Archive

Posts Tagged ‘economic growth’

Letter to the editor – Bill English admits immigration driving economy

.

Frank Macskasy - letters to the editor - Frankly Speaking

.

 

from:      Frank Macskasy <fmacskasy@gmail.com>
to:           Dominion Post <letters@dompost.co.nz>
date:      12 June 2017
subject: Letter to the editor

.

The Editor
Dominion Post

.

On 16 June last year, then-Finance Minister, Bill English attributed our growth to “other sectors” of the economy;

“Despite the dairy sector continuing to be under pressure, other sectors are performing well and contributing to an overall solid rate of economic growth.”

He never acknowledged the role played by massive immigration in our so-called “economic growth”. To do so would admit that our “growth” was artificial and unsustainable, and putting pressure on housing and social services.

As Labour unveiled it’s new immigration policy this week, English was forced to concede;

“A 30,000 reduction in migration right now will stall the economy, it’ll deprive businesses of the skills they need to enable them to make the investments they want to make, to grow New Zealand. “

It’s official: our “growth” is an illusion.

Like a “sugar hit” from junk-food, immigration is not really energising our economy. On 18 March last year, English admitted that real national disposable income-per-capita fell by 0.4%. Again, he put the blame anywhere but at immigration;

“You’ve got a big drop in national income, because dairy prices are down.”

Again he let slip;

“At the same time you’ve had surprisingly high migration numbers. So it’s not surprising that when you work the figures you get a drop in national disposable income.”

Like Auckland’s ballooning house-bubble prices, economic “growth” based on migration is a mirage. Eventually those balloons will burst and we’ll be left to tidy up National’s nasty mess.

It beggars belief how National ever gain it’s reputation for “sound economic stewardship”.

.

-Frank Macskasy

.

[address and phone number supplied]

.

.

.

References

Fairfax media:  Labour unveils plans to stop foreign students’ ‘backdoor immigration’ rort

Radio NZ:  Incomes dropping despite GDP growth, English admits

Fairfax media:  New Zealand’s economic growth driven almost exclusively by rising population

.

.

.

.

This blogpost was first published on The Daily Blog on 14 June 2017.

.

.

= fs =

Advertisements

National, The Economy, and coming Speed Wobbles – March Update

23 March 2014 2 comments

.

The Nationalmobile

.

On 1 March, in a previous blogpost, I raised the following issues;

1. The Reserve Bank has indicated that  it will begin to increase the OCR (Official Cash Rate) this year. Most economists  are expecting the OCR to rise a quarter of a percentage point on March 13.

Confirmed. True to it’s word and as clearly signalled, on 13 March the Reserve Bank  raised the Official Cash Rate (OCR) from 2.5% to 2.75%.

2. An increase in the OCR will inevitably flow through to mortgage rates, increasing repayments.  As mortgaged home owners pay more in repayments, this will impact on discretionary spending; reducing consumer activity, and flow through to lower business turn-over.

Confirmed. The ANZ Bank  has already  announced it will increase its floating and flexible home loan rates .25 percentage points to 5.99% on 17 March. Expect other banks to follow suit. Other bank rate rises will be signalled here.

This will inevitably dampen consumer spending and reduce economic activity.

3. An increase in the OCR will inevitably also mean a higher dollar, as currency speculators rush to buy the Kiwi. Whilst this may be good for importers – it is not so good for exporters.

Confirmed, as the NZ Herald reported;

The New Zealand dollar jumped to a five-month high after the Reserve Bank raised the benchmark interest rate as expected and signalled further hikes are on the way.

The kiwi rose as high as 85.26 US cents, from 84.73 cents immediately before the Reserve Bank’s 9am statement. The local currency recently traded at 85.20 cents.”

And in another Herald story,

By raising rates, the Reserve Bank aims to tame both inflationary pressures and house price increases but also runs the risk of elevating an exchange rate it already considers too high, making exports less competitive.”

