I said the economy was an issue that matters

September 23rd, 2014 at 12:00 pm by David Farrar

Stuff reports:

Consumers voted with their wallets at the weekend.

National was a vote for good economic times but a vote for Labour-Greens was risking bad times, according to a bank survey.

The latest Westpac McDermott Miller survey of consumer confidence shows 46 per cent expected good times for the next three years under a National government.

But under a Labour-Greens government just 14 per cent would have expected good times ahead, while 40 per cent would have expected bad times.

“The stark contrast in expectations of good economic times over the next three years under the two putative governments must have been a major factor underlying the return of a National-led government,” McDermott Miller managing director Richard Miller said.

It was. When only 14% of consumers think they will have good times under a Labour-Greens Government, of course they’re not going to do well.

The economy matters to people. It is not an abstract issue. The health and education systems matter. The welfare system matters, and having safer communities matters.

As Lew points out on Kiwipolitico, National ran a campaign based on reality.

The Westpac survey found consumer confidence was a net positive +27% if National won, and a net negative -26% if Labour/Greens won. It is not surprising that New Zealanders did not vote to have a government and an economy that they thought would leave them worse off.


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.

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Hockey on NZ

August 21st, 2014 at 10:00 am by David Farrar

The Australian reports:

JOE Hockey frequently admits he’s a little bit jealous of our cousins across the ditch, in an economic sense at least.

THE treasurer’s green eye probably went an even deeper shade of emerald after New Zealand’s latest employment figures showed their jobless rate tumbled to a five-year low of 5.6 per cent in the June quarter from a revised 5.9 per cent previously.

The best we can hope for is Australia’s jobless rate not reaching 6.25 per cent this financial year, as predicted in Mr Hockey’s May budget.

And what does Hockey say:

He said New Zealand has stolen the advantage from Australia during the past few years by combining domestic structural reforms with newly negotiated trade opportunities in Asia.

“As a result, they have falling unemployment, rising living standards and a budget that is coming into surplus,” Mr Hockey said.

Faced with a hostile Senate over his first budget, Mr Hockey also said he was “quite jealous” that NZ Prime Minister John Key has to deal with only one parliamentary chamber.

Even so, Mr Key and Finance Minister Bill English are showing the world how economic reform should be done.

And it has not been achieved through “luck or complacency”.

“There is no she’ll-be-right attitude,” Mr Hockey said.

Except those parties who want to spend the surpus before we even achieve it, and send us back into deficit.

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Stonking confidence

April 8th, 2014 at 3:00 pm by David Farrar

Stuff reports:

The economy is running at the best pace in more than a decade and business confidence is the highest since 1994 according to a new survey.

The latest NZIER Quarterly Survey of Business Opinion released today shows optimism and activity were being translated into hiring, investment and better profits.

“The underlying trend is very, very strong – stonking,” NZIER principal economist Shamubeel Eaqub said.

Retail spending surged to its highest level since 1994 and building was at its best since December 2003.

The survey shows confidence about the general business situation remained at net 52 per cent of firms positive, seasonally adjusted, the highest since June 1994.

The ten year highs keep getting replaced by 20 year highs.

So obviously this is a time in which we need to increase taxes, scrap our monetary policy, and partially nationalise electricity and housing sectors!


Dom Post on change not wanted

February 17th, 2014 at 11:00 am by David Farrar

The Dom Post editorial:

John Key’s Government came into office in the midst of the global financial crisis. Nobody was expecting things to improve quickly. Most people expected them rather to get worse. Mr Key made no promises of instant gains.

On the other hand, his Government’s management of the economy was a moderate one and did not go for a hard dose of austerity. It reduced the deficit over two terms rather than bringing it back to nothing with a bump. The result was that our economic pain was relatively mild, at least compared with Britain and the United States.

The Key Government’s response to inheriting a structural deficit wasn’t to slash and burn with a frenzy of spending cuts. It was very moderate and middle of the road. Initially some infrastructure spending was accelerated to help soften the recession, and then new spending was slowed down. The extreme response came from Labour who went on the record opposing every single measure of fiscal restraint. They said a cap on public sector employees would be a disaster. They opposed saving money through efficiencies in back office functions.  I can’t think of a single act of fiscal restraint that they haven’t opposed.

Now the Government is signalling a less stringent approach to the budget, with increased spending in areas like paid parental leave. It recognises that the voters feel they have done their penance and a modest pay-off is in order. 

As we head back into surplus, we gain choices again. Deficits do not give you much choice. There are broadly three things you can “spend” a surplus on – debt reduction, extra spending and tax cuts.

