National, The Economy, and coming Speed Wobbles

By   /   February 23, 2014  /   59 Comments

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For a while, the news seemed dire for the Left, and impressively positive for National;

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The Nationalmobile

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For a while, the news seemed dire for the Left, and impressively positive for National;

  • A recent Fairfax Media-Ipsos poll put National on 49.4%  versus  31.8% and 10% respectively for  Labour and the Greens.
  • The latest Roy Morgan Poll had National at 48%, compared to 30% and 12% for Labour and the Greens respectively.
  • Annual average economic growth  was 2.6% to September 2013.
  • The Household Labour Force Survey for the December 2013 Quarter showed a drop in unemployment, from 6.2% to 6%.
  • Dairy prices (and thusly export reciepts) continued to rise.
  • The trade deficit continued to slowly improve.
  • And there was just enough ambiguity around recent child poverty statistics to allow National, and it’s drooling sycophants,  to claim that it was no longer a  growing problem (it was simply a constant problem).

However, is everything as it really seems? Is the news all rosy and are we rushing head-first toward the “promised land“, the much heralded, Neo-liberal Nirvana?

Or, are dark clouds beginning to appear on the horizon?

New Zealand’s economic recovery is predicated mostly on the Christchurch re-build, and piggy-backing on the global economic situation picking up. As Treasury reported in 2012;

The Canterbury rebuild is expected to be a significant driver of economic growth over the next five to ten years. The timing and speed of the rebuild is uncertain, in part due to ongoing aftershocks, but the New Zealand Treasury expects it to commence around mid-to-late 2012.

As predicted,  the ASB/Main Report Regional Economic Scoreboard recently revealed that Canterbury had over-taken Auckland as the country’s main center for economic growth.

Meanwhile, the same report outlines that Auckland’s “growth” is predicated on rising house prices. Economic “growth” based on property speculation is not growth – it is a bubble waiting to burst.

The other causal factor for our recovery is international. The IMF reported only last month;

Global activity strengthened during the second half of 2013, as anticipated in the October 2013 World Economic Outlook (WEO). Activity is expected to improve further in 2014–15, largely on account of recovery in the advanced economies. Global growth is now projected to be slightly higher in 2014, at around 3.7 percent, rising to 3.9 percent in 2015, a broadly unchanged outlook from the October 2013 WEO. But downward revisions to growth forecasts in some economies highlight continued fragilities, and downside risks remain...

Being being mostly an exporter of commodities (meat, dairy products, unprocessed timber, etc), New Zealand cannot but help ride the wave of an upturn in the global economy as increasing economic activity creates a demand for our products.

Any economic recovery, as such, has little to do with the incumbent government – just as the incumbent governments in 2008 and 2009 had little to do with the  GFC and resulting recession (though National’s tax cuts in 2009 and 2010 were irresponsible in the extreme, reliant as they were on heavy borrowings from overseas). We are simply “riding the economic wave”.

As the global up-turn generates growth in New Zealand’s economy, paradoxically that leaves us vulnerable to new, negative, economic factors;

1. The Reserve Bank has indicated that  it will begin to increase the OCR (Official Cash Rate) this year.

Most economists  are expecting the OCR to rise a quarter of a percentage point on March 13. As Bernard Hickey reported in Interest.co.nz;

Wheeler said in early December he expected to raise the OCR by 2.25% by early 2016, which would lift variable mortgage rates to around 8% by then. The bank forecast interest rate rises of around 1% this year and a similar amount next year.

2. An increase in the OCR will inevitably flow through to mortgage rates, increasing repayments.

As mortgaged home owners pay more in repayments, this will impact on discretionary spending; reducing consumer activity, and flow through to lower business turn-over.

Even the fear-threat of higher mortgage interest rates may already be pushing home owners to lock-in fixed mortgages. Kiwibank for example, currently has a Fixed Five year rate at 6.9%. ANZ has a five year rate at 7.2%. Expect these rates to rise after March.

If home owners are already fixing their mortgages at these higher rates, this may explain the fall in consumer confidence, as the Herald wrote on 20 February,

New Zealand consumer confidence fell from its highest level in seven years this month, while remaining elevated, amid a pickup in inflation expectations and the prospect of interest rate increases.

It may also explain, in part, this curious anomaly which recently featured in the news cycle,

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Govt deficit bigger than expected as tax trickles in

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The Herald report goes on to state,

The smaller tax take was across the board, with GST 2.3 per cent below forecast at $7.5 billion, source deductions for personal income tax 1.2 per cent below forecast at $11.71 billion, and total corporate tax 4.9 per cent below expectations at $3.56 billion.

Treasury officials said some of the lower GST take was due to earthquake related refunds, and that the shortfall in Pay As You Earn might be short-lived. The corporate tax take shortfall was smaller than in the previous month…

  • A drop in GST would be utterly predictable if consumer spending was falling.
  • Personal income tax would be falling if employers were cutting back on part-time work available. Which indeed seems to be the case, according to the latest Household Labour Force Survey (HLFS) Poll on unemployment,

Over the year, the total number of under-employed people increased by 27,200 to 122,600. As a result, the under-employment rate increased 1.0 percentage points to 5.3 percent.

Less wages equals less spent in the economy and less PAYE and GST collected by the government.

  • This would also account for the drop in corporate tax take falling by  4.9%.

The effect of the Reserve Bank’s decision to begin raising interest rates will be to dampen economic activity and consumer demand. This will be bad news for National.

3. An increase in the OCR will inevitably also mean a higher dollar, as currency speculators rush to buy the Kiwi. Whilst this may be good for importers – it is not so good for exporters. If we cannot pay our way in the world through exports, that will worsen our Balance of Trade; in turn risking our international credit rating; which in turn can  impact negatively on the cost of borrowing from off-shore (the lower our credit-rating, the higher interest we pay to borrow, as we are considered a higher lending risk).

