Watkins on economy

April 3rd, 2014 at 3:00 pm by David Farrar

Tracy Watkins writes:

 It speaks volumes about David Cunliffe’s bad week that on the day John Key delivered his pre-Budget speech, it was the leader who copped it on the street over the Government’s failure to make a big dent in unemployment.

To be fair the gentleman in question abusing the Labour leader didn’t seem a fan of either major party.

Labour’s headache, six years on, is that National has been hugely effective at painting the Clark-Cullen years as a decade of tax and spend, compared with its own narrative of scrimping and fiscal prudence.

The reality, of course, is not quite as straightforward – despite the “zero” Budgets, government spending has continued to rise each year under National. But there is no dispute that when it came to power, the country was staring down the barrel at a decade of deficits and skyrocketing debt.

More than a decade of deficits. That was the original projection, but the revised forecasts were for a permament structural deficit that never went away – meaning debt would grow and grow and grow until the inevitable happened – as in Europe.

The May Budget will show that National has done a remarkable job of turning that around by bringing forward the return to by some years and lowering the debt trajectory.

That it has done so by reining in spending, rather than slashing and burning and introducing austerity measures as seen in Europe and elsewhere, makes that feat even more remarkable.

It’s almost harder to do it by just restraining new spending, rather than cutting existing programmes. It’s politically easier, as people protest a spending cut more than not increasing spending. But from a government point of view, finding enough money by hundreds and hundreds of small efficiencies is harder work than just slashing a couple of programmes.

But the counterfactual – that a Labour government would not have responded to the global financial crisis in a similar fashion – can never be proven or disproven.

I don’t quite agree here. Sure you can’t prove it beyond a reasonable doubt. But you can judge Labour off its own press releases, statements and speeches. For five years they have consistently opposed and condemned every single move of fiscal restraint the Government has done. They battled against any reduction at all in public service numbers. They decry any efficiency gains as cuts – even if the money saved goes into frontline services. They opposed the reductions in KiwiSaver subsidies. And almost without exception all their policies are to spend massively more. The one noble exception is their superannuation policy.

So I don’t think it is unfair to judge Labour on the basis of their own statements. If we accept they believe what they say (a big call I know), then one can only conclude that there is no way New Zealand would be heading back into surplus next year if they had been in Government,

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32 Responses to “Watkins on economy”

  1. berend (1,671 comments) says:

    DPF: They battled against any reduction at all in public service numbers.

    And surprise, there have been no reductions. Granted no increases either, but we have the same amount of public servants at national level as in 2009. And a lot more at local levels.

    [DPF: I think you will find you are wrong and numbers are significantly below what they were at the end of 2008]

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  2. Alan (1,073 comments) says:

    There really wasn’t that much of a difference between the economic plans at the last election, Labour forecast a return to surplus in 14/15.

    It worth pointing out that Labour ran a surplus every year in power under Clark. It’s also worth pointing out that John Key was wrong in 2005 when he said the surplus was structural and forever.

    I know it’s an election year, but to pretend there is some vast policy differences between labour and national is a joke, they are almost entirely simpatico on matters of macro economics. It’s just tinkering round the edges. They are two sides of the same big state coin.

    [DPF: Labour claimed they were forecasting a surplus. They have a long history of under-estimating the costs of their promises]

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  3. Kimble (4,396 comments) says:

    It worth pointing out that Labour ran a surplus every year in power under Clark.

    And look at what we have to show for it.

    Labour benefited from circumstance outside of their control. They behaved as if there would never be another recession. They spent surpluses just to get rid of them.

    In any other period, let alone a recession, Labour would have been seen for what they were a lot sooner; fiscal vandals buying elections from an economically ignorant electorate with horribly stupid policies.

    If you are trying to argue that Labour, Clarke, and Cullen were good fiscal managers you will have to do a hell of a lot more than point to their good fortune at being in power when even the worst politicians would appear competent to the stupid and gullible.