A moderate balanced party will propose all three. I expect parties may disagree with each other about the exact proportions, but the extremists will only push those that fit with their ideology. Will Labour go against the 70% who don’t support tax increases and go into the election only promising tax increases, and not offering any tax cuts?

Labour leader David Cunliffe has not produced a big turnaround in the party’s fortunes, and time is running out.

National’s slogan this year will be some version of “Don’t put it all at risk”, and at present the signs are that it will work. There is not yet a deep-rooted feeling of economic dissatisfaction. There is not yet a widespread dislike of the Government. So the basic competing slogan – “it’s time for a change” – is not decisive.

Labour are promising to expand welfare payments to families earning up to $150,000 a year. Policies like that are what will put it at risk.

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NZ vs Australia economy

February 3rd, 2014 at 2:00 pm by David Farrar

News Ltd economics reporter Jessica Irvine writes:

Our sporting teams may be locked in bitter rivalry: Wallabies vs. All Blacks; Diamonds vs. Silver Ferns.

But in the battle for economic supremacy, New Zealand is set to reign supreme.

While the Australian economy dominated over the past two decades, the tables are turning.

Australia survived the GFC with our two decade unbroken growth record intact, while New Zealand plunged into a year and a half long recession, before a deadly earthquake levelled its second biggest city of Christchurch in 2011.

But things have turned a corner for the New Zealand economy, says Saul Eslake, the chief economist at Bank of America Merrill Lynch.

“The situation has now changed. As we move into 2014 the New Zealand economy does so gathering momentum whereas the Australian economy is clearly limping and will continue to do so,” Eslake explains.

And the migration patterns are changing.

Could the flood of New Zealanders to our shores be about to reverse?

Better jobs prospects at home are already reducing migration flows to Australia, says Eslake.

“I think that is already evident in NZ’s own migration patterns, which show net emigration having fallen quite significantly.”

New Zealand’s economy expanded 3.5 per cent over the year to last September, outpacing growth in the Australian economy of just 2.3 per cent.

As a result, getting a job in Australia is getting harder while getting a job in New Zealand is getting easier.

New Zealand’s jobless rate dropped sharply from 7.2 per cent to 6.2 per cent, while Australia’s climbed from 5.4 per cent to 5.8 per cent.

Hopefully our rate will drop below 6%.

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Luck worth more than competence

January 31st, 2014 at 10:00 am by David Farrar



The above is from the book “Luck” by Ed Smith.

It is interesting that a head of government does better when the world economy is strong, rather than when their local economy is strong compared to the world economy.

That makes the high ratings for John Key the more remarkable when you consider that the world economy has been so lacklustre for the last five years.

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NZ 5th for economic freedom

January 16th, 2014 at 2:00 pm by David Farrar

The Heritage Foundation has released the 2014 economic freedom index. The top 10 are:

  1. Hong Kong 90.1 (+0.8)
  2. Singapore 78.4 (+1.4)
  3. Australia 82.0 (-0.6)
  4. Switzerland 81.6 (+0.6)
  5. New Zealand 81.2 (-0.2)
  6. Canada 80.2 (+0.8)
  7. Chile 78.7 (-0.3)
  8. Mauritius 76.5 (-0.4)
  9. Ireland 76.2 (+0.5)
  10. Denmark 76.1 (nc)

Only six countries are ranked free (above 80), 27 are mainly free (70 – 80), 56 moderately free (60 to 70), 61 mostly unfree (50 to 60) and 27 repressed (under 50).

The bottom five are:

  1. North Korea 1.0
  2. Cuba 28.7
  3. Zimbabwe 35.5
  4. Venezuela 36.3
  5. Eritrea 38.5

NZ’s rankings are below

Read more about New Zealand Economy.
See more from the 2014 Index.

The level of government spending is the only area in which we score really badly. They state:

The overall tax burden equals 31.7 percent of gross domestic income. Government spending equates to about 47.5 percent of GDP, and public debt is steady at 38 percent of GDP.

All need to drop down.

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HSBC says NZ will be rock start economy of world in 2014

January 7th, 2014 at 1:00 pm by David Farrar

CNBC reports:

New Zealand will be the “rock star” economy of 2014, with growth set to outpace most of its developed markets peers, according to HSBC, a stark contrast with neighboring Australia, which is struggling to maintain economic momentum.

“We think New Zealand will be the rock star economy of 2014. Growth is going to pick up pretty solidly this year,” Paul Bloxham, chief economist for Australia and New Zealand at HSBC, told CNBC Asia’s “Squawk Box” on Monday.

The question is whether one thinks it would do better with policies of tax more, borrow more and spend more. I don’t.