This, too, will affect what we pay for our mortgages and capital for business investment.

4. As economic activity and consumer demand falls, expect businesses not to hire more staff and for fresh  redundancies to add to the unemployment rate. Unemployment will either stay steady later this year, or even increase.

Less people employed or a reduction on work hours for part-time employees will also result in a lower tax take.

5. As interest rates rise, in tandem with the Reserve Bank’s policy on restricting low-home deposits, expect home ownership to fall even further. This will increase demand for rentals, which, in turn will push up rents. Higher rents will also dampen consumer spending.

6. As the global economy picks up and demand for oil increases, expect petrol prices to increase. This will have a flow-through effect within our local economy; higher fuel prices will lead to higher prices consumer goods and services. This, in turn, will force the Reserve Bank to ratchet up interest rates (the OCR) even further.

7. As businesses face ongoing pressures (described above), there will be continuing  pressure to dampen down wage increases (except for a minority of job skills, in the Christchurch area). For many businesses, the choice they offer their staff will be stark; pay rise or redundancies?

8. Expect one or more credit rating agencies (Fitch, Moodies, Standard and Poors) to put New Zealand on a negative credit watch.

9. According to a recent (21 February) Roy Morgan poll, 42%  of respondents still considered the economy their main priority of concern. 21% considered social issues as their main concern.This should serve as a stark warning to National that people will “vote with their hip wallets or purses” and if a significant number of voters believe that they are not benefitting from any supposed economic recovery, they will be grumpy voters that walk into the ballot booth.

Interestingly, the “Economy” category also included the social issue of “Poverty / The gap between the rich and the poor”.  16% believed that “Poverty / The gap between the rich and the poor”was a major factor within the economic situation – a significant sub-set of the 42%.

Add that 16% to the 21% considering social issues to be the number one priority, and we see the number of respondents in this category increasing to 37%. That is core Labour/Green/Mana territory.

10. National has predicated it’s reputation as a “prudent fiscal manager”  on returning the government’s books to surplus by 2014/15. As Bill English stated just late last year,

“We remain on track to surplus in 2014/15, although it will still be a challenge to actually reach surplus in that financial year.”

Should National fail in that single-minded obsession, the public will not take kindly to any excuses from Key, English, et al. Not when tax payer’s money has been sprayed around with largesse by way of corporate welfarism. Throwing millions at Rio Tinto, Warner Bros, China Southern Airlines, Canterbury Finance, etc, will be hard to justify when National has to borrow further to balance the books.

On top of which is the $61 billion dollar Elephant in the room; the government debt racked up by National since taking office in 2008. As Brian Fallow wrote in the Herald in 2011,

The concern about government debt is not so much about its level, but the pace at which it is increasing. In June 2008 net government debt was $10 billion, or 5.6 per cent of GDP, and gross debt $31 billon, or 17.2 per cent of GDP.

Since 2008, New Zealand’s sovereign debt has increased six-fold – made worse in part by two ill-conceived and ultimately unaffordable tax cuts.  Those tax cuts were, in essence, electoral bribes made by John Key to win the 2008 general election. (Labour’s paying down of massive debts it had inherited from National in the 1990s, plus posting nine consecutive surpluses, had come around to bite Cullen on his bum. Taxpayers were demanding “a slice the action” by way of tax cuts.)

That debt will eventually have to be repaid. Especially if, as some believe, another global financial shock is possible – even inevitable. With a $60 billion dollar debt hanging over our heads, we are not well-placed to weather another global economic shock. In fact, coupled with private debt, New Zealand is badly exposed in this area (as the OECD stated, in the quote below).

So the “good news” currently hitting the headlines is not so “good” after all, and many of the positive indicators have a nasty ‘sting in the tail’. As the OECD  recently reported,

The New Zealand economy is beginning to gain some momentum, with post‑earthquake reconstruction, business investment and household spending gathering pace. Risks to growth remain, however, stemming from high private debt levels, weak foreign demand, large external imbalances, volatile terms of trade, a severe drought and an exchange rate that appears overvalued. The main structural challenge will be to create the conditions that encourage resources to shift towards more sustainable sources of prosperity. Incomes per head are well below the OECD average, and productivity growth has been sluggish for a long time. Lifting living standards sustainably and equitably will require structural reforms to improve productivity performance and the quality of human capital.

As the election campaign heats up, expect the following;

  1. Greater media scrutiny on National’s track record,
  2. The public to become more disenchanted with Key’s governance as economic indicators worsen and impact on their wallets and purses,
  3. National (and it’s sycophantic supporters) continue to blame welfare beneficiaries; the previous Labour government; the GFC and resulting recession; and other “external factors” for their lack-lustre performance,
  4. Key and various business  figures to become more strident in their attacks on Labour and the Greens,
  5. A dirty election campaign , including a well-known extremist right-wing blogger releasing personal information on political opponants, which will backfire badly on National,
  6. National to fall in the polls; NZ First will cross the 5% threshold; and Labour/Greens/Mana to form the next government, with Peters either sitting on the cross benches, or taking on a ministerial portfolio outside Cabinet.

So it’s not the Left that should be worried.

National is on shakier ground than many realise.

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References

Fairfax Media: National on wave of optimism – poll

Roy Morgan: National (48%) increases lead over Labour/ Greens (42%) – biggest lead for National since July 2013

NZ Herald: Economic growth hits 4-year high

Statistics NZ: Household Labour Force Survey: December 2013 quarter

Fairfax Media: Dairy prices squash trade deficit

NZ Herald: NZ’s trade deficit remains despite better terms

Fairfax Media: Inequality: Is it growing or not?

