Not Being Venezuela: The Political Logic of the Labour/Green “Budget Responsibility Rules”.

By   /   March 25, 2017  /   34 Comments

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FOR THOSE WHO THINK Labour and the Greens are being too cautious, economically-speaking, I have only one word: “Venezuela”. Andrew Little may not resemble Hugo Chavez in the slightest. Nor are Labour and the Greens, by any stretch of the imagination, Bolivarian revolutionaries. But, to hear the Right tell the story, New Zealanders are being courted by dangerously left-wing political parties.

FOR THOSE WHO THINK Labour and the Greens are being too cautious, economically-speaking, I have only one word: “Venezuela”. Andrew Little may not resemble Hugo Chavez in the slightest. Nor are Labour and the Greens, by any stretch of the imagination, Bolivarian revolutionaries. But, to hear the Right tell the story, New Zealanders are being courted by dangerously left-wing political parties. Given half a chance, we are told, Little and his Green sidekicks, James Shaw and Metiria Turei, will happily transform New Zealand into the Venezuela of the South Seas.

The reasoning behind this outlandish charge is simple:

The Right argues that, because the Left has never seen a problem that could not be fixed by throwing more money at it, all left-wing governments end up spending themselves into a fiscal crisis. Afraid of taking the harsh economic measures required to balance the country’s books, these leftists then decide to maintain the living-standards of their followers by taxing the rich ferociously and borrowing like there’s no tomorrow. Very soon the country’s international lines of credit are exhausted. At this point, the clueless government decides to crank up the state’s printing presses – flooding the country with paper money. When the overseas suppliers of vitally important imported goods refuse to accept this increasingly worthless currency, the government responds with rationing and harsh import and price controls. In the face of widespread protests, the now desperate government resorts to increasingly authoritarian methods of political control. Pretexts are found for shutting down the oppositions’ media outlets. Government supporters confront government opponents in the streets. Violent clashes ensue. As the next scheduled general election draws near, the embattled left-wing government must choose between pushing forward into full-scale dictatorship (thereby risking a military coup d’état) or submitting itself to the judgement of an outraged and/or disillusioned electorate. Either way, their own – and the country’s – prospects are bleak.

Unfortunately, the historical record offers more than a little confirmation of this alarming right-wing narrative. Even here, in Australasia, the precedents are not all that encouraging. In the case of both the government of the Australian Labor Prime Minister, Gough Whitlam, and that of our own Norman Kirk, there are disturbing echoes of the above scenario. It certainly describes the sequence of political events in the Chavistas’ Venezuela.

Indeed, it is possible to argue that the grim fortunes of the social-democratic governments of the 1970s – especially the fate of Salvador Allende’s Popular Unity government in Chile – lay heavily on the minds of New Zealand and Australian labour leaders in the 1980s. Also before them was the abject failure of the French President’s, Francois Mitterand’s, socialist-communist government. Elected in 1981 on an avowedly left-wing programme, it was forced, within months, to execute a humiliating U-turn. The scale of French capital flight was economically unsustainable.

That the Right was in large measure responsible for the economic and political difficulties which brought these social-democratic governments to their knees, in no way invalidates its critique. The Right knows that a left-wing government genuinely committed to the uplift of its marginalised and exploited supporters has little choice except to adopt the “tax and spend” policies outlined above. They also know how, in the chilling language of Richard Nixon and Henry Kissinger, to “make the economy scream”.

So don’t be too quick to condemn Labour and the Greens for cautioning their supporters against building-up unrealistic expectations of an incoming centre-left government. Both parties know how important it is to inoculate themselves against the Right’s accusations of economic ignorance and irresponsibility.

To a confirmed leftist, the Labour Finance Spokesperson’s, Grant Robertson’s, and the Green Co-Leader’s, James Shaw’s, statement that: “New Zealanders rightly demand of their government that they carefully and effectively manage public finances”, will undoubtedly sound a rather dull ideological note. So, too, will the “Budget Responsibility Rules” to which Little, Robertson and Shaw have pledged themselves.

Delivering “a sustainable operating surplus across an economic cycle”; reducing “the level of Net Crown Core Debt to 20 percent of GDP within five years of taking office”; and promising to “maintain [Government] expenditure within the recent historical range of spending to GDP ratio”: these are hardly the sort of slogans to summon the proletarian masses to the barricades!

What they just might do, however, is spike the rhetorical guns of Labour’s and the Greens’ political opponents – making it much easier for the swing voter to believe that voting Labour/Green to change the government, is not at all the same as voting for 1,000 per cent inflation and blood in the streets.

