In Praise Of John Key

I am filled with admiration for our Prime Minister.

The latest employment figures are a disaster, and appear to show that this government does not know how to grow the economy.

The Good Farmer: Cunliffe On Economic Development

David Cunliffe today gave another strong speech on economic development issues. A written version of his speech is here.

Whose Planet Is This?

I see that Bill English has been talking about Planet Labour. It sounds like a terrible place. Imagine a place with a stagnant economy; led by a government that is anti-growth, doesn't have any plan, and is not prepared to make the tough decisions needed to ensure the future prosperity of its people; where most people struggle to get ahead; and where those who aspire for better things are probably thinking of leaving.

What a nightmare. If only it weren't real.

So tell me, how can Planet Labour be any worse?

The Dog Has Eaten John Key's Budget Surplus

Few people would be surprised to learn that the budget surplus we were promised again and again now looks to be only a distant hope.

John Key will blame the European crisis for the failure to reach yet another target. This target will probably be quietly dropped from National's narrative over the next few months. Just like the target of closing the income gap with Australia by 2020. We don't hear much about that nowadays.

The right may talk up the virtues of self-responsibility, but when it comes to the failure of the Key government to achieve even modest targets, there's always someone else to blame. It's all Labour's fault, or it's all because of the earthquakes, or it's all because of Europe.

The surplus target never made much sense from an economic perspective. New Zealand's public debt levels are modest compared to those in other countries, but we are drowning in private debt. Nothing this government has done will address that problem. Cutting government spending to the bone just sucks money out of the economy, which leads to job losses, which leads to more people unable to save and struggling to pay their debts.  

However, Key insisted last year that we should give him a second term in office because his government was going to return us to surplus earlier than Labour. He made this promise knowing full well the likely cost of the Christchurch earthquakes, and with the knowledge that the situation in Europe was toxic and was likely to deteriorate further. Those excuses won't work this time.

When the surplus target is missed we must hold John Key's government responsible, and not allow him to find some new excuse for his government's paucity of imagination and lack of vision.

Labour To Blame For Legal Costs

The Finance Minister has confirmed that Treasury is yet again revising its budgetary estimates.

Bill English has long predicted that the government's books will be in surplus by the 2014/15 financial year.

However, a predicted massive hike in legal costs to the Crown has forced Treasury to take another look at the Government's accounts.

In particular, the prospect of ministers resorting in the future to taxpayer-funded litigation each and every time anyone says anything mildly critical about them, is expected to add a significant amount to the cost of running the country.

Treasury officials are particularly concerned that it would not be hard for anyone to come up with plenty of damning things to say about most members of John Key's Cabinet.

Mr English today urged restraint, saying that the country could not afford any more criticism of Government ministers.

"We are in tough economic times," said Mr English, "and that means we must all make sacrifices.

"I'm confident that the taxpayers of New Zealand understand that in the current environment it just isn't financially responsible for people to go about criticising members of this government."

Mr English said he did not accept that his ministerial colleagues were wasting taxpayer money by resorting to ridiculous lawsuits in order to stifle criticism.

"People like Judith Collins have a right to use legal action to cling desperately to what little reputation they have left.

"And let's not lose sight of the fact that the real culprits are the Labour opposition. Labour are entirely to blame for this expected litigation blowout.

"If the likes of Trevor Mallard and Andrew Little would just stop exposing our incompetence we wouldn't have any need to sue them."

Shuffling The Deck

John Key's plan to transform the economy by reorganising a few government departments into one super-bureaucracy leaves me imagining a street magician offering card tricks to a gathering crowd of onlookers.

"Watch as I dazzle you with my amazing tricks!" he says, shuffling the deck.

Two hours later he's still shuffling the cards, the crowds have given up and gone home, and night has fallen.

English Says Asteroid Strike Good For Country

The Finance Minister said this morning that the asteroid speeding towards the country presented opportunities for New Zealand.

Scientists yesterday announced that a giant asteroid is on a collision course with the Earth. They predict that the huge rock will hit the southern part of the North Island tomorrow, destroying most of Wellington and leaving hundreds of thousands of people dead.

However, Finance Minister Bill English said there was no need for panic over the news.

While admitting that the development was not entirely helpful, Mr English said he remained confident that it would not derail the country's economic recovery.

"Despite our expectation that the nation's capital will be reduced to a vast crater, that most of the Wellington and Kapiti regions will be smashed to smithereens, and that the horror holocaust will in a second obliterate tens of thousands of precious lives and leave the entire nation without any form of political leadership, we remain on course to return to surplus," said Mr English.

