Herald on Spending
February 26th, 2009 at 9:31 am by David FarrarThe Herald editorial says:
Now, as Mr English admitted this week: “We have ended up with the worst of all worlds.” We have Labour’s level of public expenditure and we are about to get National’s level of taxation.
Something has to give. If National will not postpone tax cuts due in April, it must trim some of the programmes it has inherited. The most costly of them, interest-free student loans, free childcare, KiwiSaver subsidies and the upper reaches of the Working for Families grants, should be means-tested more tightly to avoid taxing people to provide benefits they could pay for themselves. None of these would be politically painless and one or two are policies John Key has promised not to touch.
But National needs to cut core public spending to match its tax cuts even as it considers borrowing a much larger amount to fund counter-recessionary spending.
This is just plain misleading. Is the editorial writer not aware that National already cut public spending to match its tax cuts? National primarily cut the KiwiSaver subsidies, to fund the tax cuts. This must be known to the editorial writer (Labour harped on about it non stop during the election), so why is it ignored?
And National’s policy, with the wisdom of hindsight, was 100% correct. Because the billions that were to go into KiwiSaver subsidies would have been locked up for decades. Instead they are adding to the fiscal stimulus so badly needed now.
To clarify what it is doing, its Budget needs to present the public with two accounts: one for the temporary relief it is borrowing, including the cost of capital for infrastructure, the other to bring core public spending into line with the permanent changes to income tax rates and thresholds.
National’s tax cuts have been paid for by reduced spending. That has already been done. The problem is not the level of tax rates, but the level of income earned, and hence the amount of tax collected.
Now I fully agree, we should restrain spending now – but only in ways that do not break election promises. And frankly I am getting sick of Herald articles and editorials continuously calling on National to break its election promises. Because I’m bloody sure there have been a lot of editorials in the past condemning parties that did break their election promises. There is a degree of moral hypocrisy at play here.
I agree interest free student loans is stupidity. However National made a promise not to start charging interest again, during this term of office anyway. I want National to keep all its promises, not just the ones I agree with.
Related posts:
- NZ Herald on Spending Cap
- Spending cuts planned to fund KiwiSaver
- Ralston on promises
- Herald on tax cuts
February 26th, 2009 at 9:38 am
I agree with DPF here, National has made cuts, and while I dont agree with some , others I would go further, but they won so somebody has to eat that
Vote:February 26th, 2009 at 9:46 am
Come on David – you’re being too precious about keeping spending promises that were made in a different world. Yes its important for new governments to deliver on their key election promises, but NZ voters aren’t so stupid that they’ll insist on implementing every word of last year’s pre-election policies now that the global economy has turned, the govt’s fiscal track has nosedived, and everyone’s seen all the boobytraps Cullen left in the govt’s accounts.
Nats should front up to the public and say what Obama’s saying in the USA. Fiscal stimulus is needed in the short term, sure, but now is also the time to plan on taking some unpleasant medicine to deal with a chronic condition. NZ has structural deficits for the forseeable future because govt has indulged voters’ desire to spend like Luxembourg while earning like Mexico. Student loans would be one place to start. The herald’s picked a few more sensible places to look – mostly money-go-round middle class welfare that eats away at productivity and incentives to work.
The govt shouldn’t be afraid of the media and Labour making some short term noise about the micro detail of election promises.
If the Nats need a political figleaf (and I don’t think they do), MMP offers them one – they can say “ACT made us review it”. That and “Michael Cullen left us a pile of shit to clean up – just as he promised to”
[DPF: The fiscal situation in 1990 was arguably more dire than in 2008. Not only was there a projected $5 billion deficit, debt was much higher than it is today. National did break its promises in 1990, and it took 18 years to recover from that. The public do not remember later on why you broke your promise, only that you did.
If National wants to change policies, it should do so after the 2011 election, when voters have had a chance to vote on it.]
Vote:February 26th, 2009 at 10:09 am
Stop whining you three.
Its called a free press.
Vote:February 26th, 2009 at 11:14 am
I agree with almost all of what JohnMacc is saying, I can’t understand why he has been hit with only negative karma points so far.
“…..Come on David – you’re being too precious about keeping spending promises that were made in a different world. Yes its important for new governments to deliver on their key election promises, but NZ voters aren’t so stupid that they’ll insist on implementing every word of last year’s pre-election policies now that the global economy has turned, the govt’s fiscal track has nosedived, and everyone’s seen all the boobytraps Cullen left in the govt’s accounts.
Nats should front up to the public…..”
HEAR, HEAR.
“…..and say what Obama’s saying in the USA…..”