Economy grows 1.4% in last quarter

December 19th, 2013 at 4:00 pm by David Farrar

Stats NZ reports:

Rebounding dairy production drove a 1.4 percent increase in gross domestic product (GDP) for the September 2013 quarter, Statistics New Zealand said today. This increase in GDP is the largest since the December 2009 quarter.

The strong increase in dairy production was the main contributor to a 17.0 percent rise in agriculture, which makes up about 5 percent of the New Zealand economy.

Not bad.

People will recall how the future Labour/Greens/NZ First/Mana Government have been saying manufacturing is in crisis.

Manufacturing GDP also increased 1.5% in the last quarter.

Also recall how Greens/NZ First and Mana (not Labour) all opposed the FTA with China. Well also reported today:

For the first time, China has surpassed Australia as New Zealand’s top goods export destination on an annual basis, Statistics New Zealand said today. …

The trade balance for November 2013 was a surplus of $183 million (4.1 percent of exports). This is the first trade surplus for a November month since 1991. This follows a trade deficit in October 2013, which was the lowest deficit for an October month since the mid-1990s.

Things are looking good – if we keep the right policies.

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Will 2014 be an economic cracker?

December 15th, 2013 at 2:00 pm by David Farrar

Brian Gaynor writes:

There are several reasons New Zealand’s economic outlook is more comparable to the early 1950s and early 1970s than the past 40 years. These include:

Terms of trade: The country’s terms of trade index rose 7.5 per cent, to 1356, in September, the highest level since December 1973. Australia’s terms of trade have fallen 18 per cent this year.

Dairy: GlobalDairyTrade auction prices have appreciated 52 per cent over the past twelve months and dairy exports surged 49.1 per cent in the three months ended October 31 compared with the same three months in the previous year. Recent surveys show that farmers have significant investment intentions, an important feature of New Zealand’s strong economic performance in the 1950s.

China: It is now New Zealand’s largest export market and is expected to continue to grow by more than 7 per cent a year.

Christchurch rebuild: The inner-city rebuild programme should gather momentum when construction begins on the justice and emergency services precinct from March next year, to be followed by the health precinct in the June or September quarter. These projects, which are mainly funded by the Crown and city, should encourage private sector investment in the inner city.

Migration: The country has had strong net migration inflows in recent months and had total net migration of 17,490 for the 12 months ended October.

This figure is expected to increase steadily over the next few months, and Statistics New Zealand figures show more than 90 per cent of new arrivals settle in Auckland.

Housing: The strong migration inflow should continue to boost the housing market and housing construction, particularly in Auckland.

Government finances: The Crown’s financial deficit is falling and the Key Administration may announce tax cuts in May’s budget. However, large expenditures on the Christchurch rebuild may restrict this option.

Confidence: Business, consumer and farming confidence are all at, or near, all-time highs.

Companies: Most domestic companies have strong balance sheets and plenty of capacity to expand and invest. Rod Drury and Xero have lifted the ambitions of New Zealand companies and we now have a large number of young entrepreneurs with aggressive global aspirations.

KiwiSaver: Last but not least is KiwiSaver, which is giving us a pool of private permanent funds that can be partially invested in the domestic productive sector. KiwiSaver ought to have the same positive effect on the domestic economy as Australia’s compulsory superannuation has had on its economy.

In view of these factors the outlook for the New Zealand economy is exciting, the best it has been since the early 1970s.

I’m not quite as positive as Brian Gaynor, but I do agree that the fundamentals are all looking good.


NZ growth ranked as one of the strongest

October 10th, 2013 at 1:00 pm by David Farrar

Brian Fallow at NZ Herald reports:

New Zealand will rank among the strongest-growing of the advanced economies this year and next year, according to the International Monetary Fund’s annual World Economic Outlook.

It forecasts New Zealand’s growth rate this year to be 2.5 per cent, bettered among the 35 advanced economies only by Israel, Singapore, Hong Kong and Korea. The average for advanced economies in 2013 is just 1.2 per cent.

4th in the developed world isn’t bad.

New Zealand also looked relatively good on the fiscal front, with a general government deficit of 0.4 per cent of gross domestic product over 2014, compared with an average deficit of 3.5 per cent for the advanced economies as a whole.

That will change if the Government changes.

Next year’s unemployment rate of 5.3 per cent was not as bad as the 12.2 per cent projected for the euro area, 7.4 per cent for the United States or even Australia’s 6 per cent.

Still too high, but if under Australia that is good.

But the failing grade on the report card was the current account balance: a bottom-of-the-class deficit of 4.2 per cent of GDP this year and next year, worsening to 6.1 per cent by 2018.

The current account deficit is a challenge, but it is less important that the fiscal deficit.


