By Alex Tarrant
Labour, the Greens and ACT have critisised the government for having no plan to respond to a weaker economic and budget position.
But Prime Minister John Key said New Zealanders should not panic about the government's fiscal position, with government debt of below 30% of GDP well down from a number of governments overseas heading for debt of 100% of GDP.
Key was speaking after Finance Minister Bill English released the government's half yearly fiscal and economic update, projecting the government's cash deficit to blow out to NZ$15.6 billion in the 2010/11 year. English also revealed the government's first Investment Statement, showing government had a balance sheet of almost NZ$230 billion.
Labour leader Phil Goff said the government was effectively now paying for tax cuts for the wealthy by borrowing.
Labour would not cancel the corporate tax cut brought in by the National-led government.
"That wouldn’t be helpful. Corporate tax take is down by 28% in four months. That shows the economy has stalled. They have no economic plan," Goff told journalists at Parliament.
National was promising savage cuts to health and education expenditure, Goff said.
"They need a plan. They have no plan, that’s obvious from the record that we’ve seen today. These figures are appalling. Unemployment will stay above 6%," Goff said.
However he defended tax cuts delivered by Labour before the 2008 election.
"Those tax cuts were necessary as a stimulus to the economy at the time and they were not focussed almost overwhelmingly, as the later tax cuts were, on the wealthy," Goff said.
"Those tax cuts came when it was clear that the world was going into recession. The recession was underway at a time when a stimulus was needed. We resisted with the stimulus in previous elections that election justified it," he said.
'No courage'
ACT Finance spokesman Roger Douglas said Key and English did not have the courage to do what was needed for the economy.
"It’s really come home. What it requires of the government is to actually admit that they’ve got it wrong. It takes a lot of courage to admit you’ve got it wrong and then to move onto a new path," Douglas said.
"I just simply don’t believe they’ll do that. If they don’t do it, then it’s going to get substantially worse. You cannot run a deficit, borrow NZ$300 million of new money a week and think that you’re going to get on top of it," he said.
"We can all see what happened to Ireland and countries of that nature. Now we’re not their yet, but unless we tackle this problem, we’re going to be in serious trouble."
'Poor decisions'
Greens co-leader Russel Norman said the government should take most of the responsibility for the worsened fiscal outlook.
“The worsening outlook for the Government’s budget is a result of some poor decisions on both the revenue and spending side,” Norman said.
“On the revenue side, the Government’s tax cuts directed towards upper-income earners and the lack of a capital gains tax (excluding the family home) has led to a revenue shortfall. On the spending side, the Government’s poor quality spending on uneconomic new motorways and ETS subsidies for polluters has also had a negative impact on the books," he said.
“We are literally now borrowing money to pay for tax cuts for the well-off and motorway projects with negative economic returns. Tax cuts directed towards upper-income earners are one of the poorest ways to stimulate a failing economy. Increasing aid to the unemployed has a stimulus impact two-to-three times greater than nearly any other measure the Government could have chosen," Norman said.
“The Government’s approach to economic management during one of the most turbulent periods of recent history has failed all but the wealthiest of us," Norman said.
“A smarter way to manage the uncertainty would have been to use the crisis as an opportunity to transition the economy onto a more sustainable and resilient footing. Instead we have an old economy more reliant on cheap oil to run, paying polluters subsidies to emit carbon, and borrowing to fund tax cuts that have failed to stimulate the economy," he said.
Don't panic
Key said the investment statement was not designed to soften the public up for asset sales. “I think it’s going to be an important feature of Finance Ministers in the future, releasing not only what the the books are like, but what the balance sheet is like," Key said.
“Look, I can’t predict earthquakes better than anyone else, or leaky homes or a number of the other things that we’ve had to take onto the balance sheet. As a government we have said we’re going to take the rough edges off the recession," he said.
"What that means is we’re borrowing money to keep New Zealanders in work, and in their entitlements. We’ve made it quite clear that position can’t stay there forever, but actually the Treasury themselves agree that the economic times will turn around.
He would not speculate on what moves the government might do regarding assets in the short term.
"What I can tell you is that Treasury is going to provide the government advice about those assets in due course in the early part of 2011. We as a political party will need to determine what policies we’ll want to take into election 2011. We’ll just see how that advice goes,” Key said.
On assets such as empty schools held by the Ministry of Education but not being used, Key said: "some of them are just simply in the wrong place – the government owns schools that no one wants.
"It actually argues the case of why we should and are considering public-private partnerships, where we lease buildings rather than necessarily owning them," Key said.
He defended not getting back to surplus quicker than 2015/16, even though there was not a lot of room left on the government's balance sheet to absorb more shocks like the Canterbury earthquake.