That is the bit I do not agree with. Obama and the Democrats will prolong and worsen the depression just like FDR did in the 1930′s.
“……Fiscal stimulus is needed in the short term, sure, but now is also the time to plan on taking some unpleasant medicine to deal with a chronic condition. NZ has structural deficits for the forseeable future because govt has indulged voters’ desire to spend like Luxembourg while earning like Mexico……”
HEAR, HEAR.
“…….Student loans would be one place to start. The Herald’s picked a few more sensible places to look – mostly money-go-round middle class welfare that eats away at productivity and incentives to work.
The govt shouldn’t be afraid of the media and Labour making some short term noise about the micro detail of election promises……”
And why should the government be afraid of the media if the media are the ones who have woken up now and are calling for more responsibility and facing up to the reality of the situation we are in? This is an incredibly heartening phenomenon, the like of which has hardly been seen since the Great Communicator Lange got most of the media and the public on board in confronting the legacy of Muldoonism; only this time things are so bad that we don’t even need a “Great Communicator” to wake the media up, or at least the Herald Editor.
“…..If the Nats need a political figleaf (and I don’t think they do), MMP offers them one – they can say “ACT made us review it”. That and “Michael Cullen left us a pile of shit to clean up – just as he promised to””
HEAR, HEAR. Well said, JohnMacc. I agree that the Nats do not even need a fig leaf. DPF is being incredibly pedantic insisting that the Nats doom themselves and the whole country to failure by sticking to promises that will result in greater disaster for our economy. Or is there some kind of schadenfreude at work here, where the people of NZ deserve the worst, after all, they are the ones who have asked for the disastrous policies and refused for 3 terms, to elect people like Roger Douglas and Don Brash.
Vote:February 26th, 2009 at 11:16 am
[DPF: The fiscal situation in 1990 was arguably more dire than in 2008. Not only was there a projected $5 billion deficit, debt was much higher than it is today. National did break its promises in 1990, and it took 18 years to recover from that. The public do not remember later on why you broke your promise, only that you did.
If National wants to change policies, it should do so after the 2011 election, when voters have had a chance to vote on it.]
All right, give the people the facts, and hold another election now. We are fiddling while Rome is burning. If the people of NZ want to do the economic equivalent of earning a Darwin award, let them put the bloody socialists back in office again so that at least the historical blame lands on the right quarter.
Furthermore, DPF, in 1990, the people of NZ did not owe $44,000 each in net overseas PRIVATE debt, and the government was not looking at going 80 billion into debt to turn the economy around.
Vote:February 26th, 2009 at 11:20 am
Bernard Hickey: “Dear John: Please Tell Us The Truth About The Economy: We Can Handle It”
http://www.stuff.co.nz//blogs/showmethemoney/2009/02/24/dear-john-please-tell-us-the-truth-about-the-economy-we-can-handle-it/
Vote:February 26th, 2009 at 11:22 am
Abraham Lincoln:
“I am a firm believer in the people. If given the truth, they can be depended on to meet any national crisis. The great point is to bring them the facts”
Ludwig Von Mises:
“No one can find a safe way for himself if society is sweeping towards destruction. Therefore everyone, in his own interest, must thrust himself vigorously into the intellectual battle.”
We desperately need to have:1) The facts
Vote:and 2) The intellectual battle. This has as much to do with the mainstream media as it has to do with the government.
February 26th, 2009 at 11:24 am
Bernard Hickey:
“Dear John,
Please tell us the truth about the economy and what it means for our standards of living. Tell us what we need to do as a nation and as individuals to get through this with the minimum of pain for ourselves and succeeding generations. Tell us what we’ve done wrong and how we can fix it.
Trust us with the truth. I think New Zealanders can handle it because deep down we know something is deeply wrong and know we need to change. We’re just not sure exactly what to change and we haven’t had someone “in charge” tell us what to do.
According to the latest polls, most of us trust you and like you. We are craving leadership and we know real leaders sometimes tell us things we don’t want to hear…..
“………You could start by giving this speech at the jobs summit this week.
Clear throat. Look uncomfortable. Deliver in a sober manner. Shouldn’t be a hard delivery style.
Fellow New Zealanders, I have a few uncomfortable things to say.
I think it’s time we confronted the most serious threat to our economy in 80 years with a common understanding of what went wrong and how to fix it.
We will get through it, but it’s going to take more than a decade and most New Zealanders will experience lower standards of living during that time. We need to work together to make sure our social safety net catches everyone as they fall and that it becomes a type of trampoline that bounces everyone higher when the recovery comes. We need to embrace the idea of spending less, saving more and investing more.
