The economy

October 8th, 2008 at 7:44 am by David Farrar

News that the of Australia has dropped their official cash rate by a huge 100 basis points gives some inidcation of how weak various economies are.

released their quarterly survey of business confidence yesterday. On the basis of it they predict the recession will last for at least another two quarters. A net 32% of firms have reported a decline in trading activity and a net 13% expect trading activity to fall further in the next three months.

It is in that context, and the decade of deficits announced by Michael Cullen on Monday, that National have modified their tax package which will be announced later today. This is both necessary and responsible. The public want a tax package that takes account of the last few weeks, let alone the last few months.

The scary thing with the numbers is they were finalised five weeks or so ago, so do not include the latest shocks from the US. As the Herald says:

Party leader John Key yesterday admitted that the pre-election opening of the books by the Treasury showed a picture that was much worse than he had expected.

“We’d always expected a slowdown, but I don’t think anyone saw deficits for 10 years and such a deterioration in the accounts.”

The economic and fiscal update showed cash deficits forecast to reach $7 billion and budget deficits for the next 10 years. …

No-one at all was expecting it to be that bad.

Also behind the decision is the fact that the forecasts revealed by the Treasury this week do not take into account the tumultuous events of the past month, in which banks have collapsed, the US Government has approved an enormous bail-out deal for Wall Street, and the flow of credit internationally has virtually seized up.

Who knows where it will end. Now this is no reason not to have at all – they are important as one factor in lifting economic growth. But some caution around size and timing is essential.

Prime Minister Helen Clark yesterday cast doubts on ’s statement that it had scaled down its tax cut plan.

“I believe they over-promised on their tax package and they are now using the excuse of the books to try and talk down expectations,” she said.

I am tempted to call the PM a moron for that comment, but I know she is not a moron so all I’ll say is she is playing dumb. If she really thinks a decade of deficits is simply an “excuse” then she is in la la land.

But here is what is really interesting. We have seen National says “Yes we will modify our plans in wake of the financial crisis” while Labour says it is not going to change anything. Dr Cullen ruled out any change to tax or spending in the PREFU lockup. At most they might delay some of WInston’s new bureaucrats. Labour are happy to have ten years of deficits and debt rising from under 20% to 30% of GDP.

Labour have had it easy for the last nine years. They have never had to make tough decisions, and now the is in reecession they have no idea and no plan as to what to do to prevent a decade of deficits. Their biggest problem for the last decade has been what new schemes to dream up to spend our money on – hey lets put a billion more into Working for Families, no no lets buy some trains for a billion, no no let’s give pensioners free bus trips, no no let’s give public servants a pay rise but only if they join the PSA etc etc.

Because the economy, helped by strong commodity prices, has been so strong they have been able to say no to measures that would boost labour productivity and economic growth. Many of these measures (such as RMA reform) will be unpopular with some lobby groups, so why bother to take the heat, when hey we have enough money without such reforms.

But now Labour has run out of money. They are content to run ten years of deficits. They are not willing to take any hard decisions about lifting our economic growth, let alone paring back any of their spending schemes.

We’ll hear later today what National’s plan is. I think it will be measured, significant and popular. It will of course be attacked by Labour and the unions. National could announce the second coming, and Labour and the unions will attack it. Hopefully at some stage, somone may ask Labour what their plan is? Their plan is to not change tax rates and not change spending significantly. Their plan is a decade of deficits.

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27 Responses to “The economy”

  1. MyNameIsJack (2,415 comments) says:

    It might be handy to keep in mind that this is just a prediction, somewaht akin to that of an astrologer.

    Maybe you could go back to the last PREFU and blog on how that turned out, including it warning that this PREFU was to come.

    There’s many a slip twixt cup and lip springs to mind.

    having just bo bored shitless by the economists TVNZ trotted out this morning, I relly do think they should have an astrologer and a tarot reader on tomorrow – they will probably be more entertaining and yet just as informative. :-)

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  2. dad4justice (8,148 comments) says:

    Are you sure your name is not MyNameIsWhacko ?

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  3. MyNameIsJack (2,415 comments) says:

    I am positive that MyNameIsJack – you, on the other hand, just have five more fingers to do your wanking!

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  4. Glutaemus Maximus (2,207 comments) says:

    Helen Klark is the best proponent of ‘Doublespeak’ that I have ever come across.

    “I believe they over-promised on their tax package and they are now using the excuse of the books to try and talk down expectations,” she said.”

    There is no escape from this nasty witches, acidic tongue. Go and drown some Kittens you horror!

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  5. dad4justice (8,148 comments) says:

    MyNameIsEarl ; I will not lower myself and dwell in Liarbour gutter tactics. TVNZ is saturated by moronic politicians and the economy is stuffed.

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  6. Lindsay Addie (1,473 comments) says:

    I don’t see how Clark and Cullen have anywhere to go now when debating the economy. It is them who have left the economy in a shambles. So Key and English should tell them to STFU.