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34 Comments

  1. saveNZ says:

    I’m not sure why Labour have to ‘defend’ their economic record. Just juxtapose Labour’s borrowing against National’s borrowing on a billboard and let the facts speak for themselves…

    Then work out if we hadn’t sold those power assets – we would be much better off. National love selling the country, the fuckers.

    How much they have National got from the state house sell offs vs how much they are worth?

    The honey Peter Thiele deals..plus free citizenship.

    National are appalling economic managers.. Labour are better.

    Labour bought us Kiwisaver, Kiwibank, State houses etc etc

    What the Fuck has National every given Kiwis??

    Fuck all, apart from dirty water, asset sales and a transport and housing nightmare!

    Now people can’t even afford to be tenants in their own country!

    I also think that Labour/Green need to get past ‘the economy’ in their messaging to what really matters. What’s the point of it all, if we are worse off and having dirty water, working 2 jobs and 50 hours a week and never have a quality of life to spend with loved ones?

    English is more interested in selling out our country and calling our youth ‘hopeless’. He’s every bit an arsehole as Key, only less smarmy and more of a neoliberal robot.

    Another example of our ‘brighter future’… Immigrant workers felt helpless during exploitation
    http://www.nzherald.co.nz/hawkes-bay-today/news/article.cfm?c_id=1503462&objectid=11824043

    What sort of country are we becoming!! We already know we are a banana republic because one of our biggest exports is now profits, now we don’t even need to pay employees!!

  2. David Stone says:

    So it will be a choice of personality and traditional support, not of policy.
    This says no change is possible till the existing system has collapsed.
    This is probably quite true, but there needs to be an organisation ready with a comprehensive alternative to quickly put into place when that happens and the public mood supports it.
    Cheers D J S

  3. david says:

    If the left repudiate Venezuela’s policies then the right has nothing to harp on. The problem is that the lefts’ heroes such as Corbyn, had kind words for Venezuelian-style politics.

    • WILD KATIPO says:

      You clearly either A ) haven’t done your research , or B ) use the Venezuelan example as part of the Far Right wing narrative of omitting certain factors.

      Here , allow me to provide you with the real truth about Venezuela…

      Venezuela and Saudi Arabia: Sharing wealth | The Gisborne Herald
      gisborneherald.co.nz/opinion/2360740…/venezuela-and-saudi-arabia-sharing-wealth

      Enjoy and learn.

      • david says:

        Very odd. Your reference points out the economic disaster that is Venezuela. One of their last statement is ‘Don’t be a democracy if you can help it’.

        Nice try to bait-and-switch the reader.

        I encourage people to read about what has gone on Venezuela. Richest in natural resouces but so mismanaged that people don’t had food, medicines …..and toilet paper.

  4. bert says:

    Labour $10 Billion debt

    National $91 Billion debt

    Yet National purport that Labour throw money around to fix things! They are are a lying , thieving party, National.

    • Mike the Lefty says:

      $91 billion in debt.
      And what do we have to show for it?
      Better education, health, social welfare or environment?
      No.
      Just a heap of expensive roads to buy votes at the following election.

    • Gosman says:

      Did you rver read the 2008 PREFU?

      • I have, Gosman. And no, it doesn’t say what you think it does.

        We’ve been over this before. Do you really want to look silly again?

        • Gosman says:

          Umm.. no. You keep trying to argue it didn’t predict a decade of deficits when it is plain that it did.

          • Chapter and verse, please, Gosman. Last time you couldn’t provide the details, and what you did offer was out of context.

            So, share the details please.

            • Gosman says:

              I already have pointed out the exact section where it specifies this but here it is again

              http://www.treasury.govt.nz/budget/forecasts/prefu2008/prefu08-pt4of9.pdf

              Section 2 Figure 2.14

              “This sees OBEGAL (excluding NZS Fund retained revenue) move into surplus in 2017/18”

              Since this was prepared in 2008 that is a decade of deficits.

              • No mention of any “decade of structural deficits” then?

                The deficits you refer to are a consequence of:

                “There are two key factors influencing this change. Firstly, the economic
                slowdown discussed in the previous chapter has resulted in slower tax growth and increased
                costs for social welfare benefits. Secondly, some past policies (such as KiwiSaver subsidies
                and 20 hours free early childhood education) have proven more expensive as a result of
                higher take-up rates.” (p21)

                “The introduction of personal tax cuts announced in Budget 2008 means there has been a
                structural reduction in tax revenue of $1.6 billion in 2008/09 rising to $4.3 billion by
                2012/13. The tax cut was included in the fiscal forecasts at the time of Budget 2008.