Firstly, a few home truths.
Most of us spent much more than we earned for the last five or six years. We bought too many cars. We bought too many flat-screen televisions. We went on too many overseas holidays. We bought too many useless things that are now just cluttering up the basement.
Our economy seemed to be growing stronger and longer than it normally did. There’s a reason for that. It shouldn’t have. This economic growth was fuelled by foreign debt. Our net foreign debt has almost hit 100% of GDP and that is all private sector debt. That makes us the second most indebted developed country after (pause for effect) Iceland.
There’s a reason for this. We spent much more than we earned for almost a decade. We borrowed the deficit between the spending and earning or sold our assets to foreign investors to bridge the gap. Now we have so much debt and send so much in dividends overseas that we are struggling simply to pay the interest on the old debt. Essentially, we are now borrowing more to pay the interest on the old debt. That is utterly unsustainable……”
READ IT ALL:
http://www.stuff.co.nz//blogs/showmethemoney/2009/02/24/dear-john-please-tell-us-the-truth-about-the-economy-we-can-handle-it/
Vote:February 26th, 2009 at 11:31 am
Bernard Hickey:
“……We are now in a select group of six advanced economies with current account deficits of over 8%. This group includes Spain, Greece, Portugal, Cyprus and (pause for effect) Iceland. Spain, Greece and Portugal have all had their sovereign credit ratings downgraded. Their unemployment rates are rapidly heading towards 20%. We all know what happened to Iceland……
“…..our credit rating will be downgraded unless New Zealand’s government can come up with a “credible medium-term strategy” to reduce the government’s debt. That’s because the current “downside” central forecast is that without changes in our approach the government’s gross debt will hit almost 80% of GDP.
This is important because up until the last year or two the government was saving while consumers (that’s most of us) were spending and borrowing. New Zealand can’t have both the government and consumers spending and borrowing at the same time.
We must bring down our current account deficit and reduce the outlook for our public and private debt. There is nowhere for New Zealand to hide now. The warning from Standard and Poor’s was effectively our orange light. Foreign lenders are hunting down economies that borrow too much and they are forcing them to stop. They do this by selling their currency and forcing their market interest rates up. Any such forced adjustment would be brutal. Interest rates would skyrocket. Imports would become very expensive or simply impossible for most to afford. Unemployment would skyrocket. The economy would crater.
This is NOT going to go away when the global economy rebounds……
(my emphasis)
“……We all must do everything to ensure that public and private investment happens. That means removing roadblocks to investment. It means changing the way we think. We must think now about the long-term future. We must think about making sure our children and grandchildren have the tools they need to succeed. That means taxpayers and workers must spend less and save more now. That means the government will have to hand out less money for people to consume things and instead use that money to invest and to save.
But “we the public” is wider than just the government. It means “we” as consumers and taxpayers…..
“……New Zealand’s governments of the last 20 years managed to reduce its debt to almost nothing. It can afford to increase it slightly, but only for investment in productive assets. We can’t afford to hand over money to taxpayers to simply spend it on more consumption. There are no easy fixes. We cannot tiptoe out of the room and hope the ceiling doesn’t collapse. It already has.
We must instead invest this money in assets our children can use and avoid building a mountain of debt that our grandchildren will have to pay off.
I know this is a bit of a shock. I didn’t talk about this before the election. But to be frank, I was a lot like everyone else. I didn’t realise the depth and the scale of the problem. I do now……
“…….sometimes the right thing is to do is to say “No we shouldn’t,” “No we can’t,” ”We can’t do it that way any more.”
In fact it’s a different kind of “Yes we can”. Yes we can dig ourselves out of this hole. Yes we can avoid bankrupting the generations to follow. Yes we can save more. Yes we can invest.
Yes we can get by with less.
Because we have to……”
READ IT ALL:
http://www.stuff.co.nz//blogs/showmethemoney/2009/02/24/dear-john-please-tell-us-the-truth-about-the-economy-we-can-handle-it/
[DPF: Shorter quotes please]
Vote:February 26th, 2009 at 11:38 am
“I want National to keep all its promises, not just the ones I agree with”
Then we are near enough doomed!
It is time that Key spoke to the nation about the seriousness of the situation we face, even back in November we did not expect things to get this bad, it is simply foolish to keep promises made in different economic times.
If Key has a problem with doing what is right then perhaps he needs to spell out just how bad things are and then tell the people what the solutions (as he sees them) are, he needs to tell Kiwi’s that he is going to HAVE to break election promises to achieve what he wants and that he is not prepared to do so without a new mandate from the people.
