Should we emulate Brazil

August 19th, 2012 at 2:42 pm by David Farrar

Clare Curran tweeted:

NZ Govt take note “@rnz_news: Stimulus package announced by Brazil http://bit.ly/PF0Pei 

This got me interested in the details of what Brazil had done, and which a Labour MP was asking NZ to emulate.

Radio NZ reported:

Brazil has announced the first phase of an economic stimulus package designed to boost growth in the economy.

More than $US60 billion will be invested in roads and railways over the next 25 years, with more than half in the next five years. This includes 8000km of new roads and 8000kms of railways.

Now US$60b sounds like a lot of money. But Brazil had GDP of $2.5 trillion so we need to adjust for the size of the economy. NZ GDP is around US$135b so the equivalent in NZ would be US3.2b or NZ$4.0b. However this is over 25 years, so is annual expenditure of NZ$160m a year. Not exactly a huge stimulus. To be fair it says half over the next five years so it is $400m a year for five years.

But I suspect Clare did not look at the details of this spend on roading and rail. CNN reports:

Among the initiatives, the government will sell rights for private companies to operate 7,500km of roads and 10,000km of railways.

Superb. That is my sort of stimulus package. $60b of PPPs!

The measures would double the capacity of the country’s main highways, transport minister Paulo Passos said at the event.

However I suspect the Greens would not be so keen. And hasn’t David Shearer just been making speeches against increasing the capacity on the roads of national significance?

The centre-left coalition government led by Ms Rousseff’s Workers’ party has traditionally been opposed to privatizations.

But she has proven pragmatic in the face of infrastructure bottlenecks.

Good to see a NZ Labour MP tweeting in favour of a privatisation programme.

Earlier this year, her government awarded projects to redevelop and operate three major airports to private sector-led consortia

Great.

And Radio NZ concluded:

In addition to the announcements on Wednesday, President Dilma Rousseff is preparing to lower the price of energy for industry and abolish some federal taxes, which could cut the price by 10%.

So Brazil is also planning to increase greenhouse gas emissions by reducing energy prices, and also plans tax cuts.

I look forward to questions in the House from Labour demanding the NZ Govt implement a Brazil style stimulus package.

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Stimulus Plan

October 8th, 2009 at 3:22 pm by David Farrar

Grant Robertson blogs:

Barack Obama is facing all kinds of issues in the US at the moment- healthcare reform, whether to put more troops into Afghanistan, climate change, you name it. All the while, he faces huge expectations on the left and visceral anger on the right.

But one thing he can point to is a stimulus package that  has made some big investments in covers green jobs, extensive social assistance and research. The stimulus package included $21.5 billion in funding for research and development, particularly in leading edge genetic research. The money has been spread around the US, and is having a great effect in encouraging research where private sector funding has dried up.

This is the kind of long term thinking that has been missing from NZ’s response to the recession. Of course we don’t have $21 billion to do this, but our government has set on the sidelines, and worse still pulled back from research funding. If we want to improve productivity and develop a new economy, we need large scale investment. On this issue, the Obama administration is showing the way

While I am all for genetic research (then we can clone Hayley Holt), I think Grant’s drooling over Obama’s fiscal stimulus is rather regrettable. Even if one puts aside the huge fiscal deficit Obama is running (which makes you wonder about how large a deficit NZ Labour is planning), have a look at this graph from Harvard Economics Professor Greg Mankiw that someone linked to in the comments.

stimulus-vs-unemployment-september-dots

So the light blue line is what Obama said would happen without his fiscal stimulus, and the dark blue line is what he said would happen with his fiscal stimulus. And the red line is what has actually happened.

And this is Labour’s solution to rising unemployment!

Incidentally in NZ, where we had a more modest fiscal stimulus, consisting of tax cuts and advancing necessary infrastructure investment, the unemployment rate is just 6.0%. It was projected to peak at 8% (or even 9.8% on the downside scenario), but the latest Reserve Bank forecast is now for it to peak at 7.0%.

Now this doesn’t mean a massive fiscal stimulus spendup makes unemployment go even higher. I am not saying Obama caused unemployment to go higher than projected.

The lesson is that the Government impact on unemployment is limited. The private sector is what creates job, not the Government. Government created jobs are funded from private sector taxes and you need private sector jobs to pay those taxes.

Obama has saddled future generations with an out of control deficit, and debt which will soak up money which could be spent on health or education.

This is what Labour wanted for New Zealand. They have proposed mounds of extra spending that would have stuff all impact on unemployment, but leave a massive debt burden for the future.

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The Greens’ New Deal

May 18th, 2009 at 10:00 am by David Farrar

On Friday the Greens launched their so called Green New Deal, with a price tag of $3.3 billion over three years. It has five main elements:

  1. Energy efficiency measures such as home insulations, school upgrades etc costing $300 million.
  2. $1 billion to be shifted from roads to public transport (so not count as new spending)
  3. $600 million on protecting waterways
  4. $2 billion constructing 6,000 new state houses
  5. $440 million on community economic development

Most countries have had a fiscal stimulus to take the edges off the recession. NZIER calculated that the NZ fiscal stimulus to date will save around 10,000 jobs. They also point out that the increased debt lowers household incomes down the track.

The Greens estimate their package would create 18,000 FTE jobs directly and andother 25,000 indirectly.