    I’m actually astounded that they haven’t blamed the National Govt’s of the 1990’s for the perilous state of the NZ economy!

    I do agree with the point DPF makes in his post and that is that the economy is probably worse remembering the PREFU was done 5 weeks ago.

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  7. slightlyrighty (2,472 comments) says:

    One of my favourite movies is Animal House. Not only was it a landmark film in breaking many taboos of the 70’s, and forever immortalised Toga Parties, and was the best 2 hours of John Belushi’s career.

    It also marked the film debut of one Kevin Bacon as an obnoxious preppy student, who pledged the obnoxious, preppy Omega fratenity and ended the film as an ROTC cadet, in the middle of the homecoming parade destroyed by Delta House, trying to stop a stampede of terrified townspeople by standing there, looking officious, with his hands in the air shouting “ALL’S WELL!!” while the shit is hitting the fan.

    This seems to be the approach of Dr Cullen. At a time when we should be looking to him for some sort of economic direction and leadership, when it is obvious that the shit has hit the fan, and he has known for 5 weeks and has been aware of this during the entire wall street meltdown, we have had the All’s Well approach.

    National has come out with amended policy within days. They could not have done so earlier because Cullen was sitting on this bombshell of a report.

    Cullen needs to be severely taken to task over this issue. It is obvious that he cannot be trusted. His action is to do nothing, and then accuse John Key of flip-flopping when he takes the necessary steps.

    Watch this space. The area of global macro-economics is now center stage. Who do you think is best qualified in this area.
    Cullen the history teacher, Clark the social engineer or John Key, the former Merryl Lynch executive?

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  8. Adolf Fiinkensein (2,889 comments) says:

    Very good summary David. You forgot to mention Clark’s dereliction of duty in ‘running away” from the battle for two weeks immediately she got a look at the figures. Remember her bizarre smart arse comment? ‘We’re not going to announce any policy for two weeks – until the international markets stabilize.’ I hope Key and English go in very hard on Labour today. It’s time for the gloves to come off.

    BTW Dad, MNIJ is quite right but even Treasury can’t get it that wrong.

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  9. llew (1,533 comments) says:

    I’m actually astounded that they haven’t blamed the National Govt’s of the 1990’s for the perilous state of the NZ economy!

    Roger Douglas should be good for a few Polling points.

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  10. Lindsay Addie (1,473 comments) says:

    llew,

    shhhh!!

    Don’t mention Roger Douglas, Clark and Cullen will blame his as well!

    :lol:

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  11. Fisiani (1,032 comments) says:

    After Key’s speech today setting out the well thought out plan for economic recovery what will he be called?

    THE GREAT REDEEMER

    MOSES THE MONEY MANAGER

    THE SAVIOUR

    THE CHOSEN ONE

    DOOMBUSTER

    THE MAN WITH A PLAN

    THE GREAT HOPE

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  12. kiwipolemicist (393 comments) says:

    DPF is right about Helen Clark not being a moron: she is more akin to a highly intelligent sociopath experiencing a sustained bout of delusionalism and psychosis. Some of those serial killers you hear about in the USA are highly intelligent sociopaths, and part of what makes them so dangerous is that they plan things well in advance, just like Helen.

    http://www.kiwipolemicist.wordpress.com

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  13. OECD rank 22 kiwi (2,746 comments) says:

    The PM is a moron.

    We’ll witness that on 8 November. What fun!

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  14. Gooner (995 comments) says:

    John Key should simply refuse to answer any questions in respect of any more policy or even put out any more policy until Labour releases its policy for the next term. Labour has not produced one policy, not one, and so its shrill cries for National’s policy should fall on deaf ears. The answer to any question from now on about National policies should simply be “where’s Labour’s policies. They haven’t got any because they are both visionless and clueless”.

    Then shut mouth.

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  15. MikeE (555 comments) says:

    National shouldn’t be modifiying their tax package, they should be modifying their approach to the state sector, rathern than reducing tax cuts, shouldn’t they be reducing the number of Government Departments that serve virtually no purpose, getting rid of kiwibank, getting rid of transrail, getting rid of the ETS.

    National have NO vision for NZ.

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  16. CraigM (694 comments) says:

    I know this is an old chestnut but why oh why can’t the media focus on the real issues?

    Papers this morning are full of “what will National/Key do?” “can national afford tax cuts “etc..

    Where is the outrage at the state of our economy?
    Where are the questions/comments about Labour’s spend and bust policies?
    Why aren’t Clark and Cullen being hung, drawn and quartered?

    Are we really expected to swallow the “it’s the global economy’s fault” line?

    The best line I heard was on ZB on Monday evening after the books were opened. Someone sent a text in and said that Clark & Cullen should be charged with fraud.

    The next person said the only thing they should be charged with, is electricity.

    Priceless.

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  17. glubbster (344 comments) says:

    There is no doubt she is a moron when it comes to the economy though..she is clueless.
    Key is going to nail her in the election debates since the focus will be on economic policy.