For a nation that bases it’s economy on exporting, a rising Kiwi Dollar will bring inevitable problems of higher debt and greater trade imbalance. It means we are not paying our way in the world and inevitably there will be a “Crunch Day” of tragi-Greek proportions.

On that day, the public will blame politicians.

Politicians will blame each other.

And the Left will shake it’s head in exasperation – it’s admonitions that this was all predictable as a natural consequence of unconstrained consumerism coupled with rampant capitalism –  lost in the shrill clamour of pointless blame-gaming.

As BERL economist, Ganesh Nana, said on The Nation on 15 March, we’ve been down this road before and not learned a single lesson  from these experiences.

4. As economic activity and consumer demand falls, expect businesses not to hire more staff and for fresh  redundancies to add to the unemployment rate. Unemployment will either stay steady later this year, or even increase.

On-going…

5. As interest rates rise, in tandem with the Reserve Bank’s policy on restricting low-home deposits, expect home ownership to fall even further. This will increase demand for rentals, which, in turn will push up rents. Higher rents will also dampen consumer spending.

Confirmed. The Reserve Bank  has reported that there has “been some moderation in the housing market. Restrictions on high loan-to-value ratio mortgage lending are starting to ease pressure, and rising interest rates will have a further moderating influence...”

Expect home ownership levels to fall even further as interest rates rise further; rents increase (thereby making it harder for low income families to save); and mortgagee sales to rise as well.

Interestingly, when in Opposition, National Party leader, John Key lambasted the Labour Government for a high OCR leading to high interest rates. In a desk-thumping speech, on 29 January 2008, he railed,

Why, after eight years of Labour, are we paying the second-highest interest rates in the developed world?

[…]

Why can’t our hardworking kids afford to buy their own house?…

[…]

Mortgage rates are rocketing upwards…

[…]

We know Kiwis are suffocating under the burden of rising mortgage payments and interest rates…”

It seems that Mr Key should now begin to be answering his own questions.

6. As the global economy picks up and demand for oil increases, expect petrol prices to increase. This will have a flow-through effect within our local economy; higher fuel prices will lead to higher prices for consumer goods and services. This, in turn, will force the Reserve Bank to ratchet up interest rates (the OCR) even further.

Whilst fuel prices remained steady during the worst of the GFC, they have begun edging upward again as the global economy improves and demand for energy grows.

Our high Kiwi Dollar will mitigate the worst of rising crude-oil prices – but only temporarily. Once other Central Banks begin to rise their OCRs, expect the value of the Kiwi Dollar to fall as speculators sell the Kiwi in preference to harder currencies.

This will be good for exporters.

But will be a negative impact on imports – such as oil. Prices will rise as the Kiwi Dollar falls. Count on it.

7. As businesses face ongoing pressures (described above), there will be continuing  pressure to dampen down wage increases (except for a minority of job skills, in the Christchurch area). For many businesses, the choice they offer their staff will be stark; pay rise or redundancies?

Data suggests that wages are not keeping pace with GDP Growth;

.

Wages

.

NZ average hourly wages 2012 - 2014

.

GDP

.

NZ GDP Growth Rate 2012 - 2014

.

8. Expect one or more credit rating agencies (Fitch, Moodies, Standard and Poors) to put New Zealand on a negative credit watch.

On-going…

9. According to a recent (21 February) Roy Morgan poll, 42%  of respondents still considered the economy their main priority of concern. 21% considered social issues as their main concern.This should serve as a stark warning to National that people will “vote with their hip wallets or purses” and if a significant number of voters believe that they are not benefitting from any supposed economic recovery, they will be grumpy voters that walk into the ballot booth.

There is no reason to think otherwise on this issue. Voters who are spending more on mortgage or rent are less inclined to be happy consumers.Especially as mortgage rates are expected to rise even further, according to Bernard Hickey’s assessment of Governor Graeme Wheeler’s statement,

Wheeler said in early December he expected to raise the OCR by 2.25% by early 2016, which would lift variable mortgage rates to around 8% by then. The bank forecast interest rate rises of around 1% this year and a similar amount next year.”

Home owners paying 7% to 8% on their mortgage will not be happy-chappies and chapettes. They will be grumpy. The 2009 and 2010 tax cuts will be a dim memory and any attempt by Key to remind voters of those cuts will not be warmly received. Especially as any minute gain for workers was more than swallowed up by the rise in GST, ACC, government user-pays charges, and now their mortgages and rents.

If only a small percentage of grumpy voters change their voting away from National (or stay home) – that will mean a critical drop in support for a right-wing bloc. One or two percentage points is all that is required to change the government.

10. National has predicated its reputation as a “prudent fiscal manager”  on returning the government’s books to surplus by 2014/15. As Bill English stated  just late last year,

We remain on track to surplus in 2014/15, although it will still be a challenge to actually reach surplus in that financial year.”

[…]

On top of which is the $61 billion dollar Elephant in the room; the government debt racked up by National since taking office in 2008. As Brian Fallow wrote in the Herald in 2011,

The concern about government debt is not so much about its level, but the pace at which it is increasing. In June 2008 net government debt was $10 billion, or 5.6 per cent of GDP, and gross debt $31 billon, or 17.2 per cent of GDP.”

A lower tax-take, reported by Treasury on 11 March puts serious doubt on National’s ability to return to “remain on track to surplus in 2014/15″;

  • Total unconsolidated tax receipts for the seven months ended January 2014,  $143 million (0.4%) below the 2013 Half Year Economic and Fiscal Update (2013 HYEFU) forecast…
  • Total unconsolidated tax revenue for the seven months ended January 2014,  $459 million (1.1%) below the 2013 Half Year Economic and Fiscal Update (2013 HYEFU) forecast…
  • GST $250 million below forecast,
  • Net individuals’ taxes $191 million below forecast,
  • Customs and excise duties $156 million below forecast

The March Treasury report follows from a February report showing a similar “smaller than forecast tax take across the board“,

The Crown’s operating balance before gains and losses (obegal) was a deficit of $1.79 billion in the six months ended December 31, $380 million wider than forecast in its Dec. 17 half-year economic and fiscal update, and down from a shortfall of $3.19 billion a year earlier. Core tax revenue was $602 million below forecast at $29.18 billion.

[…]

The smaller tax take was across the board, with GST 2.3 per cent below forecast at $7.5 billion, source deductions for personal income tax 1.2 per cent below forecast at $11.71 billion, and total corporate tax 4.9 per cent below expectations at $3.56 billion.

As I wrote on 1 March, should National fail in that single-minded obsession, the public will not take kindly to any excuses from Key, English, et al. Not when tax payer’s money has been sprayed around with largesse by way of corporate welfarism. Throwing millions at Rio Tinto, Warner Bros, China Southern Airlines, Canterbury Finance, etc, will be hard to justify when National has to borrow further to balance the books.

Any economic “recovery” is fragile; dependent on overseas factors; and will bring new problems. Little wonder that Key brought the election date forward by two months. Mortgage rates by the end of the year will be nudging 7%.

Not much of a Christmas present for New Zealanders.

As such, Labour must begin to attack Key’s government in this area. This will be a grand opportunity for the Left to finally drive a stake through the “heart” of National’s undeserved reputation as  being a “responsible economic manager”.

National remains utterly vulnerable during this year’s election.

.

*

.

References

Interest.co.nz:  Bernard Hickey looks at what the Reserve Bank’s OCR decision means for mortgage rates and house prices

Radio NZ: Reserve Bank warns of more interest rate rises

Interest.co.nz: Mortgages

NZ Herald: Dollar jumps on OCR hike + video

NZ Herald: New Zealand raises interest rate to 2.75 percent

Reserve Bank: Reserve Bank raises OCR to 2.75 percent

John Key: SPEECH: 2008: A Fresh Start for New Zealand

Interest.co.nz: Oil and Petrol

tradingeconomics.com: Wages

tradingeconomics.com: GDP

Roy Morgan: Economic Issues down but still easily the most important problems facing New Zealand (42%) and facing the World (36%) according to New Zealanders

NBR: Govt sees wider deficit in 2014 on ACC levy cut, lower SOE profits

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

NZ Herald: Govt debt – it’s the trend that’s the worry

NZ Treasury: Tax Outturn Data

NZ Herald: Govt deficit bigger than expected as tax trickles in

Previous related blogposts

TV3 Polling and some crystal-ball gazing

National, The Economy, and coming Speed Wobbles

.

