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Archive for 24 May 2014

Budget 2014 – Why we will soon owe $70 billion under this government…

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NZ Government overseas debt 1993 to 2012

Graphic courtesy of The Daily Blog

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A few reasons why our debt skyrocketed from 2008 onwards…

1. The Global Financial Crisis, which reduced corporate turnover and export receipts, thereby lowering the company tax take;

2. Two tax cuts (2009 and 2010) reduced government revenue, thereby necessitating borrowing more from offshore  to make up the difference. In essence, we borrowed from other peoples’ saving to put more money in our (mostly top incomer earners) pockets.

Using Parliament Library information, the Greens have estimated that this involved borrowing an extra couple of billion each year.

3. National could have kept Debt down by investing in job creation. Key’s cycleway project was promised to create 4,500 new jobs  – it failed spectacularly.

Instead, job creation was largely left to “the market”, which itself was having to engage in mass redundancies for businesses to survive the economic downturn.

This meant more expenditure on unemployed which went from 3.4% in 2008 to 7.3% by 2012 (currently sitting at 6% for the last two Quarters).

Ironically, part of our current economic “boom” is predicated on the Christchurch re-build – evidence that had National engaged in a mass housing construction programme in 2009, after it held it’s mostly ineffectual “Jobs Summit”, we would have;

A. Maintained higher employment,

B. Paid out less in welfare,

C. Persuaded more New Zealanders to stay home and not go to Australia to find work,

D. Addressed the current housing crisis we now have.

As usual, National’s short-sightedness; irresponsible 2008 election year tax-cut bribes; and misguided reliance on market forces resulted in New Zealand borrowing more than we really needed to.

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References

NZ Herald: Govt borrowing $380m a week

Scoop media: Govt’s 2010 tax cuts costing $2 billion and counting

NZ Parliament: Government Proposals—Cycleway and Nine-day Working Fortnight

NZ Herald: Cycleway jobs fall short

Statistics NZ: Employment and Unemployment – March 2008 Quarter

Statistics NZ: Household Labour Force Survey: September 2012 quarter

Fairfax NZ: Jobs summit ‘fails to deliver’

TVNZ News: OECD report shows housing crisis in NZ – Labour

TVNZ News: Christchurch rental crisis ‘best left to market’ – Govt

Additional

Fairfax media: Public debt climbs by $27m a day

Fairfax media: Budget 2014: The essential guide

Previous related blogposts

Can we do it? Bloody oath we can!

 

 


 

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The Cost of Living

Above image acknowledgment: Francis Owen/Lurch Left Memes

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Budget 2014 – What deceits lie in this document?

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Putting voters to sleep through the budget

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Looking through the on-line Budget document on Treasury’s website, I happened to notice something… peculiar.

The following page is entitled  Responsibly managing the Government’s finances and is part of Finance Minister Bill English’s summary. As such, it is a political document and not a Treasury report.

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1. Responsibly managing the Government's finances

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Note the five graphs on this page. Notice anything about them?

Any… inconsistencies?

Let me “lump” them together, so they can be better compared;

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1. Responsibly managing the Government's finances - graphs isolated

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Note the starting dates on each graph. They differ in nearly each case;

  1. 2012/13
  2. 2006/07
  3. 2009/2010
  4. 2004
  5. 2004

At first glance, there appears no reason for the difference start-dates of each graph.

That is, until you look at what each graph represents.

Graphs number 2, 4, and five show the previous Labour government in an unfavourable fiscal light.

#2: Shows “Core Crown Revenue” falling from 2006, and “Core Crown Expenses” rising from around the same time.

#4: Shows “Budget Operating Allowances” much higher under Labour – highlighted by the use of red and blue column lines – than National. The 2008 red-bar is erroneous.

#5: Shows “90 Day Interest Rates” higher under Labour than National – again highlighted by the use of red and blue graph lines.

Meanwhile, graphs 1 and 3 show National in a more positive position;

#1: Shows  “Total Crown operating balance before gains and losses (OBEGAL)” starting from 2012/13, and reducing. There is no prior context depicted for any previous years. The overall impression is a favourable one to the viewer.

#3: Shows “Net Core Crown Debt” rising from 2009; peaking at 2013/14; and dropping thereafter. Again, there is no prior context depicted for any previous years.

