How a barely-known and bi-partisan mantra to keep Government debt and the tax share of GDP under 30% of GDP is starving our economy and society of investment; Low investment culture now being exposed
Great work, Bernard. But, sensu strictu, the ‘30:30 mantra’ is not a mantra (which is a word or phrase chanted so frequently as to become meaningless) but a shibboleth, which is an idea that goes without saying and is never called into question - except when some clever person like you interrogates it and finds it to be empty, meaningless, out-dated or, as in this case, extraordinarily unhelpful. Because of the 30:30 shibboleth, we New Zealanders cannot have a sensible conversation about what sort of society we want to build. It’s why Jacinda looks sad and empathetic about child poverty but does little to improve it. It’s why the poor go unhoused.
I am not a Labour Party member and certainly not an apologist for the Labour Party, but it is a matter of historical record that the First Labour government set up the welfare state, built houses, and had a vision of a more equal and more just society. They didn’t manage to achieve that on 30:30. The Fourth Labour government systematically destroyed that and betrayed the poor. The 30:30 shibboleth has been with us ever since and, as you have eloquently pointed out, constrains our thinking to this day.
Keep talking! What would be more reasonable? A 40% state and up to 60% debt?
Do you think that “the chickens are coming home to roost” with our chronic government underspending anytime soon? Or do you think just we’ll keep ambling along as usual?
I think there is merit in your message about using debt to adress long term issues. This deserves more public debate. The big problem we face is that Labour seems incapable of making sound long term decisions, they dont think far enough ahead, they are constantly diverted by consultants reports and throw money at vanity projects without a CBA then try to justify bad decisions with more and more spin. Valid projects like Kiwibuild die of poor execution while we waste billions on bike bridges, lockdowns and light rail. In the past National has been far better at managing costs and execution, but of course they have a new and unproven team after the last big cleanout. I am appalled at how badly NZ has done economically over the last 25 years. We need a radical reset but Im not seeing the leaders who will guide us through.
It's madness. There is no shortage of money. Money is a digit in a computer database. It's just a number. But somehow the human mind makes constant reference to these numbers to decide whether we can do something or not. We are being controlled by a bogus story and sometimes people literally die as a result. The other species on the planet simply go about living their lives, but humans have to have numbers to operate. It's an invention, very unnatural, and who are the people who insist that this is how we must behave? The debtmongers, and they have to be stopped. The government must step in with massive debt-free spending to resolve NZ's problems, it's the only way. Enough with the shibboleths!
Bernard, any chance of a back of the envelope summary of wasted Gov spend? You’ve highlighted wage subsidies and potential excess, overspend with QE and other readers have touched on wasted projects (consultants for planned Harbour Bridge crossing etc). I’d argue $10s of billions have been misspent in 5-yrs. Any need for more taxation, or rather better directed spending?
Oh, the dig at the MP by the English teacher? Fail. I’d argue the MP has traveled more, earned more and garnered more success than the teacher.
FYI I've opened it up now. I have some work to convince about a dozen subs this is a good idea. But majority in favour. Many thanks to you all. And feel free to share now.
Hi Bernard - Im amazed that all through this item you talk of the impact of population growth - but this is a self inflicted wound - we have been "subsidising" this "big New Zealand" mantra for 30 years by not investing in the true cost of population growth. Also this growth has caused consumption to grow but productivity to flat line - we still pay for our imports with a variation on the same bunch of agricultural exports that we did when the country's population was half its present size - our overheads have more than doubled but our income at the border has stayed flat - that is why we are so poor - we have also had a "cheap labour" emphasis on our immigration program and these migrants require more social support from the state - effectively a subsidy on cheap labour - this is ongoing - only need to read the whining in the media from the tourism and dairy industries to see this playing out today. We need to question why we are pursuing this population growth strategy when it is so clearly detrimental to NZ society and the economy. Perhaps we also need to make it harder for skilled people to leave or - even better more attractive for them to stay how about starting by reintroducing a concept that disappeared 30 years ago of providing free tertiary education in return for bonding the graduate for five - ten years until the community investment is recouped.
I totally support this podcast being made public. I'm stunned to find barely anyone I know is aware of the PFA & it's implications. Education is essential.
Bernard, could you please explain what you mean by median voter?
"When the authorities are stupid, they will tend to side with the stupid children and acquiesce, at least tacitly, in rough treatment for those who show intelligence. In that case, a society will be produced in which all the important positions will be won by those whose stupidity enables them to please the herd."
"Children are instinctively hostile to anything ‘odd’ in other children, especially in the ages from ten to fifteen. If the authorities realize that this conventionality is undesirable, they can guard against it in various ways, and they can place the cleverer children in separate schools. The intolerance of eccentricity that I am speaking of is strongest in the stupidest children, who tend to regard the peculiar tastes of clever children as affording just grounds for persecution. When the authorities also are stupid (which may occur), they will tend to side with the stupid children, and acquiesce, at least tacitly, in rough treatment for those who show intelligence. In that case, a society will be produced in which all the important positions will be won by those whose stupidity enables them to please the herd.