The strengthening economy

June 10th, 2013 at 7:00 am by David Farrar

Matthew Hooton writes in the NBR on why John Key should call a snap election. Despite my commercial self-interest in having elections occur as frequently as possible, I don’t think there is any  probability or reason for an early election. The Government needs 61 votes to govern and has 64.

I don’t believe PMs should do what Helen Clark did and call an early election of a flimsy premise.

What I wanted to focus on though was the reasons Matthew gave for going early, in terms of the economy:

National’s budget was overwhelmingly successful and it now luxuriates in superb economic data.  Just this week, there have been announcements of thelargest increase in residential building activity in 10 years and that wholesale trade continues to grow.

These follow other official Statistics New Zealand announcements in recent weeks of improving trade data, the best ever April visitor numbers, building consents hitting a five-year high and of course the big fall in both unemployment and youth unemployment.

For its part, the Treasury reported on Tuesday that the tax take continued to track above forecast in April, with gross company tax revenue up over 40% ahead of forecast.

After the extraordinarily strong GDP growth in the December quarter – the fourth highest in the world among OECD-monitored countries, behind only China, Russia and Luxembourg – all the recent data suggests the government can expect highly positive news when March quarter GDP data is released on June 20.

There’s still a long way to go, but the indicators are generally looking to be improving.

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Bagrie on NZ economy

May 20th, 2013 at 12:00 pm by David Farrar

Stuff reports:

While parts of the rest of the world are still wallowing in recession, New Zealand in recent months has had a significant number of economic bright spots that could see the country reach “rock star status” within the next four years.

That was the view of ANZ bank chief economist Cameron Bagrie speaking at a post Budget luncheon briefing in Christchurch yesterday.

We’re modest people and don’t like to talk ourselves up, but when you look at the mess Europe, US, Japan is in – we’re doing pretty well. Standard and Poors put us in the top 10 most stable economies.

“I’m progressively getting a lot more upbeat about New Zealand’s economic prospects,” he said.

Through recent changes as a result of the global financial crisis, New Zealand had stolen a “three year march” on Australia, which had not “changed a thing” as a result of the crisis.

The mining boom across the Tasman had peaked and the Australians were seeing a distinct lack of economic and political leadership, with the country looking “a pretty dire place”.

Bagrie said New Zealand was being re-rated by the world.

“New Zealand has made some massive inroads in that game in the past three or four years. [If] we continue to do so, we are going to have rock star status in the growth space internationally at some stage in the next four years.

Unless we make the great leap backwards to the 1970s with printing money and nationalisation of companies.

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1.5% quarterly GDP growth!

March 21st, 2013 at 11:39 am by David Farrar

Stats NZ reports:

Gross domestic product (GDP) rose 1.5 percent in the December 2012 quarter, the strongest quarterly growth since December 2009, Statistics New Zealand said today.

“Fifteen of the 16 industries recorded increases in the last three months of 2012, reflecting the broad-based nature of growth in this quarter,” national accounts manager Rachael Milicich said. …

Economic activity for the year ended December 2012 was up 2.5 percent. This is the highest annual growth in GDP since March 2008, when the economic recession began.

It’s only one quarter, but hopefully the a start that can be sustained.

Also pleasing is private consumption is up 1.5% this quarter while government consumption is down 0.7%. Yay.

Exports went up 0.9% and imports dropped 2.0%.

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The costs that Greenpeace didn’t bother to calculate

February 12th, 2013 at 11:00 am by David Farrar

I blogged yesterday about the Greenpeace report that claimed all these economic benefits of New Zealand becoming 100% renewable and carbon free energy, and somehow was taken seriously despite not even calculating the costs of what they propose.

Someone said that there is no need for them to calculate the costs as they are environmental organisation, not an economic organisation. Now that would be true if their report was solely about the environmental benefits of implementing their policies. But this report is all about the economic benefits of their proposed policies. And to ignore costs when talking economic policies is just nuts. It’s like doing a report on the health system and ignoring the mortality rate.

Peter McCaffrey facebooked a good analogy:

In other news, my highly technical report which I’ve commissioned tells me that if the government provided every single New Zealander with their own personal satellite we could have the best Internet access in the world.

I have made a deliberate choice not to research the costs of such a program because the aim of the report is to spark a discussion rather than getting too bogged down in the numbers.

I’d like my own satellite and using Greenpeace logic it would be great for the economy if we all had own own satellites. Think of all the jobs it would create.

Now personally I am a fan of renewable energy and think it is a major part of our future. In fact it is a major part of our present also. But there is a difference between direction and absolutism. Now we do have some ideas of what the costs of the policies proposed might be, from the Greens’ own website:

Nikki Kaye: What advice has the Minister received on the statement by those who are promoting a 40 percent reduction in emissions by 2020 that a 100 percent renewable electricity supply is easily achievable by 2020?

