Johnny’s Report Card – National Standards Assessment – Growth
To Whom It May Concern; the following Report Card detail’s Johnny’s achievements over the last four years.
The following contrasts compare four years, ranging from the end of 2008 to the end of this year, 2012.
Whilst it is acknowledged that the Global Financial Crisis impacted harshly on our society and economy, it is also fair to say that National has had the benefits of starting out with a sound economy (surpluses, low unemployment, etc) in 2008 and four years in office to make good on it’s election promises.
In the past, whenever National (or the right wing “Labour-ACT” government of the 1980s) came to power, the result was never very good,
Source: Dunedin Star
Source: Otago Daily Times
Source: Otago Daily Times
Source: Otago Daily Times
“The National Party has an economic plan that will build the foundations for a better future.
* We will focus on lifting medium-term economic performance and managing taxpayers’ money effectively.
* We will be unrelenting in our quest to lift our economic growth rate and raise wage rates.
* We will cut taxes, not just in election year, but in a regular programme of ongoing tax cuts.
* We will invest in the infrastructure this country needs for productivity growth.
* We will be more careful with how we spend the cash in the public purse, monitoring not just the quantity but also the quality of government spending.
* We will concentrate on equipping young New Zealanders with the education they need for a 21st century global economy.
* We will reduce the burden of compliance and bureaucracy, and we will say goodbye to the blind ideology that locks the private sector out of too many parts of our economy.
And we will do all of this while improving the public services that Kiwis have a right to expect. ” – John Key, 29 July 2008
” Growing the economy is the Government’s number one priority, and science and innovation have a key part to play in that growth.
Indeed, this Government has made science and innovation one of the six cornerstones of its economic growth agenda. We’ve done this because New Zealand needs an economic jolt. Our productivity and economic growth have been sluggish for decades and as a result we have slipped down the OECD’s ranking of national wealth per capita.
Our performance compared to other smaller advanced economies has been uninspiring at best. For example, in 1976 our per capita income was slightly ahead of Australia. It was nearly 20 percent greater than the OECD average.
We are now 20 percent behind the OECD average. Australia, by contrast, is still about 20 percent ahead.
Finland is another example of our relative decline. In 1979 our per capita income lines crossed – New Zealand going down and Finland going up. The Finns are now about 20 percent ahead of us.
So, how do we turn the situation around? ” – John Key, 1 July 2011
Two things would be fair to say,
- National inherited an economy with low unemployment and net government debt at an all time low of 5.6% of New Zealand’s GDP, net. (Far from being fiscally profligate as National claims, Labour actually behaved more responsibly than National has done, as the information below clearly illustrates.)
- The Global Financial Crisis was not an event of National’s making. (Though the ideology of corporate greed, profiteering, and minimal government oversight which contributed to the Crisis is most certainly one that National shares.)
As Treasury data shows, New Zealand’s net government debt situation worsened from 2008 to June of 2012,
Table 16 above opened with a net government debt of 5.6% – left by the outgoing Labour government.
It closed with 25% net government debt – a fourfold increase – courtesy of National’s “prudent fiscal management”.
As the Treasury document explained,
Net debt increases as a result of cash deficits and
declines as a result of cash surpluses. It also
fluctuates in line with valuation movements in the
underlying financial assets and liabilities of the Crown
and movements in the amounts of currency issued to
New Zealand banks.
Net debt increased this year, continuing the steady
increase since the global financial crisis (figure 11).
Net debt increased from last year primarily due to
additional borrowings over the year to meet the
residual cash deficit (refer table 17).
In other words, National took in lower revenue – taxes – which inevitably resulted in increased borrowings; slashing of State services and funding; increasing user pays for other state services; mass redundancies of state sector workers, and impending partial state asset sales.
The Treasury document goes on to show how much revenue was lost between 2008 and 2012,
A recent NZ Herald report has updated Treasury’s expections. The tax-take, GDP growth, and unemployment outlooks are not good,
A weaker economic outlook over the next four years has taken a bite of nearly $8 billion out of the Government’s forecast tax revenues for that period.
Nevertheless the Treasury is still forecasting a return to surplus, though only just, on schedule by 2015.
The forecasts in yesterday’s half-year economic and fiscal update are in line with the latest consensus forecasts, which means they are significantly weaker than in the Budget.
The growth track is lower by around 0.5 percentage points a year.
It reflects downwards revisions to expected growth among New Zealand’s trading partners, and a kiwi dollar expected to remain around present levels until the first half of 2014, so that net exports subtract from growth for the next couple of years.
Unemployment has been revised higher; it is 7.3 per cent now and still expected to be 5.6 per cent by March 2016.
The forecast rate of tepid growth is on top of low to negative growth in the last four years,
So what caused the drop in government tax revenue? And why did the lower tax revenue impact on higher unemployment and lower domestic growth?
The answer, in part, is not hard to uncover, and the following reports tell the story of how National undermined (sabotaged?) our nation’s government accounts.