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  4. Nuwanda (83 comments) says:

    I’m gratified to see the first two comments on this post telling it like it is: spending continues to rise, the trend continues up, nothing fundamental changes, tinkering and re-prioritising at best.

    Sure, put a gun to my head and I’d vote National, but voting under duress–which is essentially what many voters have to do–is not saying much. We have two Centrist parties that by and large have interchangeable seating plans on the Titanic.

    Where’s National’s commitment to a smaller state? Less spending, less taxation and less regulation? I see tweaks and switches, offloading to local bureaucracies, and plenty of new regulation. Hell, a simple commitment to freeze spending which would result in real long-term reductions and time for adjustment would be a good start.

    National is simply offering a different flavour of yuck, and yuck sucks.

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  5. dime (9,607 comments) says:

    “that a Labour government would not have responded to the global financial crisis in a similar fashion – can never be proven or disproven.”

    hmmm what about the “mini budget” cullen had penciled in straight after the election? that woulda been fun for Dime.

    Then there would have been an earth quake levy with the greens wanting it bad.

    they woulda printed money.

    it would all have been justified with “aussie are doing it too!”. look how they ended up.

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  6. mikenmild (11,231 comments) says:

    I think Nuwanda is nearer right that Kimble here. National has done what every National government has done: operate the system as inherited with no major changes.

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  7. Weihana (4,496 comments) says:

    Kimble (4,082 comments) says:
    April 3rd, 2014 at 3:31 pm

    They behaved as if there would never be another recession.

    And yet they reduced public debt. Another coincidence of course! :)

    fiscal vandals buying elections from an economically ignorant electorate with horribly stupid policies.

    The policies continued by National you mean?

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  8. Simon (706 comments) says:

    There is massive inflation in the economy National have just leveraged this while living standards have fallen for wider society.

    Where is everyones cheque (tax reduction) from these supposed coming surpluses? National Statist pieces of shit. Fuck you Mr Bumble.

    Mind you the the left are utterly clueless. All that it is left for them is that wormy cunt Cunnlife adjusting his accent. Eh cuzzie bro.

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  9. Weihana (4,496 comments) says:

    mikenmild (8,285 comments) says:
    April 3rd, 2014 at 3:37 pm

    I think Nuwanda is nearer right that Kimble here. National has done what every National government has done: operate the system as inherited with no major changes.

    Agreed. It is also usually a good way to go about things. Beware revolutionaries on either side of the political spectrum.

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  10. Kimble (4,396 comments) says:

    Where’s National’s commitment to a smaller state?

    Waiting for them on the opposition benches should they ever try to foist your ideal economic structure on the rest of New Zealand.

    Stop whining, grow up, and quit blaming National for following policies that a) ensure as much good fiscal management as the electorate can tolerate, and b) keeping Labours stupid hands off the tiller.

    Want to do something productive? Go out and preach the free market ideal in South Auckland. While you are at it, stop behaving in a way that will turn off everyone who doesnt already agree with you and some of those that do as well.

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  11. Kimble (4,396 comments) says:

    And yet they reduced public debt. Another coincidence of course!

    Because they couldnt possibly do otherwise. A government running such a large surplus who doesnt pay down debt would spook international investors and trading partners.

    The policies continued by National you mean?

    Thats right. The policies National then couldnt fucking touch because doing so would just push Labour back into power.

    Maybe you can tell me, how is National supposed to reverse all those policies without losing the next election?

    National may have gotten your vote, but your vote doesnt determine their policies.

    You are going up against the rest of NZ.

    And the rest of NZ likes Labour’s stupid, self-serving policies.

    Its called democracy. And if you dont like it, go ahead and join your fellow travelers in the Greens.

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  12. Nuwanda (83 comments) says:

    I guess the Nats can be proud of getting us to #1 here:

    http://www.stuff.co.nz/national/9900943/NZ-most-socially-advanced-country

    This is the legacy of both parties. Ain’t it grand?