*

.

https://fmacskasy.files.wordpress.com/2014/02/the-cost-of-living1.jpg

Above image acknowledgment: Francis Owen

This blogpost was first published on The Daily Blog on 16 March 2014.

.

.

= fs =

The National Party, common sense, and sausage sizzles

.

Frank Macskasy Blog Frankly Speaking

.

I’ve been involved in politics, in one form or another, for much of my life. I think I have a fairly good ‘handle’ regarding politicians; their ideologies; and their Parties.

I’ve seen Muldoon come and go; Bolger and Richardson; Shipley and English; and now Key and English, try their hand at managing our economy and spending our tax dollars.

Without exception, folks, every single National Government, from Robery Muldoon onwards, has been an apallingly bad fiscal manager.

National’s modus operandi,

  1. Cuts short term spending, worsening long-term social problems, which will become more expensive eventually, as social ills remain unaddressed,
  2. Cuts state sector employees and services, then realises that essential issues still remain,
  3. Cuts taxes when we can least afford it,
  4. Implements fiscal, political, and social policies that impact negatively on economic and social indicators,
  5. Borrows from overseas lenders when it was never necessary in the first place (or reduced borrowing, had tax cuts not been implemented)
  6. And generally makes bad choices that, long term, will cost the taxpayer more.

So – how on Earth has National ever built up a reputation of being a “sound fiscal manager” of our economy?!?!

Because every time National has been in office, it has left the country in an absolute economic shambles.

From Ruth Richardson’s “Mother of All Budgets”, to Jenny Shipley’s and Bill English’s “slash and burn” of the health sector,  state housing, Police force, and other essential state services in the late 1990s – National  has proven time and again it’s ineptness.

This Party is utterly clueless when it comes to simple matters of cause-and-effect.

One thing, though, has escaped me utterly.

How have they  sucked in the public to effect a (undeserved) reputation of sound fiscal management?

Whilst National runs deficits,  Labour, in the 2000s, ran surpluses. (A fact National attempts to hide by clumsily  persisting in re-writing history.)

See previous blogpost: Labour: the Economic Record 2000 – 2008

Case in point; Dear Leader and his minions has made a great deal about slashing the state sector. National has made deep cuts into state sector services and sacked over 2,500 much-needed employees,

.

Frank Macskasy Blog Frankly Speaking

Full Story

.

As 2,500 people were sacked from their jobs – all for a grand saving of $20 million,  National belatedly realised that their slash-and-burn was little more than a false economy.

It soon became apparent that many of the sacked workers were much-needed experts in their field, and essential personnel to make the State function smoothly.

National took “appropriate action”,

.

Frank Macskasy Blog Frankly Speaking

Full Story

.

Frank Macskasy Blog Frankly Speaking

Full Story

.

Frank Macskasy Blog Frankly Speaking

Full Story

.

Two thousand, five hundred of our fellow kiwis lost their jobs for “savings” of $20 million.

The Economic Development Ministry alone  increased spending on consultants, contractors, etc,  from $6.7 million in 2008-09 to $19.2 million in 2010-11. Other ministries most likely spent several million on their consultants, contractors, advisors, and Uncle Tom Cobbly.

See: ‘Consultancy culture’ cost $525m last year – Labour

So much for “savings” of $20 million.

One can only try to imagine what those 2,500 people who were sacked by National, must be feeling right now.

So the question remains; how has National managed to paint itself as a “responsible steward” of the country’s economy? Especially when a cursory study of their real performance reveals otherwise?