Such a society will have corrupt politicians, ignorant schoolmasters, policemen who cannot catch criminals, and judges who condemn innocent men. Such a society, even if it inhabits a country full of natural wealth, will in the end grow poor from inability to choose able men for important posts. Such a society, though it may prate of Liberty and even erect statues in her honour, will be a persecuting society, which will punish the very men whose ideas might save it from disaster.
All this will spring from the too intense pressure of the herd, first at school and then in the world at large. Where such excessive pressure exists, those who direct education are not, as a rule, aware that it is an evil; indeed, they are quite apt to welcome it as a force making for good behaviour."
We are forcing wage increases on businesses by making this a visa condition. The consequence is businesses close and jobs go offshore. More locals on the benefit and less tax to collect. If the government was serious about this they would ban imports which had lower wages embedded or tax them to make up the difference. Of course nobody would think that stacks up in 2022, but still we persist with excessive state intervention back home.
Jul 12, 2022·edited Jul 12, 2022Liked by Bernard Hickey
Hi Bernard
Kinda simplistic question but surely the route out of the 30/30 problem is to increase the govt revenue stream, by increasing taxation as a percentage of GDP?
We can of course follow Mr Key's approach of setting NZ up as a low wage economy, with low taxation and minimal infrastructure. But if we want better public services surely the only real solution to that is to increase the tax take at both national and local levels.
I'm not sure I understand why New Zealand is so focused on being a low taxation country.
Bernard, I wouldn't open up your article on the '30/30 mantra' today because it's an opinion that for the debt part it would be hard to defend among experienced public servants and economists - and the hyperbole/inappropriateness of the word 'mantra'. Your graph shows that core crown net debt was around 10% when the GFC it in 2008 and served its purpose as it went out close to 30% while public countercyclical spending supported jobs.
NZ has an enormous burden of private debt to GDP, at least triple the public debt, and this in itself is a risk to the country. A small part of the reason it has been agreed by pollies since the late 80s that having a 'shock-absorbing' target around 30% (adj for today's definition) is our private failing to save. But the main reasons are first, the fact that at around 30%, as it grows in size as GDP grows in size, on our average growth and reasonable interest rate assumptions, servicing remains a similar proportion of Govt revenue. And second, we are a very vulnerable economy, in terms of our export revenue, viewed from a lender's perspective. We have a narrow export base, vulnerable to disease and customer whim, and it's these receipts that pay debt. We have found this 30% mid-point and a political commitment to it delivers us debt at almost the cheapest rate possible, but if we decided we'd like it higher (remember, if we did, it would relentlessly take more of our taxes to pay to sustain it) the price of new debt would rise.
The tax take as a proportion of GDP is mainly a political argument - its level and distribution and means of doing this (eg, a CGT as a means). I'd like to see it higher, and shouldered by gains on capital, which as you point out there is no longer any political constituency for, absent reasoned widespread information on our position and inspired political leadership. We've now got a 'relative elite' in both main voting blocks defending the stupid (eg current Nats) calls to cut taxes.
I think you have it wrong about the motivation for restricting local authorities' borrowing, which I thought self-evidently was their complete inability, demonstrated over many decades and in all places, to spend what they have on purposes within their remit. I for one am so glad they have been restrained, even if their allocation of what they have has produced shit running in my streets.
Finally, I would not open this up to wider circulation until you had done some more work on it, as it does not reflect the quality of work you usually deliver, and why I am here. Keep your gunpowder dry, and focus its use. Don't use health issues now as an example of what has gone wrong with our tax 'meanness' or unwillingness to spend now and pay later. There are so many better reasons why our health troubles now are there, compared to trying to adduce them as an example of a failure to borrow more. We increased our population an average of 1.8%pa a year in the five years to March 2019 - that probably has a greater influence on health access now than a remote debt ceiling argument which is tendentious.
Great work, Bernard. But, sensu strictu, the ‘30:30 mantra’ is not a mantra (which is a word or phrase chanted so frequently as to become meaningless) but a shibboleth, which is an idea that goes without saying and is never called into question - except when some clever person like you interrogates it and finds it to be empty, meaningless, out-dated or, as in this case, extraordinarily unhelpful. Because of the 30:30 shibboleth, we New Zealanders cannot have a sensible conversation about what sort of society we want to build. It’s why Jacinda looks sad and empathetic about child poverty but does little to improve it. It’s why the poor go unhoused.
I am not a Labour Party member and certainly not an apologist for the Labour Party, but it is a matter of historical record that the First Labour government set up the welfare state, built houses, and had a vision of a more equal and more just society. They didn’t manage to achieve that on 30:30. The Fourth Labour government systematically destroyed that and betrayed the poor. The 30:30 shibboleth has been with us ever since and, as you have eloquently pointed out, constrains our thinking to this day.
Keep talking! What would be more reasonable? A 40% state and up to 60% debt?
Hi Bernard,
Do you think that “the chickens are coming home to roost” with our chronic government underspending anytime soon? Or do you think just we’ll keep ambling along as usual?