NZ Treasury: Recent Economic Performance and Outlook

Fairfax media: Canterbury overtakes Auckland in economic survey

IMF: World Economic Outlook (WEO) Update

Reserve Bank:  Price stability promotes a sustainable expansion

Interest.co.nz:  Bernard Hickey looks at what the Reserve Bank’s OCR decision means for mortgage rates and house prices

NZ Herald: Consumer confidence slips as rates increase looms

NZ Herald:  Govt deficit bigger than expected as tax trickles in

Statistics NZ:  Unemployment December 2013 Quarter

Roy Morgan: Economic Issues down but still easily the most important problems facing New Zealand (42%) and facing the World (36%) according to New Zealanders

NBR:  Govt sees wider deficit in 2014 on ACC levy cut, lower SOE profits

Fairfax media:  Public debt climbs by $27m a day

NZ Herald: Govt debt – it’s the trend that’s the worry

NZ Herald: Cullen – Tax cuts but strict conditions

OECD: Economic Survey of New Zealand 2013

Previous related blogposts

TV3 Polling and some crystal-ball gazing

Other blogposts

The Daily Blog: Latest Roy Morgan Poll shows the Labour funk

The Daily Blog: Canaries In A Coal Mine: Has The Daily Blog Poll anticipated Labour’s Collapse?

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The Cost of Living

Above image acknowledgment: Francis Owen

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59 Comments

  1. Nitrium Nitrium says:

    few little typos (no need to post this comment)
    “Being being mostly an exporter of commodities”
    “and it’s sycophantic supporters” (should be “its”).

    • Thanks, Nitrium. I thought I got most of the typos. Heck, I found one as well, where I should’ve written, “This will have a flow-through effect within our local economy; higher fuel prices will lead to higher prices [for] consumer goods and services.”

      Bugger.

      I’ll make the corrections for the re-post on my blog.

      Anyone want a job proofreading for me? 😀

      • Ovicula says:

        Free English lesson, Frank:
        Possessive: mine, yours, his, hers, its
        Abbreviated: I’m, you’re, he’s, she’s, it’s

        Meant in a comradely, albeit pedantic, manner.

        • Heh heh heh… 😀

          The ones I have a “mental blank” toward are its/it’s and the worst one, too/to.

          The others you referred to are simply my sloppy typing and not picking them up when I “proof read” what I’ve done.

          Funny thing is that the mistake of your/you’re seems to be more common amongst our American cuzzies. I spent a bit of time on some US-based internet Fora, and that was a ubiquitous grammatical error…

          Anyhoo, I’ll double-check my writing in future… 😉

  2. Murray Simmonds says:

    Excellent summary, Frank Macskasy. I absolutely agree.

    ” . . . and total corporate tax 4.9 per cent below expectations at $3.56 billion . . . .”

    Perhaps Treasury forgot to factor in the tax cuts for higher incomes that Key introduced upon first taking up office as PM. Tax cuts that were rapidly followed by Key stating that “the economy” couldn’t afford the tax cuts for lower incomes that had also been part of his pre-election propaganda.

    No doubt they will have also failed to factor in the fact that this Gov’t has done absolutely NOTHING to close the tax loop-holes (e.g. “Trusts” of one kind or another, including family trusts) that furnish a high proportion of the numerous tax-avoidance dodges enjoyed by the rich. So more and more of those on higher incomes will have grabbed the opportunity to move in this direction during the term of this Government in order to reduce their tax liability.

    Those on higher incomes will have been aided and abetted in this by the Government policy of reducing the number of civil-servants in all sectors including the IRD at the very time when organisations such as the IRD should be employing MORE, not fewer staff in order to get on top of the problem of tax-avoidance.

    As I’ve said before, “wisdom” is not JK’s middle name. But he DOES know how to look after his well-heeled buddies.

  3. Dave P says:

    And a lot of the above gives National huge ammunition to attack Labour and the Greens. How? Well if your analysis is correct and NZ is hugely exposed to another, you say inevitable, overseas caused economic shock then National have a free reign to relentlessly attack every Labour or Green increase in spending policy proposal put forward. Item: like 450 million for a solar panel scheme that looks little more than a feel good proposal with a very poor pay back period for anyone taking it up. Item: increases in welfare spending e.g. $60 dollars a week for your next baby. Item: any additional government staff or additional government regulatory agencies.

    Show me the money will be the cry from National – and Frank according to your analysis there will be no extra money in the pot. And if you go increase Tax to fund it you will alienate the critical centrist swing voter and hard pressed working man who doesn’t have a family and gets no WFF payments.

    • Draco T Bastard says:

      It really is time to stop kowtowing to the rich and start taxing them appropriately – 60% and higher. Drop GST, add in a FTT and stop the private banks from creating money to go with it and we’ll be set for some real prosperity.

  4. Kia ora Dave P,

    You raise some interesting points…

    …then National have a free reign to relentlessly attack every Labour or Green increase in spending policy proposal put forward. Item: like 450 million for a solar panel scheme that looks little more than a feel good proposal with a very poor pay back period for anyone taking it up…

    That might be true – except it’s not.

    The Green Party solar panel policy involves using loans, repayable through Rates, not grants. The policy is therefore fiscally-neutral. This is unlike the National Party home insulation policy which involved $1 billion in grants (up to $1,500 per household), which did not have to be re-paid. (And that is not meant as a criticism on the home-insulation policy.)

    …Item: increases in welfare spending e.g. $60 dollars a week for your next baby…

    I’m always amazed that National can find money to throw at corporates (Rio Tinto, Warner Bros, China Southern Airlines, Canterbury Finance, et al), and barely poses the question “where is the money coming from?” Or the millions spent on “consultants”. Or rugby games. Or yachting.

    But any suggestion of investing money in our children, and there is a hue and cry “Show me the money!!”.

    So you’ll forgive me if I dismiss that as a typical monetarist, emotion-laden red herring.