Tracey Watkins, writing in today’s (19 May)  ‘Dominion Post‘, may have  offered a clue,

But while these sorts of measures might be an annoyance, they do not cause widespread pain.

And in a perverse way, Europe helps Bill English’s cause. It maintains a sense of crisis while the sight of workers marching in the streets only underscores the gentle and low-fuss nature of our own austerity drive.

This is why Labour has struggled so far to run a coherent argument against National’s management of the books – the danger has always been that protesting any cuts to date look not only shrill, but profligate. To voters, less is more at the moment.

See: Kiwis are tolerating moderate austerity

A sense of crisis “. It may well be that the Middle Classes have been panicked by overseas events. There may be an under-lying fear that – like households in tough times – the country needs to cut back on spending, to avert a Greece-like melt-down in our own economy.

There may be an underlying belief  within the collective consciousness of New Zealanders that, in “tough times”, National is better at cutting than Labour. In “tough economic times”, cutting expenditure may appear to the public as more of a priority than, say, job creation.

Such feelings are not necessarily based on any reality or logical analysis of the country’s true economic situation; nor of the side-effects of cutting back on State expenditure. These may be deep-seated feelings based on how people may view the economy.

Generally speaking, people have very little experience with macro-economics; Keynesian-vs-Friedmanite economic systems; nor any real understand of how government economic policies work.

For most folk, their only experience is running the finances of their own households. Doing a household budget; paying bills;  and balancing the chequebook is the extent to most peoples’ exposure to finances.

And yet, government finances is not like household finances at all. The former is more complex, with control over fiscal and taxation policy; revenue streams;  and policies that can work to generate income for the state. The State has access to borrowings (if necessary) not open to ordinary households. By widening the tax-base, the State can increase its revenue – no easy task for ordinary households.

In short, the State has options not readily available to households.

But  through a dumbed-down media which focuses mostly on superficial political issues; mindless entertainment; and on the Here-And-Now, the public have become low-information voters.

By not being aware of the true extent of the State’s abilities, the public are trapped in a narrow paradigm of  the State being akin to “household budgets”.

So when National cuts expenditure, services, and jobs – it appears to the public to be a “common sense” plan to follow.

The public are not so aware that austerity measures can have negatives impacts on our economy and society, even in the short-term. Cutting back on government economic activity means a drop in all-round economic activity.

It is no coincidence that following Ruth Richardson’s “Mother of all Budgets“, that unemployment, company liquidations, economic growth, and other indicators worsened.

This is a Party that I would barely trust to run a sausage sizzle. They’d get rid of the volunteers; sell the barbeque; pay themselves a hefty fee; and claim success,

.

The ‘mother of all budgets’

.

Frank Macskasy Blog Frankly Speaking Mother of all budgets

Prime Minister Jim Bolger and Finance Minister Ruth Richardson make their way to the House of Representatives for the presentation of the 1991 budget. Richardson was from the radical wing of the National Party, which promoted individual liberty and small government. This was reflected in the budget, which severely cut government spending, including on welfare. Richardson proudly proclaimed her plan as the ‘mother of all budgets’, but such was its unpopularity among voters that it – along with high levels of unemployment – nearly cost National the next election.

Source

.

.

Frank Macskasy Blog Frankly Speaking

Source

.

Frank Macskasy Blog Frankly Speaking

Source

.

In the above graph, note the two ‘spikes’ in unemployment. The first in the early 1990s, after cuts (through the “Mother of all Budgets”)  created a rise in unemployment. The second rise occurred in the late 1990s, when the Shipley/English government again cut government services.

However, unemployment fell after the election of a Labour-led government in late 1999.

.

Frank Macskasy Blog Frankly Speaking

Source

.

Source

.

The implications of austerity policies should be crystal clear to everyone:  reducing government expenditure and activity in the economy dampens overall economic activity.  Everyone is affected – no one escapes the inevitable downturn.

Hence why the new French President, Francois Hollande, has rejected austerity policies for his country. President Hollande understands full well that cutting government expenditure will result in reduced state services; more unemployment; and a drop in economic activity and  growth.