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  13. Cunningham (828 comments) says:

    Alan, those surpluses were achieved through a massive blow out of private debt. Interest rates went high because of reckless spending, prices of things such as power rose by a huge amount and the export sector went into recession from 2005 onwards. The economy was a house of cards and anyone who says they were a responsible government needs to see a shrink. If Labour had stayed in we would be completely fucked.

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  14. mikenmild (11,231 comments) says:

    You will no doubt be able to explain what major changes in economic policy implemented by National averted this disaster.

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  15. Weihana (4,496 comments) says:

    Nuwanda (64 comments) says:
    April 3rd, 2014 at 3:33 pm

    Where’s National’s commitment to a smaller state? Less spending, less taxation and less regulation?

    Where is your evidence we need a much smaller state? Putting aside tinkering at the edges, which of the major budget elements do you think should be on the chopping block?

    Should we starve Grandma this winter? Parasite moocher that she is.

    Should we tell families to go bankrupt mortgaging their house while they try to pay for healthcare they can’t afford? Nothing’s ever going to happen to me so why should I care about some kid with terminal cancer. Get a job and pay for it yourself.

    And of course we should stop funding public education. Future workforce? Pfft.. who needs it. Google will provide us with all the robot workers we need.

    Or is this all a little too drastic and we’ll just tinker at the edges? :)

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  16. Ross12 (1,231 comments) says:

    A number of comments forget that while National has been in power things have not been anywhere normal. We have had the GFC and a major natural disaster. I am very thankful we have had a Government who has been able to keep things reasonable stable during that time. We don’t have to look far overseas to see what could have happened .
    The major “change” we have had is not the normal easily changes –what that change is that we had not crashed like others have.
    ( What would have happened if Norman was in the Finance position and got his printing press out when he was panicing ??)

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  17. Weihana (4,496 comments) says:

    Kimble (4,084 comments) says:
    April 3rd, 2014 at 3:46 pm

    Because they couldnt possibly do otherwise. A government running such a large surplus who doesnt pay down debt would spook international investors and trading partners.

    Of course, but you can see the evil in their hearts. Can’t pull the wool over your eyes!

    Thats right. The policies National then couldnt fucking touch because doing so would just push Labour back into power.

    Maybe you can tell me, how is National supposed to reverse all those policies without losing the next election?

    By reference to the positive outcomes produced as a result?

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  18. Weihana (4,496 comments) says:

    Cunningham (737 comments) says:
    April 3rd, 2014 at 3:48 pm

    Alan, those surpluses were achieved through a massive blow out of private debt.

    So when someone takes out a car loan it’s the government’s fault?

    Perhaps the relevant question is why is all this private debt necessary.

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  19. Nuwanda (83 comments) says:

    Witness the confluence of ideas:

    Weihana:

    “Should we starve Grandma this winter? Parasite moocher that she is. Should we tell families to go bankrupt mortgaging their house while they try to pay for healthcare they can’t afford? Nothing’s ever going to happen to me so why should I care about some kid with terminal cancer. Get a job and pay for it yourself.”

    Kimble:

    “Go out and preach the free market ideal in South Auckland. ”

    Simply making a call to freeze spending (currently just under 50% of GDP) makes one either a free-marketeer (!) or an advocate of throwing granny under the train. Raising the ire of both flavours of yuck makes the point nicely: meet the new boss, same as the old boss.

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  20. Kimble (4,396 comments) says:

    By reference to the positive outcomes produced as a result?

    And how well do you respond to Labour doing the same thing?

    But lets imagine how well it would go:

    Dont worry Paul, we are simply going to stop giving you Peter’s money because that will be better for everyone except you. Oh, you mean you planned your life around that stupid policy and you would be worse off if it was removed now than you would have been had it not been put in place at all? What do you mean you will be voting for the other guy?!? Can’t you see how this improves everyone’s position?