                The tax cuts were the primary driver for the fall in tax revenue as a percentage of GDP
                over the forecast period.” (p24)

                Which is as clear as statement you will expect from Treasury that tax-cuts create a fall in revenue, leading to increased borrowing and/or cutting state spending. The latter has a flow-on effect in the domestic economy known ruefully as “austerity politics/economics”. The consequences are usually negative, worsening recessionary pressures, as Ruth Richardson’s 1991/92 “mother of all budgets” proved.

                In fact, Treasury makes that very point here;

                * as a consequence of lower tax and higher expenses, a higher debt track is forecast, so
                higher debt servicing costs are also expected. (p26)

                But the Treasury report also makes this statement on Cullen’s stewardship of the economy;

                “The extended period of growth during the past decade has led to a fiscal position as at
                30 June 2008 with gross sovereign-issued debt (excluding Settlement Cash) at 17.4% of
                GDP, net core Crown debt in a net financial asset position of $19 million and $14.2 billion
                in net assets held by the New Zealand Superannuation Fund (NZS Fund). Therefore the
                weakening in the fiscal outlook starts from a strong fiscal position .” (p21)

                Do you agree with that statement, Gosman? (Since you are referencing this document to make some arcane point.)

                By the way, Gosman, the chapter you refer to has a previous chapter, which I found. It has some interesting observations to make regarding negative influences on the economy at the time; drought, inflation, household debt, house prices and the current account. The report also references the all-important down-ward influence of the global economy at the time;

                “Consensus forecasts for economic growth in New Zealand’s top
                20 trading partners in 2008 and 2009 have been revised down
                steadily over the course of 2008.

                […]

                Terms of trade
                – The merchandise terms of trade (as measured in the System of National
                Accounts) are estimated to have peaked in the March quarter of 2008 and to decline 7.0% in
                the following five years as commodity prices fall from their peaks. The terms
                of trade are approximately 1.5% lower throughout the forecast period than in the
                Budget Update mainly because of lower dairy prices and higher oil prices. ” (p12)

                The next part though, is critical;

                The sub-prime mortgage crisis, which developed in the United States (US) in mid-2007,
                was the trigger for the unwinding of these imbalances and the world economy, especially
                the US economy, is now undergoing the necessary adjustment. House prices have fallen
                in many countries and market interest rates have increased. High commodity prices,
                particularly for food and fuel, are impacting on household budgets in both developed and
                developing economies. Production costs are increasing in the developing economies,
                making them a source of inflation rather than deflation in the world economy. Trade
                imbalances are being corrected as the pattern of growth in developed economies shifts
                away from consumption towards exports. This process of adjustment is expected to be
                protracted and to involve both developing and developed economies. ( p14)

                The report stated ” these developments have had little direct impact on the New Zealand economy” – which proved to be unfounded optimism as unemployment surged to 7.1% and the economy went into negative growth in 2009/10 (http://www.rbnz.govt.nz/statistics/key-graphs/key-graph-real-gdp)

                Pages 14 and 15 of that Report have more to say on the issue, including this;

                Since our forecasts were finalised at the end of August, there have been further
                developments in the global financial crisis, particularly in the US. These developments
                increase the downside risks to these forecasts. (p14)

                […]

                Lower world growth arising from the current
                international financial turmoil is also expected
                to result in weaker demand for New Zealand’s export products and services, including
                tourism. The most direct effect of this is on the prices of commodities which have already
                declined as weaker world demand has become evident. (p15)

                There is your “decade of deficits”, Gosman. Unlike Australia and China, we were not immune to the instabilities of the capitalist system. Especially one that was being rorted through the sub-prime mortgage scam.

              • “Since this was prepared in 2008 that is a decade of deficits.”

                Brought on by the GFC/Recession plus two unaffordable tax cuts, Gosman.

                I gather you are aware of the GFC? The previous chapter of that Treasury report referred to the collapsing markets overseas.

                Nothing mentioned about “structural”.

  5. keepcalmcarryon says:

    Thats pretty much the reasoning Im sure but you are being unneccesarily generous to the political right here.
    The national (National?) debt http://www.nationaldebtclocks.org/debtclock/newzealand at approaching 100 billion from virtually zero under labour must be mentioned, and no the arthquakes didnt add up to that, borrowing for tax cuts was part of it.
    Also lest we forget the disaster of Muldoons financial mismanagement.
    National should never be allowed to preach from the moral highground on this.