Hon Dr NICK SMITH: I am advised that that would require, first, the writing-off of $4.5 billion of thermal generation assets. It would also require $11 billion for the replacement capacity of 2,500 megawatts, and $2 billion for additional renewable peaking stations needed to ensure security of supply in a dry year. This amounts to a total capital cost of $17.5 billion, excluding the additional transmission investment that would be required, and this would amount to a 30 percent increase in the power price for all consumers. Going 100 percent renewable would also require the equivalent of another seven Clyde Dams to be built by 2020. I do not describe $17.5 billion, a 30 percent power price increase, and seven Clyde Dams as being easy.

So just this aspect would cost $17.5 billion, increase power prices by 30% and require seven new Clyde Dams in the next seven years!

That will require those printing presses to really be working overtime.


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Typical Green economics

February 11th, 2013 at 3:00 pm by David Farrar

Jason Krupp at Stuff reports:

Greenpeace New Zealand, which made headlines by illegally occupying oil drilling rigs, has opened a new front against the National-led Government – the economy.

Today, the environmental lobby group will make public a 30-page report, The Future is Here, outlining the economic gains within New Zealand’s reach if it begins transforming its oil-based economy to a green one. …

The think tank modelled what would happen if the country produced 100 per cent of its electricity from renewable sources by 2025, and was fully reliant on renewables for all its energy needs by 2050.

The headline figures suggest New Zealand could be oil free in 22 years, save $7 billion a year in oil imports by 2035, and create 27,000 jobs in the bio-energy sector. It would also reduce the country’s greenhouse gas emissions by 94 per cent on 2009 levels.

So what would this all cost?

Where the report stumbles is on the financial side, giving no detail on the level of investment required or the economic tradeoffs, making it impossible to judge if the transformation would be worthwhile or simply a pyrrhic environmental victory.

An economic report that doesn’t even detail the cost isn’t worth the recycled paper it is printed on.

Argent said this was a deliberate choice, with the aim of the report to spark a discussion rather than getting too bogged down in the numbers.

Oh yes, let’s avoid minor details such as cost. I mean you can just print more money – right?

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The 213 global economic outlook

December 26th, 2012 at 6:28 am by David Farrar

Kamal Ahmed at Sunday Telegraph writes:

The CEO said he had been reading a new paper from Boston Consulting Group headed “Ending the era of Ponzi finance”. The lessons he had taken from it were miserable.

The West was not going to find its way to the right economic path with a little tweaking at the edges, the CEO said. What is needed is a wholesale overhaul of the economic system to tackle record levels of public and private debt. Was anyone brave enough to do it, he wondered aloud.

The level of public debt especially is unsustainable in many countries.

That debt was not used to fund growth – perfectly reasonable – but was used for consumption, speculation and, increasingly, to pay interest on the previous debt as liabilities were rolled over.

As soon as asset price rises – fuelled by high levels of leverage – levelled off, the model imploded.

The issue is brought into sharp focus by one salient fact. In the 1960s, for every additional dollar of debt taken on in America there was 59c of new GDP produced. By 2000-10, this figure had fallen to 18c. Even in America, that’s about a fifth of what you’ll need to buy a McDonald’s burger.

Borrowing for capital to grow is good. Borrowing just to fund unsustainable spending is bad.

Coupled with the huge debt burden are oversized public sectors and shrinking workforces. The larger the part the Government plays in the economy, the lower the levels of growth.

A report by Andreas Bergh and Magnus Henrekson in 2011 – cited by BCG – found that for every increase of 10pc in the size of the state, there is a reduction in GDP of between 0.5pc and 1pc. Across Europe, the average level of government spending is 40pc of GDP or higher, and is as much as 60pc in Denmark and France. In emerging markets, it is between 20pc and 40pc. This gives non-Western economies an automatic growth advantage.

The size of the state does matter.

What does the West need to do to right such fundamental imbalances?

Mr Stelter and his colleagues do offer some solutions. First, there has to be an acknowledgement that some debts will never be repaid and should be restructured. Holders of the debt, be they countries or companies, should be allowed to default, whatever the short-term pain of such a process.

In social policy, retirement ages will have to increase. People will have to work harder, for longer and should be encouraged to do so by changes in benefit levels that do little – at their present level – to reward work at the margin.

The size of the state should be radically reduced and immigration encouraged. Competition in labour markets through supply-side reforms should be pursued.

All policies I agree. The competition in labour markets is a crucial element.

Where governments can proactively act – by backing modern infrastructure – they should. High-growth economies are built on modern railways, airports, roads and energy supplies. Allowing potholes to develop in your local roads is a symptom of a wider malaise

No economy has done well by neglecting roads.


