Will Labour get it that the days of big spend ups are gone?

December 17th, 2015 at 12:00 pm by David Farrar

Stuff reports:

After chalking up a single Budget surplus the Government’s books will have dipped back into deficit, but the spluttering start is forecast to gain momentum in the years ahead. 

Finance Minister Bill English has also moved to give a $1 billion boost to capital spending next year, while leaving wriggle room for the Government’s spending programme to be brought forward.  

In its Half-Year Economic and Fiscal Update, Treasury indicated weaker global conditions off the back of slower growth in China, weaker trading and commodity prices and slow dairy recovery had negatively impacted on the economy. 

Household consumption had also been soft, in addition to reduced impetus from the Canterbury rebuild, said Treasury secretary Gabriel Makhlouf.

A $414 million surplus in 2015 was forecast to dip back into a $401m deficit for next year, before tracking up to a $4.9b surplus by 2020. 

The $401 deficit is just a forecast, and as with 2014/15, it may end up as a surplus. Time will tell.

What is clear is that it will be years until there are significantly large surpluses. This means tight fiscal restraint has to continue. There is no room for a huge spend up.

English said the operating allowance for Budget 2016 remained to plan, with $1b extra spending at next year’s Budget followed by $2.5b in 2017 and $1.5b in 2018 and 2019. However, he has left room for the Government’s spending plan to be brought forward. 

Labour were increasing spending by $3 to $4 billion a year, and once the economy hit recession in 2008 (before the GFC) we were left with a level of spending we couldn’t pay for. It has taken six years to get back to surplus and still finely balanced.

With lower inflation (good for consumers) it means that the Government can’t rely on fiscal drag to push people into higher tax brackets and quietly increase the tax take. So again you need some fiscal restraint.

Sadly though there is little sign of it, with $9 billion of new annual spending demanded by various politicians and lobby grorups since the Budget.

UK wants to legislate for surpluses

June 15th, 2015 at 7:00 am by David Farrar

The Guardian reports:

George Osborne is to announce a return to the public finances of the Victorian age, with plans for permanent budget surpluses designed to cut the national debt and to make life uncomfortable for the Labour party.

The chancellor will use his annual Mansion House speech on Wednesday to exploit the political advantage of the Conservative victory in the general election with a “new settlement” that would allow the government to borrow only in exceptional circumstances.

Labour, still shaken by the scale of its defeat last month, will be forced to decide whether it wants to back the proposal that tax revenues should cover spending on both infrastructure and the day-to-day running of government when parliament votes on Osborne’s tougher approach to the public finances later this year.

We should do the same here.

Osborne will say that he wants “a settlement where it is accepted across the political spectrum that without sound public finances, there is no economic security for working people; that the people who suffer when governments run unsustainable deficits are not the richest but the poorest; and that therefore, in normal times, governments of the left as well as the right should run a budget surplus to bear down on debt and prepare for an uncertain future.”

Hear hear.

Osborne will drive home his desire to bring back the days of sound finance by announcing he will convene the first meeting in more than 150 years of the committee of the commissioners for the reduction of the national debt.

Set up by William Pitt the Younger to help repair the damage to the public finances caused by the Napoleonic wars, the body last met in 1860 when William Gladstone was chancellor. Commissioners include the chancellor, the governor of the Bank of England, the speaker of the House of Commons, and the lord chief justice.

Perhaps they should have meet prior to 2015!


English on spending

May 4th, 2015 at 10:00 am by David Farrar

Bill English said last week:

Without slashing and burning, we have managed to rein in the runaway government expenditure that was a feature of the Labour Government in the early 2000s, when spending increased by 50 per cent in five years.

And we’ve done that while significantly improving public services.

The total annual cost of new initiatives in the Government’s last six Budgets is less than $2.9 billion. By comparison, this extra cost in the last six Budgets of the previous Government totalled $20 billion.

That is a massive difference. And it is impossible to imagine that a Labour-led Government could have restrained extra spending like that.

The Treasury now expects nominal GDP over the next four years through to 2019 to be around 1.5 per cent lower than forecast in Budget 2014 – mainly because of lower inflation.

That is about $15 billion less and, to put that in context that is more than half of the impact of the global financial crisis.

So these conditions are presenting some real challenges for the Government’s books because it’s the nominal economy that drives PAYE, company tax and GST receipts.

In addition, although we’re seeing more bank deposits which would ordinarily lead to us collect more tax, these are being more than offset by lower interest rates.