"Well we’re doing our best. Government debt as percentage of GDP at under 30% puts New Zealand in a very special position. Not many countries are like that. Most countries are on their way to 100% if not more," Key said
"Yeah, we’ll get back to surplus as quickly as we can, but I don’t think New Zealanders should panic about the situation. I think they just need to recognise the government’s doing its best and we’ll be working aggressively to get back into surplus as quickly as we can," he said.
He said he believed government was in a position to deal with another shock.
44 Comments
"Labour leader Phil Goff said the government was effectively now paying for tax cuts for the wealthy by borrowing."
You could also turn that around & say we are borrowing to maintain our gold plated entitlement, err I mean welfare scheme's. Depends how you want to colour it.
PM - for how much longer can we afford to export young, talented, educated Kiwis - our future - and import our quality infrastructure needs - neglecting the real economy -productivity. For low unemployment, to encourage skilful job selections and to lower our account deficit, allocating orders to NZ companies is essential.
E.g. PM why is your minister Steven Joyce allowed the import of light rail systems (public Transport) for Auckland/ Wellington/ Christchurch in the Billions?
--
PM John Key warns budget worse than forecast and 'at outer limits of what we'd regard as acceptable'
PM - because of years of government failure and you and your minsters of not having the courage implementing a visionary approach.
PM - how can NZs’ working class – the majority of the population afford significant price increases of basic needs like food, health, housing, education, transport etc. coming soon ? With the “Patchwork Economy” we simply cannot afford the standard of living.
In the current worldwide environment, where events and development often are unpredictable - in some cases dangers - PM how can you carry on with the same old pattern of governing this country ? Isn’t time for profound changes ?
Smaller countries need to think smaller, but with bigger ideas – NZ the world leaders of a “100% NZpure Economy” a tailor- made economy with the prospect of generating a good educated, skilful workforce making billions without having an negative impact on health and environment.
Alex, who is Fil Goff ?
NZ is living beyonds it's means . The citizenry do not have an entitlement to a gold-plated cradle-to-grave welfare state if it has to be propped up by overseas borrowing .
We are not entitled to other people's' munny . Nor do we have a right to lumber a future generation with a monstrous debt , because we felt entitled to their earnings , post-dated .
A plague upon both the National and the Labour parties . Party on , guys !
Business confidence plummets to a decade low:
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10694263
Of course should be of no surprise to the many intelligent and insightful analysts on this website, but things are turning out completely different as usual to the totally crap predictions of the economist camp
bloody useless
Yes that survey is out of the blue in terms of other confidence surveys generally showing confidence rising.
Key has been pointing to the fact that confidence is going up as one of his reasons not to panic. This one should act to bring a few people back down to earth perhaps.
On the issue of Goff, he says it's clear that National has no plan and that they need one, yet when you ask Labour what they would doo you get 'oh we'll tell you next year'.
Maybe it's just because I'm new to Parliamentary reporting and this is just what oppositions always do, but isn't right now a great time for Labour to announce some firm economic policies and say we'd do this.
National isn't going to say anything until into next year just before the budget, so why not jump ahead of them and tell NZ what you're going to do.
Maybe that's too naive of me and I've just got to learn oppositions won't announce policy until they can see how to bribe the public different to how the government will.
Cheers
Alex
Don't be too hard on them.
Economists were trained in an era which was temporary, but those lecturing them told them it was permanent. Probably believed it themselves.
The media did the rest - "an economist said" "an economist said" "an economist said". Put them on a pedestal, treated their utterances as god-like, and indirectly, stopped them questioning their own horseshit.
They were right until they were wrong, just like witchdoctors and gamblers.
This is a physics Prof - much closer to the truth:
http://www.mnforsustain.org/bartlett_arithmetic_presentation_long.htm
The point is we would not need the welfare benefit system and the landlord benefit system if we had had a govt determined to put a halt to the property ponzi madness many years ago. It is the fact that incomes are low but housing costs are madness that leaves families willing to vote for socialists who promise benefits......
Now we have the banks embarking on another round of stupid property lending using cheap covered bond loot....make no mistake, that is what they are planning to do and the RBNZ still has not produced any regulations to prevent it.....where is the easy to operate variable mortgage registration court fee designed to reduce demand for mortgages?.....where is the stamp duty of 10% ready to hit any and all who flog a property inside a 3 year term regardless of capital gain?.....or any other measure...nothing.....not a bloody thing....well done Bollard....But he's not alone is he....the govt continues to pork the landlords with a rent subsidy which serves to boost demand for rent property....paid for by the very peasants trapped into the high rents by way of their taxes and gst.