The Finance Minister acknowledged that Treasury had failed to predict the rogue asteroid, but insisted that the news was not all bad.

"Treasury is also predicting that the asteroid strike will lead to a new wave of prosperity," said Mr English.

"The loss of Wellington, while in some ways regrettable, will lead to a reduction in government spending across the board. Not only because most government department head offices and civil servants will cease to exist, but also because some of the surviving functions of the state just won't be necessary.

"Does anyone really think that the handful of ragged survivors of this apocalyptic nightmare will be concerned about making ACC claims or worrying about their tax returns?

"Of more fundamental concern to the general public will be the need for fire, shelter, and sharpened sticks to drive off competitors for the few remaining food resources not incinerated in the catastrophe.

"We're confident that private sector providers will step up to meet the public need for basic necessities, by forming armed gangs to intimidate, murder and extort."

Mr English predicted that, while the country's immediate future looked quite literally rocky, things would improve financially in the short to medium term.

"I remain committed to delivering a balanced budget in the coming financial year," said Mr English.

"Assuming, of course, that I'm lucky enough not to be killed, either in the initial asteroid strike, or in the mob violence that will overtake most remaining towns and cities afterwards."

[Update: It seems that nothing is new and everything has been done before. An anonymous commenter whose comment I deleted (see my comments policy) noted a resemblance to this Onion piece. I hadn't read it before, and it is (not surprisingly) better than mine]

National's Toolbox Is Empty

Nobody will be surprised to learn that Treasury is forecasting a deficit blowout. Treasury forecasts always have to be taken with a grain of salt, but the tendency in recent times has been for Treasury forecasts to be unduly optimistic. The fact that the news is so grim isn’t promising, because if recent trends are anything to go by the next set of forecasts will reveal an even direr picture.

At the same time National’s asset sales programme appears to be ramping up, and it becomes clearer by the day that the shares sold will return much less to the country than previously predicted.

Those few protections we were told would be in place to ensure the partially-sold SOEs acted responsibly and that New Zealanders would be first in line to buy the shares, have gone missing from the asset sales legislation introduced into Parliament. Now we are told “don’t worry, we’ll make sure rules are in place to put Kiwis first in line”, though why this can’t be legislated for isn’t clear. We are expected to trust the Government that there's a perfectly sound reason for this omission.

We are also assured that big corporations already act in a socially responsible manner, meaning that legislation entrenching this obligation is not necessary.

If big corporations are already behaving as good corporate citizens, then what would National have to lose by including a social responsibility obligation?

Could it be that some large companies do in fact act in a socially irresponsible manner, and that when the need for profit clashes with social responsibility the profit motive often wins? This should be no surprise, because most corporations exist for the purpose of maximising returns to shareholders.

I can see how removing constraints on the operations of the partially-sold SOEs might potentially make them more attractive to investors, especially overseas investors who might be nervous about investing in a market they are not intimately familiar with, and under conditions where participants can’t just maximise profits.

I can also see why the government would want to hoodwink us into thinking that such restrictions are not important and that social responsibility obligations don’t matter, and that the main recipients of the shares will be “Mum and Dad investors”.

But the desire to maximise the return on the sale of assets will come at a long-term cost. It seems likely that a large proportion of the shares sold to private investors will end up in overseas hands, meaning that much of the profits of these companies will go offshore, worsening our current-account deficit.

The good news for opponents of this government is that it is doing a lot of quite unpopular things, at a time when the economic news just gets worse and worse, and it appears to be showing in the polls. The bad news is that by the time we finally get rid of these incompetents a lot of the damage will already be done.

A conspiracy theorist might conclude that the further the public accounts worsen the easier it will be for the government to justify urgent and drastic measures, such as extending the asset sales programme and gutting public services.

But it’s much more likely that this government just doesn’t have a clue how to grow the economy. National’s only tools appear to be the knife and the box of matches.

Meet The Firebugs

John Key's Cabinet meet to discuss the economic situation

Widespread industrial action, economic growth projections revised downwards, more job losses, attacks on the welfare safety net, selling our strategic assets, and no strategy to grow our economy.

For those of you who thought John Key's "brighter future" was something other than a roaring bonfire upon which the hopes and aspirations of all but a privileged few are being thrown, how are you feeling now about your voting decision?

Each Time We Say "Protect The Environment" Steven Joyce Eats A Baby

Steven Joyce writes in the Herald that the answer to our economic woes is to open up resources to entrepreneurs, and to hell with the social cost or environmental impact.

Joyce attacks the people who say:

... "we want jobs" but then in the next breath say "but you can't do that ... you can't build that there ... you can't expand that ... you can't explore for that there ... you can't live here ... you can't invest in property here - you just can't do that!"

as if the only thing preventing us from being an economic powerhouse is our reluctance to dig for minerals and dirty coal.

Joyce also blames the early onset of the recession on the Labour government, while at the same time taking a swipe at an area of industry where we have the potential to be world leaders.

Through the 2000s, as a country, we progressively boxed ourselves in more and more to depend on fewer and fewer industries based on what the "can'ts" said. At the end of it the government of the day was pretty much down to talking only about two of the ingredients - skills training and subsidising entrepreneurs that don't use resources (the so-called clean-tech sector) - as the bits the "can'ts" were most comfortable with. The rest was off the table.

That attitude made it much harder to pay our way in the world and, as a result, we went into recession before the rest of the world in early 2008.

New Zealand's economic problems have been around for a few decades now. They weren't created by Labour alone, and both Labour and National are guilty of failing to seriously tackle these problems. Moreover, if Joyce really wants to attack environmental laws for stifling development, then he should be focusing his ire on the Bolger government of the 1990s, which passed the Resource Management Act.

It is simply wrong to blame a lack of diversification on the Labour government, because that lack has been there for decades. It is a sign of National's lack of imagination and paucity of ideas that Joyce and other ministers continue to blame Labour for everything that is wrong with New Zealand, in the hope that voters won't realise that National is doing next to nothing to address the problems and in fact is probably worsening them.

Selling our assets, stripping our conservation estate and ignoring environmental best practice will not make us rich. A clean, green economy based on smart technologies is the only future for this country, because of our distance to markets and our modest physical resources. Digging holes in the ground and building more and more roads (as Mr Joyce appears determined to do) will do harm to the "clean and green" image we have managed to establish for ourselves. Whether or not that image is justified is another debate entirely, but the image is something we can and must trade on.

The clean-tech sector that Joyce sneers at may well be our future. One need only look at the success of a company like LanzaTech to see the potential for exporting clean technologies to the rest of the world. Consumers are being driven more and more by environmental considerations when they choose which products or services they should acquire, so Joyce is on the wrong path when he portrays environmental protections as evils that must be minimised as much as possible.

And let us remember that the party saying "we can't" most often is the government. A central rail loop to take pressure off Auckland's roads and reduce gridlock? A good public transport system that reduces our addiction to fuel? A broadband rollout that won't create new blockages and entrench monopolies for existing players? Steven Joyce's answer is always "we can't".

A Prediction

I'm usually wary of making economic predictions, but here's one I am happy to make.

We will not have a budget surplus in 2014/5.

Here's another prediction: over the next 12 months Treasury growth forecasts will continue to trend downwards, and Bill English will continue to blame every government failure on what is going on overseas.

If this government is so powerless to influence the course of our own economy, why did Key and English so boldly pronounce a return to surplus in 2014/5?

Which Is The Lucky Country?

Consumer confidence is down, manufacturing slumped in October, Europe is teetering on the edge of economic meltdown, unemployment is up, the government is running a massive deficit, we’ve had a credit downgrade, economic growth is stagnant, the gap between rich and poor continues to widen, the cost of living is rising for most people, and the country has experienced a succession of natural and man-made disasters in the last year.

Many people will be wondering if they might be better off across the Tasman.

But it's much much worse in Australia. They were all out for 47.

We Need More Fear

Now I ain't one of them fancy-pants economists or Treasury officials, but I sure can tell a lump of turd from a sweet smelling rose.

Take this as an example, from Stuff:

The agencies compared New Zealand's private debt unfavourably with a sharper reduction in the United States and the United Kingdom.

But English said the reduction of private debt in those countries was as a result of ''fear''.

''In the UK and US, the reasons for that are reasons we wouldn't want to have to deal with. They've had a collapse in the housing market in the US and they have had big, big cuts in public sector and transfers to households in the UK, so that decrease in household debt in the UK and the US is primarily driven by fear,'' he said.

''Now, in New Zealand, we have had a more moderate and considered adjustment. We still think that is the best path to follow.

So mass unemployment caused by recession and major public sector cuts, and a housing market collapse, will actually reduce private debt?

If only I had worked out earlier that the best way to reduce my mortgage was to go on the dole.

Are These Guys Sound Economic Managers?

The 2011 Budget contained growth projections that were typically heroic. For the last few years Treasury growth projections have been nowhere near actual growth figures. We all know that these projections are based on little more than hope, and yet the government bases its reputation of sound economic management on the assertion that under National a full recovery is just around the corner. This fantasy is reinforced by growth projections that are at best optimistic, and at worst fantastical.