First, we were offered The Bribe,
Then we got the warning signs,
We were not exempt from the looming storm that was the coming Global Financial Crisis ,
The prudent step to take would have been to cancel the tax cuts as simply unaffordable. (Labour’s Phil Goff generously promised to support National had it taken such a prudent measure. See: Labour would support deferral of tax cuts)
As a nation, we would then maintain social services (education, housing, healthcare, justice system, early childhood education, superannuation, etc) – or cut taxes. We could not have both. Not without even further massive borrowings from overseas.
National’s decision to persevere with their taxcuts beggered belief for those who understood the seriousness of the GFC and the recession we had fallen into,
The consequences of National’s irresponsible cutting of taxation revenue was utterly predictable,
Writing for the NZ Herald, Brian Fallow put the cost of taxcuts at $8 billion. (See: Outlook slashes tax-take by $8b)
Only a fool (or devoted National supporter – the two are not mutually exclusive) could believe that we could give away billions in tax cuts without resorting to massive borrowings to cover the shortfall.
The result was a government deficit rising fourfold from 2008 to 2012, as the above Treasury stats clearly show.
National then desperately needed to balance the books. It scrimped and scrapped by cutting the state sector; raising taxes (gst, fuel tax, ACC levies, government charges, etc) elsewhere; closing tax exemptions for property investors; and cutting back on services (see: Student allowances a thing of the past for post-graduate students ).
Even paper delivery kids were not exempt from the grasp of this Scrooge-like ‘government’. See: Budget 2012: ‘Paper boy tax’ on small earnings stuns Labour)
It also desperately needed to proceed with it’s state asset sales.
A cynic with a conspiratorial ‘bent’ might suspect that National deliberately manufactured it’s own debt crisis so that it could justify the partial privatisation of Meridian, Genesis, Might River Power, Solid Energy, and Air New Zealand, to it’s corporate/investor/aspirationist constituent-base.
In doing so, not only was the door left open for their privatisation agenda – but the side-effects of tax cuts left National with few options and manouvering room for job creation policies.
With net government debt quadrupling in four years from $10.2 billion (2008) to $50.6 billion (2012), and taxation revenue falling from $56.7 billion (2008) to $55 billion (2012), their hands were seemingly “tied”.
Compounding matters, National cut back state services and fired thousands of state sector workers, resulting in a further drop in expenditure, all of which impacted harshly on the economy.
Whether Free Marketeers like it or not, the state is the #1 business generator in our economy and society. When it cuts spending, the flow-on effects on other, down-stream businesses, is inescapable.
With higher income earners either saving their tax cuts or paying down debt, tax cuts failed to “fire” the economy as Little Leader said in 2009 and Dear Leader adamantly predicted in 2010,
“By taking firm, early and decisive action, the Government is managing the downturn to cushion the immediate impact on New Zealanders and to enhance future growth.” – Bill English, 28 May 2009
“We’ve cut all personal income tax rates, GST has increased to 15%, and we’ve boosted NZ Super, Working For Families, and benefit payments by 2.02% to compensate for the rise in GST.
Today’s changes are just one part of our comprehensive plan to grow the economy, create jobs, boost incomes, and raise living standards for all New Zealanders. The tax package improves incentives to work, and tilts the economy towards savings, investment, and exports.” – John Key, 1 Oct 2010
See: Tax cuts today
In May 2010, Key had even used the migration issue as justification to cut taxes for higher income earners, professionals, and others in top brackets,
“We can be envious about these things but without those people in our economy all the rest of us will either have less people paying tax or fundamentally less services that they provide.
They include doctors, entrepreneurs often, scientists, engineers, lawyers, accountants, school principals and nurses.
On Thursday you will see a deliberate attempt to make sure those people stay and put their skills to work here in our economy.” – John Key, 18 May 2010
BS. All of it is, BS.
None of it worked, of course. The economy not only failed to grow – it stagnated or contracted (see: Economic recovery stagnates – NZIER). And despite two tax cuts, migration to Australia skyrocketed – ten thousand higher than under the previous Labour government’s last four years. (see related blogpost: Johnny’s Report Card – National Standards Assessment y/e 2012: migration)
Up until 2011, two of our most important industries – manufacturing and construction – contracted, at a time when the Christchurch re-build should have been growing their turn-over and profitability. The downturn in manufacturing and construction had a flow-on effect on the Wholesale Trade sector,
Other measures of the economy show no sign of improvement,
Bank profits back over $3 billion while economy stagnates (24 April 2012)
then “good news”,
Pickup in economic growth predicted (29 Aug 2012)
followed two months later by bad news,
Businesses gloomy about economic growth (9 Oct 2012)
Current Account Deficit Widens (19 Sept 2012)
Trade deficit widens as dairy values fall (27 Nov 2012)
Terms of trade continue to drop (4 Dec 2012)
Govt deficit up as tax take dips (5 Dec 2012)
Deficit $169m wider than predictions (6 Dec 2012)
Growth forecast cut, debt seen higher (18 Dec 2012)
Current account gap narrows as trade balance shrinks (19 Dec 2012)
Outlook slashes tax-take by $8b (19 Dec2012)
Whichever way one looks at it, it’s a mess.
