Radical Transformers? Doesn’t Sound Like It.

By   /   December 2, 2017  /   41 Comments

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TO ACCUSE POLITICIANS of being part of a “tax and spend” government is just another way of calling them social-democrats. By the same token, politicians who explicitly renounce the policies of tax and spend are signalling that they are anything but social-democrats.

TO ACCUSE POLITICIANS of being part of a “tax and spend” government is just another way of calling them social-democrats. By the same token, politicians who explicitly renounce the policies of tax and spend are signalling that they are anything but social-democrats. What, then, should we make of Grant Robertson’s speech to the ANZ Business Breakfast of Friday, 1 December 2017? The short answer is: if Finance Minister Robertson is a social-democrat, then he’s not a very good one.

Let’s begin with the most positive paragraph of his address to the assembled business leaders. Unfortunately, it’s not his. Robertson is merely quoting the core objectives of the Labour-NZ First- Green Government’s “common mission statement”:

“Together, we will work to provide New Zealand with a transformational government, committed to resolving the greatest long-term challenges for the country, including sustainable economic development, increased exports and decent jobs paying higher wages, a healthy environment, a fair society and good government. We will reduce inequality and poverty and improve the well-being of all New Zealanders and the environment we live in.”

There is no avoiding the radicalism of this declaration. “Transformational government” is what happens when the old ways of doing things are jettisoned in favour of news ways of managing a nation’s economy and society. The 1984-1990 Labour government of David Lange and Roger Douglas was unequivocally transformational. It cast aside the political, economic and social assumptions of the previous fifty years of New Zealand history in favour of a market-led society in which taxing and spending would be relentlessly “downsized”.

Significantly, the current Labour-NZ First-Green Government has, in large measure, come into being because just over half the New Zealand electorate was determined to bring an end to and, if possible, reverse, that downsizing.

Unfortunately, it just isn’t possible – on the basis of Robertson’s address to the ANZ Business Breakfast – to see how that can happen. The Finance Minister makes it very clear that the Ardern Government (its promises to bring about “Transformational” change notwithstanding) is absolutely determined to offer “responsible fiscal and economic management”.

In case his audience was in any doubt as to what this entailed, Robertson spelled out Labour’s “Budget Responsibility Rules”:

“To recap, this means that we will deliver a sustainable operating surplus each year unless there is a significant disaster or major economic shock or crisis. We will ensure that government spending as a proportion of the economy won’t rise above the recent historical average of 30% of GDP. We will reduce net core Crown debt to 20% of GDP within five years of taking office.”

It’s important to identify these commitments for what they truly are: a fiscal and economic straightjacket, whose primary effect will be to render the Labour-NZ First-Green Government’s “transformational” promises incapable of fulfilment.

Robertson’s Budget Responsibility Rules will achieve this result all on their own. Throw in Labour’s election campaign commitment to leave income and company taxes unchanged for three years, and what New Zealanders are faced with is thirty-six months of “Austerity-Lite”. Which isn’t quite the “transformation” New Zealanders had in mind when they accepted Jacinda’s invitation to “Let’s Do This”.

Somehow, Robertson’s rigid adherence to “responsible fiscal and economic management” will have to be overcome. Failure to reclaim the ability to tax and spend, or, to put it in less tendentious language: the ability to redistribute wealth from the rich to the poor while accelerating the nation’s infrastructural development in ways that both reduce social inequality and expand individual opportunity; can only result in the Labour-NZ First-Green Government being thrown out on its ear in 2020.

Most of all, the Labour caucus needs to be weaned-off the self-denying-ordinances of neoliberalism. The whole history of our democracy has been about the determination of ordinary people to claim the same rights and privileges that King John’s barons acquired in Magna Carta. Namely, that before the King can tax them, he must first obtain their consent. In other words, determining the quantum and purpose of revenue gathering is the people’s prerogative. Winning control of the Treasury Benches becomes meaningless if the winners then refuse to exercise their right to raise revenue and spend it as they see fit.

If this is, in truth, to be a radical, transformational government, then perhaps its parliamentary majority should consider delivering a small demonstration of radical, transformational politics. All the Labour, NZ First and Green MPs outside Cabinet could agree to meet as a single entity and demand that the “Red October” appendix to the Coalition Agreement be made available for discussion and debate. This revolutionary “Common Mission Committee” could then communicate to Finance Minister Robertson which of the many promises agreed to by Labour were to be financed and implemented. If he refused, a new Finance Minister could be suggested.