    And if you go increase Tax to fund it you will alienate the critical centrist swing voter and hard pressed working man who doesn’t have a family and gets no WFF payments.

    No necessarily, Dave,

    New Zealanders have enjoyed seven tax cuts since (and including) 1986. So I don’t think we’ve done too badly in that area.

    Predictably, as we’ve had tax cuts, we’ve had more and more user-pays and increases in GST from 10% to 15%.

    So if the “critical centrist swing voter and hard pressed working [wo/]man” has anything to grumble about, it’s that s/he has been duped. Taxes have been cut – but user-pays has also increased. This is best illustrated by the $250 million per annum “school donations” which is an indirect, tax-by-stealth, propping up the education system. Or the rise in prescription charges. Or any other government service you could mention.

    The only thing is, it’s all been done by stealth. If New Zealanders truly understood the long, drawn-out process that has taken place since 1984, I tell you, they’d be mightily pissed off.

    It’s not “communism by stealth” we’ve had – it’s neo-liberalism by stealth.

  5. @ Murray Simmonds,

    Tax cuts that were rapidly followed by Key stating that “the economy” couldn’t afford the tax cuts for lower incomes that had also been part of his pre-election propaganda.

    Indeed, Murray.

    Had the tax-cuts been directed at those on low or fixed incomes, the tax cuts might’ve made some sense. (Though the rise in GST from 12.5% to 15% negated much of the benefit for tax cuts for low income earners.)

    Low/fixed income earners spend all their income. That would have percolated through into the wider economy by way of increased consumption, benefitting small and medium sized enterprises (SMEs).

    Giving tax cuts to the top income earners was pointless. They generally didn’t increase consumption and instead invested in the shsre market or other areas that didn’t contribute to increased business activity.

    In short, Key lied about the benefits of tax cuts. (More to come on that, probably tomorrow.) It was a bribe to win the 2008 election, nothing more.

  6. Marc says:

    Thank you Frank, for pointing out in more detail, where New Zealand and New Zealanders really stand in regards to the economic and social situation. Yes, that NZ Herald article on the lower tax take from 21 Feb. should really have given the MSM also reason to raise questions. But like other news, that raise doubt about the true performance of the supposed “rock star economy”, they do simply not want to bother, or are not capable of seeing the obvious.

    Indeed, the situation is far from glorious and secure, the “recovery” is largely based on the Christchurch rebuild, which is rather dragging on than catching speed, and it is based on growth of primary industry based, low value added export products going to mostly Mainland China.

    The OCR rate increases will lead to people starting to see that they will have less money in their pockets. Bosses will tell them, well, I cannot (or do not want to) afford a pay rise for their workers. The government is trying to muddle through, and will use the media to report on selective “positive” data, and try to suffocate Labour and Greens in it’s starting position, when challenging the official data.

    The MSM, largely staffed by self declared “independent” reporters and “media personalities” (who though have clear personal, mostly upper middle class biases) will continue to do what they have done the last few years, and say, well, the economy is doing OK, and John Key is coping well, and the polls say, bla, bla, bla, feeding again on what the reporters and so say.

    In reality there are ominous warning signs coming from China, where credit and other data is very unreliable, and where there are real estate and other bubbles, that may not “burst” in the usual fashion, but that need to be addressed, which will lead to yet slower growth there.

    China also continues to diversify their sourcing of dairy and other products, and world dairy prices are set to fluctuate and gradually drop again over the year.

    But who benefits from the farm and log exports, as many farmers are also stuck with high debt, which they prefer to continue paying off, rather than spend up on stuff they need. When they spend, it will be on fertiliser, feed for animals, possibly more land purchase and imported tractors and machinery.

    The inflated housing sectors in Auckland and Christchurch are partly debt driven and partly driven by expats and new migrants bringing in cash driving up house and apartment prices.

    With all that, where is the “production” and “growth” in NZ that actually benefits the majority of non farmers, of those doing ordinary service and factory jobs, and whatever else?

    There is no alternative for economic diversification, also more value added local production, and investment in the local economy, for activity here, as simply exporting more will only benefit a few. Without also a state funded or secured housing program, including more state owned homes for the poorer, we will not solve the housing issues there are now. Growing cities by letting private investors build more, and selling to lending first home buyers will continue the debt lifestyles that keep New Zealand stuck in a catch 22 situation.

    • It’s a shame that the majority of New Zealanders don’t see the wider picture as you’ve just explained, Marc. If they had the same insights, we’d have a better class of government…

    • Draco T Bastard says:

      China also continues to diversify their sourcing of dairy and other products, and world dairy prices are set to fluctuate and gradually drop again over the year.

      I believe China is busy creating it’s own dairy farms and other foods. I’m quite certain they fully understand what not being able to feed their own people means.

    • Korakys says:

      Marc, why aren’t you writing the columns on this website?

  7. Intrinsicvalue says:

    “Even the fear-threat of higher mortgage interest rates may already be pushing home owners to lock-in fixed mortgages. Kiwibank for example, currently has a Fixed Five year rate at 6.9%. ANZ has a five year rate at 7.2%.”

    Well below the 8% hysteria your spreading Frank.

    “Wheeler said in early December he expected to raise the OCR by 2.25% by early 2016, which would lift variable mortgage rates to around 8% by then. The bank forecast interest rate rises of around 1% this year and a similar amount next year.”

    Really? Current 6 month housing loans are at around 5.3%. Add 1% each year for 2 years and you get 7.3%. Still well short of 8%.

  8. Intrinsicvalue says:

    I’ll stop there for now Frank, and I’ll leave the final word to the people polled for tonights Colmar Brunton poll:

    National Party 51% (Up 6%-points from 19-23 October 2013)
    Labour Party 34% (Steady)
    Green Party 8% (Down 5%-points)
    NZ First 3% (Down 1%-point)
    Conservative Party (1% Steady)
    Māori Party (1% Steady)

    As I have previously predicted, Labour is bleeding votes to National on the right, and stripping votes from the Greens on the left.