He should trust the people as the first Lange govt did, if you give us ALL the facts and ALL the options he can be assured that the people will vote him back in with an increased majority.
Vote:February 26th, 2009 at 1:05 pm
Agree….DPF,your position,whilst nobel and right in principle is a recipe for suicide. The truth is the best option here and if Mr and Mrs NZ can’t handle it….then tough.They are usually ignorant of whats really in their best intrest anyway…
Vote:February 26th, 2009 at 1:35 pm
Philbest, damn talk about bloody hypocrisy, that idiot Jindal from Lousiana is spouting that the only things needed are tax cuts for the wealthy.
Yet for every dollar Lousiana sends to Washington in tax they get two back, now is that not socialism ?
Obama should be bloody minded and state to those so called conservative governors you either take all the stimulus or none at all.
Amusing how Conservative states are the poor states in the main, of course some blame the blacks, must be a lot of blacks in Alaska.
As for private NZ debt, what has it got to do with the government, if a bank falls over from being idiotic in it’s lending policy let the shareholders and those who lent to that bank take the hit.
Vote:As long as KIWIS have their deposits insured by government to a certain level.
In this we should follow Iceland..
February 26th, 2009 at 1:44 pm
We are in the shit yet too many want the old rules of politics to rule.
I believe David cannot see the approaching tsunami because in some ways he has a mindset that the Nats have all the answers.
Maybe it is time for a WW2 coalition government with ALL the political parties on board.
Vote:Yes, I am talking of both Labour and the Greens being in cabinet.
And please, no idiotic ideas that there is no talent in Labour, any one suggesting that Bennett has more intellectual firepower than Goff is mad.
February 26th, 2009 at 2:05 pm
Surely it is time we stopped subsidising the Australian health system and the other professions over there trhat we are a free education system for.
Here is an approach that would suit the country much better, as well as its rationale.
Here’s an option.
1. Work-out the true cost of graduating a ‘professional’ (definition to be writen by law-makers but not to include hip-hop or basket weaving), including the madatory time in practice after academic graduation to achieve professional accreditation.
2. Charge EVERYONE who undertakes such a ciuse of study (i.e. foreign and domestic students) the FULL AMOUNT with students who are citizens or who have had permanent resident status for at least five years prior to beginning their study receiving an interest-free loan for the full amount.
3. Maintain the interest-free status of the loan for 5 years after full graduation (e.g. admitance to the Bar for a legal graduate) providing the student takes up employment in New Zealand in the field graduated within 11 months of academic graduation and remains in that professional employment through the five years.
4. At the end of the 5 years, providing the criteria have been met, write-off the entire loan as having been repaid through effort.
Why is this a better approach?
SImple really. My daughter graduated from Auckland Med School, did a year as an intern and set off for greener pastures and more money (to pay off her loans). She paid off her loans, decided to do some extra study and then undertake training to be a specialist edocrinologist. Deciding where to do this was influenced by three factors:
- The Australian tax system allows her to deduct ALL EDUCATION costs from her income for taxes, as well as providing a lower overall tax rate on income higher in simple NZ$1-AU$1 then in NZ.
- she had a choice of three hospitals in NSW she could go to to train in her specialist area, vs 1 in NZ.
- the Australian healh system was offering her a guaranteed specialisation placing on qualificastion as well as a specialist base-salary 38% higher than that on offer in NZ.
If the system I suggest was in place, we, the NZ Tax-payer, would not have subsidised her education for the benefit of the Australian health system – which we have done. Instead, we would have had at least a 5 year return on that subsidy, not perfect but better than the 1 year of ‘on-the-job-training’, paid at $65,000 per year plaus overtime and penalty rates, that we ‘received’.
I fully endorse what my daughter has done. The system is there and you work within its rules as best you can. She is also no different to her peers (her fellow citizens in her graduating class), MOST of whom are overseas.
YOur thoughts?
Vote:February 26th, 2009 at 2:37 pm
My thoughts, that your daughter owes NZ for her education.
Vote:But she does not see it that way.
February 26th, 2009 at 3:48 pm
Yes, National should keep its promises. But just because they were promises doesn’t mean they should get a free pass when it turns out those promises were stupid.
Anyone who didn’t make stupid promises should feel free to make whatever policy recommendations they want.
Aggregate demand is too low! Let’s decrease spending! You know what the problem with the business cycle is? It’s just too damn small.
Vote:February 26th, 2009 at 4:20 pm
IM sick to the back teeth hearing the blah blah blah about we have spent more than we earnt blah blah blah
My household and many many others not only havent spent more than we earnt we have invested and saved some of our earnings.
