A new commenter has appeared on the scene recently at Keeping Stock. Edward the Confessor takes a different stance on many issues to that which we do, but at least he is prepared to debate issues rather than personalities, which is refreshing.
But he made this comment this morning on Sunday's post about the sale of SOE shares:
Clearly, Edward the Confessor has a problem with medium-term memory loss; a common enough affliction for those who cheer-lead for Labour. Either that, or he jests.
Because far from leaving New Zealand with "the healthiest set of public accounts in the western world", Sir Michael Cullen's legacy to New Zealand was rather less flattering. Here's how Stuff reported the Prefu announcement in September 2008, just as the election campaign began:
National Leader John Key says Finance Minister Michael Cullen must take responsibility for the state of the books, but Prime Minister Helen Clark says Labour is the right party to guide New Zealand through the economic storm.Releasing the Pre-Election Fiscal and Economic Update (Prefu) ahead of the November 8 election, Treasury predicted much larger cash deficits than forecast, ending nine years of a golden run for Dr Cullen.Mr Key said the cash deficits were an indictment on the Government's handling of the economy."After nine years of a Labour government we are now presented with a decade of deficits and quite frankly New Zealand can not afford Michael Cullen's high spending low growth programme."He said Miss Clark and Dr Cullen had to take responsibility for squandering nine years of economic growth.
But wait; there's more. The Herald reported this just a week after the 2008 election:
On Thursday, Treasury painted a very ugly economic picture for the incoming National government with cash deficits increasing, growth shrinking, tax revenue diminishing and unemployment rising.Prime Minister elect John Key was told the economic outlook had deteriorated further since the pre-election fiscal update. He did not go into detail then, but told reporters the scenarios were "a little bit" worse than they had been. "They are more pessimistic but I wouldn't describe it as Armageddon."Also on Thursday, outgoing Finance Minister Michael Cullen released a Treasury economic update given to him on November 7 - the day before the election. This would have formed the basis of the briefing to Key and his incoming finance minister Bill English.The main finding in the report was growth levels are likely to be hit even worse by the global financial market turmoil. The economy would suffer from weaker export demand, lower commodity prices, lower housing values and weaker confidence.
How quickly inconvenient truths are forgotten. Far from being "the healthiest set of public accounts in the western world", the New Zealand economy was already in freefall prior to the 2008 election. Even during the period of the campaign itself, the state of the economy deteriorated markedly whilst still under Cullen and Clark's stewardship.
27 comments:
OK, I'll bite. This must really rip your nightie, but we had practically full employment and net public debt as a % of GDP was what? Around 0.
You should write Cullen a thank you note, given that New Zealand was in remarkably good shape to weather the GFC and earthquakes. However, you guys had been shrieking about tax cuts for about a decade while the debt was being paid down. That really would have screwed us al la Greece. In addition the government's economic strategy since 2008 has been pretty much absent, and now we're just drifting along hoping that something will save us. Sad really, given where we were.
As for the railways, well if Richardson hadn't botched the privatisation the re-purchase wouldn't have been needed, so take it up with her.
Can someone please remind me which country led the world into the GFC? Which country was in a recession a full 8 months before the Lehmann Bros collapse?
An unrelated and irrelevant factoid Gantt. Our economic cycle has nothing to do with the GFC, which was caused by insufficient regulatory oversight of the US financial sector under Bush. Odd that you would think it did.
The GFC greatly exacerbated our own economic problems; it was caused by the ineptitude of both Republican and Democratic presidents.
While it has to be accepted that there was a huge international economic meltdown and there were bound to be some direct effects on New Zealand, I do think National has missed opportunities.
New Zealand did not suffer from a banking collapse and although some dodgy finance companies cost a bit (the SCF bailout cost every NZr $440) we were actually in a better position than most nations. Over the last two years our largest companies and our wealthiest NZrs have seen their profits increase by an average of 20% http://localbodies-bsprout.blogspot.co.nz/2011/06/median-wage-drops-while-company-profits.html
At the same time wages have not kept up with increases in productivity and the real value of our median income has dropped considerably. The minimum wage is so low that most have to receive government support to survive, we now have a huge group of "working poor". While the rich get richer the poor get poorer.
I heard an economist on National Radio the other day explain what needs to be done to rescue the US economy, he reckons if a plane flew over the states dropping money, then people would have some thing to spend, the domestic economy would recover and kick start a recovery. Instead trillions were given to banks and the money went nowhere (paid debts to other banks and provided bonuses for the bakers themselves).
During the New Zealand 1930s depression George Forbes tried to balance the books by cutting spending and reducing the numbers of civil servants, it added to a downward cycle of unemployment and economic failure. The Napier earthquake didn't help.