Consequently, the Government is collecting less tax.

In which case we should spend less, to match.

In total, Treasury now expects the Government will collect $4.5 billion less tax revenue over the next four years than it expected at the last Budget.

The lower-than-expected revenue, as well as some quite significant non-cash items in the Government accounts, means getting back to OBEGAL surplus is more challenging.

In the Half-Year Update in December, the Treasury forecast an OBEGAL deficit of around $570 million for the 2014/15 year, which is just 0.2 per cent of GDP.

And it forecast a similar OBEGAL surplus for 2015/16.

The Treasury is still finalising its forecasts for this year’s Budget.

But it’s fair to say that both of those forecasts have deteriorated a little since the Half-Year Update.

So we expect the Budget to forecast a slightly bigger deficit for 2014/15 and to forecast a slightly smaller surplus for 2015/16.

This is not the end of the world, but it does mean the Government has failed to achieve the target it had. And we need the Government to not only achieve surplus, but to have large enough surpluses to pay off debt. This means even more spending restraint.

So despite the downturn in revenue, we will stick with the $1 billion annual operating allowances for Budgets 2015 and 2016.

We have a track record that I think the public understands.

We’ve maintained welfare support, we’ve maintained and improved health and education, and we’re thinking ahead to the requirements of a growing economy and a better community through to 2020.

We won’t change that approach just to turn a small forecast deficit into a small forecast surplus. Other things matter more.

It is worth remembering though that the smaller the state’s portion of the economy is, the faster the economy tends to grow. That’s not an argument for a minimal state which can’t provide any social services. But it is an argument for greater fiscal discipline and the aim shouldn’t just be to get expenditure to under 30% of GDP, but around 25% over time. The more money families and businesses have, the better it is for the economy.

Heading back to surplus faster than the others

April 29th, 2015 at 3:00 pm by David Farrar


The data above (2014 is projections for 2014/15 years) comes from the OECD and it tells a pretty powerful story.

All five countries had significant deficits in 2010 in the aftermath of the GFC.  Australia and Canada had lower deficits than NZ, but now have higher one. The US and UK remain with huge deficits.

NZ is on the verge of getting back to surplus. It might not quite make it this year, but relative to the other four countries, we’ve done a lot better. And the difference between 0% and say 4% is not small. If we were doing the same as the OECD average our deficit would be $9.6 billion, not possibly a couple of hundred million.

Some Labour MPs idiotically complain that NZ has been in deficit, as if somehow it was a decision of National’s. National inherited fiscal settings that would have left us with a permanent and ever growing deficit.  And Labour opposed every single measure of expenditure control National introduced.

No other country of those we normally compare ourselves to, is even close to getting back to surplus. Australia actually has had the deficit start to increase again.

Surplus bye bye

December 16th, 2014 at 1:16 pm by David Farrar

Bill English has said:

The Government believes an OBEGAL surplus is achievable this financial year, despite Treasury’s latest forecast today predicting a $572 million deficit (0.2 per cent of GDP) for the year to 30 June 2015, Finance Minister Bill English says.

“These forecasts emphasise the unusual conditions the New Zealand economy is experiencing,” Mr English says. “Treasury is predicting solid growth, growing employment and low interest rates, which help New Zealanders to get ahead. But at the same time, falling dairy prices and low inflation are restricting growth in the nominal economy and government revenue.

“This is making it more challenging for the Government to achieve surplus in 2014/15. However we remain on track to reduce debt to 20 per cent of GDP by 2020.

The Government has limited control over revenue, short to changes to tax rates. But what they can control is spending. If they want to get into surplus they need to rein in spending more. They knew revenue forecasts are always risky, yet allowed spending to keep rising.

The left’s policies will put us back into deficit

September 10th, 2014 at 11:00 am by David Farrar

One News reports:

Labour leader David Cunliffe’s Capital Gains Tax is again under fire – this time from economists at the NZIER who say it won’t generate anywhere near enough money to cover the party’s spending promises.

Labour has over-estimated its capital gains tax numbers, according to a report by the New Zealand Institute of Economic Research. The report was commissioned by Federated Farmers, which strongly opposes the proposal.

Labour predicts a capital gains tax should raise $3.7 billion by 2026. But the Institute claims it’ll actually bring in less than half of that.

So who do we believe? The NZIEr is probably the (or one of the) most respected economics firms in New Zealand.