And what do we get for it. Shafted by having to subsidise those who went out and borrowed what they couldnt afford.
Thats right folks We are subsidising your mortgage rates from our savings rates.
So the frugal and prudent are once again punished for the behaviour of the wastrels and spendthrifts.
The next pollie civil servant or economist or in fact anyone who starts the blah blah blah in my presence will get a smack in the face.
The OCR is a crock of fiscal welfare a pathetic attempt to interfere in the natural market place.
All it will do is to make the fianl reckoning even more painfull for those who have lived above their means
Champagne tastes on a beer income my ole grandaddy called it
Vote:February 26th, 2009 at 6:26 pm
Grumpy, DPF pulled me up a few days ago for alleging that mindset, he actually said that he expected things to get much worse.
Which is good, because that’s the reality.
Which makes the points PhilBest was making above all the more pertinent. Hickey et al is utterly correct. Be honest, John.
Treat us with respect, as intelligent people, and tell us the facts. Do it, and do it now. Don’t spin, obfuscate or omit. Just explain. Your every action to date indicates you are a different leader than most we’ve had in the recent past. Prove it.
Grumpy, I agree with your wartime coalition cabinet proposition. I’ve been saying that myself for some time. This is not the time for petty politics and in times like these, all politics is petty.
Vote:February 26th, 2009 at 6:47 pm
all of this rubbish, trying to say tax cuts are already paid for.
While they have made cutbacks , at the same time income (tax receipts/SOE dividends) have fallen too.
The economy is highly fluid and the basis for pre-election tax cuts may be different today. Complicating is the promise of tax cuts.
Ideally, taxes should have been cut 9 years ago when things were good. Not now. The droopy clark/cullen duo have ruined everything for this country.
Vote:February 26th, 2009 at 7:49 pm
I think things will get worse. I don’t think cancelling tax cuts will stop things getting worse.
Vote:February 26th, 2009 at 8:03 pm
So where were the Herald last year when Labour were spending like drunken sailors on bullshit like kiwirail?
I’ll tell you where – they were saying congratulations !
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10519311
Vote:February 26th, 2009 at 8:08 pm
It seems that Key has learnt a few things from Comrade Klark, remember when she had an idea she wanted to gauge reaction on she would arrange a “leak” from “sources close to the PM”, Klark would then sit back and see how public opinion was on that matter, if there was an adverse reaction she would come out with a statement that went something like….
“It is not the govt’s intention to implement policy A and frankly I have no idea where that idea came from”
If the publics reaction was good or neutral the policy would be quietly introduced to the house.
Key seems to be doing the same thing re tax cuts for 2010 and 2011, I suspect he wants to can these cuts but will not commit to doing so until he sees how the public react.
So people, the message is blindingly clear, tell Neville Key that you intend to hold him to his election promise of “ongoing tax cuts”….it will also help if you remind the man that we voted him in and we can just as easily vote him out again.
If cuts must be made then Neville Key should take the money from the social welfare budget, I have had enough of funding bludgers and low life such as the Curtis and Kahui families, I have also had enough of funding the lifestyle of the Phil U’s of this world.
If Key does back down I hope that those of us on the right have the guts to speak out against it, we often accuse the left of blindly agreeing with Labour policy but I suspect there are many here who do exactly the same when the Nat’s are in power.
Vote:I know that I will personally do all that I can to see that the Nat’s lose the election if Key backs down on tax cuts, I will also work just as hard to see the local National party candidate lose her seat as I did to get her elected.
February 26th, 2009 at 9:01 pm
Right. I agree DPF.
However, at the mo, tax cuts won’t stimulate spending except in those domestic sectors that don’t have sufficient income to save.
Perhaps therefore an adjustment in the targeting is warranted in light of emerging evidence?
I also wonder if creative thinking isn’t permissible in these circumstances? I floated a thought awhile ago re: compulsorily tying any tax cuts received to consumer debt pay-down. Administrative issues aside, the thing I think there is no disagreement on, is the country needs less debt: both consumer and commercial. Eliminating that as quickly as possible needs to become a high-priority factor in govt thinking and policy.
Vote:February 27th, 2009 at 12:12 pm
I agree too, Reid:
DPF: “….I think things will get worse. I don’t think cancelling tax cuts will stop things getting worse….”
I think we need to face up to what government spending and government policies have made things worse already, are continuing to do so, and will continue to do so if we do not toss them overboard.
And going by all the negative karma above, I would say that there is an awful lot of denial and unwillingness to face up to unpalatable truths going down in NZ right now.
Vote: