By Alex Tarrant
New Zealand's economy would be growing at approximately 6% if New Zealanders were still spending at 2007 levels and not saving, Prime Minister John Key said, citing Reserve Bank data.
Speaking at his post cabinet press conference on Monday afternoon. Key also said that he did not expect the global economy would be hit by a double-dip recession and that he expected interest rates in New Zealand to stay low for "quite a long period of time".
Key was asked that, given Finance Minister Bill English had said people had moved to savings from debt a greater rate than expected, was he hoping people would use quite a bit of their tax cuts to spend at the moment, given the state of the economy?
"It would be good if they make their own choices for what they think is appropriate," Key said.
"All I can tell you is some of the data I’ve seen from the Reserve Bank, If people were spending at the same level they were spending at and not saving, say in 2007 when consumption levels were very high, growth in New Zealand would be approximately 6%
"So the reason that growth is weaker at the moment than we would probably hope is because people are saving."
Key said New Zealanders getting balance sheets in order and getting out of debt as a collective was the right decision.
'No global double-dip recession'
Key was asked whether he was worried about unemployment staying at high levels, given the rebalancing of the economy meant Kiwis weren't spending, and the negative effect this had on unemployment.
“Well we always worry when New Zealanders lose their jobs, and one of the differing features of this recession and then recovery period has been it’s tended to demonstrate jobless growth," Key said.
"That seems to be the case in the United States where unemployment’s sat at 9.6%-9.8% and has been there for much longer than people had anticipated.
"That’s a function of the fact that companies didn’t lay off as many staff as anticipated when the recession was on.
"But because they had fears of a double-dip global recession, they were concerned about overstretching themselves just in case there was another downward cycle.
"My view is that we won’t have a global double-dip recession, and that confidence will be restored over time."
"Unemployment is always a lagging indicator."
'Interest rates low for a long period of time'
Key was asked whether it surprised him that unemployment hadn't improved
"In one sense, we are growing," Key said.
He referred to the government’s statements in the House that New Zealand had grown more in the last nine months than in the last four years.
“But there’s no getting away from the fact that this was a very deep recession, and knocked around capital markets, and international markets have been very concerned about what’s going on," he said.
"You’ve seen quite big swings in policy from very interventionist, highly stimulatory policies now to quite austere policies in countries like the United Kingdom and Italy and Spain and other countries having to cut expenditure."
So there’s nothing more you’re considering to give us stimulus?
Key said the government were always monitoring whether they should consider more stimulus.
"But if you want to put gimmicks to one side, there are three major ways we can stimulate the economy," he said.
"One, Government spends more money, and we’re doing that – we’re spending NZ$13 billion in terms of a deficit. So there’s no question we’re stepping up and running a budget deficit that’s around about 5-6% of GDP.
"Secondly, interest rates are low, and it’s my expectation that they’ll stay low for quite a long period of time. That helps consumers who are paying less for borrowings than they were in the past.
"And the third is we’ve stayed true to our word to cut personal taxes."
'Worried about non-commodity exporters'
With the high New Zealand dollar, Key said he was more worried about exporter sectors that were not commodity linked.
"For the most part we’re actually seeing very strong commodity prices, not just in dairy, but [for] wool, sheep and beef," Key said.
"But obviously the exporter who’s exporting to the United States of America, with no commodity link, is struggling at the moment."
Key said the challenges facing exporters by the high exchange rate was a very difficult situation.
“I saw David Cunliffe in the weekend saying he’s going to urge or make the Reserve Bank intervene. Well he’d be well worth to have a trip to Japan,” Key said.
See full story on Labour's foreign ownership policy and Cunliffe comments on monetary policy here.
“Intervention does not work. At the very best it might take the rough edges off the highs and lows, but it does not work as a policy.”
Key said the government had to take the pressure off exporters in ways that it can.
“Controlling government expenditure takes the pressure off [Reserve Bank Governor] Alan Bollard [to raise interest rates]," he said.
“Making sure that the infrastructure block takes the pressure off our companies.
“Making sure we have free trade agreements - that’s good orthodox economic policy that actually works.
“Gimmicks of economics, for the most part, don’t.”
(Updates with 'worried about non-commodity exporters'.)