Completely and absolutely 100% agree. The chickens are coming home to roost for the property "boom" and the effects of overpriced property are now being felt all across the economy. The sooner we return to normal fundementals for property prices the sooner the economy will rebalance itself, but this will never happen as long as the government keeps pledging to not introduce a land / CG tax.
If we didn't have to borrow so much for a place to live in we wouldn't need stupid bribes like WFF.
I'm not surprised by the survey at all. Working in the real business world I know things are still a real struggle for many
Wolly - you are quite right, its all because of the silly house prices / rents that so many people need a payout to survive
Yet the ponzi survives (only just) because of the vested interests
New Zealand next budget - " Don't Panic Budget "
JK has "no plan". PG has got "what plan?". The only plan I can see are the lenders plan as we are going to get screwed with higher borrowing rates. Forget the BS spin. It will bite you back, JK.
The only way out is to chop chop chop and increase taxes.
Suggest it starts from the property Ponzi scheme first.
No 20% deposit = no loan from lenders.
Own Home - if sell less than 1 year = 50% tax on profit; less than 2 years = 40%; less than 3 years = 30%; less than 4 years = 20%; less than 5 years = 10%; more than 5 years = 0% If property sold less than purchase price = 0%.
Investment property - if sell less than 1 year = 60%; less than 2 years = 50%; less than 3 years = 45%; less than 4 years = 40%; less than 5 years = 35%; less than 6 years = 30% Only no tax on profits after 10 years. If property sold less than purchase price = 0%.
Tax to be paid to IRD from solicitor's trust account before settlement. No transfer of title until IRD gives the OK. Non payment or false declaration by solicitor or seller = 2 years prison time.
That should put some balance in the budget.
Sounds complicated.
I floated this on another thread, but how about a levy/tax on interest from residential mortgages payable by the lender and a flat stamp duty payable by purchasers? Provides a steady stream of income for govt, easy to administer, lower compliance costs, rewards repayment of debt, makes business lending more attractive, helps address overvalues property prices.
Assuming $130bln of residential mortgages, 50,000 sales pa, a 10bp - 50bp levy and $5K stap duty there is potential to generate somewhere between $380m to $900m annually,
And here is Jim Anderton having a go in Question Time today
And here's a sawmill closing down.
Are we really rebalancing our economy?
http://www.stuff.co.nz/business/industries/4457699/Sawmill-to-close-on-…
cheers
Bernard
And more headlines from the same webpage;
http://www.stuff.co.nz/business/industries/4456359/KiwiRail-misses-out-on-wagon-bid
More additional information, which also tells that the previous government missed brilliant opportunities to allocate orders for NZcompany. http://www.aucklandtrains.co.nz/2010/05/03/storm-over-building-trains-here/
Such mismanagement of economies lead to the downfall of Western societies. Of reasons I explained many times before, one cannot allow outsourcing - the planning, design and manufacturing and maintenance of quality infrastructure products.
PM and Minister Joyce it is your call now to look after our workforce, finances and the younger generation – NZ !
The government must save more (red tape), shouldn’t spend less, but the $ spend needs to go into NZproduction and has to stay here in NZ.
PM - government spending on imports is out of question in the current situation anyway – look after your own country - it is a growing trend all over the world.
Mossad, suspect your scheme would make property prices immediately go through the roof as most people would hold off selling for years.
And a capital gains tax has very little to do with the surge in house prices since 2002, as it happened in those countries that had capital gains
How so? If owners don't sell; prices go...nowhere at best ie: there is no transaction to create a price level? Only those, then, that 'have to sell' will sell, and given that there is an attached penalty to be short-termism, these will be a discount to last traded value, lowering the reported sales value statistics?
Spot on NA I must say.
You're right Muzza on " most people would hold off selling for years " as these will be people who are genuine wanting to own their own roof - the young typical New Zealand family. The scheme will completely eliminate speculators or "flippers" and also collateral damage to lenders that lend more than 80% on property. It will also have councils by their Antarctica not to increase local rates as they like due to "increase value by speculation". Investors in property will then be genuine investors as they will be in it for long term with a rent rather than speculation motive.
There is nothing wrong with property investment, likewise, like shares if the government of the country put controls in place before it go into a Ponzi. Asked any Singaporean investor that speculated in the Malaysian property market before the Asian Crisis - they all died when Dr. Mahathir's government introduced a similar scheme. The Singaporeans were buying properties(using equity mate!) in lots of 10 properties and then flipping on to the locals that genuinely needed a roof - Mossad still have it on file.
