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Johnny’s Report Card – National Standards Assessment – Growth

9 January 2013 7 comments

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.

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Growth

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Recent history:

In the past, whenever National (or the right wing “Labour-ACT” government of the 1980s) came to power, the result was never very good,

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Decline in economic activity

Source: Dunedin Star

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Highest jobless rate in 2 years - 7 May 1998

Source: Otago Daily Times

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Redundancies hit Tranz Rail workers hard - 2 Oct 1998

Source: Otago Daily Times

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Current Account deficit blows out to 10-year high - 28 Jan 1997

Source: Otago Daily Times

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The rhetoric:

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

See: 2008: A Fresh Start for New Zealand

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

See: National Economic Development Forum

Present  reality:

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Declining traffic bad for the economy

Full story

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Unemployment up to 7.3pc - a 13 year high

Full story

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KiwiRail under fire over job cuts

Full story

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Current account gap narrows as trade balance shrinks

Full story

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Two things would be fair to say,

    1. 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.)
    2. 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,

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NZ Government net debt 2008 - 2012

Source: Treasury – Financial Statemement of the Government of New Zealand

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NZ Government net debt 2008 - 2012 table 16

Source: IBID

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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).

Source: IBID

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,

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NZ Government tax revenue 2008 - 2012

Source: IBID

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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.

See: Outlook slashes tax-take by $8b

The forecast rate of tepid growth is on top of low to negative growth in the last four years,

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NZ GDP growth rate 2000 - 2012

Source: tradingeconomics.com

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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,

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National's 2005 tax cut plans still credible - Key

Full story

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Then we got the warning signs,

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Treasury to Rescue Fannie and Freddie

Full story

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Russia Halts Trading After 17% Share Price Fall

Full story

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Lehman folds with record $613 billion debt

Full story

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We were not exempt from the looming storm that was the coming Global Financial Crisis ,

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Recession confirmed - GDP fall

Full story

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National’s response?

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,

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Key - $30b deficit won't stop Nats tax cuts

Full story

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The consequences of  National’s irresponsible cutting of taxation revenue was utterly predictable,

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Govt borrowing $380m a week

Full story

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Govt's 2010 tax cuts 'costing $2 billion and counting'

Full story

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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.

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Govt austerity slows growth, keeps rates low - RBNZ

Full story

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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

See: Budget 2009 – House goes into urgency

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

See:  Key again defends tax cuts

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,

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New Zealand in Profile_2012_economy

Source: New Zealand in Profile: 2012 – Economy

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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

See: Key and Goff Q&A: Creating jobs

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,

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catching-up-with-bangladesh

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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,

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.

See: Economy grows 0.2pc – saved by construction

Statistics NZ national accounts manager Rachael Milicich didn’t split hairs. She bluntly stated,

 “The growth in the latest quarter was driven by construction.”

See: Economic activity up 0.2 percent

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).

See: IBID

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.

Addendum

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.”

See: [Labour]Government will not borrow for 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%,

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NZ Government net debt 2008 - 2012 - Cullen's prediction

Source: Treasury – Financial Statemement of the Government of New Zealand

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.

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Report_Card_growth

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= fs =

Labour: the Economic Record 2000 – 2008

16 November 2011 38 comments

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There has been considerable commentary made by Labour’s critics and political opponents that Labour was an incompetant economic manager, during their nine year term in office. The reality, though, is somewhat different. There are many things that Labour did well and some not-so-well.

But the records speaks for itself.

The following is data, in the form of easily understandable graphs, from Trading Economics, an American website. They collect data from the IMF, World Bank, Statistics NZ,  the Reserve Bank of NZ, etc,  (the usual motley crew of subversive, left wing organisations) to compile their finished presentations.

Each category will be presented via two graphs. Eg,

“New Zealand GDP Growth Rate”

Graph 1: 2000 – 2011

Graph 2: 1990 – 2011

National was in power from 1990 to the end of 1999.

Labour governed from the beginning of 2000 to the end of 2008.

National took office After November 2008.

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New Zealand Population 1960 - 2011

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New Zealand Unemployment Rate

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New Zealand Unemployment Rate 2000 - 2011

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New Zealand Unemployment Rate 1990 - 2011

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Long-term unemployment (% of total unemployment) in New Zealand

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Some politicians use long-term unemployed as an election weapon, to win electoral support. However, despite their mis-use of the facts and figures, long-term unemployment was dropping in the last ten years. Not that certain politicians would admit it, though.

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Long Term Unemployment (% of Total Unemployment) in NZ 2000 - 2008

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Note how long-term unemployment rose in the late 1980s and spiked in the early to mid 1990s. Can we remember what happened to New Zealand in that time? The terms “Rogernomics” and “Ruthanasia” might jog our memories.

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Long Term Unemployment (% of Total Unemployment) in NZ 1990 - 2008

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New Zealand Employment

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New Zealand Employment 2000 - 2010

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New Zealand Employment 1990 - 2010

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New Zealand Government Debt To GDP

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Despite claims that Labour “spent up large” during their nine year term, the truth is completely different.  As the IMF data shows with crystal clarity, Labour paid down debt. It was not until National came to office that debt levels took of again.

It could be said, with considerable truth, that Finance Minister Michael Cullen ran the government accounts with a fiscal discipline that would make Scrooge sit up and take notice.

