the tax take with tax revenue estimated to be down $13 billion over a four period. Who would have guessed that putting the handbrake on construction and infrastructure projects and culling tens of thousands of public service jobs could have resulted in this?

And borrowing for tax cuts for landlords will mean that core crown debt will go up. And I thought these cuts were meant to be fiscally neutral.

The return to surplus has been put off by a couple of years.

And the Government is trying to skewer the statistics by excluding anticipated increases in ACC liabilities from the calculation of the OBEGAL which shall from now be known as the OBEGALx. It will remove ACC deficits from the calculation and make the figures better.

Treasury has opposed the move and the opposition have accused her of creative accounting.

From Radio New Zealand:

“She’s adopting a measure entirely of her own creation in order to try and make the deteriorating financial situation that she has created look less bad than it is,” Labour leader Chris Hipkins said.

“This appears to be an attempt at creative accounting, to make things appear better than they are, in terms of what the government’s exploring there,” said Green Party co-leader Chlöe Swarbrick.

Labour’s Barbara Edmonds has pointed out that overseas the experience is that Austerity does not improve GDP growth.

From Radio New Zealand:

“If you have a look at the budget policy statement, it continues to say there will be more spending cuts and there will be more to come in the future,” she told Morning Report.

“So, she’s only left $700 million available at her next budget to pay for everything outside of health.”

Edmonds doubled down on her claim it is an example of austerity, and pointed to previous governments’ debt trajectory.

“Not just Labour the last term, but you look at National, the government borrowed for crisis, for the GFC, for the Canterbury rebuild, for Covid, that’s why governments have borrowed, she said.

“This government has borrowed for tax cuts, interests deductibility, tobacco tax breaks.”

Instead, Edmonds wants to see continue investment house building programmes, hospital upgrades, and infrastructure, instead of borrowing for tax cuts.

Meanwhile Nicola Willis Willis has promised more austerity. The beatings will continue until morale improves.

She is also yet again trying to blame the last Government.

Which is really odd because the deterioration is from her budget figures presented earlier this year.

This shows yet again that the right are appalling managers of the economy. Even if they think that they can do no wrong.

47 comments on “Who would have thought that austerity would stuff up the economy ”

  1. SPC 1
    18 December 2024 at 3:45 pm

    AbigailX, sounds like a dancers private address.

    We certainly need a sugar plum fairy, rather than the continued trashing of the public service, the wider economy and the misallocation of resources.

    ACC contributed $4.1b to the obegal deficit in the past year – a third of the total. Treasury reckons if Crown Entities were excluded, the obegal would be better off by about $4.6b a year.

    Willis told a select committee this month to expect an update at the HYEFU. If the metric is changed, expect the Opposition to attack the Government for “shifting the goalposts” to make hitting a surplus easier (Treasury was against the idea when it was floated in 2021).

    https://archive.li/knqln#selection-3959.0-4018.1

    Her excuse

    This is to avoid incentivising unnecessary and unhelpful short-term decision making.

    “Ministers should not be raising taxes or reducing public spending to compensate for ACC deficits in pursuit of a short-term surplus target.

    https://www.beehive.govt.nz/release/financial-measure-and-capital-allowance-updated

    Of course it is her own Captain Ahab like obsession with getting to a budget surplus (and using the wrong approach), that is the reason why she removed the item from the books.

    Reply
  2. SPC 2
    18 December 2024 at 3:48 pm

    The other change could be the end of the multi-year capital allowance (MYCA). This was a tool created under the last Labour Government to reflect the fact that capital spending is often lumpy and it made little sense to allocate annual capital funding when rolling, multi-year funding would better reflect how this money was spent.

    Willis argued that in practice, the allowance was topped up by large amounts each year and often depleted, fuelling “gross amounts of spending”. She suggested in Parliament last week that it was not long for this world.

    Allowances tend to be signalled at the BPS so if the MYCA were to be scrapped, this would be a logical place for it. Labour may attack the change as an attempt to reduce capital spending on infrastructure in a bid to get on top of borrowing.