I’ll analyse parts of it shortly, but have to say for now that it at least passes the initial test that they are proposing generally one off projects, rather than initiatives that would permamently increase Government spending at a time we can’t afford it. They are the sort of projects that can be considered as part of a fiscal stimulus.

The energy efficiency measures tend to be the most sensible, as they actually can pay for themselves over time by lowering energy costs.

The suggestion that $1 billion be taken from motorways and put into public transport is simply not going to happen. The Greens always try and portray it as a choice between roads or public transport. It is not. We need both. There is not a country in the developed world that has just stopped building new roads.

The plan to protect rural waterways from pollution has more appeal to me – there are tourism reasons you may want to do this.

$2 billion for new state houses is not a good priority. The current housing stock is run down and the Govt under Labour became a slum landlord. The Govt’s priority is to improve the current stock before looking to expand it – that is sensible.

So anyway have to give the Greens kudos for actually putting up costed serious proposals, even if I do not like many of them. I much prefer them doing this than working on further things to ban!

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NZIER on fiscal stimulus

May 15th, 2009 at 12:46 pm by David Farrar

NZIER have done a very interesting report on the balancing act between jobs and debt.

The fiscal stimulus of almost $10b over four years will result in an extra 10,000 jobs in the short run, but it will reduce future consumption by $160 per person per year. We can spend now, but we have to pay for it eventually.

And that is the key thing to remember – that debt has a cost.

We find that a policy that reduces the cost of employing people could boost employment more at a similar cost to long-run consumption. Better still would be well-targeted spending on infrastructure to deliver longrun productivity improvements. Given New Zealand’s longer term growth challenge, any fiscal efforts to stabilise the economy and avoid a more severe recession should have productivity at the centre of the policy radar screen.

Productivity growth is all important.

we find that the current package is likely to:
• generate an extra 10,000 jobs in the short run
• raise GDP in the short term by 0.6 percentage points
• lead to lower employment after 2012 and a 0.8 percentage point fall in long-run real consumption per annum than without the stimulus.

Again debt has consequences. And just think about how much more debt there would be with Labour – not just $1b+ for their pet tunnel, but they have oppossed every cost saving in the public service.

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Size of Fiscal Stimulus

May 6th, 2009 at 1:26 pm by David Farrar

fiscalimpulse

This OECD chart shows that NZ’s fiscal stimulus is in fact the 6th largest in the developed world, as a percentage of GDP.

Hat Tip: The Visible Hand in Economics

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The fiscal stimulus

February 17th, 2009 at 2:00 pm by David Farrar

MacDoctor has an excellent response to the analysis done on Pundit over the $9 billion fiscal stimulus. Tim Watkin on Pundit says most of the stimulus is “old money” not new.

MacDoctor reponds:

Tim gets understandably offended by the fact that fully half of the fiscal stimulus is new spending already earmarked by Labour, including, amusingly enough, the purchase of Kiwirail.

I should point out that Tim’s problem is due to the fact that he is interpreting the words Fiscal Stimulus in the very socialist fashion used by Rudd, Brown and Obama – all died-in-the-wool Tax-and-Spend socialists. Fiscal Stimulus in this sense of the word means “Invent large sums of money from nowhere, then spend it like there’s no tomorrow”.

Bill’s answer is straight from Treasury – who are about as socialist as Roger Douglas. To them, Fiscal Stimulus means “amount of extra money being put into the economy” – nothing more, nothing less. Labour’s committed spending counts towards a fiscal stimulus just as much as National’s new spending. This is normal accounting practice and is not some strange plot by National to impress the media.

There is a big difference between “spending” and “stimulus”.

Tim’s objection to the inclusion of Labour’s extra spending appears to rest on the groounds that it occurred well before the economic crisis. This is meaningless in terms of the stimulatory effect it will have on the economy. Had it not been for the economic crisis and fact that New Zealand was moving in to a recession, Labour’s spending may well have kept inflation above the 5% mark, so stimulatory was it. The economy does not care where the spending was approved by Labour or National, it will still react to it in definable ways.

Tim also seems to object to the inclusion of spending on schools and roads on the understanding that these were already approved by Labour, but just moved forward. It seems to have escaped him that that is exactly what is required – an increase in current expenditure rather than later spending. Almost certainly, Labour would be doing the same thing, if it was still in power.

Those from the left want “extra” spending because that is what the left believe in – higher taxes and more government spending. But that is not the only way to increase the fiscal stimulus and bringing spending foward is, as MD says, an excelletn way to do that.

We are going to face a horrendous deficit and debt problem for at least a decade. If the Government is playing smart by having a large stimulus, without incurring ongoing expenditure that we have to borrow to pay for, good on it.

Having said all that, there is a fundamental mistaken assumption that Tim and the guys at Tumeke! and the Standard have made. It has also been made by the media and by Messrs. Rudd, Obama and Brown. It is the assumption that it is the amount of money being spent that is important. This is entirely false. It is actually how and where the money is spent that is vital.

Rudd has injected money directly into peoples pockets. This is a very popular move, but one that provides only a very short lived stimulus. Obama has huge swathes of useless “pork” in his package. Brown appears obsessed with owning banks.

Key, on the other hand, is spending frugally and carefully in the places he thinks he will do the most good for the economy in the long run. He has little money to play with (thanks, in large part, to Labour) and is making the best use of it he can. Arguing about the actual size of the stimulus is like arguing about the colour of the bus that is about to run you down.

I can only say I agree,

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