Labour targeting social and infrastructure deficits, not financial

Finance spokesperson Grant Robertson says that a Labour government would target infrastructure deficits and social deficits’ and revise the Government targets on lowering financial deficits.

NZ Herald: Debt targets to be revised under Labour-led Government says Robertson

National increased the debt as a result of the global financial crisis and the Christchurch earthquakes from 5.4 per cent of gdp in 2008 to 24.3 per cent now. The deficit peaked at a record $18.3 billion in 2011.

The current target of reducing net debt to 20 per cent of gdp by 2020 will be replaced by getting it down to 10 to 15 per cent by 2025, Joyce recently announced.

But Robertson says that Labour will have a different priority and will revise that.

If Labour’s Grant Robertson is the next Finance Minister he will ditch the new ambitious net debt target set by Steven Joyce as part of the 2017 Budget or the current target.

“We believe there are infrastructure deficits and social deficits that are going to need some investment before we can get to the 20 per cent target,” Robertson said.

“We will review and revise those targets once we are in Government and we’ll see where we get,” said Robertson.

“The last time Labour was in office we got debt down close to zero so of course we are in favour of reducing debt.”

He said the numbers Joyce had “plucked out” for the 2025 target was where Treasury’s longer term forecasts were going anyway.

Greens are on the same page as Labour. This was been written into the Labour-Green fiscal responsibility code.

The wild card is Winston Peters.

Meanwhile New Zealand First leader Winston Peters says the Government will present a surplus on Thursday only because it has underfunded many public services including in health, education, police, conversation and housing.

“The Government will have to explain how there is a surplus after addressing all the reasonable demands that need money spent on them,” he said.

“If this Thursday’s Budget does not do that, then claims of a surplus will be without credibility, plausibility or integrity.”

What that means in practice, and whether Peters will come out of coalition negotiations with credibility, plausibility or integrity, won’t be known until late September at the earliest.

 

26 Comments

  1. “only because it has underfunded many public services including in health, education, police, conversation and housing.” Presumably WP is saying we need a lot more talking…..

  2. “5.4 per cent of gdp in 2008 to 24.3 per cent now. The deficit peaked at a record $18.3 billion in 2011.” Sloppy use of statistics. What was the percentage of GDP in 2011, or what were the dollars in 2008 and 2017?

  3. Spend and hope, and no doubt too much frivolity, misplaced charity and inessentials. What would happen if I ran my household like that?

    • Blazer

       /  May 22, 2017

      that is a tired and thoroughly discredited line..i.e running the country like a…household.Private debt is colossal…all the same.

      • Not at all discredited. My household has a limited income so I have to control my expenses. Taxes should only be regarded as an accepted necessity for necessities, not as an endless source of funds for ill-considered pet projects.

        • Blazer

           /  May 22, 2017

          pet projects…like the ..’heads you win,tails taxpayers lose..Peter Thiel ‘partnership’….thanks Joyce,you have NFI.

          • High Flying Duck

             /  May 22, 2017

            That was under rules Cullen put in place – Joyce changed the rules to stop it happening again…as has been noted previously.

            • Blazer

               /  May 22, 2017

              OH NO…Labour’s fault!!Labour had NO input regarding this deal,Joyce was told not to do it,but it became all his own,work.Even made Thiel a citizen,no problem,must have made a donation.Joyce is the king of crony deals…media works..anyone!

            • High Flying Duck

               /  May 22, 2017

              “The NZVIF said the buyback option had been a standard part of its investment partnership since 2002 and was intended to encourage private-sector involvement.

              “Rather than making an investment return, NZVIF’s primary role has been to develop market activity, participation, awareness and capability,” a spokesman said.”

              The deal with Thiel was entered into in 2011 without ministerial input.

              Joyce was warned in 2014 – 3 years AFTER the deal had been entered into “that the optics looked bad”. The warning came as part of a Government commissioned review – and on that advice, the clause was ceased immediately and then removed to stop it happening again.

            • Blazer

               /  May 22, 2017

              what deals under these rules did Labour initiate that had the result of further enriching a very wealthy….individual/’partner’?