  6. Nitrium Nitrium says:

    You say all this, somehow without mentioning the FACT that the current right-wing government has racked managed to “borrow and hope” to the tune of an eye-watering $91,200,000,000 (and that is NOT a typo).
    http://www.nationaldebtclocks.org/debtclock/newzealand
    Labour have been FAR better economic managers than National in recent history.
    https://robinwestenra.blogspot.co.nz/2016/04/the-story-of-new-zealand-debt.html
    https://thestandard.org.nz/who-was-the-better-economic-manager-helen-clark-or-john-key/

  7. WILD KATIPO says:

    Clever speel , Mr Trotter, with some merit….perhaps…

    However , doesn’t it strike you as odd that the Saudi Arabians redistribute their oil money to much of the Saudi populace, – whereas New Zealand lets NZ company’s that donate to the National party take our precious bore water by the truckload and sell it overseas – and then pocketing ALL the proceeds….

    THAT IS AN EXAMPLE of how the Far Right wing can induce fear by using its narrative in this country…

    Have a read of this to see what I mean regarding the differences between Venezuela and Saudi Arabia – both about the same population with the former having more oil. Then you will see the fallacy of the Far Right wing narrative in its total deception.

    Venezuela and Saudi Arabia: Sharing wealth | The Gisborne Herald
    gisborneherald.co.nz/opinion/2360740…/venezuela-and-saudi-arabia-sharing-wealth

    I would suggest all read the above link to get a clearer picture of just whats been happening in New Zealand for the last 33 years…

    • Aaron says:

      A pity that article doesn’t mention how Saudi Arabia is an ally of the US while Venezuela has had to endure constant efforts by the US to destablise the country

  8. Mike in Auckland says:

    Talking about Venezuela, Mr Trotter, perhaps it is not simply politics that has led to the crisis there?

    http://www.tradingeconomics.com/venezuela/gdp

    Yes, present reports make for a grim reading:
    http://www.reuters.com/article/us-venezuela-economy-idUSKBN154244

    “The oil sector, which provides nearly all of Venezuela’s hard currency, in 2016 shrank 12.7 percent, according to an excerpt of a document containing the figures that was shown to Reuters. The non-oil sector shrank by 19.5 percent, according to the document.”

    But it may simply be the over dependence on petroleum exports for GDP and the country’s survival, that has caused this crisis. That dependence was already created by previous governments, who ran a very corrupt and socially unjust, divided society:

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

    “The economy of Venezuela is largely based on the petroleum sector and manufacturing.[17] Revenue from petroleum exports accounts for more than 50% of the country’s GDP and roughly 95% of total exports. Venezuela is the sixth largest member of OPEC by oil production. From the 1950s to the early 1980s the Venezuelan economy experienced a steady growth that attracted many immigrants. During the collapse of oil prices in the 1980s the economy contracted, the monetary sign commenced a progressive devaluation, and inflation skyrocketed to reach peaks of 84% in 1989 and 99% in 1996, three years prior to Hugo Chávez taking office.”

    Add the virtual boycott by banks, due to Venezuela leaving the IMF and World Bank due to them being highly influenced by US governments, and the country was then basically set up to fail, as those organisations and the large banks will not tolerate any state to refuse dependence on them.

    https://www.theguardian.com/business/2007/may/01/venezuela.imf
    “Speaking at a May Day event, Mr Chávez said: “We don’t need to be going up to Washington … We are going to get out. I want to formalise our exit from the World Bank and the International Monetary Fund.” ”

    I am not saying that the Chavez and now Maduro led governments have done everything right and well, they made mistakes in my view, as they must have diversified economic activity and managed the economy more carefully and wisely, but the global system is so set up, to seriously disadvantage any government and country and people, who choose not to collaborate with the global financial systems and the banks and powers that maintain and dominate it.

    Chris you have fallen for the propaganda that prevails, and use it to justify the ‘Pale Greens’ and ‘Nat Light’ aka ‘Labour’ moving further to the right again.