Economic history of the world since Jesus

July 3rd, 2012 at 4:00 pm by David Farrar

Hat Tip: Andrew Bolt.

It will be interesting to see what it is in 20 more years. China and India will continue to grow, Europe will decline steeply and US moderately.


Tony Alexander on Europe

April 27th, 2012 at 8:19 am by David Farrar

BNZ Chief Economist Tony Alexander writes:

Good evening everyone – although where I am in Canary Wharf in London it should be good morning. Reading the Financial Times each morning and speaking with many people over the past week one thing is clear – this part of the planet is weak and there is no reason for believing that this situation will change in the coming year. The UK economy has just slipped back into recession as has Spain, manufacturing sector indicators for the Euro-Zone have plunged, the French Presidential election may produce a Socialist winner intent on raising taxes and boosting government spending even further, the Greeks may soon elect a Government opposed to austerity measures, the Dutch Government has just collapsed, and the much vaunted fiscal pact aimed at making the Euro-Zone workable could be falling apart.

Considering the situation here, the underlying doubts about labour and housing markets in the United States, and weakness which next week is likely to force the Reserve Bank of Australia to ease monetary policy again, it is unsurprisingly that the NZ dollar remains strong. We look less bad than the rest. That is the case even though the employment data released in NZ this week show jobs growth slowing to 0.2% in the past three months form 0.3% in the three months before that and 0.4% before that.

At least construction prospects look good and over here companies are hiring people to work on engineering designs for the Christchurch CBD rebuild.

It seems very clear that strong global economic growth is some years off. Decades of unsustainable spending and debt is catching up.

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Some Labour quotes on the recovery

November 9th, 2011 at 1:00 pm by David Farrar

Labour have released:

Labour’s Finance spokesperson David Cunliffe has released 15 quotes from John Key and Bill English that show they have consistently talked up an economic recovery …

Now it is true that the economic recovery has not been as strong as was projected. There are of course some strong external factors at play again like Europe and the Canterbury earthquakes, but putting that aside, whom else can we find talking up the recovery? Perhaps we can even find some politicians who claimed the Government was too cautious about the recovery, and they should start spending up large? Let’s see what Mr Google finds:

  1. First we have Phil Goff saying there was a global crisis in 2008, but that it was all over by 2009. http://www.3news.co.nz/Sub-zero-Budget-worst-in-27-years—Goff/tabid/419/articleID/211868/Default.aspx#ixzz1d9dDbU5O. Someone tell Silvio.
  2. Then we have David Parker demanding that “All New Zealanders must get their fair share in recovery”. A refrain repeated often.
    The better than expected GDP figures released today serve as a reminder to the National led Government that all Kiwis must share in the recovery, Labour’s Associate Finance spokesperson David Parker said.
    “With growth tracking faster than expected Kiwis should look forward to some relief from the Government’s 2010. The stronger than expected recovery gives the Government more room to move as it prepares for the May 2010 Budget.
    “Now the economy is showing strong signs of growth National must work to ensure all Kiwis share in it.”
  3. This one is my favourite – David Cunliffe actually accuses the Government of “trying to play down the extent of the recovery”
    Kiwis deserve to share in stronger recovery
    Better-than-expected economic forecasts should be reflected in a Budget in 2010 that allows all New Zealanders to share as much as possible in the recovery, says Labour Finance spokesperson David Cunliffe.
    David Cunliffe says today’s Budget Policy Statement is significantly more pessimistic than the latest Reserve Bank’s prediction.
    “The Government is still trying to play down the extent of the recovery, but whether you use Reserve Bank or Treasury forecasts, it is clear that hard-working Kiwis, who have been struggling to make ends meet throughout the recession, must be to the fore of the Government’s priorities in next year’s Budget.
    “The fact that Finance Minister Bill English is trying to play down the level of recovery is a worrying sign, but Kiwis want positive reinforcement that the country is on the mend.
  4. The fact that the number of full-time equivalent jobs and total paid hours declined in the December quarter shows that thousands of hard-working Kiwis are not sharing in the economic recovery, says Labour Finance spokesperson David Cunliffe.
  5. Goff – Fortunately, the rest of the world’s largest economies are already on the road to recovery from the global financial crisis too.
    Because our trading partners are growing stronger, today, the outlook for New Zealand is much better.
    New Zealand will benefit from international economic recovery come this year, with the IMF projecting world economic growth of 3.9 per cent.
    At the start of the Government’s term in office, we announced our driving goal was to grow the New Zealand economy.
    Today it’s clear we need to widen our goal. As the recovery unfolds, it is essential that the gains are enjoyed by the people who were called upon to make the greatest sacrifice in the tough times.
  6. Goff – So with the international economy starting to recover, what is being done to ensure New Zealand will gain fully from the benefits of the recovery, and that ordinary hard-working but hard-pressed New Zealander families will share those benefits?
  7. Mallard – “Raising the minimum wage to $15 an hour, either in one step if it is prepared to be bold, or over two years, would show it is serious about wanting to close the wage gap as well as sending a strong signal that it wants all New Zealanders, not just those at the top, to share in the fruits of the economic recovery.
  8. “Now that an economic recovery is starting to take hold, National must ensure that all New Zealanders, not just a privileged few, share in the benefits of changes to the tax system, but Mr Key is trying to soften up the genuine expectations of lowest-paid Kiwis that their sacrifices will not have been in vain,” Stuart Nash said.
  9. Lianne Dalziel says the second Forum, organised by the New Zealand International Business Forum, is being held at an opportune time as signs of economic recovery in both countries allow a focus on developing new economic opportunities and other forms of co-operation.
  10. A chance to share the benefits of international economic recovery across all New Zealanders.
  11. “The Crown Accounts released today confirm that ACC’s assets are benefiting from signs of international economic recovery as anticipated,” says David Parker.