When Michael Savage came into power he immediately increased wages and strengthened the unions. He invested in much needed housing and 50% of our current state housing stock was built in this time. Savage also supported public broadcasting and invested heavily in education. The domestic economy boomed and New Zealand quickly lifted itself out of the depression.
I think we need to take a similar approach again, the most successful initiative that the National led Government has supported is the Green's home insulation scheme, for every dollar invested it returned $1.40. It provided jobs, improved living conditions and peoples health and children in good health tend to perform better at school.
This government's flagship scheme is the $12 billion roads of national significance. We have already spent $200 million on consultants with little achieved and it has been revealed that most roads do not stack up in a cost benefit analysis.
The New Zealand Institute's Report Card (supported by the Business Round Table) reveals that the areas we are failing in are not being addressed at all and yet the areas where we are most successful, like education, are getting all the attention instead. http://www.nzinstitute.org/index.php/nzahead/
We have the amongst the poorest levels of child welfare and family wealth in the OECD and the fastest growing income inequity. While 50% of our children experience poverty at some point in their lives the housing market at the top end is booming and spending on luxury cars hit around $2 billion last year.
While I don't agree with Edward when he claims things were all good under Labour, National has not addressed the areas where we most need attention and is following George Forbes' failed policies. We should learn from history!
I don't claim that things were all good under Labour, but it's obviously false to claim all economic ills are their fault, when they left the country with nil net public debt and the current administration are so clueless.
With respect bsprout, you over-simplify the argument on the minimum wage. Most jobs in New Zealand are in small or medium sized businesses, and they are the ones who felt the effects of the GFC and the attendant recession the most sharply. To arbitrarily demand that they increase wages across the board by 15% (that would be the effect of an immediate rise in the MW to $15/hr, once margins between jobs were considered) would be catastrophic for many small and medium businesses, especially in the retail and hospitality areas. There would undoubtably be job losses as a result. Even for our business, which has an annual wage bill of around $1m, we would have to look at staff numbers if we were faced with an instant $150k pa increase in our wage bill.
PS: We don't actually employ any staff on the MW; we value our staff more than that!
"Most jobs in New Zealand are in small or medium sized businesses"
That's incorrect. Most jobs are with large employers. Most employers are small and medium-size, but that's not the same thing at all.
Cheers for clarifying that Edward; I knew what I meant to say!
I find it wildly amusing that people suffering from Bush Derangement Syndrome still blame him for the GFC. A short history lesson will reveal that the GFC was caused primarily because of housing loans given in the US to people who had no ability to repay them. Why did banks loan mney to people who couldn't repay it? The government forced the, to. The root cause is a little piece of thermo-nuclear waste called the Community Reinvestment Act, which was passed under Carter and massively ramped up by Slick Willy.
But back to NZ, it is an indisputable fact that NZ entered a recession well before the rest of the world. It is also an indisputable fact that although the Klarkenfuhrer and her deranged Goebbellian finance minister left NZ was no nett public debt, they also wasted $1 billion on a train set, bribed the middle class into welfare dependency (via WFF and interest-free student loans), and massively increased the size of an already-bloated government payroll. None of which John Key has had the stones to address.
Bwhahahahaha! Thanks for that Gantt. Not sure which one of your paragraphs is more deranged. The first one's good though! Poor wee banks, forced to borrow all that cheap money from the Chinese and then create and sell all those CDOs and mortgage derivatives and the poor put upon ratings agencies that were forced by the government to falsely rate the CDOs and derivatives as investment grade! All Carter's fault, even though none of those financial instruments existed during the 1970s. Surely you can blame Obama somehow too though? You're not trying hard enough.
Anyhoo, I see Godwin has paid a visit. You're right though, Clark and Cullen are just like Hitler and Goebbels. Get hysterical much?
Way to obfuscate the point, dickhead. Wich was that the CRA forced the banks to loan to people who had no ability to repay. What, you expect the banks to make the loans under duress and then take the loss on the chin?
What a wonderful misinterpretation of Godwin's Law. You've clearly no idea what it is or how it is applied. Moron.
And try to argue the point. I told you why NZ has such economic problems. Clark and Cullen spent like drunken sailors on shore leave between '05 and '08, and Key is too weak to roll it back.
Are you sure you're not Sludge by another pseud?
KS-With respect, it is large companies that can afford to pay more who don't and small employers like yourself who tend to pay above the MW when they can least afford to. Most people on low wages spend any increases they have into the local economy and therefore boost profitability of small and medium sized businesses. It isn't simplistic thinking at all, keeping a cap on wages and cutting jobs just supports a downward cycle and kills the domestic economy.
Roosevelt's New Deal worked and so did Savages approach.
Sprout, the New Deal policies have been perverted beyond all recognition. To the point where social security, Medicare and Medicaid are sending the US and many of its states into penury.