    It is too much to hope that the Greens will fall below 5%, but you never know. After Norman’s cuddling up to Mr Dotcom, and his intolerant rantings about Mr Craig, who knows what could happen next!

  9. Intrinsicvalue says:

    …and there’s more proof here:

    http://www.tradingeconomics.com/new-zealand/gdp-growth

    (Reset the opening parameter to 2006 and watch the line trend DOWNNNNNN)

    • You: 2014/02/23 at 10:02 pm

      …and there’s more proof here:

      http://www.tradingeconomics.com/new-zealand/gdp-growth

      (Reset the opening parameter to 2006 and watch the line trend DOWNNNNNN)

      Now IV, would you mind explaining to readers; why did you pick 2006 as a starting point? The Clark Administration began in November 1999.

      Oh, I know why you chose 2006. Because of your blatant (again) dishonest tendencies to be highly selective in the data you present. In choosing 2006, you deliberately omitted earlier years where growth ranged from 5.5% (2004) down to 0.3% (2006).

      Which explains why, according to the Reserve Bank “Between 2000 and 2007, the New Zealand economy expanded by an average of 3.5% each year as private consumption and residential investment grew strongly. Annual inflation averaged 2.6%, inside the Reserve Bank of New Zealand’s 1% to 3% target range, while the current account deficit averaged 5.5% of GDP over this period.

      The New Zealand economy entered recession in early 2008, before the effects of the global financial crisis set in later in the year. A drought over the 2007/08 summer led to lower production of dairy products in the first half of 2008. Domestic activity slowed sharply over 2008 as high fuel and food prices dampened domestic consumption, while high interest rates and falling house prices drove a rapid decline in residential investment. “

      Source: http://www.treasury.govt.nz/economy/overview/2012/09.htm

      The only thing you prove is this – you are highly selective and are not to be trusted with facts and figures. I think your reputation for dishonesty is now fairly solid?

      • Gosman says:

        I don’t think anyone denies that initially the Clark led government were competent economic managers. Indeed it is one of the criticisms it receives from some members of the left that it basically left in place much of the economic framework left to it by the previous government and only tinkered around the edges like the employment changes it made. The issue is not what the economy was doing during the start and middle part of the last Labour Government but what state they left the country in at the end. It is hard to argue it was anything but a mess. Even you agree with this Frank. You just blame it all on the GFC. Both IV and myself call BS on this because 10 years of deficit cannot be blamed on global recession no matter how big it was.

        • And how many times do you keep repeating that bullshit, Gosman?

          Heck, your February 24, 2014 at 2:59 pm post doesn’t even make sense. On the one hand you state that no one “denies that initially the Clark led government were competent economic managers” – and in the next you write that “the issue is not what the economy was doing during the start and middle part of the last Labour Government but what state they left the country in at the end. It is hard to argue it was anything but a mess”.

          It’s as if you think that repeating it from one blogpost to the next somehow makes it true?

          And no, Gosman, pull your bloody head in because suggesting “Even you agree with this Frank” is an outright lie.

          Between you and IV, you are both resorting to more and more outrageous lies to validate your opinions.

          If you can’t present facts, keep your crap to yourself.

          In the meantime, I leave you with a couple of quotes,

          The level of public debt in New Zealand was $8 billion when National came into office in 2008. It’s now $53 billion, and it’s forecast to rise to $72 billion in 2016. Without selling minority shares in five companies, it would rise to $78 billion. Our total investment liabilities, which cover both public and private liabilities, are $150 billion – one of the worst in the world because of the high levels of private debt in New Zealand.

          – John Key

          Source: http://www.national.org.nz/mixed-ownership.aspx

          “If you go back to 2005, when the previous government were in office, they had a number, you know, a little bit less than ours, but not a lot less, there was a 180,000 children in poverty, I think this shows 240,000 on that measure.

          Back then, New Zealand recorded the biggest surplus in New Zealand’s history…”

          – John Key

          http://tvnz.co.nz/breakfast-news/mind-gap-key-tackles-child-poverty-video-5766147
          @ 2.45

          • Gosman says:

            What you agree with Frank is that the economy went in to recession around 2008 and that the recession was one of the reasons for the budget going from surplus to deficit.

            The areas we disagree is that both IV and I point out that the GFC was not the only factor in the economy going in to recession and the resulting deficit is a structural one that was predicted to last till 2018. As such the deficit was a result of the revenue and spending arrangement put in place by the last Labour led government and not by what was happening in the wider world economy or even by the phase of the economic cycle in NZ itself.

            I would suggest the above is indisputable in terms of each of our positions.

            On another issue I would point out that the 2009 Tax cut was actually put in place by Labour. National was just in power and did not cancel it when it was implemented.

            • We’ve been through this before, Gosman, and it’s simply an indication of your bizarre blockheaded refusal to understand that the Global Financial Crisis started earlier than 2008 (http://www.theguardian.com/business/2012/aug/07/credit-crunch-boom-bust-timeline). Your penchant for obtuseness seems to cloud your comprehension.

              On top of the GFC, in New Zealand, there were other causalities leading to recession,

              Between 2000 and 2007, the New Zealand economy expanded by an average of 3.5% each year as private consumption and residential investment grew strongly. Annual inflation averaged 2.6%, inside the Reserve Bank of New Zealand’s 1% to 3% target range, while the current account deficit averaged 5.5% of GDP over this period.