            • High Flying Duck

               /  May 22, 2017

              I believe there were many deals with the clause included, but Valar were the only company to use it. Not really relevant to the discussion though…

        • The counter argument is that governments are not like a household because like a bank they can create money. Steve Keen will argue that in any growing economy you need to increase the money supply, i.e. to avoid a rise in the cost of money through the interest rate, and governments should do part of this heavy lifting. Also, running a deficit means withdrawing money from the system, which has a multiplying effect just like when money is created. So a government running a $50 billion deficit is pulling $100 billion or more from the system. The timing is also important as you could justify doing this when there’s a boom but not while the economy is struggling…

        • Further, it’s not just tinfoil-hat, nut-job economists like Steve Keen who recognise the roll banks have in “creating” money but also the Bank of England – see http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

          • High Flying Duck

             /  May 22, 2017

            Yes, Bryan Gould made a meal out of this one.

            From the report:

            “Although commercial banks create money through lending,
            they cannot do so freely without limit. Banks are limited in
            how much they can lend if they are to remain profitable in a
            competitive banking system. Prudential regulation also acts
            as a constraint on banks’ activities in order to maintain the
            resilience of the financial system. And the households and
            companies who receive the money created by new lending
            may take actions that affect the stock of money — they
            could quickly ‘destroy’ money by using it to repay their
            existing debt,”

            Banks are limited in what they can lend, and the money supply is constrained within the limits imposed by the central banks.

            The reason we are seeing longer term interest rates rise in NZ at the moment is due to banks not having enough deposits to be able to lend, so they are having to obtain funds from offshore at higher rates.

            If they could “create money with the stroke of a pen” none of this would be necessary.

            Of course banks have a role in money supply and money multipliers, but it really doesn’t take much looking around to see that this is a limited role with very real limits imposed.

            • High Flying Duck

               /  May 22, 2017

              He rehashes his own previous article and basically says exactly what I just said but with a cynical bent, and ignoring the restraints on monetary creation.

              The report he quotes from quite clearly states, on numerous occasions that the central bank is the ultimate arbiter of how much money circulates and can be lent out by the banks.

              This argument is devolving into semantics.

      • High Flying Duck

         /  May 22, 2017

        Blazer, if you are referring to that funny little video you posted, it really didn’t offer anything other than “Surpluses are bad so…free tertiary education!”
        Governments shouldn’t run big surpluses – that is taking money they don’t need. They should take exactly what is needed and no more.
        There is a case to be made for running deficits that keep debt at a constant level as a % of GDP, but ever increasing deficits proportinate to Govt revenues lead to Greece and Venezuela – the currency becomes worthless and no-one wants to invest.
        The one exception to this is the USA, as they have the world currency and therefore the currency is kept up due to other forces.
        The question is – is it really a surplus when the Government has debt that needs repaying?

        This Government kept the funds flowing for social services at the same time as funding massive rebuilds and infrastructure spending after the GFC and earthquakes and were criticised for it by certain quarters.

        As your video correctly asserts, this spending kept the economy primed and meant we came out of the GFC far quicker than most.

        Now that economic growth has turned the deficits around, the extra debt can be repaid, tax thresholds moved and Government spending increased. All good right wing policies, and hopefully all included in Thursday’s budget.

        It’s funny that after 9 years of Grant Robinson trying to paint National as profligate spenders with no regard for keeping the books in order, he is now having to promote a far more ‘relaxed’ attitude to fiscal prudence so that they can meet the “everything free for everyone always” Green policies.

        Just to be complete on that video – making things artificially “free” tends to lead to great inefficiencies – unqualified people enter courses, Universities become overcrowded, resources are unnecessarily stretched and rationing is required. Quality suffers.

        • Blazer

           /  May 22, 2017

          who caused the GFC?Too funny,Steve Keen and Michael Hudson are respected economists who eat politicians…for breakfast.

          • High Flying Duck

             /  May 22, 2017

            GFC was caused by…politicians legislating to make loans available to people who shouldn’t have been allowed them (thank you Democrats), dodgy financial instruments and…too many people running deficits!

          • High Flying Duck

             /  May 22, 2017

            And I was commenting on that particular video, which was a very once over lightly which said surpluses are bad and that free education something with no other context.