As long as the public are aware of these facts, then they can make decisions accordingly.

Ignorance of these facts will be painful, as anyone with memories of the 1990s will attest to.

In this case, ignorance is not most definitely not ‘bliss’. And no one will be exempt.

.

*

.

Additional

Dominion Post: Public service cuts get deeper

Bloomberg:  Hollande Vows to Fight Austerity After Beating Sarkozy

References

Te Ara: Story – Business failures and corporate fraud

Te Ara: Story – National Party

Trading Economics: New Zealand

.

.

= fs =

Voting with their feet…

|

"Too many Kiwis are looking at those stats and choosing to join their cousins across the ditch. We have to give them better reasons to stay." - 29 January 2008

|

It seems that far from “giving them better reasons to stay“, John Key and his incompetant government may be accelerating the exodus to Australia,

|

Full Story

Despite bribing us with two tax cuts, New Zealanders continue to migrate to Australia.

No – “migration” is the wrong word. They are not just migrants, they are  economic refugees. This is a mass break-out and escape of New Zealanders and their families for whom life in this country no longer holds any future.

Far from “giving them better reasons to stay“,  social ties to this country appears to be weakening.

John Key raised voters’ expectation with grandiose promises of job creation,

|

|

Much of National’s campaign was predicated on new jobs and boosting the economy,

|

|

Instead, we have been given mass sackings of state sector workers, for no discernible purpose,

|

Full Story

|

With more sacking to come, and instead of boosting the economy, National is content to rearrange government departments, to form monolithic, Soviet style Ministeries,

|

Full Story

|

Is this making sense to anyone?

It may be perfectly “sensible” to National and ACT and their slowly diminishing support-base – but not 53,000 New Zealanders who have had a bellyful of a stagnating economy; tax cuts for high income earners; tinkering; and not much more,

|

Full Story

|

Which is why it is interesting to remind ourselves of  Dear Leader’s speech in 2008,

We know Kiwis are suffocating under the burden of rising mortgage payments and interest rates.  We know you cringe at the thought of filling up the car, paying for the groceries, or trying to pay off your credit card.  ” – John Key, 29 January 2008

It seems matters have not changed much in four years,

|

Full Story

|

It’s unsurprising that Kiwis who have been thrown onto the economic scrap-heap by a government that has no vision and no plan, except to cut and slash, are deserting their country of birth,

|

Full Story

|

Is this the “Brighter Future” which our Dear Leader promised us?

This is no plan for a “Brighter Future”. National  is hell-bent on an ideological crusade to cut the state sector; cut taxes for companies and the rich – and then hope for the best.

This, folks, is what a neo-liberal, “free market”, government does. They wait on the ‘Market’ to deliver jobs, higher wages, and better living standards,

Sustainable economic growth which creates permanent worthwhile jobs is best achieved by building a competitive economy that allows business to trade successfully with the rest of the world,the Ministers say,13 March 2012 .

We’ll be waiting an awful long time.

Actually, some of us will be waiting. The rest are off.

|

|

* * *

|

Previous Blog Post

Why did the Kiwi cross The Ditch?

|

|

= fs =

That was Then, this is Now #1

20 August 2011 5 comments

.

.

Capitalism, top heavy and toppling – Bernard Hickey

This is must-read stuff…

Full article here.

It is worth noting that, here in New Zealand, recent tax cuts gave $2.5 billion a year to the top 10 per cent of earners and “practically nothing to the bottom 20 per cent of earners, who got 3 per cent of those cuts”.

It is also worth noting that, as a country, we are having to borrow $380 million  per week to – in part – fund those tax cuts.  That’s $17.6 billion this year alone.

Far from being a “prudent fiscal manager”, National is being highly irresponsible as it continues to woo the  Middle Class for their votes.

Only thing is: eventually it all has to be paid back. Even selling all out SOEs won’t cover that debt mountain, as we simply don’t have enough state assets left after the 1980s and 1990s.