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  18. WraithX (283 comments) says:

    Is John Armstrong a total idiot? How can he be paid to write for a paper when he clearly lacks any brainpower at all?

    “The ugly numbers are down to international circumstances. They are not the finance minister’s fault.”

    http://www.nzherald.co.nz/nz-election-2008/news/article.cfm?c_id=1501799&objectid=10536345

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  19. NeillR (351 comments) says:

    Dr Cullen ruled out any change to tax or spending in the PREFU lockup
    Worse than that, they continue to pile the taxes on. Just yesterday they approved the regional 10c/litre fuel tax to fund the electrication of rail and to pay for some regional roads. So in the face of “the worst financial crisis since the Great Depression” Labour thinks the best way forward is to keep socking it to the taxpayer. Talk about flogging a dead horse!

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  20. Redbaiter (13,197 comments) says:

    Labour’s plan?? No secret is it. Everybody already knows what Labour’s plan is.

    They are going to by way of legislation, steal money from the productive sector, and dole that stolen money out to dole bludgers, fake sickness beneficiaries all the way thru to over paid party apparachiks filling cronyist positions in government bureaucracies who in return for receiving that stolen money, will agree to vote Labour.

    Labour does this with one objective in mind. Political power. They will send the country broke, bring its society into dissaray, deconstruct every social more that has made NZ what was once such a great little country, and reduce it to an inwardly collpasing crime ridden Marxist sewer. That’s Labour’s plan. Power at any cost.

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  21. Redbaiter (13,197 comments) says:

    Oh, and I forgot- they do the above with the connivance of propagandists like John Armstrong- a member of the fourth estate that once played a large part in protecting us from corrupt governments, but nowadays, because of their allegiance to the ideological poison of socialism, are willing accomplices to those who engineer NZ’s social and political and economic decay. Traitors to their profession.

    ..and even if his whining about NZ’s economic situation not being down to the the Kark/ Kullen gang, ever had a glimmer of truth, if it is not Kullen and other local ideologues to blame, it is their overseas counterparts. There’s only one lesson to be gained from all of this- keep government hands out of people’s pockets, keep government regulations out of people’s lives, and keep socialists out of government.

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  22. s.russell (1,621 comments) says:

    Labour has no economic plan because they don’t understand the economy. In the Labour universe the economy is little more than a cash machine. It produces money for them to spend and that is its only importance.

    The only reason to grow the economy is that this makes it politically easier to pursue their core goal of ever-greater equality. Now that the economy is in trouble they have no idea what to do, so they just freeze in the headlights.

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  23. PhilBest (5,121 comments) says:

    SlightlyRighty:

    “……Watch this space. The area of global macro-economics is now center stage. Who do you think is best qualified in this area.
    Cullen the history teacher, Clark the social engineer or John Key, the former Merryl Lynch executive?”

    And tell me, why would Roger Douglas NOT be better?

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  24. PhilBest (5,121 comments) says:

    Glutaemus, Expat, SlightlyRighty;

    ELEPHANT IN THE ROOM:

    NZ has its own home-grown crisis even worse than the US one. We have had a much larger housing market “bubble” than they have. We have had just as much of a slowdown in the housing market as they have. Our market is adjusting down by at least as much as theirs, and we are confronting similar equity losses. We have had more financial institutions fall over. Our economy has actually gone into recession – theirs has not. Our unemployment increase is probably worse than theirs if our statistics were not creatively managed.

    We are actually fortunate that our biggest financial institutions ARE overseas-owned, and owned by companies much bigger than NZ itself. If our financial sector was a domestically “sealed unit”, it would have collapsed completely.

    Our media is too busy scoffing at the collapse of capitalism on Wall Street, to notice. This has the spin-off benefit that we have not got a panic “run” situation.

    But people who talk about NZ being in a sound position and being dragged down by the spin-off from the rest of the world, particularly Australia, are deluding themselves and most of the rest of us. The truth is the exact reverse of that.

    And yep, John Armstrong is worse than a total idiot, he is a stooge of total idiots.

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  25. PhilBest (5,121 comments) says:

    Regarding H1 on the 8 November, do her fans expect her to show up what a wonderful person she is, gracious in defeat, and all that? I am imagining scenes that are not pretty………

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  26. riki (224 comments) says:

    Can some one help me here

    every budget day for years, Micheal Cullen told the country we were hundreds of millions in the black

    Now we’re virtually broke?

    Treaty claims is apparently one culprit. maybe the buying back of the rail ways another.

    There’s only one more surprise I haven’t got yet. That we haven’t been told red is the new black… still a few weeks to go.

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  27. Pascal (1,969 comments) says:

    riki:

    every budget day for years, Micheal Cullen told the country we were hundreds of millions in the black

    Now we’re virtually broke?

    Cullen lies? Fudges figures? Spent it all on election year bribes they’re going to announce through public service announcements as electioneering material? The options are endless when dealing with Labour / Greens.

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