And as for Savage, I don't think his vision for a social welfare included travesties such as WFF, interest free student loans and the DPB as a career choice!
New Zealand's economy suffered from a poorly regulated property market which contributed to huge private debt and a shift away from investment in the productive sector. Many of my business friends made their money from gains in property investment which supported their core business.
The reason why our government is borrowing heavily is because they are not gathering enough revenue to pay for core services and infrastructure. When most New Zealanders earn less than $30,000 (median income $28,500) and many are relying on govt support to survive, we have a minimal govt revenue coming from most incomes. Cutting the tax to the richest meant we are losing $800 million a year of possible revenue and most wealthy earn 40% of their income on largely untaxed capital gains anyway. We bank with Australian banks who drag huge dividends across the ditch and it needed millions spent on a legal to drag back $2 billion in owed taxes. Rather than ensure we increase revenue from those who should pay more, and can afford to, this government is leaning on those who have the least instead.
US National and state governments cannot support basic services and infrastructure because the tax burden is on the middle an low income earners. Mit Romney has admitted he only pays 15% as a multi millionaire. The Greek economy died because of tax avoidance and poorly regulated banks.
The Scandinavian economies have been the most resilient over time and they have greater equity of incomes and the tax burden is shared equitably too. New Zealand's high income earners pay much less tax than in Australia and our poor pay more.
For Gantt to imply that our economic woes are because of the DPB and student loans when both costs are a fraction of what Australian banks owed in tax is just buying into the scapegoat scam that avoids the real issues. I find it interesting that comments on these blogs are more likely to complain about the drain on the economy from solo mothers and students than our corrupt financial institutions. 61% of mothers with children under a year old work, one of the highest levels of working mothers in the OECD.
Correction of a sentence above: "and it needed millions spent on legal action to drag back $2 billion in owed taxes"
My, my what an aggressive wee man you are Gantt. Unfortunately that doesn't make you any less deluded.
"the CRA forced the banks to loan to people who had no ability to repay. What, you expect the banks to make the loans under duress and then take the loss on the chin?"
That wasn't what caused the GFC. What did was the fact that the lenders weren't bearing the risks for the loans they were writing, as they were bundling them up and selling them.
"What a wonderful misinterpretation of Godwin's Law"
Wrong again Gantt. You made a direct comparison to Hitler and the Nazi's buddy. Pretty straightforward Godwin.
"I told you why NZ has such economic problems. Clark and Cullen spent like drunken sailors on shore leave between '05 and '08, and Key is too weak to roll it back."
That's not why NZ has economic problems. Interest free student loans is probably not a great initiative, but tax credits for working families are a feature of almost every western tax system and are a good idea. Australia's are far more generous.
Keep it seemly please gentlemen!
Those two pieces you quote from the media, KS, do very little to support your main contentions. The first one begins with "National leader John Key says.." now who on earth is going to believe him? The next piece has his angle all over it too.
You are really in a very negative mode lately. Nasty, wrongheaded and a little obsessive. Is everything ok? Do tell. Are you in mantrol? Or are you filling a brief from HQ? heh, it's pretty obvious to us.
It's pretty obvious to us that the propagandists are out in force.
Ed - so the CRA that created toxic debt is not the precursor to the GFC? I have a bridge you might like to buy as well. It's pretty clear that government legislation meddling with the market stuffed things globally.
New Zealand was the canary in the mine that was the first to suffer from the initial stages of the GFC. The credit crunch started when our finance companies could no longer get cheap credit from offshore. From then on we were toast.
Lack of regulation was, and is, not the cause of our housing boom. It is the current regulation that limits supply and so increases prices. Any more of the legislation the likes of the watermelons want will only exacerbate the bubble. But hey, those that want to control the populace don't care. They're too hungry for power.
And sprout what were Savages words again? Oh that's right - something about the strands of welfare being tight like a trampline not slack like a hammock to trap people in poverty. Take a good look at the poverty trap that is Welfare for Families and other Liarbour election promises.
You've got to think seriously about the moral compass of those who suggest more bribing people with their own money is the answer.
Paranormal
"It's pretty obvious to us that the propagandists are out in force."
You sure are!
"so the CRA that created toxic debt is not the precursor to the GFC?"
It had practically nothing to do with it. It had been around since the 1970s without causing a financial crisis. Most of the toxic loans had nothing whatsoever to do with the CRA, and were a consequence of a lack of regulatory oversight and poor behaviour by the lenders, investment banks and credit ratings agencies. Sorry.
"New Zealand was the canary in the mine that was the first to suffer from the initial stages of the GFC."
That's simply false. New Zealand's economic cycle and the GFC were completely independent. What's your evidence for this?