    Accurate, Willis now talks of infrastructure done cheaper (as per the Dunedin hospital etc).

    Again from

    https://archive.li/knqln#selection-3959.0-4018.1

    Reply
    • SPC 2.1
      18 December 2024 at 4:13 pm

      The reason for the multi-year capital allowances was to synch the process with the 5 yearly reviews

      Infracom will work with central and local government, the private sector, iwi and other stakeholders, and develop a 30-year infrastructure strategy that will replace the government's current 30-year plan.

      The first plan will be reported to government by the end of 2021 and thereafter at least every 5 years. The strategy will cover the ability of existing infrastructure to meet community expectations; current and future infrastructure needs and priorities; as well as any barriers which could impede the delivery of infrastructure or services arising from it.

      The Treasury now monitors the performance of Infracom and provides advice to Ministers on the Commission's long-term infrastructure strategy and its other recommendations.

      On 29 January 2020, the Prime Minister announced a $12 billion package of infrastructure investments to be known as the New Zealand Upgrade Programme. In its quarterly update of the infrastructure pipeline in March 2020, Infracom said that it had incorporated nearly $7 billion of New Zealand Upgrade programme projects, bringing the estimated total value of the works pipeline to $33.2 billion. 

      https://en.wikipedia.org/wiki/New_Zealand_Infrastructure_Commission

      Reply
  3. adam 3
    18 December 2024 at 4:05 pm

    Who would have thought that austerity would stuff up the economy

    Me, before the election.

    Open class warfare, the corporations need their greed feed and we are in the way.

    Reply
  4. Higherstandard 4
    18 December 2024 at 5:00 pm

    No government has been prepared to make the structural changes to NZ tax, welfare, health spend and superannuation that are required to address the cluster of icebergs that is waiting to sink NZ.

    Reply
  5. Macro 5
    18 December 2024 at 6:47 pm

    She is also yet again trying to blame the last Government.

    Which is really odd because the deterioration is from her budget figures presented earlier this year.

    This shows yet again that the right are appalling managers of the economy. Even if they think that they can do no wrong.

    QFT

    Am currently in Oz. Heard on the radio here the other day of a family recently returned to Oz (Sept 24) after attempting to return back to their homeland NZ. This is the second time they have fled NZ (first in 2011) went back in 2020. But again a Nat led govt has made life so difficult they have had to leave. Same for my family here – they are now Oz citizens and no way are they returning back home.

    Reply
  6. Ad 6
    19 December 2024 at 11:57 am

    This is a serious crisis.

    At negative 1% GDP growth for the last year, unemployment is going to skyrocket.

    Many of our nieces, nephews and rellies are coming out of high-school or Uni and there's just nothing for them right now.

    Any job opportunity we can introduce them to in this next 2 months is precious to them.

    Reply
    • Gillian 6.1
      30 December 2024 at 6:11 pm

      plenty of jobs coming onstream – mining, charter school teachers, cotton picking …

      [Support your claims with some evidence, e.g., how many teacher positions are “coming onstream” for charter schools. You’re starting to sound like a troll – Incognito]

      Reply
    • lprent 6.2
      30 December 2024 at 9:29 pm

      Currently, I keep hearing 'expert' predictions of unemployment peaking middle of next year.

      Can't see it. There appears to be nothing happening in the NZ economy in local business or export profits. I am anticipating that inflation is going to level out. Interest rates will drop and there will still be nothing local worth investing resources or effort into.

      The government can't even stimulate the economy because they locked themselves into a austerity drive.

      What they are relying on is outside investment for their building infrastructure projects. But I can't see the returns in it for investors when they can look forward into a stagnant demographics of a rapidly aging population.

      Reply
  7. Ad 7
    19 December 2024 at 12:02 pm

    This is going to last for years and years. Akin to 1983-1990 with large scale industrial collapse, but without Visa rates at 22%, second mortgages at 27%, or sharemarket crash.

    Nor any trade partner uplift from Australia, China, or UK. Other than tourism to specific regions.