              The New Zealand economy entered recession in early 2008, before the effects of the global financial crisis set in later in the year. A drought over the 2007/08 summer led to lower production of dairy products in the first half of 2008. Domestic activity slowed sharply over 2008 as high fuel and food prices dampened domestic consumption, while high interest rates and falling house prices drove a rapid decline in residential investment.

              “Recent Economic Performance and Outlook”
              http://www.treasury.govt.nz/economy/overview/2012/09.htm

              We currently have high housing prices and surprise, surprise, the RBNZ will be raising interest rates (as it did in the 2000s), to dampen demand. Hence why Bill English signed of on a Memorandum of Understand with the RBNZ to reduce low-deposit house purchases.

              And by the way, Treasury also stated,

              In total, New Zealand experienced five quarters of negative economic growth between the March quarter 2008 and the March quarter 2009, totalling 3.7% of real GDP. The relative shallowness of the recession compared favourably with other nations in the OECD, with New Zealand seventh least affected out of the 33 member nations.

              So – other nations in the OECD were also in Recession? But ours was shallower. Well, well, well, go figure.

              Another Treasury report – http://www.treasury.govt.nz/publications/reviews-consultation/savingsworkinggroup/finalreport/21.htm#sthash.B0CNQDu7.dpuf – begins with this;

              4.3 Fiscal situation
              4.3.1 Issue

              New Zealand ran fiscal surpluses for about 15 years from 1994 to 2008. These surpluses strengthened the government balance sheet allowing net debt to fall from 1993, and net worth to rise through the period. This helped counter the growing private sector domestic and external indebtedness.

              The statement then continues,

              The government’s operating balance went into structural deficit[9] in 2009 and is projected to remain in deficit until around 2015.

              By the end of 2009 (remember, this Treasury document was penned in 2011), there had been TWO tax cuts. By the end of 2010, there had been THREE tax cuts.

              Which nicely leads on to the next part of the Treasury statement, explaining why National’s debt has ballooned;

              The government is spending more than it is receiving in revenue and net public debt is projected to rise from 14% of GDP in 2010 to around 28% by 2015 and then fall back to 10% in 2025.[10]

              Now, next question: are you going to repeat all this with my next blogpost? Because if you do, I’ll simply keep posting these Treasury reports. It now depends how gormless you want to look.

              Re YCT Me;

              On another issue I would point out that the 2009 Tax cut was actually put in place by Labour. National was just in power and did not cancel it when it was implemented.

              Oh gawd, did Labour ever leave office?! Now you’re attributing the 2009 tax cuts to the previous Labour government?!

              Truly, Gosman, you are one very, very, strange unit. Here, read this;

              http://www.national.org.nz/files/2008/ECONOMY/Tax_Policy_Paper.pdf

              – it outlines National’s tax policy, released during the 2008 election campaign.

              Labour’s planned cuts from 2009 onward never eventuated, and I doubt Michael Cullen would have been so reckless as to proceed, as the GFC took hold of our economy. The guy was “prudent” to the point of miserly.

              The 1 April 2009 tax-cuts enacted were part of National’s budget;

              “The Government’s first round of tax cuts delivered on 1 April 2009 is not affected. It left around $1 billion a year in the pockets of 1.5 million New Zealand workers. These tax cuts were fully funded from other policy changes rather than through borrowing.”

              Source: Bill English, http://www.beehive.govt.nz/release/deferred-tax-cuts-%E2%80%93-fact-sheet

              For future reference, these are the dates of the seven taxcuts since 1986;

              1 October 1986 – Labour

              1 October 1988 – Labour

              1 July 1996 – National

              1 July 1998 – National

              1 October 2008 – Labour

              1 April 2009 – National

              1 October 2010 – National

              • Intrinsicvalue says:

                “The government is spending more than it is receiving in revenue and net public debt is projected to rise from 14% of GDP in 2010 to around 28% by 2015 and then fall back to 10% in 2025. ”

                And yet we will be in surplus by 2015.

                The rest of your post is irrelevant rantings.

                • Here’s something for you, IV;

                  “Firstly let me start by saying that New Zealand does not face the balance sheet crisis of 1984, or even of the early 1990s. Far from having dangerously high debt levels, gross debt to GDP is around a modest 25 percent and net debt may well be zero by 2008.”

                  “In other words, there is no longer any balance sheet reason to justify an aggressive privatisation programme of the kind associated with the 1980s Labour Government.”

                  – John Key, Friday, 4 March 2005, Speech: New Zealand National Party

                  Source: http://www.scoop.co.nz/stories/PA0503/S00102.htm

                  Now, what were you saying, squire?

        • Intrinsicvalue says:

          …and nor can the economy going into recession BEFORE the GFC!

          • Intrinsicvalue says:
            February 24, 2014 at 8:45 pm

            …and nor can the economy going into recession BEFORE the GFC!

            One more time for VI (Village Idiot);

            As well as the GFC starting in 2007;

            The New Zealand economy entered recession in early 2008, before the effects of the global financial crisis set in later in the year. A drought over the 2007/08 summer led to lower production of dairy products in the first half of 2008. Domestic activity slowed sharply over 2008 as high fuel and food prices dampened domestic consumption, while high interest rates and falling house prices drove a rapid decline in residential investment.

            “Recent Economic Performance and Outlook”
            http://www.treasury.govt.nz/economy/overview/2012/09.htm

            Note: ” A drought over the 2007/08 summer led to lower production of dairy products in the first half of 2008.”

            And,

            In total, New Zealand experienced five quarters of negative economic growth between the March quarter 2008 and the March quarter 2009, totalling 3.7% of real GDP. The relative shallowness of the recession compared favourably with other nations in the OECD, with New Zealand seventh least affected out of the 33 member nations.

            http://www.treasury.govt.nz/publications/reviews-consultation/savingsworkinggroup/finalreport/21.htm#sthash.B0CNQDu7.dpuf – begins with this;

            Gawd, education was wasted on you, wasn’t it?