    No Sue, we aren’t going after Paul to benefit Peter, we dont even know Peter, we are trying to make everyone better off! What do you mean you don’t believe us? Don’t you know that Paul is just getting money taken from Peter? What do you mean you don’t believe that?

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  21. Kimble (4,396 comments) says:

    Nuwanda welcome to the blog. I am a free-marketeer.

    I was serious that you would do more good going out and teaching people why government handouts and having a centrally managed economy are bad things.

    It is OTHER VOTERS you need to convince.

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  22. Weihana (4,496 comments) says:

    Kimble (4,086 comments) says:
    April 3rd, 2014 at 4:02 pm

    Dont worry Paul, we are simply going to stop giving you Peter’s money because that will be better for everyone except you. Oh, you mean you planned your life around that stupid policy and you would be worse off if it was removed now than you would have been had it not been put in place at all? What do you mean you will be voting for the other guy?!? Can’t you see how this improves everyone’s position?

    No Sue, we aren’t going after Paul to benefit Peter, we dont even know Peter, we are trying to make everyone better off! What do you mean you don’t believe us? Don’t you know that Paul is just getting money taken from Peter? What do you mean you don’t believe that?

    The above does not contain any reference to a positive outcome, it simply promises one without explaining how that outcome would be achieved or without even defining what that outcome would be precisely. Indeed the very story you tell is not about outcomes “for everyone”, it’s a morality tale. Your narrative doesn’t address how everyone will be better off, it only tells the tale of how Paul is a thief and Peter is a victim.

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  23. Kimble (4,396 comments) says:

    I was showing how the conversation WOULD go, not how you would like it to go.

    Telling Paul what you plain to do for the greater good doesn’t lead him to ask “How is that going to be better for everyone in the long run?” It leads to him asking, “Why are you doing this to me?” Everything after the first sentence is a reaction. There is no opportunity to explain things fully. Paul switched off immediately. And Sue just thinks you are being a dick to Paul.

    By all means post your own example. And then we can compare the two and see which one rings most true.

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  24. Cunningham (828 comments) says:

    Weihana because firstly they taxed the hell out of everyone (they never moved the top bracket). Prices of basic things such as power and food went up, interest rates went up. Yes people take some responsability but so do the government for their reckless spending. Yet they continue to make out like they did a good job. They fucked up massively actually but they are trying to convince enough people they didn’t (you obviously fell for the lie).

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  25. Alan (1,073 comments) says:

    “Labour benefited from circumstance outside of their control. They behaved as if there would never be another recession. They spent surpluses just to get rid of them.”

    Strangely enough that’s not how it actually was, Labour under Cullen consistently warned that the future was uncertain, and despite John Key demanding tax cuts, it’s only because he refused that we got through with the states books in good shape.

    At the time national screamed for massive tax cuts


    September 22nd, 2005 at 12:08 pm by David Farrar
    Treasury has just posted the financial statements for the year to 30 June 2005 and the OBERAC surplus has grown even larger – it made $8.9 billion.

    But according to Dr Cullen, there can be no reduction in taxes at all. Tax revenue increased 9.6% last year alone, or over $4 billion.

    &

    “June 29th, 2007 at 10:28 am by David Farrar
    Yay, let there be dancing and celebration in the streets. Dr Cullen will deliver tax cuts – but only in 2012 if you re-elect him for a 4th and 5th term.

    In 2005 Dr Cullen promised to inflation index tax brackets every three years, starting in 2008. They then broke this election year promise this year by cancelling the tax cuts, because people complained they were not big enough.

    Bur Treasury papers show Dr Cullen told Cabinet that maybe we could have tax cuts after 2011, but they would probably have to be smaller than even the chewing gum tax cuts he promised in 2005.

    So the miserly promised tax cuts for 2008 are to be not only delayed at least four years, but also made even smaller. And all over a backdrop of around the second largest fiscal suurplus in the world.