Fanciful? Of course, it is! Not least because the Executive could easily thwart such a rebellion by entering into a grand coalition with the National Party. Would that cause the Labour Party to self-destruct? Probably. But wouldn’t that be a more honest outcome than forever putting up with governments run by unelected neoliberal civil servants?

A Labour Party that refuses to tax and spend really should call itself something else.

 

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41 Comments

  1. let me be frank says:

    while it is true that the signs don’t look encouraging take some solace from the absence of the alternative.

    • savenz says:

      Amen.

      Can’t we at least give Labour a quick pat on the back for their miracle come back and strategy that won them the election and gives them the chance to stop, and start reversing the carnage after the Natz?

      My biggest concern with Labour is that first thing they do is seem to try to get the TPPA through – so they look untrustworthy – when they seemed to be campaigning against TPPA. If they screw up, then it’s back to the Natz.

      They need to be careful not to screw up!

  2. dave brown says:

    Yeah a Liberal Party in coalition with a radical petty bourgeois party and a centrist populist party.

  3. Draco T Bastard says:

    Currency-issuing governments can keystroke their outstanding debt into oblivion

    The basic thesis is that central banks have massive holdings of government bonds as a result of Quantitative Easing (QE) programs and “‘unwinding’ these positions:

    … would almost certainly create deflation and a financial crash as it would lead to the withdrawal of massive amounts of liquidity from the financial system.

    The alternative is so-called “permanent monetization”, where the government essentially repays itself for its own holdings of its own debt. If you comprehend that then you will know how ridiculous the whole neo-liberal narrative about the dangers of public debt actually is.

    Last time I looked, the NZ government could directly issue currency.

    We shouldn’t be talking about tax and spend but ?spend and tax. Spend what needs to be spent to get done that which needs to be done and then alter the taxes afterwards to ensure that the deficit (Note: Deficit not borrowing) isn’t too large (it should be about the same as the growth in the economy).

    There’s something that the privatisation people don’t like and that’s the fact that the government can create all the money that it needs and can afford everything in the country without being beholden to the private sector.

    • CLEANGREEN says:

      Beautifully put Draco,

      I was going to say that but not so elequently as you have.

      Chris why is it that you have already stated “we live in a global economy”, so if that is true then why is it that we are one of the only first world economies that has not considered QE????

      Where as of now we have counted 65% OF OUR TRADING PARTNERS HAVE ALREADY (SEVERAL TIMES OVER) USED QE TO PAY FOR “ESSENTIAL SERVICES/INFRUSTRUCTURE??

      Why have we allowed ourselves to buy into this sellling off of all our public assets while other countries are buying them up while using QEto fund the buying of foriegn assets, please tell us as i really are having big issues with this.

      I was at several public meeting where we heard NZF recommended this corse of action to save NZ.

      Why don’t we now use QE as our trading partners have as their economies seem o/k for having done so?????

    • cs says:

      Clean Green and Draco – wonderful to read fellow MMTers and feel that I am not alone….

      I used to think of progressive economic policy as tax and spend/redistribute as Chris suggests but now having studied MMT I see it very differently.

      Essentially, sovereign currency issuing governments with current account deficits should match the savings propensity of the private sector with deficit spending (using keystroke money). As the private sector seeks to save or deleverage sucking demand out of the economy (paradox of thrift), the government needs to deficit spend into it to maintain demand and utilise idle resources like underutilised labour.

      The government does NOT need to tax in order to spend. That is a fallacy. It is NOT a household. It has a magic money tree. It is not in the eurzone, nor is it on a gold standard.

      Yes, if it spends too much and the economy is at true full employment then it WILL create inflation. But we are far from that point right now with true underemployment around 11%.

      Government spending with or without bond issuance has the SAME potential impact on inflation. Bond issuance is unecessary and is just a nice risk free investment for private savings. Bank welfare.

      Now QE is an asset swap where financial institutions get reserves for goverment bonds. The reserve bank buys up the old bonds with new reserves and then the banks etc buy new government bonds at lower yields. However, in and of itself it does not really create economic growth. Just cause banks have loads of reserves doesn’t mean your economy grows through private sector credit or wealth effects. Look at anemic growth in US, UK and EU. The money multiplier idea is a croc.

      But yes, our central bank could buy up all our public debt tomorrow if it wanted to. This would not be inflationary. Banks and savers would just have a whole lot more reserves and look for another place to stash it. They would not rush out and spend it. If your Kiwisaver became cash tomorrow would you spend your nest egg all at the mall in one day? No, not likely.If anything removing the bonds might be deflationary as the interest payments were no longer paid.