Labour on the other hand is the first opposition party in around two decades to decline the offer by Treasury to have a secondee in their office, who could credibly cost their policies for them.

It’s not a hard call.

And in related news, the Taxpayers Union has released a paper by Dr Michael Dunn analysing the likely fiscal impact of the Green Party wages policy. Dr Dunn is the former head of forecasting at IRD, so is an expert in forecasting.

The Greens claimed their wages policy will bring in an extra $800 million a year in tax revenue to the Government. Dr Dunn has calculated that in fact it would result in around $110 million less tax revenue every year, So that is a $2.7 billion hold in the Greens costings. We have a surplus projection of $300 million, so goodbye surplus.

The Greens and Dr Dunn agree that the direct cost of their policy on the Government will be $1.1 bllion over three years. Add on the reduced tax revenue and the total impact on the Government’s books is to leave the Government’s books $1.4 billion worse off – compared to their claim that it would be $1.5 billion better off.

These are not minor differences. These are billions of dollars. And just on one policy!!

I think it is time that we have what the US have, and a NZ version of the Congressional Budget Office which can independently cost policies proposed by parliamentary parties. NZers deserve better than to be conned by political parties that grossly mislead voters over the true costs of their policies.

Issues that matter – the Economy

September 9th, 2014 at 4:00 pm by David Farrar

I think the economy matters and should be a much bigger issue in this election so I’ve put together almost a dozen graphs showing the difference between National and Labour’s record on 11 important economic indicators. These are issues that matter to families and businesses.



Food prices increased 18.6% in Labour’s last term. Food prices have increased only 1.3% in National’s last three years.



Labour left office with the current account deficit at 7.9% of GDP. It is now at 2.8%.



Power prices went up 22.9% in Labour’s last three years. The rate has halved to 12.1% in National’s last three years.



There was a net loss of 35,830 people to Australia in Labour’s last year of office. In the last 12 months only 7,150 net departures – and in recent months under 100 a month.



The overall cost of living increases or inflation totalled 9.5% in Labour’s last three years. A third of that now at 3.3% over the last three years of National.



Labour left office with an annual balance of trade deficit of $5.3 billion. In the last 12 months it has been a surplus of $1.3 billion



Remember Labour wanting to remove GST off fruit and vegetables. Under the last three years of Labour their prices went up 33.2%! Total increase in the last three years is a mere 1.4%.



The deficit in 2008/09 (on the fiscal settings left by Labour, and the impact of the GFC) was a massive $10.5 billion. Labour have opposed every piece of spending restraint since, but despite their opposition we are on track to a small $300 million surplus this year.



In June 2008 the median after tax income for a full time worker was $38,600 (in 2013 dollars). That has increased to $42,100 by June 2013, meaning the median FT worker has an extra $3,500 income to spend – and this during the worst recession the world has seen since the Great Depression.



Unemployment went up by 27,000 in Labour’s last year in office. It has declined by 17.000 in the last 12 months, and is projected to keep declining.

You are welcome to share any or all of these graphs. All data is directly from Stats NZ Infoshare except the income data where I have used the IRD website to calculate the tax impact and the Reserve Bank website to adjust them for inflation.

New Zealanders have a clear choice. Remaining on our present course which is surplus, falling unemployment, low prices, fewer Kiwis leaving, growing after tax incomes and affordable food – or a radical change of policy which would see many more taxes, less competition, a massively expanded state and an unstable alternate Government.

It is only through a healthy economy do we get to have the money to fund our health and education systems. And that brings me to my final graph.


That is economic growth for Labour’s last year in office, and National’s last 12 months.

Government do not directly control many of these economic measures. But they can and do impact them with their economic policies. The difference between where we are today and where we were in the mid to late 2000s is stark.

Tax revenues down

April 9th, 2014 at 1:00 pm by David Farrar

Stuff reported:

Worsening budget deficits raise serious questions about National’s management of the economy and its books, Labour finance spokesman David Parker says.

He was speaking after Treasury today reported that the Budget deficit had continued to worsen. A lower tax take had pushed the books into the red by $1.4 billion, $884 million more than expected.

Parker said for four months in a row the books were worse than predicted, with tax revenues falling short of expectations.

“For the November and December figures Treasury said there were timing issues. They were given a bit of leeway. But now even Treasury admits it doesn’t know why the books are even more in the red.

“Somehow (Finance Minister) Bill English is presiding over a growing economy but not getting the tax revenue that should be coming with it. He needs to explain himself.”

Tax revenues are notoriously difficult to project. Even an individual company can easily find its profit will vary from forecast by 10% to 20%. The Government’s tax revenues are based on projecting the combined profits and hence tax payments of several hundred thousand companies. And that’s just on an annual basis – let alone on the monthly forecasts.

Employers may be hiring extra staff which reduces profitability and tax in the short-term. They may be purchasing assets which increases depreciation.

Or it may be that heightened business confidence and economic growth is not actually being reflected in profitability and tax for structural reasons – which would be more of a concern.

English said the figures reinforced the need for restraint in government spending.

“We remain committed to reaching a surplus next year and Budget forecasts next month will confirm we are on track,” he said.

“It is a challenging task that will be achieved only if we remain disciplined.”

Yep. The Government has limited control over how much tax is paid to it by the private sector. It does however control how much money the Government will spend.  Hence the constant need for fiscal discipline.

The fiscal turn-around

October 8th, 2013 at 9:00 am by David Farrar

The accounts released by Treasury just before the 2008 election showed a decade of deficits projected. A few weeks later the books had deteriorated further that the fiscal settings inherited from Labour were projecting a permanent structural deficit – which means debt increasing until you end up like Greece.

In just five years there has been a remarkable turn-around. Labour and Greens have fought and opposed every piece of spending restraint done by the Government. They fought for every single public sector job there was. They decried the reductions in the subsidies for KiwiSaver. I hate to think what the books would be looking like now if the Government had not changed.

Bill English has announced the final accounts for 2012/13:

Higher tax revenue and lower than forecast core Crown expenses helped to more than halve the Government’s operating deficit before gains and losses to $4.4 billion in the year to 30 June 2013, compared with a $9.2 billion deficit the previous year.

Halving the deficit is well done.

The result was considerably better than the $7.9 billion deficit forecast by Treasury at the start of the financial year in Budget 2012, and confirms the Government’s prudent approach to fiscal management is paying dividends, Finance Minister Bill English says.

Coming in $3.5 billion under the budget is even better.

“The National-led Government has consistently examined how public services are delivered,” he says. “This has allowed us to reduce costs while improving the services New Zealanders receive, as well as helping the people of Canterbury following the earthquakes.

“We are well on track to return to Budget surplus in 2014/15. It’s important we get there because, until we do, we will continue to increase our debt. Despite the considerable progress we are making, there is no room for complacency.

“In the past financial year, we were still borrowing a net $110 million a week, compared to almost $260 million a week in 2010/11. Once we reach surplus, we will then have choices about reducing our debt and investing more in priority public services and important infrastructure.

The Government have had to fund billions of dollars for the Christchurch rebuild. I recall Greens (and I think Labour) demanding New Zealanders be hit with a special extra tax to fund the rebuild. Their solution was to tax more rather than restrain spending elsewhere and prioritise.

The Government remains on track to reduce expenses to 30 per cent of GDP by 2016/17, down from around 35 per cent of GDP in 2010/11, Mr English says.

30% is still too high when you consider the size of the local government sector also. But it is a positive trend.

The shrinking deficit

July 6th, 2013 at 9:22 am by David Farrar

Treasury have released the financial statements for the 11 months to May 2013. The operating balance before gains and losses (obegal) was a $3.3 billion deficit.

The 2012 Budget forecast a $7.8 OBEGAL deficit for the current financial year. It is now looking to be much much less than that. That’s a really promising sign that the economic recovery is strengthening and that the inherited structural deficit will be gone in the next two years.

Talk is easy

May 15th, 2013 at 10:19 am by David Farrar

The Herald reports:

The one thing alternative finance minister, Labour’s David Parker, won’t be criticising in tomorrow’s Budget is the Government’s confirmation that it is on track to return to surplus in 2014-15.

“I always thought it would; I’ve always said it should, and we would have too,” Mr Parker says.

That is unadulterated crap. Nothing Labour have done in the last five years suggests they would have done the same. Quite the opposite.

Labour left the incoming Government with not just a decade of deficits, but actually a permanent structural deficit. A deficit that would never have been plugged without policy changes. One so large that you could not just rely on economic growth and increased tax revenue to get back into surplus.

National has both frozen and cut spending. On every single occasion they have done so, Labour has attacked them for it. Labour has also consistently come up with massive new spending proposals such as extending paid parental leave and attacked the Government for not agreeing to it.

They also relentlessly criticised the Government what what they said was austerity measures, and said it was the wrong policy.

So to turn around now, and say “Oh yeah we would have got the Government back into surplus also” is just crap. They’ve spent years opposing every single spending cut and even explicitly saying that there is no rush to get back to surplus (I don’t regard six years as a rush!).

If you want an idea of what would have happened if Labour had been in power, just look at Labor in Australia.

Deficit down

April 5th, 2013 at 3:00 pm by David Farrar

The Herald reports:

The New Zealand government had a smaller operating deficit than expected in the first eight months of the financial year as it took in more income tax and tax from source deductions than it had forecast.

The operating balance before gains and losses (obegal) was a deficit of $3 billion in the eight months ended February 28, 16 per cent smaller than forecast in the December half-year economic and fiscal update.

Core Crown tax revenue was $37.6 billion in the first eight months of the year, which was $719 million, or 2 per cent higher than forecast. Source deductions were $266 million above forecast, which the Treasury said showed underlying strength in the economy.

That is an encouraging sign that we may get out of deficit by 2014/15. In 2008 the projected deficit was permanent and ever-growing. The outlook was a Europe type spiral into ever-increasing debt.


Thanks Kiwirail

October 11th, 2012 at 8:21 am by David Farrar

Herald reports:

The Government ended the last financial year to June 30 with a deficit of $9.2 billion – about half of what it was last year – but up from the $8.4 billion shortfall that was signalled in the May Budget.

The Treasury said the tax take was slightly higher than forecast and the Government’s core expenses were lower than forecast.

The write-off in the value of KiwRail by $1.4b on June 27 was not factored into the May Budget forecasts.

Excluding $1.9b in Christchurch earthquake costs, the operating balance would have been $7.3b, compared with $9.3b in the previous year, the Government said.

Tax revenues over forecast and crown expenses under forecast is where we want to be. The underlying deficit of $7.3 billion is $1,1 billion better than forecast. There are three years to hopefully get rid of it and get back into surplus.

The Kiwirail writeoff just confirms how badly the last Government got conned by Toll, in buying it. They still call it the sale of the century. Rail is viable when there is enough population to utilise the tracks frequently enough to cover the capital and maintenance.

That means some services such as Wellington metro trains are viable, as they are utilised scores of times a day.

But take the main North Island trunk. There is now only one passenger trip a day on it (used to be four). Sure you have some freight also, but it is not enough to be viable.

English said excluding the one-off effects of the KiwRail writedown, the books were better than forecast.

Tax revenue increased by $3.5b from the previous year and core government expenses fell by $1.4b.

Good. To have an actual decrease in expenses (not just a slowing in the increase) is quite an achievement. A necessary one. Recall we were facing a permanent structural deficit, which only ends in disaster.

An $18.4b deficit

October 12th, 2011 at 9:00 am by David Farrar

Bill English announced:

The Government remains committed to halving the budget deficit this year – and again next year – before returning to surplus in 2014/15, Finance Minister Bill English says.

The Crown’s accounts for the year to 30 June 2011 show net expenses of $9.1 billion for the Canterbury earthquake last year made up almost half of the Government’s $18.4 billion operating deficit before gains and losses.

“This is an unusually large deficit, but it includes the significant costs of the Canterbury Earthquake Recovery Fund and the updated assessment of Earthquake Commission costs,” Mr English says.

“Setting aside the earthquakes, we’ve made good progress compared to estimates five months ago in the Budget. A combination of higher than forecast revenue and lower than forecast spending has reduced the underlying deficit by about $2.8 billion.

An $18.4b deficit is roughly around $10,000 per household. It is clearly unsustainable and the focus has to be on reducing the deficit before public sector debt gets out of control. It is good that the underlying deficit has reduced, and this has to continue.

An interesting summary notes that 2,500 entities make up the Government accounts and that in total they had $82b in income and spent $100b. 63% of the income is from taxes. Overall revenue increased by $7b which was the first increase in three years.

On the expenditure side, 67% of core crown spending was on welfare, health and education to a total of $47.5b.

The asset side in the accounts is interesting – 2,481 schools, 3,100 police cars, 66,352 state houses, 4,000 km of rail lines, 25 hospitals, 11,000 km of state highways and 8,767 hectares of conservation land.



Don’t believe the lies

January 28th, 2011 at 12:35 pm by David Farrar

Labour are telling massive whoppers, such as the Government is borrowing $120m a week to pay for tax cuts for the wealthy.

The reality is that National’s tax and spending packages will in fact lead to around $2.8b less debt by 2014, than ehwt Labour were proposing. Bill English’s office has released this table showing the components:

Net fiscal impact of the Government’s tax changes ($million increase (decrease) in the operating balance)

  2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 6-year total
Election tax package1 (133) (238)  (37) 188 198 198 176
Budget 2009 cancellation of 2nd and 3rd tranches2   105 553 956 999 999 3,612
SME tax package3 (294) (189) 214 (108) (108) (108) (593)
Budget 2010 tax package4     (460) (90) (40) 175 (415)
Total (427) (322) 270 946 1,049 1,264 2,780


1. Fiscal impact = revenue (removal of R&D tax credit + KiwiSaver changes + cancelling remaining tranches of Labour’s tax cuts) minus costs (personal tax + IETC). Source: Cabinet Paper CAB(08)585.

2. This is not an increase in taxes but the cancellation of future intended tax cuts which were already in the fiscal forecasts. Source: Treasury Report T2009/418.

3. February 2009 SME tax package. Source: BEFU 2009, Table 1.7.

4. Fiscal impact = revenue (GST increase + depreciation + LAQC + thin cap + WFF + GST base + tobacco + increased audit) minus costs (personal tax + company + PIE and savings vehicles + GST compensation). Source: Budget 2010 Executive Summary, Table 1.

The key thing to remember is that the combined tax and spending changes have been not just fiscally neutral, but in fact debt reducing. In the first two years they were slightly expansionary (which is not altogether bad) in a recession, but by the end of next financial year they would have been positive for the Government fiscally..

The cumulative effect

January 27th, 2011 at 10:32 am by David Farrar

I briefly tuned into talkback last night while driving and heard some people wondering how a relatively modest reduction in future spending can make an impact on when we return to surplus, and the $300 million a week of borrowing.

Labour increased spending by an average of $2.8b a year for its last five years in office.

National is now saying they are going to have an allowance of just $0.8b a year for future spending growth. That’s a $2b a year difference. Now in the first year it doesn’t make much impact on a $10b deficit.

But the spending growth is cumulative. Over five years spending growth at $0.8b a year will mean spending after four years is $4b higher. At $2.8b a year it would be $14b higher.

So over five years, the projected deficit drops by $10b. And that means you are borrowing $200m less a week.

Of course there are other factors such as the rate of economic growth and hence tax revenue growth, plus there are certain expenditure items that are contractural (benefits) and go up or down depending on how many people receive them.

The impact on debt is more pronounced Because the total amount of spending not undertaken is cumulative. In year 1 it is $2b, year 2 is $4b, then $6b, $8b and $10b. Over five years that reduction in future spending means you have $30b less debt that would otherwise have been the case.

Keeping future spending growth to $800m a year is not at all easy. Out of that you have to fund population growth demand on health and education and public sector wage rises before you even get into discretionary new initiatives.

Balancing the US Budget

December 5th, 2010 at 12:00 pm by David Farrar

Barack Obama established a National Commission on Fiscal Responsibility and Reform to come up with ways to reduce the huge fiscal deficit. They have 18 members – 10 Democrats and 8 Republicans on it.

So what has this bipartisan group recommended:

  • $200 billion of domestic and defence savings by 2015
  • Tax reform that reduces rates, simplifies the code and broadens the base to reduce the deficit
  • Measures to control long-term health cost growth
  • Mandatory savings from farm subsidies, military and civil service retirement
  • Ensure social security solvency for next 75 years

This would achieve $4 trillion in deficit reduction by 2020, reduce the deficit to 2.2% of GDP by 2015 and caps revenue at 21% of GDP (note NZ is well over 30%).

Obama, to his credit, has not rejected it. Sadly Congressional Democrats look likely to – which will impose future generations with horrific levels of debt and interest on the debt.

The situation in NZ is not so dire, but we still need bold measures to stop borrowing $250 million a week.

Fiscal Foolery

July 25th, 2010 at 10:00 am by David Farrar

AP reports:

New estimates from the White House on Friday predict the budget deficit will reach a record $1.47 trillion this year. The government is borrowing 41 cents of every dollar it spends.

That’s just madness. People are focused on Europe crashing, but I am equally focused on the US crashing again.

Thanks God the situation in NZ is not this dire. Remember the US situation when certain politicians call for more spending.

Fiscal Discipline pays off

April 22nd, 2010 at 1:11 pm by David Farrar

Bill English has just announced:

In the Budget last year, we identified $2 billion of lower quality spending over the subsequent four years to redirect into higher priority areas.

In this year’s Budget, we will find another $1.8 billion of low quality spending between now and 2014 for reprioritising into higher priority initiatives.

$3.8 billion of savings is not bad. That is around $3.799 billion more than what would have happened under Labour.

I said in last year’s Budget that most Government agencies will receive no budget increases over the next few years. And in this Budget, I will say the same thing again.

Not because they don’t deliver worthwhile services, but simply because we cannot allow debt to escalate further.

And the private sector has had to cope with falling revenue. Staying constant is relatively a better position to be in.

And in the release:

“The Government will continue to weed out low quality spending. We will live within the $1.1 billion annual operating allowance for new spending we have set ourselves, and restrict annual increases in this figure to 2 per cent from 2011/12.”

Mr English repeated that most Government agencies would receive no budget increases over the next three or four years, as the Government moved to get back to Budget surplus as soon as possible.

This fiscal discipline is necessary so we can stop borrowing, and start paying off debt. Borrowing $240 million a week is not sustainable.

“I want to get the Government back into budget surplus as quickly as possible, because surpluses give us choices.

“For example, surpluses give us choices to invest more in public services; to pay down public debt; to resume contributions to the New Zealand Super Fund – or to do any number of other things.

“As long as we run deficits, we don’t have those choices,”


The US deficit

October 19th, 2009 at 10:00 am by David Farrar

AP reports:

WASHINGTON (AP) – What is $1.42 trillion? It’s more than the total national debt for the first 200 years of the Republic, more than the entire economy of India, almost as much as Canada’s, and more than $4,700 for every man, woman and child in the United States.

In New Zealand dollars that is $1,920,740,000,000.

It’s the federal budget deficit for 2009, more than three times the most red ink ever amassed in a single year.

And, some economists warn, unless the government makes hard decisions to cut spending or raise taxes, it could be the seeds of another economic crisis.

Treasury figures released Friday showed that the government spent $46.6 billion more in September than it took in, a month that normally records a surplus. That boosted the shortfall for the full fiscal year ending Sept. 30 to $1.42 trillion. The previous year’s deficit was $459 billion.

Without significant budget cuts, that would crowd out government spending in such areas as transportation, law enforcement and education. Already, interest on the debt is the third-largest category of government spending, after the government’s popular entitlement programs, including Social Security and Medicare, and the military.

And Bush was bad enough as a fiscal disaster, but this is an all new level. And I agree if nothing is done, it will trigger an economic crisis.

“The rudderless U.S. fiscal policy is the biggest long-term risk to the U.S. economy,” says Kenneth Rogoff, a Harvard professor and former chief economist for the International Monetary Fund. “As we accumulate more and more debt, we leave ourselves very vulnerable.”

Forecasts of more red ink mean the federal government is heading toward spending 15 percent of its money by 2019 just to pay interest on the debt, up from 5 percent this fiscal year.

President Barack Obama has pledged to reduce the deficit once the Great Recession ends and the unemployment rate starts falling, but economists worry that the government lacks the will to make the hard political choices to get control of the imbalances.

Friday’s report showed that the government paid $190 billion in interest over the last 12 months on Treasury securities sold to finance the federal debt. Experts say this tab could quadruple in a decade as the size of the government’s total debt rises to $17.1 trillion by 2019.

It is worth noting that Labour in NZ are promising bigger deficits, and mroe debt.

Growing concern with Obama’s deficits

June 4th, 2009 at 11:00 am by David Farrar

AP report:

Federal Reserve Chairman Ben Bernanke urged Congress and the administration to cut record-high budget deficits, warning that they could erode investor confidence and endanger the economy’s long-term health.

Bernanke’s comments came as concerns grow at home and overseas about the United States’ mounting red ink.

Surprised it has taken this long.

The White House estimates that the government will rack up an unprecedented US$1.8 trillion (NZ$2.78 trillion) budget deficit this year. That would be more than four times last year’s all-time high.

Obama have pushed the deficit is so high now, I don’t think it can ever be tamed by his sucessors. Overall federal revenue is US$2.5 trillion so the deficit is around 66% of the revenue. So even if revenue grew at 5% a year, and expenditure never grew, it would take a decade to get rid of it – and no way expenditure won’t grow.