            I don’t think even a Charter School would be much help to you. You just don’t get it, do you?

      • Intrinsicvalue says:

        “Now IV, would you mind explaining to readers; why did you pick 2006 as a starting point? The Clark Administration began in November 1999.”

        Because 2006 is before the GFC Frank. Obvious, surely.

        “The only thing you prove is this – you are highly selective and are not to be trusted with facts and figures. ”

        Every time you sit to write you seem to make a fool of yourself Frank. 2008 is AFTER 2006. The economy was already going into recession BEFORE the events you describes, which renders them irrelevant, which is why I excluded them.

        Look at the trend line again Frank, and explain why growth is plummeting from 2006, before the GFC and before the drought, and before rising fuel prices nd before any other pathetic excuse you care to make.

        • Intrinsicvalue says:
          February 24, 2014 at 8:40 pm

          “Now IV, would you mind explaining to readers; why did you pick 2006 as a starting point? The Clark Administration began in November 1999.”

          Because 2006 is before the GFC Frank. Obvious, surely.

          Nope.

          You chose 2006 before of your dishonest mis-use of facts. By choosing 2006, you didn’t have to mention the high growth period during the Labour government’s period.

          The thing you missing, IV, is that every time you lie by omission, it will be pointed out to you. In public.

          I think most folk know by now that you are deceptive and selective in your “facts”.

  10. Tom says:

    I’m not sure I buy the premise of this article, which is if the economy worsens, National will lose.

    For some unfathomable reason, the public seem to think that the National Party is a superior economic manager than Labour. I have no idea why people believe this, because all the evidence points the other way, but it seems an entrenched belief. Given that, it would seem that economic uncertainty would favour the National Party as it did in 2008 and 2011.

    Your article is predicated on voter rationality, Frank, the scarcest substance in the universe.

    • Intrinsicvalue says:

      “For some unfathomable reason, the public seem to think that the National Party is a superior economic manager than Labour.”

      I’m not going to speak for the past, but the current National Govt. are far better economic managers than the last Labour one. Under the circumstances they have had to deal with, they are perhaps the best economic managers we have seen in this country.

      • Only in your fevered imagination, IV.

        National has so far ducked two pressing problems;

        1. Increasing the retirement age to 67,

        2. Implementing a capital gains tax to put housing speculation on some measure of equal footing with other taxable enterprises.

        On top of which, we’ve already gone through National’s irresponsible tax cuts in 2009 and 2010, which resulted in having to borrow even more to make up for the subsequent revenue shortfall.

        It takes a spectacular mental blind spot by slavish National Party followers not to see this.

        Cherry picking and mis-representating facts seems your only means to cope with reality.

        • Gosman says:

          Whilst I agree with your first proposition there is no evidence that a capital gains tax dampers down property speculation. The USA, UK, and Australia have variations of capital gains tax yet investment in property is still high.

      • Andrea says:

        Mwahahahaha!

        So that’s what Key, McCully and Groser have been doing as they flit about in the world beyond – dealing with ‘the circumstances’ of the GFC.

        Well well well – who’d’a thunk it. Little old NZ saving the world’s flaky financial systems from their rightful corrections and overhaul.

        Well done, them.

    • Tom – good points. “Voter [irr]rationality” is indeed a factor which no amount of analysis can cater for.

      For example, I’ve met a few folk who voted National in 2011 who told me two things,

      (a) They voted for Key despite not supporting National’s asset sales policy. When I put it to them that didn’t make sense, they had no real answer. I had the feeling that didn’t think Key would go through with it.

      (b) They won’t be voting for Key again.

      Ditto with people’s perceptions about National being a “prudent fiscal manager”. National’s reputation seems predicated on cutting social services and increasing user-pays. (This was especially nasty in the early 1990s and National under Jenny Shipley.) Labour then gets elected to re-store public services.

      It’s interesting that general the public don’t remember the nine surpluses; paying down sovereign dent; low unemployment; good average growth; and 2008 tax-cut, all courtesy of Michael Cullen.

      Of course blatant lies from National ministers and their supporters probably doesn’t help.

      Next time, Labour has to be more up-front and “beat it’s own chest” with it’s economic successes.

      So yes, that’s the “fly in the ointment” – voter [irr]rationality. And collective amnesia.

    • Murray Simmonds says:

      Your article is predicated on voter rationality, Frank, the scarcest substance in the universe.

      Yep, Tom, I hate to say it, but you hit the nail right on the head there . . .

  11. YogiBare says:

    Frank,
    Thanks for taking the time compiling this interesting article; I hope you don’t have to waste too much more time answering inane queries from our right wing friends.
    Your quote from the IMF report states?..”Global growth is now projected to be slightly higher in 2014, at around 3.7 percent, rising to 3.9 percent in 2015″…Maths is not my strong suite, but I have been informed that a rough guide of the time required,before a doubling of the resources needed to maintain a growth rate, can be calculated by divided 70 by the percentage of the rate of growth. By my calculation a rate of 3.7 means we will have to double the use of resources in just under 19 years.
    It would seem to me that at some point there must be an end to economic growth rates.

    • It would seem to me that at some point there must be an end to economic growth rates.

      Indeed, Yogibare. It would be hard to fathom otherwise. Earth is a finite planet and our resources are accordingly finite.

      There are no doubt additional resources deep under the oceans, but the expense of extracting said resources will mean ever-increasing costs.

      Even mining the asteroid belt by robots will be hideously expensive (though quite feasible).

      If we’re going to maintain some semblance of a modern, technological society, we’re going to have to improve our conservation and recycling techniques.

      I also don’t believe that the Earth can sustain more and more people. Quite aside from increasing stresses and pressures on urban areas, desertification; increasing pollution; increasing global warming gases; de-forestation; resource wars; and reduced access to drinkable water – do we really want to live on a planet amongst 9 billion souls?