52 Comments
I sincerely hope this is a non-contextual mis-quote of Mr Key. I would hate to think that I know that our "boom" was a false one based on taking on debt, and he does not. Come to think of it, I hate to think that Mr Key cannot simply break this information gently to Kiwis. David Lange could have done it standing on his head.
You sincerely hope this is not a misquote?
I fear this is a head line, which one is calling normally sensationalist to serve ones own interest.
Read the end of the article: "Key said New Zealanders getting balance sheets in order and getting out of debt as a collective was the right decision"
Disclosure statement: I did NOT vote Key, but dislike quotes out of context.
He sees no double dip and its our fault as we are saving....
Thanks john.
If he does say that then kiwi wallets will stay closed....yes its a pity we cant take honesty at face value and Pollies are afraid of what will happen if they do....
I cant see us ever getting back to that spending rate.....even before things like Peak Oil....There was a comment that 50% debt had to be got rid of, thats a decade of this....Key had better get used to it.
For me I see all the bad data and so far for the last 18months I think Ive been more accurate/realistic on how poor we have done....now thats sad.
regards
If that is correct John Key has lost the plot and has no idea of economics and sound Government.
For him to encourage spending and not a balanced economy he shouldn't be Prime Minister. He is encouraging the punters to also take on debt like we had up until the crunch.
This sounds like a man of desperation - we voted him in for change, not the same - and we also thought he had the nous to create new policy and direction for NZ.
Maybe we made a mistake. He should stop being a one stop PR machine flitting around the country kissing babies and grannies and maybe attend to the economy in a sensible way.
He also came down to Christchurch and promised the earth after the earthquake and is now being found out. Some damaged houses including mine won't be even visited until well after Xmas. He had the big political roadshow with grinning Bob Parker but now the true effects and cost to the home owner is coming out - it might bite him and Gerry in the proverbial.
Time up John - time to deliver son.
Man ,,,,am I getting tire of the rich bashing by the ignorant. If it wasnt for the rich (less than 10% of the earners) paying 40% of the tax take we would be a third world economy....
Read this,,, it sums it up nicely
http://pierrelegrand.net/2007/07/06/taxation-explained-to-the-beer-beso…
Sigh!
So...does this mean our GDP relies on us/NZ getting even more into debt?! I have only had time to read the headline so hopefully that's not what he's saying. If he is, and seeing the other headline about Labour's leader, I'm thinking it may be time to set up a brand new political party.
The US certianly, we have geared up to sell goods the US buys with debt off China...So when that goes pear shaped our economy has to re-tool....which means the debt we took on to buy goods from china is a problem.
In terms of more debt there is a good corellation at least in the US between increasing debt and decreasing un-emplyment it used to be a 1 to 1 relationship, so 1% more debt got you 1% more employment....but by 2007 that 1% more debt only got a fractional improvement...
So by that alone it signals to me a structural un-employment of 8% or more...
That is going to be ugly.
A new political party to do what? we have enough parties I think....all of them pretty useless.
regards
How about NO parties and instead Citizen Binding Referendums where 'public servants' are just employed like normal people in normal jobs to perform the required task of making the CBR result a reality like good 'public servants' should?
Cheap, efficient, and best of all REAL democracy in action
Never happen, because at that point all the vested interest, lobby groups etc will be moot and lose influence and power. No, the alledged democracy we have right now is as good as it is going to get until people get off their arse, blogs and ZB talkback and actually demand it. Remember too that thos of you on here who can see thought the BS are in a very small minority. The average voter is simply too uninterested, not smart enough or too worried about survival to spend time thinking about complicated issues like real democracy.
Party politics is a sham, and NZ politics an utter disgrace, the only countries sader than NZ politically from where I have lived is the US and Italy.
I think no politial parties is a good idea, each MP has to stand as an independant.
In terms of citizen Binding Refs, we have some pretty clear cases eg California that this simply does not work...mostly because of stupid voters who wont take the tie to understand and responsibility of voting....also look who are championing them, the loony right....so the outcome is sadly obvious.
Pity, I used to like the idea a lot, but I think it would seriously f*sk us up....but it would take time....and then longer to fix....we really dont need that as a disaster.
regards
Can you just imagine the outcome of citizen binding refs.. the lobby groups would still exist, they'd just transform into advertising companies and directly lobbying the public with endless billboard and ad campgains to educate an otherwise uninterested public on what they should be voting for. If anything business lobby groups would become more powerful than they are now.