If we replace the mis-leading charts with more accurate representations, the picture is unsurprisingly different. A verticle red line on the right hand, accurate graph, pinpoints where Bill English’s graph (on the left) starts.

1. Total Crown operating balance before gains and losses (OBEGAL)

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Bill English's misleading version on left; More accurate version on right.

Bill English’s misleading version on left; More accurate version on right.

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The more accurate  version on the right gives a more complete picture of successive government’s Total Crown operating balance before gains and losses (OBEGAL), and put’s National’s record in context.

2. Core Crown revenue and expenses

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    Bill English's misleading version on left; More accurate version on right.

Bill English’s misleading version on left; More accurate version on right.

 

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The more accurate  version on the right gives a more complete picture of successive government’s Core Crown revenue and expenses, and put’s National’s record in context.

This next one is a personal favourite of mine, and National/ACT supporters hate it with a passion.

3. Net core Crown debt

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Bill English's misleading version on left; More accurate version on right.

Bill English’s misleading version on left; More accurate version on right.

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The more accurate version on the right gives a more complete picture of successive government’s Net core crown debt, and put’s National’s record in context. It also happens to highlight Labour’s track record in reducing the country’s sovereign debt – something that jars with Right Wing historical revisionism that attempts to depict Labour as an incompetent fiscal manager.

4. Budget operating allowances

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1. Responsibly managing the Government's finances - Budget operating allowances corrected version

Bill English’s misleading version on left; More accurate version on right.

 

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Whilst English’s graph (on the left) has a start point in 2004, it is highly inaccurate. Note the red bar for 2008, showing Labour having a Budget operating allowance of around $7 billion. This is false. As the blue bar on the graph on the right shows, the Budget operating allowance for 2008 was just under $2.5 billion – one third of what English’s chart depicts.

Note: the chart on the right, with the blue bars is taken from Budget 2013 – Bill English’s own document from last year. The correct data (blue graph) is supported by a 2010  Treasury working-paper,  Fiscal Institutions in New Zealand and the Question of a Spending Cap.

Either the red bar for 2008 is an error – or a deliberate attempt to further portray the previous Labour government in a bad light. Considering that three out five graphs appear to have been selectively presented, the possibility that the 2008 red-bar was deliberately fudged cannot be excluded.

5. 90-day interest rates

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Bill English's misleading version on left; More accurate version on right.

Bill English’s misleading version on left; More accurate version on right.

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English writes that “Future Budget allowances are set at sustainable levels… [graph inserted] ...which is helping to take pressure off interest rates“.

Actually, the reason that the OCR and 90 Day Rates are currently at a historic low has little to do with “future budget allowances“. The Reserve Bank does not set current OCR/90 Day Bill Rates against “futurebudget allowances.

Indeed, the RBNZ dropped the OCR to 2.5% in April 2009, the following year from recession hitting our economy.

There is next to no reason for English to have included the 90 Day Interest Rate in his Budget document, except to attempt to take credit for historically low interest rates that were the result of a global financial crisis and not because of any actions his government took in 2007/08.

Not unless he, John Key, and the rest of the National caucus were sitting in Board Rooms across Wall Street?

Not unless he, John Key, and the rest of the National Party were in government a full year before the 2008 general election?

And not unless Bill English also wants to also claim responsibility for high interest rates in the 1990s, when the National Party governed under the leadership of Jim Bolger, with finance ministers Ruth Richardson and Bill Birch? When interest rates peaked at over 15% in 1990 and were consistently high throughout the 1990s.

Unsurprisingly, this is one graph that did not find it’s way into Bill English’s 2014 Budget document;

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mortgage interest rates since 1990

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As for Budget 2014 – I suspect it is a document that will soon reveal more hidden surprises for us all.

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References

NZ Treasury: Budget 2014 – 1. Responsibly managing the Government’s finances

NZ Treasury: Operating Balance (2002-2011)

NZ Treasury: Core Crown revenue and expenses (2000-2014)

NZ Treasury: Net core Crown debt (2002-2012)

NZ Treasury: Operating Allowances

NZ Treasury: Fiscal Institutions in New Zealand and the Question of a Spending Cap

Reserve Bank NZ: 90-day rate

Reserve Bank NZ: Mortgage interest rates — since 1990

 


 

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Norm Kirk

Above image acknowledgment: Francis Owen/Lurch Left Memes

This blogpost was first published on The Daily Blog on 19 May 2014.

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