    I mean what can one say. Staggering.”

    I don’t dispute that Clarks third term was dreadful, and awful spending took place, like interest free student loans and WFF, but in mid 2007 14 months before National came to power we had the second largest fiscal surplus in the world and DPF was screaming for tax cuts. Did it suddenly turn into a wasteland in 14 months ?

    Seems a smudge revisionist to me.

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  26. OneTrack (2,754 comments) says:

    From HomePaddock, regarding Michael Cullen from 2009

    “After last year’s budget he said, “we spent the lot.”

    The news of an operating deficit of $10.5 billion in the crown accounts in the year to June, shows they did.

    What he didn’t say is that we’d all be paying for it.

    Great.

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  27. Fentex (899 comments) says:

    the revised forecasts were for a permament structural deficit that never went away – meaning debt would grow and grow and grow until the inevitable happened

    This still seems a phantasm to me – a structural thing is not something different budgeting by by different ministers can make go away. Whatever this “structural deficit” is imagined to be it seems to have faded without any fundamental work on the structure of New Zealand.

    We are not substantially more or less capitalist or socialist than we were six years ago, we don’t tax differently, we haven’t changed our methods of setting interest rates, creating currency and transferring property. We have largely the same laws and philosophies about property rights and trade.

    We have not had a socialist, capitalist, libertarian, fascist or mercantilist revolution over throwing our daily grind. Business continues much as it ever has in New Zealand with some different budgeting by government, some different tax rates, and some selling of the silver.

    This “structural” problem that threatened a decades dark winter that has been heroically banished remains a mystery to me.

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  28. thedavincimode (6,582 comments) says:

    But the counterfactual – that a Labour government would not have responded to the global financial crisis in a similar fashion – can never be proven or disproven.

    It is self-evident from liebore’s 2008 and 2011 election campaigns and the 2008 prefu that there was no intention of reigning in spending.

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  29. CharlieBrown (916 comments) says:

    To be fair on labour – National don’t really deserve any credit. we are here by virtue of National doing next to nothing… just tinkering around the edges whilst dairy prices and trade with china went up. We can however say that we would be far better off had national actually did more than tinker round the edge and did some slashing and burning of wasteful spending.

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  30. Kimble (4,396 comments) says:

    Alan, it made no difference to the “books” that the surplus was spent rather than returned to tax payers at that time, which means when the GFC was just starting.

    I will say, though, that taxes can be increased easily, government spending cannot be decreased with such ease. As we have seen. What would take a single stroke of the pen in a single year has to be compared to what takes two terms.

    The demands for tax cuts were not a fiscal prudency argument; it was recognising that the quality of spending that Labour was engaging in was not high enough to warrant replacing the spending that tax payers were being forced to forego. Tax revenue increased 10% in a single year, and yet Labour’s ideology prevented them from giving the slightest consideration to the possibility that a) the people paying the tax might pay a little less in the future, or b) that the people paying the tax might make better decisions than Labour on how it could be spent.

    Labour was fiscally imprudent for the quality of the spending they were doing; remember the MASSIVE increase in the numbers of bureaucrats and back office staff? The ones who made little to no difference to service provision?

    And note how I used the word MASSIVE for something that was massive?

    You said,

    At the time national screamed for massive tax cuts

    But you quote nothing like that. You quoted DPF complaining that there were NO tax cuts from Labour, and likely to BE none in the future. It is YOU who is trying to revise history.

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  31. Fentex (899 comments) says:

    [DPF: Labour claimed they were forecasting a surplus. They have a long history of under-estimating the costs of their promises]

    Not unlike Treasury’s long habit of getting it all wrong as well (as illustrated by Dimpost).

    I guess we’ll just have to look at the past and see what cannot be an error in prediction to learn which party ran deficits or not.

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  32. Kimble (4,396 comments) says:

    And Treasuries errors are always self-serving too.

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