Steven,
I agree that political parties are part of the problem but can't see any way around having them. One problem with political parties is that over time they become defenders of the status quo, including the privileges that MPs and their support bases establish for themselves. From that point on they are no longer capable of effectively adapting to a rapidly changing environment.
The only solution I can see while maintaining an existing democratic system is to keep forming new political parties - preferably without recycling MPs. If we can't be bothered doing that then we will continue to get the politicians we deserve.
"Tourism Holdings, predominantly a campervan rental company, has issued a profit warning, arguing that the high New Zealand dollar is discouraging international tourists from visiting".
Less spending by fewer uk tourists!...falling tax revenue...less poo and rubbish too left at the overnight stopovers.
Maybe they are all heading for John's Bike Track....maybe not. This is not good news with the footy coming next year and the ocr expected to rise...and the Kiwi too. Bugger.
Looks like it's all down to Frodo Baggins and his big feet.
So JOHN, you admit it? "growth" is actually just MORE "debt"!
What a f**king muppet this guy and that dougnut English are. They really take most NZders as morons. 51% maybe. And they ALL vote for people like this who don't have a clue what to do other than lie, spin, take rights away and manipulate the general public
Yep, that about sums it up....we grew more than we should "naturally" have by spending our future........and quite a bit of our childrens future and maybe grandchildrens......
The sad thing is this was all in front of us in black and white (I for one didnt really understand, now I think I understand enough).........and now its payback time....so thats now that 6% he's lost as a tax cut to his rich mates.....and that's going to stay for a decade....so at what point do taxes rise? because eventually they have to....
regards
Thats the choice.....in the UK taxes are rising....so I cant agree on will not....but default may happen anyway...
For me we should have an average tax rate eg that keeps the heat out of a boom by "overtaxing" slightly and saving that and then in the downturn there is no need of debt to cover spending....because on the next boom paying down the debt will be like a tax anyway BUT interest is then against us.....
I really cannot see why a Govn cannot be run sensibly like a good household budget, dont spend it all, save some for the bad times....
Spend of course takes 2 forms, for Labour the opportunity to do social engineering which is obiously failing....for National tax cuts which doesnt do a thing except make the rich richer, neither makes the country richer and both raise the expectations of segments of the population un-realistically.....
regards
"growth" is actually just MORE "debt"
Of course it is, and it's been that way for centuries. Every skyscraper and motorway on the planet has been funded by debt creation. Would you rather have no infrastructure?
Want a glimpse into the future? Just swap the word trillion for quadrillion.... unless a new currency is created where a trillion becomes just a million again, in the same way ₤1,936 Italian lira became €1 Euro....
Oh I agree....except on the timing....I did think next year, now with the mortgagate fiasco (and thats a huge one) I dont know we wont see a huge panic before Xmas....maybe even before December.....and then the domino's start to fall IMHO....
The great thing about mortgagate is that this is something the ppl can use against the banks....the banks have been screwing them over....now through the courts the ppl can get their justice.....Im hoping they do so....
Vengence of the voter.
regards
Damn, the wife has taken JK's comment to heart and has ordered new carpet throughout the house, and repainting and wallpapering, also installing a new kitchen while redecorating (to be fair it is 20 years old). Says since she's not borrowed a cent to this, she's pleased to be doing her bit for the economy. So come on, I expect you guys to help out as well.
Devils advocate:
Some of those are not taxes. You have a choice whether to pay some or not on that list by either owning the item or not, participating in or not etc.
Don't want too pay tax? Don't work or ask for a job and don't use a currency! simple. Steal, pillage, beg etc. Live in the mountains & eat rabbits . You will be free and the moaning can stop
He does seem to be losing the plot (if he ever had it, that is). Did anyone see him on Breakfast this morning. Without the ridiculous banter - and the true blue "buddy" relationship with Paul Henry... Key just couldn't cut the mustard in a serious toned interview.
And he really faultered when questioned about the prospect of going head-to-head with Andrew Little. I don't know the guy but clearly Key sees him as a formidable opponent.
And while we're on the subject of the union movement - does anyone know what the overall cost of the pay rise the secondary teachers are looking for? I'd just be interested to know whether it would exceed what taxpayers are in for with GG payouts to finance company investors.
They can have the pay rise when we start seeing results. Time and time again I see young people who can't do simple math, can't read, can't spell (though we all fail at that from time to time) and who I would not employ EVER!