      What we really need though, is not so much QE, which is just an asset swap that at best reduces yields and makes people superficially happy by government debt being on the central bank’s books (which it can NEVER default on unless it is being perverse), but deficit spending. So households can deleverage and save again and the economy can grow without forcing households into increasing debt. No need for bond issuance at all.

      Now EVERYONE who wants a progressive shift in economic policy needs to go and read Bill Mitchell’s blog. He is a true intellectual heavyweight and MMT is the way forward. His writings are extensive and he addresses your every doubt. You won’t realise how colonised your supposedly progressive mind has become with neoliberal economic ideas until you read it.

  4. Siobhan says:

    Communist In All But Name! Is Jacinda About to Oversee the Second Peaceful Transition to Kiwi Socialism?“(you, way back on Nov. 23)…well, according to your opinion this week…I guess not.

    Is this all just click bait, or endless devils advocacy…or do you have a requirement to have so many opinions per month??

    But I do like your line..”A Labour Party that refuses to tax and spend really should call itself something else.”…to many of us that’s not an opinion, or, for that matter, a judgment, that’s actually just a political and economic reality.

  5. Sam Sam says:

    Wealth inequality is a function of savings, not income.

    You know, questions like this make me really angry. I’m sick and tired of amateurs with zero trading and investing skill who then trade and invest and get screwed over by industries in deep structural decline giving financial advice having never experienced a single day of true poverty completely dismiss progress made in the third world. We literally had parents raising children on $2 a day. There is a vast, enormous gulf between $1 a day and $2 a day, and between $0.5 a day and $1 a day, and so on.

    The 3rd world impact is the same the world over. At $2 per day, you lived something like, six or so people in a one or two bedroom prefab of maybe 25 square meters. There is electricity, a TV, running water, and if you’re lucky a toilet. If you didn’t have a toilet you had to shit in a hole in the ground, if you were lucky it was I enclosed. At $3-4 a day the prefabs don’t change except you got an actual bathroom with a toilet, a refrigerator, and possibly even a fire place. Coal stoves were the standard and if you wanted hot water you boiled it. Food generally had to be sourced fresh, every day and were delivered watered down milk from a milk man, this was part of some sort of nutrition program you had to pay into. This is basically how the the entire population lived, that was how the comfortable middle classes used to live.

    At $1 per day, instead of 6 people to an prefab, it’s 6 people to a bedroom. There is still running water and electricity, but zero privacy.

    At below 50 cents per day, you lived in Pā’s similar to tent city. I’ve never lived in a tent city but it’s obviously not pleasant. I also have little experience with rural living but they were even poorer. There was no running water or electricity and very little access to healthcare.

    The middle class today is what we should be aiming at. There is hot water, wifi, AC, an actual bathroom, and basically anything you’d find in a western dwelling. It’s fucking incomparably better than where we were in yesteryears. So very quickly you should be able to see the value of short term progress multiplied by time being equal to our potential.

    Now I don’t know how y’all are going to do it in your own space but you will turn this boat around because the vast majority are moving backwards towards voluntary unpaid work.

  6. Peter Bradley says:

    This article is why I ALWAYS read Chris Trotter articles. This one nails it right between the balls. There is a general timidity to renounce the “better not upset my middle class mates” approach to economics and Labour is balancing itself on that line precariously. End child poverty and continue to indulge the middle class fantasy of low taxation.
    I don’t think you can have both. I do understand the reason for the timidity but boy does it get my blood boiling. Labour are playing a strategic long game – get the trust of the business sector first – term 1 and then be slightly more adventurous in term 2 – etc.

    I get myself so wound up about the center left not confronting the mythologies of wealth accumulation and economics. It’s not about punishing the super wealth either (though it will be a consequence of the following). The middle class needs to learn and understanding what a re-distributive economy looks like and being happy to pay for it because everyone they know and interact with will benefit.
    Labours campaign ads next election should go something like this:

    “Hi my names Dave. I’m a successful small business owner and Labour is going to raise my taxes if they lead the next government. That means I won’t be able to buy that new jet boat I wanted next year and we’ll have to think twice about the family holiday to Australia.
    But you know what – I don’t care. The jet boat and holiday can wait. My friends daughter can’t wait she desperately needs the health care that Labour have said they’ll increase funding for. I’m voting Labour – it might save someones life.”

    “Hi my names Sue. I’m a single mum with 3 children and we have no secure accommodation. Labour have said they’ll invest in new social housing and introduce a Universal Basic Income if they win the next election. This will be life-changing for me and my children. I’m voting Labour – I can’t afford not too.”

    “Hi my names Stewart. I’m a successful property investor from Hamilton. I used to think that people on welfare were useless bludgers and I used to think paying taxes was for suckers and I did everything I could to avoid paying them. Then my brother became severely mentally ill and was taken into the mental health system. I did not catch up with my brother for some time and when I did he talked about the people who had helped him and got him through. From social workers, nurses, police officers and the staff at the facilities that cared for him. I realized something very profound at that moment – I, the successful businessman, had done less for my brother than a series of strangers – many of whom were poorly paid and all of whom paid their taxes. I realized that being wealthy and successful meant I have more responsibility to pay taxes not less! I’m voting Labour – without funding for the types of services and benefits my brother received I’d be a much poorer man.”

    Labour Campaign ad writer available for work!

    • CLEANGREEN says:

      Brilliant Peter,

      Labour; – employ that man now Labour.

    • let me be frank says:

      that is in fact not a bad strategy…certainly worth exploring

    • cs says:

      I appreciate the sentiment. And a while ago I would have said the same thing. Here’s the thing though…. we don’t need to tax incomes on middle nz more for the government to spend more.

      Given the slack in our economy at the moment (lots of underutilised labour evidenced in our low inflation, spare productive capacity – look at the mass of empty commercial property in Christchurch for example), the government could just spend a bit more, solve some social problems and provide a good fiscal stimulus without creating inflation.

      Now taxation is not about funding anything. It is about controlling inflation by sucking money out of the economy and redistributing access to real resources by controlling who has purchasing power. Let’s take away some purchasing power from the very rich. I think that is a good idea. The are too rich and that level of inequality is bad.

      But we don’t need to tax middle nz more right now a priori to fund some progressive programmes. Middle NZ aren’t doing that great with record household debt. Taxing them more would be tough on many households and is toxic for the left electorally. We can deficit spend instead in a targeted non-inflationary way that ammeliorates the problems we face without taxing that money out first.

      Counterintuitive I know.

      • let me be frank says:

        only in a closed economy

        • cs says:

          Why? Inflation? Spending would not be inflationary in current circumstances with slack. Capital flight? Why fly from a booming economy? Does China not want to export to us anyone and hold our currency? Bonds? Central bank can buy the bonds or not issue them at all! What happens exactly when nz government decides to deficit spend a bit? Outline me the chain of events? Lower dollar improves exports. Yes there might be a bit of imported inflation… maybe. Explain to me exactly how your doomsday scenario plays out.

          • Sam Sam says:

            At the moment wealth is extracted out of NZ as upossed to fleeing. So we buy more Chinese goods than they buy from us meaning Chinese investors get more of our money than we get of there’s, essentially.

          • let me be frank says:

            yes have read that argument (and other similar) before, unfortunately what all of them (conveniently) ignore is the control of the priority of that FX spend.

            As to you putting words into my mouth by claiming ‘doomsday’ I suggest no such thing , what I do argue is IF MMT is to be purported as a solution then its proponents should at least be honest about its implications to the type of lifestyle it will afford those in a regular net trade deficit situation…case in point NZ.

            If you wish to avoid the risk of foreign denoted debt default (as acknowledged by MMT architects) then the FX spend must be controlled…by whom and how?

            What goods and services do you think the electorate will be willing to forgo?

        • Draco T Bastard says:

          Which is, of course, a bunk argument.

          Or is the gloabl economy really importing capital from Mars.

          • let me be frank says:

            or you could answer the question on CS’ behalf..but i suspect youre incapable

            • Draco T Bastard says:

              You’re the one not putting forward any arguments. Just sound bites that you think makes you sound informed when really they just prove your ignorance.

              • let me be frank says:

                thanks for confirming my suspicion

                • cs says:

                  Frank….I hear you and prominent mmters have addressed this issue.

                  I defer to bill Mitchell on this.

                  Interesting read
                  bilbo.economicoutlook.net/blog/?p=5402

                  • let me be frank says:

                    interesting, particularly in the use of Argentina as an example..(i note the date of the article is 2009)…have a look at the current inflation and interest rates and exchange rate decline…an unfortunate choice.
                    https://www.weforum.org/agenda/2017/01/argentina-and-inflation-what-the-rest-of-the-world-can-learn

                    And the the issue of trading deficit is dismissed , concluding with the bizarre statement..”Finally, where imported food dependence exists – then the role of the international agencies should be to buy the local currency to ensure the exchange rate does not price the poor out of food.”

                    Proponents will need to come up with better than that if they wish to be taken seriously….MMT as outlined in that article is a sure fire recipe for societal division of haves and have nots based on access to FX….no thanks

                    • Sam Sam says:

                      Sleepy hobbits of nu zilind are increasingly out of touch with what’s really going on.

                      Bitcoin has created 33 million millionaires and will destroy all central bank ideology.

  7. dpalenski says:

    Didn’t Cullen increase the top rate before National cut it? How far we’ve fallen to get the social stimulus we need

  8. J S Bark J S Bark says:

    Sell outs?

    Assuredly…

  9. Shona says:

    Thanks Chris. Hitting the nail into the coffin of this Labour Party’s promises. I have said all along Robertson needs to go. He is a waste of space.

  10. The Masked Moa says:

    Government agencies are currently secretly preparing for the worst case scenarios with earthquakes and tsunamis e.g. police thinking of building bunkers in major centres to house food and water and medicines that would be cut off in a major quake e.g. Hanmer.

    Key risk faults: 1. Alpine; 2 East Coast Hikurangi + tsunami; 3. Wellington + tsunami; 4. Christchurch fault line under city that could go off like Greendale fault line. 5. Volcanic activity (less probable but high damage to economy in Auckland).

    The government knows the risks (that the public is not told) and that the fiscal approach requires a low debt level to quickly ramp up recovery efforts paid for by 10’s billions in loans. Granted not the only reason they are doing it, but something to keep in mind.

    Personally I think they should Social Credit up the money they need and not have to pay anything off.

    • cs says:

      The NZ government does not need to borrow money off the private sector to pay for anything. Ever. It can always buy whatever is for sale in its own currency.

      “Social credit up the money” – is basically saying “deficit spend the money” that needs to be spent. Bugger selling bonds to mop up the excess bank reserves this creates once the spending is done. Bank welfare.

      Welcome to MMT my friend.

      The constraint on government spending is never financial. It is whether there are underutilised real resources in the economy that can be bought. If there are, deficit away. If not, then you will get inflation.

      This idea that we need to keep low public debt in case of a disaster is ridiculous. The government can always spend what it needs to spend to get the economy going. Look at US in WW 2.

      The nadir of this ridiculous argument is that we need to keep low public debt cause the private debt in NZ is so high – if the banks collapse we’ll need to bail them out by government borrowing. So we’ll borrow our own currency off the banks to bail them out with it???

      All the while the constant contractionary surpluses from our goverment force households into increased debt to maintain standards of living, destabilising the financial system. The excessive government parsimony creates the very conditions for a bank collapse.

      Alice in Wonderland comes to mind.

  11. Afewknowthetruth says:

    ‘sustainable economic development’

    In other words the usual bollocks we have been subjected to for decades.

    Nothing in the current system is sustainable due to the fact that everything is predicated on burning fossil fuels and overheating the planet buy doing so: fossil fuels are well past peak in quality and will soon be past peak in extraction rates; and planetary overheating has never ([n human history] been worse. Hardly surprising when atmospheric CO2 is 407 ppm and rising.

    Nevertheless, the ‘idiots’ we have as so-called leaders just keep banging the same idiotic drum they have been banging for decades.

    • Afewknowthetruth says:

      ‘by’ not ‘buy’

      An edit function, whereby we could correct our typing errors, would be good.

  12. Richard Christie says:

    If this is, in truth, to be a radical, transformational government, then perhaps its parliamentary majority should consider delivering a small demonstration of radical, transformational politics.

    A decent first show of good faith would be to stand up for our right to exercise democracy by ditching the TPP.

    But CT thinks that is too difficult as it might upset those that don’t value democracy.

  13. Andrew says:

    I suspect Labour were as surprised as the rest of us that they found themselves in government.

    So they had to quickly convert all that opposition rhetoric into actual policy….and found that most of it was nonsense.

    • …and found that most of it was nonsense.

      What? You mean like regional development? Housing the homeless? Proper funding for public healthcare (including mental health)? Cleaning up our waterways?

      If that’s all “nonsense”, long may we have a nonsensical Labour-NZF-Green coalition government. Far better than National’s “common sense”.

  14. Andrewo says:

    Welcome to the new boss
    Just like the old boss

    and yes, you will get fooled again!

  15. Marc says:

    NOTHING much will change, as long as we have the media landscape and ownership that we now have, as long as we have the vested interest business lobbyists and their supporters feel emboldened and able to spread their ‘expert’ views, and as long as most are so docile, they rather put up with being ‘raped’ and disowned, than go and lay a complaint against their treatment.

    Even the latter is not sufficient, street action, occupation of core infrastructure and the likes may be needed to seize control (that is by the people), but who dares ‘break’ the law?!

    Brainwashing continues, neoliberal narrative continues, the same opinion shapers are at work, and people follow them too blindly, daring not to rock the boat.