"Take a good look at the poverty trap that is Welfare for Families and other Liarbour election promises."
Hang on a second, you guys keep saying that tax credits for working families are middle class welfare. So they're a "poverty trap" now. Can't have it both ways.
Edward, what colour is the sky in your world?
What do you think the financial instruments consisted of that the foreign banks purchased and the credit agencies rated? It was the market trying to deal with the toxic debt created by government meddling.
As noted by Gantt above Clinton extended the powers of the CRA so banks were required to give loans to people who couldn't afford them. What do you thnk 'sub-prime' market meant?
The canary analogy is accurate. If you recall there were finance copmpanies in trouble late 2006 that were able to access cheap captial offshore so were able to sell their loan book and pay back investors. The cheap offshore capital dried up in 2007 and was the precursor to the GFC. We were directly affected by lack of capital globally due to the onslaught of the GFC that destroyed capital.
Now lets get real on WFF. If they were 'tax credits' they would be handled through IRD at source. They are welfare payments to middle class workers designed to restrict the incentives for the individuals to earn more - hence the welfare trap. If as a Welfare for Families recipient you earn more than expected during the period you are hit with a punitive lump sum to pay back at the end of the period.
They are a prime example of how our welfare system is a poverty trap by incentivising people to accept less than they can become.
Paranormal
"It was the market trying to deal with the toxic debt created by government meddling."
That's simply false. The market got itself into the mess through the incentives the financial instruments created to lend without thought to the risk.
As for your canary in the mine silliness, that's an admission the CRA had nothing much to do with the GFC. In this you are for once correct.
WFF are tax credits for working families, similar but not as generous as those on offer in Australia and elsewhere in the western world. That's why the Nats have left them alone. Deal with it.
Again your logic fails. The debt instuments were all repackaged toxic 'sub-prime' mortgage debt that was a direct result of the CRA. Suggest you deal with it rather than attempting to spread misinformation.
You saying it is false doesn't make it so, no matter how many times you say it.
Ed you are a Liarbour propogandist? How can welfare payments from social welfare be considered tax credits? The IRD doesn't handle them for a start. WFF is welfarism taken up through society to buy votes. Pure and simple.
Paranormal
You obviously have no understanding at all of the GFC or it's causes because you keep repeating the same far right-wing talking point over and over again, as if doing that makes it true. Sorry chief, it won't. Hardly any of the toxic loans were a consequence of the CRA. That's idiocy. They were bad loans because the lenders had no incentive to make sure they were sound as they were selling them to one another other as investment grade securities. Poor regulatory oversight was the ultimate cause. You must hate that for some reason as you're pretending it didn't happen.
"How can welfare payments from social welfare be considered tax credits? The IRD doesn't handle them for a start"
Um, yeah they do. IRD oversee the whole thing. They're straightforward tax credits for working families. You should be in favour of them. As for being a "Liarbour propogandist" whatever that is, the Nats run the show now. They haven't done anything to the tax credits because the work.
Edward, you have intentionally failed to understand the cause of the GFC to provide your own socialist 'capitalism is broken' talking points. Why were banks giving loans to people that couldn't afford them? Because governemnt legislation said they couldn't decline loans to people that couldn't afford them. That's what came first no matter how you try to spin it. What happened after that was as s direct result of having toxic debt on the balance sheet that had to be removed. Really simple stuff. The real concern moving forward is that this structural flaw has not been fixed. It will happen all over again. The real concern is the likes of your political blindness is going to allow it to continue with obvious long term consequences.
You are obviously a Liarbour propagandist suggesting Welfare For Families is a Tax Credit. It was originally administered by MSD. You originally had to apply to MSD for the WFF payments. In a move of Machiavellian political cynicism Liarbour changed it to the IRD to try and give it the credibility you are valiantly trying to continue. If it was a ‘tax credit’ why is it in the form of a payment. If it was a tax credit it would be deducted off an individuals PAYE tax bill at source.
As for National, see comments above re cojones. I’m more than comfortable with an efficient system to provide actual tax credits to families. The thing is – Welfare for Families is not that.
Paranormal
"Why were banks giving loans to people that couldn't afford them? Because governemnt legislation said they couldn't decline loans to people that couldn't afford them."
That's simply incorrect. They were giving out loans because there were financial instruments designed to allow them to avoid the risk from those loans, that were being rated incorrectly by the ratings agencies. They all went crazy as a consequence. The CRA had nothing to do with it, no matter how many times you repeat that far right-wing talking point. They were lending money voluntarily because poor regulatory oversight made it in their best interests to do so.
The tax credit system allows for tax reductions for working families and is administered by IRD. You're confused. You should be in favour of it, it reduces the amount of tax working people with children pay. Although, compared to Australia's it's not that generous.
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