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New Zealand Government Debt To GDP 2000 - 2011

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The IMF data shows fairly well why Labour had such massive debt kevels to pay down. It was an inheritance from the previous Bolger-led National Government of the 1990s. (Though National were addressing that debt, the reduction slowed from 1997 onward.)

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New Zealand Government Debt To GDP 1990 - 2011

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New Zealand GDP

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One of the many “charges” made by neo-liberals against the Labour Party is that centre-left governments are poor stewards of the economy and are anti-business. Yet, the World Bank data below shows quite dramatically how well New Zealand’s economy fared in the 2000s. Our growth was such that a common complaint from business was a lack of skilled, experienced staff.

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New Zealand GDP 2000 - 2010

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The early 1990s were marked by “Ruthanasia” – a continuance of Roger Douglas’s extremist neo-liberal, free market policies. All socio-economic indicators worsened during Ruth Richardson’s tenure as Minister of Finance. The World Bank data below shows how New Zealand’s economy was practically crippled under the tender mercies of the New Right.

It was not till 2003, under Labour’s governance, that the economy began to grow.

As an aside, there were took tax cuts during the 1990s. Result: minimal benefit for the economy.

Labour increased taxes for top income earners in the early 2000s. Except for a short-term ‘dip’, the tax rise doesn’t seem to have impacted on the economy.

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New Zealand GDP 1990 - 2010

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New Zealand GDP per capita

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New Zealand GDP per capita 2000 - 2009

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New Zealand GDP per capita 1990 - 2009

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New Zealand Interest Rates

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New Zealand Interest Rates 2000 - 2011

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New Zealand Interest Rates 1990 - 2011

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New Zealand Inflation Rates

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New Zealand Inflation Rate 2000 - 2011

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New Zealand Inflation Rate 1990 - 2011

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New Zealand Current Account

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This is the bit which shows how much we sell overseas (export), compared to what we buy (import). Exports can be wool, timber,  fish, dairy products, company profits, etc. Imports can be fuel, consumer products, vehicles, raw materials, heavy machinary, etc. The shaded gray should be above the ‘O’ line, instead of below it.

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NZ Current Account 2000 - 2011

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NZ Current Account 1990 - 2011

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New Zealand Government Budget

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This graph is an interesting bit. When John Key and Bill English refer to the previous Labour government expanding State expenditure, this is what they are referring to. And they are correct – but only half correct. As per usual, they are telling you only half the truth – and leaving out the  next, important bit.

Look at the next graph below, 1990 – 2000.

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New Zealand Government Budget 2000 - 2011

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In the graph below, it is clear that the National government from the early to mid 1990s (commonly referred to as “Ruthanasia”) and in the late 1990s, consistantly cut back on expenditure. Some of you may recall horror stories of those times; ex psych patients living rough, in toilets, with no State-community support; market housing rentals; and hospital waiting lists far longer than anything we have today.

On 3 April 1998, Southland dairy farmer Colin Morrison (42) died on a waiting list, awaiting a triple heart bypass surgery. In death, Mr Morrison symbolised everything that was terribly wrong with the health system in the late 1990s.  Public anger mounted as an unpopular government seemed unable to respond to concerns that our public services were being run down in the name of “efficiency”.

Little wonder that there was a 11.55% swing toward Labour in the 1999 General election – the electorate had had a gutsful of neoliberal policies resulting in growing inequality and social problems that seemingly went unheeded.  Contrasts

That is the reason why Labour spent so much during it’s term: to make up for the lack of social spending in the 1990s, and to meet growing public clamour for social services to be better resourced.

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New Zealand Government Budget 1990 - 2011

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Cash surplus/deficit (% of GDP) in New Zealand

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Contrary to the fantasies of some history-revisionists, trying to paint the previous Labour Government as “bankrupting the country”, Cullen actually posted some fairly respectable surpluses.

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Cash surplus-deficit (percent of GDP) in New Zealand

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New Zealand Sovereign Credit Ratings

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The following data-sheet shows New Zealand’s credit downgrades from 1977, when Rob Muldoon was Prime Minister, to the present.

Note that three credit downgrades happened duting three National governments; 1991, 1998, and this year. And if you include the Rogernomics period – that makes FOUR neo-liberal governments that were downgraded.

Do credit ratings agencies  seem “risk averse” to new right governments? Do they prefer centre-left governments?

First, look at 10 September 1998 (National government) – AA+ (negative outlook)

But when Labour came to power – 7 March 2001 – AA+ (stable outlook)

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Source

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New Zealand Prison Population trend since 1980

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The prison sentenced population demonstrates continuous and steady growth since 1986. The seasonal pattern of reduced numbers toward the end of each year is well established, and reflects the influence of the prisoner Christmas release policy 1 , as well as cycles of activity involving Police and the Courts. Notable is the sharp upturn in numbers which commenced in mid-2003, continuing through to June 2007.

Source

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A closer look at the period 1962 to 1996. Note the huge ‘spike’ in the prison population from 1986 onwards. Except for occassional dips, the prison population has continued to rise steadily since the mid-1980s.

It cannot be a coincidence that New Zealand’s entire socio-economic fabric was unravelled and “reformed” in a process commonly referred to as “Rogernomics”. The process of “economic reform” continued  into the 1990s, referred to as “Ruthanasia”, up until 1996.

The prison population, though, continued to rise.

The ongoing effects of “Rogernomics/Ruthansia” are ongoing to the present day.

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Total prison population 1962 to 1996

Source

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[This page still under construction - more data to follow. Keep checking back for more info.]

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