Teachers are failing, parents are failing, society as a whole is failing. Just sad
Ah well that would be justice indeed, for there are many gifted teenagers out there who cannot do simple mathematics, have trouble reading and repeat the spelling mistakes plastered throughout the media....but as you say Justice..."society as a whole is failing"! That's where you come into the picture Justice. Stop being a know all and start being a teacher. The young learn from the oldies and all you are doing is teaching them to be very negative.
The education system is a sausage machine which pumps out all sizes but the quality of the bangers depends on the stuff shoved in the top....it has bugger all to do with how long it takes for the stuff to emerge in a skin or on who the operator is.
I have kids in school, personally I think their education is a far far better one than mine was....I like to think I succeeded despite the teachers....
Some young ppl have always not been able to do math....or have good english. My english is just about acceptable after 40 years....I now write reports that ppl like....but the hours I spend on them makes no sense........but that's secondary to my job. My job Im pretty good at and Maths etc isnt that important....being able to think and find information and apply it is....
regards
I voted for National. If there was an election tomorrow I would not be voting for them.
This is totally disingenious from Key. Or pathetic. Or both.
Another pathetic comment came from English today. He essentially said National were to thank for low inflation. That is bollocks. The crap economy is to thank for low inflation.
Bernard - please write a scathing critique of these statements (unless of course you agree with them) . In the absence of a strong opposition, we need the media to challenge the clowns in power.
The power has clearly gone to their heads. At least it took Labour longer for that to happen.
Cheers
MIA
English said that (low inflation)?
Indeed absolute bollocks.......the recession with huge over-capacity, low sales and job loss or insecurity are forcing inflation down, indeed into deflation the Govn is a by-stander.
I wonder what the twerp will say when we see deflation...."heay we got inflation down even more"?
[-----]
regards
Is anyone actually surprised he has no substance. The guy never had it, anyone with level 1 ability to read a persons language, and reactions well before he got elected could have seen that. This is the problem, most people are simply not able to do this, nor are they able to think for themselves, because its all just too hard. So they just read headlines, if they read at all, and believe what they are told to believe. Every system in use accross the western world, was designed to keep the "elite" in control. It is as simple as that. JK is just the current muppet doing what he is told.
Meebee I'm a thicko ......... ha ! No maybe about it . But John Key appears to say that Kiwis have free will to make their own choices with their munny ........... And he says that intervention in the currency markets , is pointless ........ What's to argue aboot that ? The guy is starting to make some sense . And up until now I've been a critic of Key . But ( finally , at last ! ) there is a measureable difference between him and the Labour-Hickey party . They want hands on levers / interventionalism / currency controls . Key doesn't . .......... Cool !
Cunny is a shrewd wee varmit . He'll let Goofy crash & burn after the 2011 election , then execute the bugger .
David will be in two minds if Labour seriously challenge National , 'cos until now , the next election was a foregone conclusion . Now , however , the fragility of the Nats is being seen . And Goofy is coming up with new policy , however goofy it may be .
But the Labour team are old hands . Cunny needs an opportunity to have a clear out , and bring some fresh faces in . After 2011 that is feasible .
I have to say National have themselves to blame a little.
I can't believe how long it's taken them to finally come out with how they are going to treat LAQC's.
A good portion of the property market has been in limbo since the start of the year because of it.
Even now it's still just a draft copy.
Talk about a good way to provide uncertainty.
Too many young policy analysts straight from University... down there in Wellington... Maybe????
University can be as much a way to indoctrinate... as it is a place to learn...
"Silo Thinking".... where did this term come from..??? Is that the same as "head in the sand"..??
Nothing beats wisdom and experience.!!!! = common sense
Do u think u may be underestimating John Key...???? Looking back over the last 30 yrs... I think he is one of our better Prime Ministers...
What matters now is substance not labels, we can continue as we have done and anticipate more of the same outcomes, is that all we can aspire to?
Bernard, Kate and others have pointed out that change is necessary, lower broader taxes, financial defence of New Zealand as the world goes its own way on competitive devaluation bringing ruin to the exposed.
Talk of a different way is greeted with classical characterisations - a lurch to the left - Stalinism - Muldoonism - whatever.
Simple labels, for now, seem to substitute for debate. This has to change.
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