    Unless one has massive Kiwisavers, we are all about to get our individual futures altered.

    Reply
  8. The Real Matthew 8
    19 December 2024 at 12:19 pm

    Austerity?

    Willis is spending more than Grant Robertson and running a $14 billion annual deficit. The problem is not a lack of government spending.

    Reply
    • Michael Scott 8.1
      19 December 2024 at 12:32 pm

      Economist Robert MaCulloch published the Treasury Table Forecast Statement of Cash Flows with sharp commentary.

      This shows that National is proposing to borrow at least as much and probably more than Labour.

      https://www.downtoearth.kiwi/post/yes-labour-recklessly-borrowed-100-billion-national-s-now-doing-the-same-how-finance-minister-wi?postId=1e995109-fc15-4527-97ab-4e442e4ab556&utm_campaign=d12123ca-0c29-4ad1-bfea-74291d7f8a30&utm_source=so&utm_medium=mail&utm_content=c25a9910-fab4-498a-9c90-fdbd006cfcb1&cid=84b14b2f-1514-44a1-920e-2a9e5d2eb416

      Our children and grandchildren are going to be left servicing all of this debt if we can't cut costs or raise substantial new taxes.

      Reply
      • SPC 8.1.1
        19 December 2024 at 1:04 pm

        The C of C NACT planned to get money off foreign property buyers (stamp duty). They did not compensate for this not going ahead (when they needed NZF to rule).

        1.5% stamp duty on locals buying property over $2m (similar to the Oz rate at that value).

        2.progressive tax on companies – rate of 33% for large banks (form of windfall profits tax used in the USA on larger corporates until Trump).

        That part done. And not hard.

        3.1% mortgage surcharge on landlords owning an existing property (rest of mortgages zero rated).

        A new way to incentivise sale and investment in new builds. Economic growth and falling property values, what is not to like?

        4.Move towards the international tax regime standard.

        a.bright-line test (CGT) on rental property, no time limit. No avoiding it.

        b.1% pa wealth tax (over $2m). The money paid in, a credit on future estate tax liability. To increase income flows now.

        c.gift duty restored (removed by Key)

        d.estate tax brought in now (removed by Richardson).

        Then it is possible to maintain public services and invest in the infrastructure of a first world modern nation state.

        Reply
        • Tony Veitch 8.1.1.1
          19 December 2024 at 4:47 pm

          But what they'll probably do is raise GST to 20%!

          A regressive tax that hits the bottom feeders harder than the elite – so in the CoC M.O.

          Reply
      • Incognito 8.1.2
        19 December 2024 at 1:14 pm

        Our children and grandchildren are going to be left servicing all of this debt if we can’t cut costs or raise substantial new taxes.

        Such selective biased bollocks!

        Whose children and grandchildren are you talking about? The rich’s offspring will inherit the asset and other wealth tax-free and will still pay less than their appropriate share in overall tax.

        Why didn’t you mention lifting productivity that could and should cover a large of the tax bill through company taxes?

        Essentially, you’re fear-mongering that the average Kiwi will have to carry the heavy load of the tax burden, and the irony of that truth is grating.

        Reply
    • SPC 8.2
      19 December 2024 at 12:44 pm

      Economics is not accounting.

      Reply
    • Barfly 8.3
      19 December 2024 at 4:48 pm

      Borrowing Billions for 'tax cuts' and 'landlords dignity' = corrupt idiocy

      Reply
  9. cathyo 9
    19 December 2024 at 12:24 pm

    Who would have thought?

    So Austerity takes money out of circulation. I guess there could be times when that is appropriate, but during or causing a recession is not one of those times

    Reply
    • Barfly 9.1
      19 December 2024 at 4:52 pm

      I think Muldoon used to call it "the velocity of money" as in the amount of times money would be spent and respent in an economy – now austerity, mass layoffs and "saying the sky is falling" pushes that velocity and economic activity down.