      New Zealand may postpone the inevitable, but we won’t escape the effects of over-population,over-exploitation, and pollution of our world.

      I’m thinking Soylent Green was the most prophetic sf movie ever made.

      By the time humans wake up to what we have wrought, it may be too late.

      • Gosman says:

        Kind of misses the point about economic growth.

        Despite what some people on the left believe, economic resources don’t tend to be used up in the way you think they are.

        Some economic activity is entirely reusable like Labour resources. Some are different usage of the same resources (i.e value add down the supply chain). Some don’t really even involve physical resources at all like creating intellectual property.

        Regardless the issue is not running out of resources but effectively using the abundance of resources we have at our disposal at the moment in an economically productive manner.

        • Jeezus, Gosman. That was dumb even by your standards. *facepalm*

          • Gosman says:

            Please explain what you object to then?

            Take land usage for example. A factory tends to have higher economic value than a farm. Changing the usage of land from farming to manufacturing does not use up the land but can lead to higher economic output. What do you have a problem with in terms of understanding this?

            • YogiBare says:

              Gosman,
              Please watch this before commenting further, perhaps it will finally make you understand exponential growth…

              http://www.youtube.com/watch?v=umFnrvcS6AQ

            • Andrea says:

              Factories aren’t edible.

              Obsolete factories hang around and leave the land unusable.

              Only some people value factories over farmland. You are one. I am not.

              As technologies change, the 19th/20th century view that factories are more valued will change.

              Your view, as stated above, is not an eternal verity. The old story of King Midas may explain why.

      • YogiBare says:

        @ Frank,
        These two entertaining videos may give you a slightly different prospective on over-population, if you have the time to watch them.
        http://new.ted.com/talks/hans_rosling_religions_and_babies
        http://www.fulldocumentary.net/society/default.asp?action=listing&id=3393

  12. nznative says:

    National always distorts the past ……

    It is always the Labour Govts who try and fix up Nationals mess.

    Going on the last 3 National governments ……

    The Muldoon National Govt left the country bankrupt and about to default on repaying Govt debt.

    The Bolger & Shipley Govt ran down our public services like health and enforced a prolonged recession on Nz with their right wing policy’s

    And now the Key Govt is flogging off our assets, allowing rampant pollution of our water ways, giving huge amounts of public money to global corporations and private company’s.

    Along with the usual right wing bread and butter stuff of tax cuts to the rich …. more money to private schools etc etc etc .

    National runs the economy like Wolf’s 😉

  13. Derek says:

    Yeah but the big question is will the inevitable downturn happen before or after the next election? If Labour win they will have a problem on their hands again caused by National’s incompetence – $60 billion of debt and reduced income from SOEs and taxes as you say. At least if Labour lose National will have to eat their own sh*t.

  14. Intrinsicvalue says:

    Frank you’ve been found out. Again.

    The economy went into recession before the GFC. You’ve denied that several times, and you have been wrong every time.

    The 2010 tax cuts put significant amounts of money into the hands of low and middle income earners, and at the same time penalised property investors and other high income groups. You’ve denied this too, and ben found out.

    It is likely that National;s tax cuts went a long way to bringing NZ to an early recovery, one that is now delivering growth rates up near the top if the international community.

    Thank goodness English is in charge and not you!

    • Intrinsicvalue says:
      February 24, 2014 at 8:44 pm

      Frank you’ve been found out. Again.

      The economy went into recession before the GFC. You’ve denied that several times, and you have been wrong every time.
      blah blah blah…

      Yeah, yeah, now you’re just repeating yourself ad nauseum. You’d like to think it’ll come true if you repeat it often enough – but it’s all bollicks.

      The tax cuts you referred to were paid for by overseas savers. In effect, National borrowed from overseas to put in the pockets of top income earners here in NZ.

      Who the hell do you think will have to pay that back – the garden pixies?!

      This is the proof that National are incompetent; borrowing from overseas to put into the pockets of top income earners here in New Zealand. That’s not a tax cut – that’s a deferred debt.

      Tell me, would you like another tax cut, IV? I’m sure your friend Bill could borrow a few billion more from the Chinese or Germans or Norwegians to put into your pockets.

      Jeezus. How stupid can you righties be?!

  15. Intrinsicvalue says:

    “The guy was “prudent” to the point of miserly.”

    Frank you really need to give up your day job and accompany Billy Connoly’s upcoming tour.

    In 2009, total Govt. spending was around $4.5bn. By 2009, this figure had risen to just under $6.5bn. (http://www.tradingeconomics.com/new-zealand/government-spending). That is an increase of around 45%. In the same period, the CPI rose by 30% (http://www.rbnz.govt.nz/monetary_policy/inflation_calculator/).

    Cullen spent money like water!

  16. adam says:

    Would you agree we have major structural problems Frank? Or to put another way – a major systemic crisis?

    It appears what Key relies upon is a good lie – and by that I mean both he and English are very skilled at the lies which make people feel good, even if they know or suspect it may be a lie.

    Now a major component of this economic system is confidence, and again Key and co. are good at this.

    But, I would argue it is a house of cards – the system is faulty and it will take more than just changes in government to elicit effective change.

    I do enjoy your blogs Frank. Am wondering when you will see the light and come over to us anarchists Hugs and Bikkies.

  17. nznative says:

    Its all quite simple …..

    The rich do better under the nats ( get richer )

    Everyone else gets screwed ………

  18. Intrinsicvalue says:

    http://www.tradingeconomics.com/new-zealand/gdp-growth#sthash.c9A4f8QR.dpuf

    Frank, this data/graph is proof positive that NZ was moving into recession as early as 2006. Before the GFC. Before the drought. You’re out of excuses.