            It also neglected to mention the policies they derided were put in force due to the fact countries like England (and NZ under Muldoon) were on the brink of complete financial collapse due to borrowing too much and those policies saved the country and put them on a sound footing again.

            But then again, if you ignore reality pretty much all left wing thinking has merit.

            They could be brilliant minds, but they don’t know how to put together a complete video…

            England pre-Thatcher:

            We must not, of course, judge the pre-Thatcher decade purely through the particularly bitter months of the 1978/79 winter of discontent alone. The Seventies were not all bad. But the overriding sense was of living in a country that had lost its way. One newspaper welcomed in the new year of 1977 with the observation that “Britain is a country that resents being poor, but is not prepared to make the effort to be rich.” It was a sentiment shared by the Sex Pistols’ snarl, “There’s no future, in England’s dreaming.”

            “The country in the mid-1970s had witnessed the strikes and power shutdowns of the “three-day week”, a stock-market crash, a secondary banking crisis, tough credit controls and the humiliation of its begging mission to the IMF for a loan. “Britain is a tragedy” Henry Kissinger, the US Secretary of State, lamented to President Gerald Ford, “it has sunk to begging, borrowing, stealing.”
            It had also resorted to high taxation. By the decade’s end, the standard rate of income tax was 33 per cent, the upper rate, 83 per cent. Businesses were hit by corporation tax at 52 per cent. Talent voted with its feet, bringing the expression “brain drain” into vogue.
            There was also the threat of hyperinflation and the incomes policy devised to combat it. Government and union leaders met and fixed nationwide pay “norms” that not only determined maximum pay rises for the 30 per cent of the workforce who were in the public sector, but also for many in the private sector, too.
            Many medium- and large-sized private companies were legally obliged to send proposed price increases to the Price Commission, whose civil servants would rule on whether to approve the rise according to a wage-to-price rise formula laid out in its Price Code.”

            • Blazer

               /  May 22, 2017

              and New Zealand had the highest standard of living in the 60’s.The root of economic cycles is the behaviour of private central bankers and their political influence….history proves it time and …again,recessions,depressions,ideological panceas that all rely on….protecting the born to rule…class.

            • High Flying Duck

               /  May 22, 2017

              Hmmm, so the fact the commodities boom ended, our protectionist economy made us fall further and further behind in efficiencies of production and import restrictions led to a spiral on inflation were not the cause? – it was private central bankers!

              “The collapse of the Korean War commodity boom, in the early 1950s, marked an unfortunate turning point in New Zealand’s economic history. International conditions were unpropitious for the pastoral sector in the second half of the twentieth century. Despite the aspirations of GATT, the United States, Western Europe and Japan restricted agricultural imports, especially of temperate foodstuffs, subsidized their own farmers and, in the case of the Americans and the Europeans, dumped their surpluses in third markets. The British market, which remained open until 1973, when the United Kingdom was absorbed into the EEC, was too small to satisfy New Zealand. Moreover, even the British resorted to agricultural subsidies. Compared with the price of industrial goods, the price of agricultural produce tended to weaken over the long term.

              Insulation was a boon to manufacturers, and New Zealand developed a highly diversified industrial structure. But competition was ineffectual, and firms were able to pass cost increases on to the consumer. Import barriers induced many British, American, and Australian multinationals to establish plants in New Zealand. The protected industrial economy did have some benefits. It created jobs – there was full employment until the 1970s – and it increased the stock of technical and managerial skills. But consumers and farmers were deprived of access to cheaper – and often better quality – imported goods. Their interests and welfare were neglected. Competing demand from protected industries also raised the costs of farm inputs, including labor power, and thus reduced the competitiveness of New Zealand’s key export sector.

              By the early 1960s, policy makers had realized that New Zealand was falling behind in the race for greater prosperity. The British food market was under threat, as the Macmillan government began a lengthy campaign to enter the protectionist EEC. New Zealand began to look for other economic partners, and the most obvious candidate was Australia. In 1901, New Zealand had declined to join the new federation of Australian colonies. Thus it had been excluded from the Australian common market. After lengthy negotiations, a partial New Zealand-Australia Free Trade Agreement (NAFTA) was signed in 1965. Despite initial misgivings, many New Zealand firms found that they could compete in the Australian market, where tariffs against imports from the rest of the world remained quite high. But this had little bearing on their ability to compete with European, Asian, and North American firms. NAFTA was given renewed impetus by the Closer Economic Relations (CER) agreement of 1983.