Now, only a few months after Budget 2011, the Reserve Bank is forecasting lower growth than expected. Should we be surprised at this downward trend? Hardly. We should instead expect to see more of it in the months following the election.

And then when the growth targets are not met (if National is still in power after the election) Bill English will blame unforeseen circumstances, market forces etc, even though it was obvious in May that the 4% growth projection for 2012 would never be met.

But the business world and media will continue to praise National's sound economic stewardship, even though everyone can see how ludicrous their projections are.

Imperator Fish Fixes The Economy

A couple of days ago I nailed the drinking problem.

Since I'm on a roll, I've solved all our economic woes too. Here's the deal.

Scientists have discovered a planet made of diamonds. It's a wee distance from us, but nobody else is making noises about going to this new planet.

So let's get there first, mine the stuff, then watch as we become a nation of squillionaires!

Wait, I hear you say. It's 4000 light years away. How will we ever get there?

I never said it would happen overnight. Rome wasn't built in a day, sunshine. But we can start by moving our entire economy towards developing new rocket technologies. Forget welfare, health and roads. If every tax dollar went into building an enormous spaceship that could travel faster that the speed of light, I reckon we'd get there in no time! Maybe a couple of hundred years at the outside.

So if you're in pain and just hanging out for that medical operation, do the rest of us a favour and take yourself off the waiting list. Or go private. Because we're going to need those tax dollars for our super-rocket.

And remember, you don't need to thank me. Just do the right thing.

Shopping Local

Tom Pullar-Strecker and Claire Rogers of the Dom Post report:

Labour Party leader Phil Goff is wooing the domestic information technology industry, saying it would be a key beneficiary of the party's proposed reforms of government procurement.

Goff has been touring technology companies and said agencies had "drifted" into a situation in which they were discriminating against local providers in managing their $2 billion annual spend on ICT. Labour intended to positively discriminate in their favour, recognising the broader economic benefits.

Economic Development Minister David Carter believed that could breach trade agreements "placing at risk the ability of Kiwi firms to bid for government procurement contracts in valuable offshore markets".

The objection by National is a typical one given whenever anyone suggests we should try to protect our own. For the last couple of decades we have opened our economy up to overseas investment and overseas trade, but arguably in a way that hasn’t greatly enhanced our own economy. Our policy of removing almost all barriers to trade may well see us as one of the most open economies in the world, but it also means we do nothing to protect our own industries.

I’m not generally a fan of granting subsidies to people to do things that can and should be done cheaper offshore. Most manufacturing, for example, would be better done offshore, where economies of scale and access to resources make such activities more efficient.

And, generally speaking, a free trade system is good for New Zealand, because it gives us access to markets that we would otherwise struggle to enter.

But our free trade system is not really “free”. Many of the countries we trade with still protect their industries, particularly in the agriculture and primary produce areas. We may have dropped our pants for our trading partners, but they have mostly failed to reciprocate.

In some areas, such as ICT and high-tech manufacturing, we should be looking after our own. These are industries that, with a little bit of initial support, can kick on and (in the medium to long term) become sustainable, high-earning and internationally competitive.

So requiring government organisations to factor into their decisions the desirability of buying local sounds like a pretty good idea.

In Which A Partisan Hack Congratulates His Team

I'm currently going through a bit of a slow patch at the moment blogwise, and the creative juices feel like they've dried up. I'm milking the "Those ACT guys are like totally f**king crazy, man" angle for all it's worth, while I can. I fear a day may soon come when that particular group of dinosaurs will no longer be around to ridicule. And then I'll have nothing.

In the meantime allow me to engage in a little partisan hackery and congratulate Labour for a good couple of days. Most of the leaks from the party of late haven't been all that helpful, but the deliberate, gradual leaking of Labour's tax policy is a work of genius. For the first time in recent memory a Labour policy is the talk of the town, and it hasn't even been released. And National is helping considerably by overreacting in such a hysterical manner that you'd think Labour were proposing to turn little old ladies into meat patties.

When property investors drunk from years of tax-free capital gains start squealing like shot pigs, then you know the opposition's hit the bullseye. When real estate agents say something is bad you know from past experience that the reverse must be true.

When I hear property investors bleating because they may soon have to start paying for the roads, schools and hospitals the rest of us wage-monkeys have been subsidising for years, I find my eye-ducts are strangely dry. But when on the one hand they say the tax will be unworkable and full of loopholes that clever accountants will exploit, and at the same time complain it is punitive, I become confused. How can it be both?