      Reply
      • Craig H 9.1.1
        19 December 2024 at 5:04 pm

        That's the technical economics term for it, and is also why more money to the poorest e.g. beneficiaries has the highest multiplier effect, because they spend it as they get it.

        A simple example around tax multipliers is buying milk means GST immediately flows back to the gov't, some of the money goes to buying the milk from Fonterra who bought it from farmers, so all the staff along the way pay PAYE and then GST on items they buy with their wages etc.

        Reply
      • thinker 9.1.2
        20 December 2024 at 7:40 am

        We learned about that in Economics 101.

        The government makes a dollar and puts it into circulation. Then, each time the dollar changes hands, tax is paid back until, after so many circulations, all of it has returned. I think from the government point of view, each time the dollar changes hands it is only worth what is left after the last lot of tax was taken off, so we are counting the number of times until the whole dollar has returned and you can never get more than the original dollar back.

        It still confuses me, but I do remember the accompanying message very clearly, that things like this made managing the government books very different from managing household or business budgets, and governments that drew more than a passing comparison were either naive or playing on the general publics naivety.

        As I recall.

        Reply
  10. observer 10
    19 December 2024 at 1:17 pm

    It's amazing how much the received wisdom is set in stone, resisting all evidence. "Trust the Nats, they always do money good. Forget history …".

    If Ardern were still PM she would now be lambasted by "experts" for not having the great financial wisdom of a great business mind like … well, Christopher Luxon. Make him PM, he'd know what to do!

    Whatever failings the last lot had (and they did), you'd have to wear bright blue blinkers not to see that this lot have chosen the wrong medicine and the patient is getting sicker.

    But Luxon is the politician of the year (Barry Soper … yes, seriously). Amazing.

    Reply
  11. Mike the Lefty 11
    19 December 2024 at 1:26 pm

    When you've spent the previous 3 years talking down the economy, you shouldn't be surprised if it becomes a self fulfilling prophecy.

    That means YOU National and your relentless negativity.

    YOU are responsible, and yet you blame everyone else.

    Reply
  12. SPC 12
    19 December 2024 at 5:04 pm

    The problem that Treasury and the C of C may have to face is this.

    Those on floating rates and others renewing their term loans and thus having lower repayment costs, may not spend the money.

    Many will consider saving the money because of the risk one of them will lose their job. This saving might tide them over till a new job is found.

    Such is their household accounting (provision for a risk) and the impact of this on the wider economy – this is what the move to a more market orientated small government economy looks like.

    Reply
    • Craig H 12.1
      19 December 2024 at 5:11 pm

      That's exactly what happens and is why recessions can take years to properly break out of if they are deep (and individual economic scarring can be unrecoverable).

      Reply
  13. Mike the Lefty 13
    19 December 2024 at 5:17 pm

    Recession caused by National's reckless spending and borrowing.

    Spending for tax cuts to landlords and for the rich which the country couldn't afford.

    Unnecessary multi-billion dollar highways, tunnels and by-passes.

    That is the REAL reckless spending.

    Spending to keep people alive and employed is not reckless spending and for National and ACT to say it does should consign them to a special place in hell.

    Reply
    • James Simpson 13.1
      20 December 2024 at 10:12 am

      The tax cuts have evidently been reckless and plain stupid.

      But what multi-billion dollar highways, tunnels and by-passes have been done? They are talking about it but not has been delivered has it?

      Reply
      • SPC 13.1.1
        20 December 2024 at 10:57 am

        AI Overview

        • 2024–2027 National Land Transport Programme
          The National Land Transport Programme (NLTP) is expected to manage $32.9 billion in funding from various sources. This is a 35% increase from the 2021–2024 NLTP.
        • 2024 Budget
        • The 2024 Budget includes a $2.68 billion investment in roads, rail, and public transport. This includes $1 billion to speed up the delivery of the Roads of National Significance and major public transport projects.
        Reply
  14. Lesley McLachlan 14
    23 December 2024 at 8:42 pm

    "Government is trying to skewer the statistics by excluding anticipated"

    skewer -> skew

    Reply

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