    • WILD KATIPO says:

      ” I am not saying that the Chavez and now Maduro led governments have done everything right and well, they made mistakes in my view, as they must have diversified economic activity and managed the economy more carefully and wisely, but the global system is so set up, to seriously disadvantage any government and country and people, who choose not to collaborate with the global financial systems and the banks and powers that maintain and dominate it. ”
      ———————————————————————————

      As AARON mentioned above , both strong arming by the USA and their banks / foreign policy’s etc coupled with the oil downturn worked against Chavez – also as you mentioned, the time it would have taken to diversify into other industry’s etc… it was simply unfortunate that the American neo liberal system was pitted against them.

      • Gosman says:

        How long should it take a country to diversify?

        • Sam Sam says:

          Is diversifying with in asset classes diversification?

        • Mike in Auckland says:

          First of all a country should be given reasonable time to make the necessary changes, not be dictated to by IMF, World Bank, large multinational corporations and Wall Street et al. If we would have less corruption, sabotage, speculation and commodity price manipulations, then even a country like Venezuela may have a fair chance to get its house in order.

          But you of course only present another bait for those not so well informed, to be dragged into a further troll thread, I fear.

  9. frank says:

    all the while reassuring internationally mobile capital their eggs are safe in a Labour/Green (NZF) basket, so no need to pull out all the stops to prevent the occasion….two birds with one stone.

  10. Strypey says:

    I find it odd that Chris can condemn Gareth Morgan as promoting more neo-liberalism in one breath, then with his very next breath, make piss-weak excuses for what Mike Treen condemns in his piece on this announcement as “Labour and Green’s promise to uphold neoliberal dogmas”.

    TOP policies don’t even vaguely resemble neo-liberalism, neither its economic face (consolidate, de-regulate, commercialize, privatize wealth, socialize risk) nor its political face (corporatize public administation, centralize power, “consult” the public on pre-decided options, spy on and sabotage democratic social movements). So why would Chris – who ought to know better – condemn them as “neo-liberal”?

    In contrast, according to Mike, Labour and the Greens are “are proposing to adopt the dogma that ‘surpluses’ are necessary and we need to reduce the debt to GDP ratio from 30% (already one of the lowest in the OECD) to 20%”, even though these are thoroughly neo-liberal goals, based on delusional and throughly debunked neo-classical economic models. So why would Chris make excuses for this?

    Could it be that rather than using “neo-liberalism” as a critique of a specific ideology and set of polices that successive NZ governments has been in thrall to since 1984, Chris is just using it the same way right-wingers use the words “communist” and “socialist”? Meaningless smears against anyone who threatens the interests of the horse they’ve already put their money on, in the political steeplechase?

    • frank says:

      or it may be the answer is in the fact that incrementalism works both directions….

      “INCREMENTAL CHANGE is, generally-speaking, the most effective expression of democratic government. Most human-beings are uncomfortable with sudden and dramatic change. They can live with it, and through it, if they have to. (Just ask the citizens of Christchurch and Kaikoura!) But most people, given a choice between the status quo and massive upheaval, will opt for the status quo.”

      https://bowalleyroad.blogspot.co.nz/2017/03/john-keys-legacy-protected-status-quo.html

      It is all but impossible to make policy from the opposition benches.

  11. Mike in Auckland says:

    I just wonder how Labour and Greens want to solve the housing affordability crisis, especially here in Auckland, when they will tie their hands like this?

    One bedroom units cost about 400 bucks a week now, in much of Auckland, two bedroom homes cost 500 or even more dollars in rent per week, and three bedroom ones are above 600 or even over 700 to 800 bucks a week in rent.

    Building 10 thousand new homes per year sounds good, but given the high shortage, also because of the since years rather unrestrained immigration, and given that the launching a state funded and supported building scheme takes time to get pace traction, it will be a massive task for Labour/Greens to make rents more affordable again.

    And as they swing towards the neoliberal policies of the Nats, they will likely not dare putting into law rent increase limitations and the likes.

    Here is what goes on Trade Me at present – mostly not really that “affordable”:
    http://www.trademe.co.nz/browse/categoryattributesearchresults.aspx?134=1&135=7&136=&153=&132=FLAT&59=0&59=0&122=0&122=0&29=&123=0&123=0&search=1&sidebar=1&cid=5748&rptpath=350-5748-

    And this humble home for rent was only advertised since yesterday, and already has well over 500 views on it:
    http://www.trademe.co.nz/property/residential-property-to-rent/auction-1288533100.htm

    We need much more radical and firm action than what Labour and Greens have signaled with this announcement!

  12. Siobhan says:

    If its an “outlandish charge” then why on earth would you want to build policy around trying to counter it??

    sheesh.