So really a massive own goal by Labour. They spent two years demanding the Government spend more money because they kept themselves proclaiming how strong the recovery was, and in fact their finance spokesperson even accused the Government of talking the recovery down.

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A second agency downgrades NZ

September 30th, 2011 at 2:40 pm by David Farrar

Stuff reports:

Credit rating agency Standard & Poor’s has cut New Zealand’s rating from AA plus to AA, after a similar downgrade by rival agency Fitch this morning.

S&P has had New Zealand on negative outlook since late last year.

It said it downgraded the rating because of the likelihood that New Zealand’s external debt would get worse when the government is having to spend more as a result of the Canterbury quake.

This is a blow. It means all businesses and of course the Government will have to pay a bit more to borrow money. This is the price we pay for having kept interest free student loans – everyone else pays more interest.

This makes it even more imperative that the NZ Govt gets back into surplus as fast as possible. I hope both major parties do not use the election period to make spending promises we can’t afford, or in Labour’s case tax cuts for all we can’t afford.


The Greens jobs initiative

September 22nd, 2011 at 9:00 am by David Farrar

I’ve noticed that this election that the Greens have billboards and slogans along the lines of “Vote Green to grow the economy”. This is radically different slogan from their rhetoric of a few years ago when the Greens would denounce economic growth as evil and actually argue against growing the economy.

I’m not convinced that their policies have changed, just that they have a better advertising agency. The so called policy to create 100,000 jobs  in fact has less substance than an anorexic Leptotyphlops carlae. Take their claim of 47,000 to 65,000 new jobs from renewable energy. They said:

The global market for renewable energy technology is forecast to reach an annual value of $590–$800 billion by 2015.6 If we can secure just 1% of this market, we can build a new $6–8 billion export industry here at home, creating 47,000–65,000 new cleantech, high-value jobs

Translation provided by a financial analyst:

So if the global market for green tech gets to an incredibly high number and if we could secure 1% of this incredibly high number and if those were highly-paid jobs and if they didn’t replace any other jobs in the economy then hurrah – we would have 65,000 jobs!

If the Greens were promoting a prospectus, you could get them jailed for securities fraud. But it doesn’t stop there. ACT candidate Stephen Whittington points out their massive mistake, which would have them fail NCEA Level 1 Maths. He explains:

I honestly cannot believe that the Greens have made such a simple mistake, in a document which is intended to set out how they will finance their plans to significantly increase Government expenditure.  

The Greens predict that increasing minimum wages will increase tax revenue by $519 million.  Even assuming that people don’t lose their jobs, which they will, increasing the minimum wage will reduce tax revenue.

Increased wages will increase the amount of PAYE collected by the Government.  But wages are also a deductible expense to businesses.  Given that the marginal personal income tax rate is lower than the corporate tax rate, increased minimum wages will decrease revenue from corporate income tax more than will be increased from PAYE, even assuming no increase in unemployment.

In the Green fantasy world, increasing the cost of Labour doesn’t decrease profits and hence taxes on profits. I am amazed they are not lobbying for the minimum wage to be immediately raised to $50/hour as this will cause employers to become more productive to be able to afford to pay the wages. No I am not kidding – this is what they actually argue.