And it’s simply a bad joke for Key to reassure us,
“While I think we have to acknowledge that the last three years have been pretty tough with the Global Financial Crisis, on a relative basisNew Zealand’s been doing a better than a lot of other countries.” – John Key, 17 Nov 2011
Trying to suggest that we are nowhere as bad off as other nations such as the US, Spain, Greece, etc – so our current stagnating economy is somehow acceptable – is sheer rubbish.
One might as well justify National’s poor performance and reckless decision-making by stating we are better off than Zimbabwe, Haiti, or Bangladesh,
We should not be “worse off” than those nations – we headed into the Global Financial Crisis with relatively good economic indicators!
There is Always An Alternative!
A responsible government would have abandoned any prospect of taxcuts and prepared policies to keep people in work; off the unemployment queues; paying taxes; and contributing to the economy.
Policies such as,
- Government procurement favouring local providers over imports from other nations. This would have kept companies such as Kiwirail from closing their Dunedin Hillside workshops, with the loss of over 150 jobs (see: Dunedin workshop sale will see job losses – Kiwirail)
- Government intervention in the value of the New Zealand dollar. The high dollar has destroyed some 40,000 manufacturing/exporting jobs in this country – swelling the ranks of the unemployed to 175,000 (see: Unemployment up to 7.3pc – a 13 year high, Job losses blamed on high NZ dollar: more forecast, Rakon a victim of high dollar – union, etc). Other OECD nations have thrown away the mopnetarist rule book and engaged in quantitative easing to preserve their manufacturing base. The choice is either that – or losing more jobs and increasing expenditure on unproductive social welfare.
- Government implementating a mass construction programme of 10,000 new state houses. (see previous blogpost: Can we do it? Bloody oath we can!)
With Option #3, National appears to have missed the obvious.
Injecting several billion into a crash-programme to build ten thousand homes for New Zealanders, who are currently struggling to buy their own houses, makes sense.
The Christchurch re-build has proven this to be the case, as the NZ Herald reported on 20 December 2012,
The economy grew at an annual pace of 2.5 per cent, and was 2 per cent higher than the same quarter a year earlier. Revisions to previous quarters showed New Zealand dipped back into recession in the second half of 2010, with two 0.3 per cent contractions in each quarter.The New Zealand dollar dropped to 83.33 US cents after the figures were released, from 83.60 cents immediately before.
Construction kept the economy ticking over with a 4.5 per cent expansion, contributing 0.2 of percentage point to overall GDP. Electricity, gas, water and waste services grew 4.4 per cent in the quarter, contributing 0.1 of a percentage point in growth to GDP, underpinned by an increase in hydroelectric generation.
“Residential and non-residential building activities were both up strongly this quarter, and both were boosted by Canterbury,” Statistics NZ said in its report. “The upper North Island also contributed to the growth in residential building activity.”
The Canterbury rebuild, which is expected to top $30 billion, is widely seen as the saving grace for an economy that has struggled to recover from its deepest recession in two decades, and has been getting some help from a resurgent property market in Auckland in recent months.
Statistics NZ national accounts manager Rachael Milicich didn’t split hairs. She bluntly stated,
”The growth in the latest quarter was driven by construction.”
As for the tax cuts stimulating the economy with extra spending – you can forget that pipedream. According to Statistics NZ,
Household consumption expenditure, which measures the volume of spending by New Zealand households, was flat this quarter (0.0 percent).
National not only bought the 2008 election with promises of unsustainable, unaffordable tax cuts – Key, English, Joyce, et al, squandered an opportunity to keep 70,000 New Zealanders in paid employment (see: Employment graph, 2008-2012).
It was all so unnecessary.
In March 2008, the then Finance Minister, Michael Cullen said,
“Even before these challenges hit home John Key wants to increase our debt to at least 25 per cent of GDP. But he does not pretend he wants to borrow more to pay for more services and he does not really believe he needs to borrow more to pay for roads. He only wants to outspend Labour on tax cuts.”
According to Treasury, the current net government debt as at 30 June 2012 stands at… 24.8% of GDP – just shy of 25%,
Cullen called it 100%.
It’s a shame that 1,053,398 voters couldn’t look past their own selfishness, and the lure of cash dangled before them, by a Party that was hell-bent on it’s own agenda to win power at any cost.
For New Zealand, that cost measured $50 billion and 175,000 unemployed.
= fs =
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For a better New Zealand…
~ Cleaner rivers
~ No deep-sea oil drilling
~ Less on Roads - more on Rail
~ Minimum wage @ $15 p/hr
~ Marriage equality
~ Strong, effective Unions
~ No secret free-trade deals
~ Breakfast/lunches in our schools
~ Introducing Civics into our school curriculum
~ Cut back on the liquor industry
~ A fairer, progressive tax system
~ Fully funded, free healthcare
~ Ditto for education, including Tertiary
~ Fund Pharmac for Pompe's Disease medication & other 'orphan' drugs
~ No state asset sales!
~ Rebuild public TV broadcasting!
~ Keeping farms in local ownership
~ Reduce poverty, like we reduced the toll for road-fatalities
~ Jobs, Jobs, Jobs!
~ Being nice to each other
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