I disagree with you Muzza on - " And a capital gains tax has very little to do with the surge in house prices since 2002, as it happened in those countries that had capital gains ". You must be joking! Look at what happened to the Yanks, Brits, Irish and Greeks (China, NZ & Aussie next to come). Their governments decided to flood the banks with cheap money after the tech crash and tried to keep their BS spinning. They never wanted to learn from the Japanese property crash because they think they can just print and print to get growth. That's why the Jewish and Asians prefer to have some gold in their savings not all in printed money. Can't blame them for it. Growth can only be obtained from hard work and working smart - not greed and speculating. "
May I also add in the scheme that the NZ government must not allow foreigners to purchase any NZ landed properties short term. Only persons holding a PR status and NZ citizenship be allowed to own NZ properties. Foreigners investing long term (no less than 5 years) can only purchase with NZ government approval i.e.apartments & commercial not houses/townhouses & farms. Then only as a New Zealander, we can have hope - hope for the young to live, work and grow in God's zone. I can remember someone who was only a tourist in NZ being offered a property with 5% deposit 95% loan and later "flipping" it with a generous profit to a local. What gain did NZ received? They said it paid for their holidays and best no tax to pay as they are not tax residents and even if there is tax to pay - how is IRD going to locate them. Westpac still have their hunter/s still hunting in China for their mistake made - like the Chinese say go " moore hoi" (feeling the ocean bed with your bare hands and feet).
After all Hugh Pavletich's hard work, why is it not common knowledge that NZ has hundreds of thousands of $50,000 sections just waiting for council regulations to be abolished so first home buyers can access them?
Then what happens to the "skyhook" that property values are attached to?
The "AudaCity" organisation in Britain has the right idea. Threatening to build illegal settlements on legally purchased farmland - all perfectly "sustainable" too - so that young people can actually afford their own home. Britain after 50 years of "Smart Growth"; has an average age of first home buyer, of 37. It also has the smallest houses in the OECD, and the oldest houses in the OECD.
The London School of Economics Professors Paul Cheshire and Stephen Sheppard recently estimated the NET WELFARE IMPACT of "Smart Growth" type policies over 50 years in Britain, to be a COST equivalent to an income tax of 3.9%.
Britain hasn't even got stuff all of the claimed benefits of "Smart Growth", such as lower average vehicle miles travelled, or healthier communities. It's mostly costs - ignored by the Smart growth advocates - and stuff all benefits - grossly overstated by the Smart Growth advocates who have not the first clue about urban economics and how the invisible hand of land markets works. Cheshire and Sheppard said it in one of their papers; in 50 years of urban planning in Britain, NOT ONE "Plan" ever mentioned land markets or price signals or attempted to discuss how these might be made to work "with" the plan rather than "against" it.
Reinhart & Rogoff ( This Time is Different ) Page 67 : " Even Venezuela , the modern-day sovereign default champion , with 10 episodes since it has achieved independence in 1830 , still averages eighteen years between new defaults ........
....... economic theory tells us that even a relatively fragile economy can roll along for a very long time before its confidence bubble bursts , sometimes allowing it to dig a very deep hole of debt before that happens ............... "
The thing that gets me is that the numbers are so friggin huge. It takes a lot of industry/ effort to ever pay that back. 300 million per week with NO cunning plan to stop it or even slow it.
With so many people relying on govt handouts to survive also with an aging population we need to take some medicine that will be very very bitter. I ask who will be the doctor to give it?
Key and English and Co will not make the moves to correct the state splurge until they decide a sound majority of voters are urging said reforms. That is the problem. It is made worse by the fact most of the pop has less economic understanding than a possum smoking weed.
Consequently, while the govt tweaks and fiddles waiting for a push from the public.....the public tweak and fiddle waiting for another benefit handout promise.
Enter Labour stage left....and we know what they are carrying....leaving us with just one question....will the voting peasants wake up with a sound understanding of fiscal matters and the economic dangers of perpetual indebtedness... demanding an abrupt end to the benefit bullshit....or will they leap from bed and rush to see what santa Goofy is struggling to stuff into their Chinese made sock.
Which leaves us with the only other option for the govt to be taking...this is known as the "two year old tantrum"...."I'm not going to do what I'm told unless you make me".....and onto the stage enters the ratings agencies....their arrival signals the start of the "make me" period and involves a downgrade with pain attached for all peasants....a sort of "you can continue with your benefit culture at the cost of a leg"
I suspect this is the option the govt has decided will get it off the hook as they will be able to blame somebody else for everything.
John and Bill's "plan" is to roll out the "6 part strategy" for another blast round the track...by now half the idiots will have no memory it's the same plan as last time round....Treasury forgot to tell them fate had its own plans...up popped an earthquake...and a storm...and psa....and the coal disaster...and another drought...and the grape bubble...and the rotting homes and school buildings...and the SCF financial hole...and the finance company bailouts...and the revenue collapse......and the Beehive roof leaks!
By the way...did getting rid of the property bubbles figure in the 6 part strategy?
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.