Now in case you think it is only nasty right wingers using evil weapons such as mathematics and logic to attack the Greens policy, let’s look at the comments by Idiot/Savant at No Right Turn. He supports their policies but slams their advertising:

I’ve spent the morning reading through the Greens’ “Green jobs initiative” [PDF]. The short version is that the Greens are promising to “create 100,000 new green jobs through business incentives and government leadership”, specifically through increased investment, building a clean energy sector, and increased support for a green economy. But when you look at it, its not really about jobs at all; rather its about greening our economy, with jobs as a byproduct. Political marketing means that that byproduct is being highlighted, in a way which is at times outright deceitful.

He continues:

 The “big idea” in the policy is government support, through our energy SOEs, for a major new renewable energy industry:

“The clean energy sector is booming internationally. Currently, renewables supply only 15% of the world’s primary energy demands but its share is growing rapidly. The global renewable energy market grew by 6.8% in 2010 alone to reach a value of $389 billion. It is forecast to reach an annual value of $590–$800 billion by 2015. By securing just 1% of this market, we’d create a $6–8 billion new export industry here at home, creating 59,000–81,000 new jobs.”Which is a nice dream, and something we should aim for. Our economy is not very diverse (basically, we export butter and bungee jumping), and if it is to grow we need to start doing other things. Exporting wind turbines, geothermal technology, and smartmeters, and the technology, services and IP related to these is a good idea, and something that potentially fits well with what we already do. But a $6 – 8 billion export sector is enormous – bigger than meat; it would be our third-largest export industry after tourism and dairy. And that’s not something that’s going to happen overnight. Its a good idea, its something we need to do, and its something government needs to help with (after all, pretty obviously the market isn’t going to do it if left to itself), it will benefit New Zealand in the long run. But pitching it as an immediate job-creation plan, and implicitly suggesting we’ll have those jobs by 2015 (rather than in 20 years time) is deceitful and misleading.

I/S concludes:

This isn’t just wrong, it is a mistake. Quite apart from raising questions of the Greens’ honesty and integrity, one of their chief selling points, it undermines the policy itself. This is a perfectly good policy, and it can stand on its merits (hell, even MED agrees that we need active government intervention to build new export industries, up to and including direct investment in growth areas). Fudging things like this hands a gift to detractors, allowing them to dismiss it out of hand: “100,000 new jobs? Yeah, right”.

So, a good policy, but very disappointing marketing around it. Deceit is not the green way, and if you use it to sell your policies, then people will start treating you as liars, just like all the rest.

At the end of the day, the Greens are politicians seeking power. They’re just like all the other politicians – neither saints nor sinners. Just politicians.But politicians who can’t even do simple maths.



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ACT’s economic policies

August 29th, 2011 at 10:00 am by David Farrar

Don Brash gave a speech last week outlining ACT’s economic policies. People may be interested in a summary of them:

  • ACT would promptly re-introduce youth minimum wages – or better still, abolish minimum wages entirely for those under 20.
  • further reform of employment law so it is less heavily stacked against employers
  • scrap the Emissions Trading Scheme
  • radical reform of the RMA
  • seek to reduce government spending to below 30% of GDP, the level it was at at the end of Labour’s second term in office in 2005
  • Longer term, as the economy grew, we would want to get the government share of the economy to a lower level, perhaps 25%, as it was for much of our history up to the mid-seventies
  • harmonise the top personal, company and trust tax rates at 21%; or
  • radically reduce the company tax rate, to perhaps 10 or 15%, with the top personal and trust tax rates remaining at, say, 28%
  • age of entitlement for NZ super has to rise gradually over the next 10 years or so
  • favours the sale of government-owned businesses
  • see legislation passed which would constrain the future growth of government spending
  • see legislation passed which would make it harder for governments to pass laws and regulations which would impinge on the rights of citizens
  • see the Bill of Rights amended to protect the property rights of citizens

While I don’t agree with every single item, there’s a lot I do agree with, and they would definitely help push New Zealand faster in the right direction.

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Clydesdale on growing the economy

August 23rd, 2011 at 12:00 pm by David Farrar

Dr Greg Clydesdale says:

We cannot rely on Auckland to drive the New Zealand economy according to Dr Clydesdale who today releases a discussion paper ‘A middle path for the New Zealand economy’. 

 A key feature of recent economic debate has been the idea that Auckland will be the country’s economic driver.  The argument states that there are economic advantages to having many firms located close together.  However, Auckland’s industries have low rates of innovation and exports: key drivers of economic growth.  The city lacks the capabilities to deliver desired growth rates.

 Auckland’s location does present many economic advantages, but to expect it to drive growth is going too far.  Recent policy was inspired by recent literature from economic geography, diversity and immigration.  Dr Clydesdale states it is time to end the myths and alchemy that has influenced the New Zealand economy for so long.  It is time to get back to basics. …

Definite food for thought. The full paper is embedded below.

Conference Fashionable Policy With Super Font

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