              Between 1973 and 1984, New Zealand governments were overwhelmed by a group of inter-related economic crises, including two serious supply shocks (the oil crises), rising inflation, and increasing unemployment. Robert Muldoon, the National Party (conservative) prime minister between 1975 and 1984, pursued increasingly erratic macroeconomic policies. He tightened government control over the economy in the early eighties. There were dramatic fluctuations in inflation and in economic growth. In desperation, Muldoon imposed a wage and price freeze in 1982-84. He also mounted a program of large-scale investments, including the expansion of a steel works, and the construction of chemical plants and an oil refinery. By means of these investments, he hoped to reduce the import bill and secure a durable improvement in the balance of payments. But the “Think Big” strategy failed – the projects were inadequately costed, and inherently risky. Although Muldoon’s intention had been to stabilize the economy, his policies had the opposite effect.”

            • Blazer

               /  May 22, 2017

              yes the National P.M Muldoon had NFI either.Of course it is bankers,and their wars and controls on money supply,interest rates and finance allocations to various sectors that impact on the economy.Trump is trying to wind back the clock to a programme like this…’ Import barriers induced many British, American, and Australian multinationals to establish plants in New Zealand. The protected industrial economy did have some benefits. It created jobs – there was full employment until the 1970s – and it increased the stock of technical and managerial skills. ‘.Jobs and tax are the lifeblood of the economy…..the Economist on Karl Marx…'”The essence of his argument is that the capitalist class consists not of wealth creators but of rent seekers – people who are skilled at expropriating other people’s work and presenting it as their own.”

              With great sadness, The Economist goes on to find much evidence to support this, including the super-size of executive pay packets and the trend in politicians turning “gamekeeper to poacher” on retirement.

              Several of Marx’s other predictions, including the increasing concentration of market power among a few firms and the rise of a powerful and crisis-prone finance sector, are also standing the test of time.’

            • High Flying Duck

               /  May 22, 2017

              I see the argument – and there is no doubt there are many many issues with the current system.

              But Muldoon came into power and took the actions he did because of the existing problems. He didn’t cause them – but he did make them worse by trying to fix them.

              The focus on jobs led to more and more of the population working unproductively for the Government.

              This is why some form of capitalism is required – it creates innovation and should lead to the most efficient use of capital – including human capital.

              I agree there is an issue with the accelerating accumulation of wealth by the few. It reaches a level where it is very destabilising for society, causes disenfranchisement and removes peoples rights to self determination.

              There is unrest, but I don’t think we have reached a tipping point in this area yet.

              I think we are going to see the emergence of more “wealth taxes”over time, and probably a return to estate taxes. Maybe money supply can be changed, but it is a very complex beast and asset price inflation is but one part of it, so whether there is an easy fix in this area is beyond me.

              Good discussion – thanks!

  4. In my mind, we need a thorough review of neoliberal monetary economics that form the backbone of the economy because there are some key assumptions which could be leading us down the garden path, so to speak. For one, the assumption that a growing debt mountain is not a great problem because one person’s liability is another’s asset is false in a modern economy where money is created by banks. Basically, there is no underlying asset propping up the system other than some loose guarantee that it would be unlikely for all depositors to want their money at once or for more than 5% of borrowers, say, to default. Another problem is financial repression and the poor risk allocation brought about by artificially setting interest rates. Lowering interest rates is a direct wealth transfer from savers to borrowers, which appears crazy when savings are meant to be integral to a healthy economy and where certain groups such as retirees and aspiring homeowners are dependent on them for some sort of monetary return. The policy is meant to encourage people to take risks by borrowing money to invest but this is just plain dumb if too much debt is the problem to begin with, if investors are not being rewarded for the risk they are taking, i.e. interest rates are meant to be a price signal which the market sets not a central institution, and if the debt is being spent on housing which is a consumer good.

  1. Labour targeting social and infrastructure deficits, not financial – NZ Conservative Coalition