What this debate has shown is that National has nothing. No plan to get us out of the hole we're in. Just a hope and a prayer. But I doubt prayer will be enough for the Nats, because as a good and loyal party man I know God's on Labour's side.

Voting With Their Feet

Lincoln Tan and Jarrod Booker in the Herald report:

The Kiwi exodus across the Tasman has hit a 32-year-high, swelled by people fleeing quake-ravaged Christchurch. 

Statistics NZ figures show 3300 New Zealanders left for Australia last month, topping the record of 2900 set in 1979.

The number who fled Christchurch last month was 800 - up from 500 in May last year, said Government Statistician Geoff Bascand.

"Since the earthquake on February 22, the city has experienced 1300 more departures and 400 fewer arrivals than in the same period in 2010," he said.

So, while many have fled Christchurch, it's clear that the earthquakes are only partially responsible for the huge lift in departures. If you take out the 300 additional departures from Christchurch when compared to the same month last year, the result is still a record high.

Remember how Mr Key promised that we were going to close the income gap with Australia?

And remember this billboard from National's 2008 election campaign?

Just consider them yet more broken election promises from our clueless government.

Blaming Labour For This Won't Work Anymore

So government debt continues to balloon, and yet National continues to blame Labour.

Why? If Labour’s supposedly profligate spending was so irresponsible, why haven’t the Nats reined it in? They’ve been in government for two and a half years now. If they had the courage of their convictions they could simply cut the programmes that Labour introduced.

So why don’t they? Could it be that they know the fault lies elsewhere?

When considering who to blame for the current "crisis", here are a few things to consider:

• Government debt reduced under Labour.
• The last Labour government left a budget surplus.
• Had Michael Cullen heeded National’s calls for tax cuts in the mid-2000s, the debt hole would be much bigger right now.
• Some of the debt problem has occurred due to the global financial crisis and the Christchurch Earthquake – things out of National’s control. But that’s not the whole picture. A large proportion of the debt is attributable to National’s tax cuts for high income earners.
• The debt is larger than it needs to be because the government is by its own admission borrowing more than it needs. This unnecessary borrowing is helping to keep the New Zealand dollar high. A high dollar hurts exporters, while encouraging consumers to buy imported goods that they don’t need. This fuels increases in private debt, which is a much bigger problem for this country than public debt.

The timid and ineffectual response of this government (focusing entirely on reducing government debt rather than taking steps to reduce private debt and grow the economy, but even then failing to reduce government debt) suggests they don't know what to do about the economy’s problems. Flogging off our most valuable assets will provide only short-term relief and will in the long-term leave us beggared, as our critical infrastructure assets fall into the hands of foreign companies who will send our wealth offshore (don’t be fooled by the “Mum and Dad investors” line) and push up power prices in order to extract a high rate of return to shareholders.

We have also been told that by borrowing money now we can save money later. That may well be true. I'm not a financial analyst or money-market guru, but I am willing to accept there may be justifications for borrowing more than we need. And yet when the Opposition suggested that payments into the Cullen Fund should continue because the fund was earning a good rate of return, we were told that it was foolish to borrow money that we were only going to invest. Isn't borrowing $5 billion extra and then sticking it into a savings account kind of like borrowing to invest? Why is it okay now?

If Bill English were my accountant I’d have fired him long ago.

Whose Debt? Whose Fault?

(Update: As someone on another blog has pointed out, the data in the pretty graph below is actually wrong. I've no idea where the author got it from. I should have noticed this, because I know that public debt sits at about 30-odd percent of GDP, and that private debt is somewhere in the 80s or 90s. My bad. Maybe I was distracted by the pretty colours. However, the message remains the same: public debt as a percentage of GDP is extremely low by world standards. It's only when you combine private and public debt that you get a crisis. So the person who pointed out my error is committing an error of their own by suggesting that government debt is at crisis levels. It aint)

The next time you read something written about how we have to slash spending because government debt is out of control, and that it's alll the fault of the last government, remember this graph:

(Update: try the below graph instead. Hat tip to Robin Johnson's Economics Web Page

(Source: Wikipedia)

And some more stats for overseas debt, and for total government debt, are here and here)

We have a problem with private debt, sure--a big problem. But given that the current government has done little or nothing to address our private debt mountain, it shouldn't go around pointing the finger.

Imagine how bad things might be now if the last government hadn't devoted so much effort to paying down debt.

(I pinched the cool graphic from The Standard - update: the original one, that is. More fool me)