Open it up please Bernard ASAP
Patrick Medlicott
Hi B
I think there is merit in your message about using debt to adress long term issues. This deserves more public debate. The big problem we face is that Labour seems incapable of making sound long term decisions, they dont think far enough ahead, they are constantly diverted by consultants reports and throw money at vanity projects without a CBA then try to justify bad decisions with more and more spin. Valid projects like Kiwibuild die of poor execution while we waste billions on bike bridges, lockdowns and light rail. In the past National has been far better at managing costs and execution, but of course they have a new and unproven team after the last big cleanout. I am appalled at how badly NZ has done economically over the last 25 years. We need a radical reset but Im not seeing the leaders who will guide us through.
It's madness. There is no shortage of money. Money is a digit in a computer database. It's just a number. But somehow the human mind makes constant reference to these numbers to decide whether we can do something or not. We are being controlled by a bogus story and sometimes people literally die as a result. The other species on the planet simply go about living their lives, but humans have to have numbers to operate. It's an invention, very unnatural, and who are the people who insist that this is how we must behave? The debtmongers, and they have to be stopped. The government must step in with massive debt-free spending to resolve NZ's problems, it's the only way. Enough with the shibboleths!
Bernard, any chance of a back of the envelope summary of wasted Gov spend? You’ve highlighted wage subsidies and potential excess, overspend with QE and other readers have touched on wasted projects (consultants for planned Harbour Bridge crossing etc). I’d argue $10s of billions have been misspent in 5-yrs. Any need for more taxation, or rather better directed spending?
Oh, the dig at the MP by the English teacher? Fail. I’d argue the MP has traveled more, earned more and garnered more success than the teacher.
Please open it up. That, or start running classes in introductory history and economics for journalists, to teach them their Basic Facts.
FYI I've opened it up now. I have some work to convince about a dozen subs this is a good idea. But majority in favour. Many thanks to you all. And feel free to share now.
Hi Bernard - Im amazed that all through this item you talk of the impact of population growth - but this is a self inflicted wound - we have been "subsidising" this "big New Zealand" mantra for 30 years by not investing in the true cost of population growth. Also this growth has caused consumption to grow but productivity to flat line - we still pay for our imports with a variation on the same bunch of agricultural exports that we did when the country's population was half its present size - our overheads have more than doubled but our income at the border has stayed flat - that is why we are so poor - we have also had a "cheap labour" emphasis on our immigration program and these migrants require more social support from the state - effectively a subsidy on cheap labour - this is ongoing - only need to read the whining in the media from the tourism and dairy industries to see this playing out today. We need to question why we are pursuing this population growth strategy when it is so clearly detrimental to NZ society and the economy. Perhaps we also need to make it harder for skilled people to leave or - even better more attractive for them to stay how about starting by reintroducing a concept that disappeared 30 years ago of providing free tertiary education in return for bonding the graduate for five - ten years until the community investment is recouped.
I totally support this podcast being made public. I'm stunned to find barely anyone I know is aware of the PFA & it's implications. Education is essential.
Bernard, could you please explain what you mean by median voter?
Bertrand Russell ...
"When the authorities are stupid, they will tend to side with the stupid children and acquiesce, at least tacitly, in rough treatment for those who show intelligence. In that case, a society will be produced in which all the important positions will be won by those whose stupidity enables them to please the herd."
"Children are instinctively hostile to anything ‘odd’ in other children, especially in the ages from ten to fifteen. If the authorities realize that this conventionality is undesirable, they can guard against it in various ways, and they can place the cleverer children in separate schools. The intolerance of eccentricity that I am speaking of is strongest in the stupidest children, who tend to regard the peculiar tastes of clever children as affording just grounds for persecution. When the authorities also are stupid (which may occur), they will tend to side with the stupid children, and acquiesce, at least tacitly, in rough treatment for those who show intelligence. In that case, a society will be produced in which all the important positions will be won by those whose stupidity enables them to please the herd.
Such a society will have corrupt politicians, ignorant schoolmasters, policemen who cannot catch criminals, and judges who condemn innocent men. Such a society, even if it inhabits a country full of natural wealth, will in the end grow poor from inability to choose able men for important posts. Such a society, though it may prate of Liberty and even erect statues in her honour, will be a persecuting society, which will punish the very men whose ideas might save it from disaster.
All this will spring from the too intense pressure of the herd, first at school and then in the world at large. Where such excessive pressure exists, those who direct education are not, as a rule, aware that it is an evil; indeed, they are quite apt to welcome it as a force making for good behaviour."
sound familiar?
We are forcing wage increases on businesses by making this a visa condition. The consequence is businesses close and jobs go offshore. More locals on the benefit and less tax to collect. If the government was serious about this they would ban imports which had lower wages embedded or tax them to make up the difference. Of course nobody would think that stacks up in 2022, but still we persist with excessive state intervention back home.
Excellent Bernard. You are much less grumpy sounding about it all than I.
You’re on fire today, and right on the money! All this is enough to make one go and shake a fist at the moon.
Hi Bernard
Kinda simplistic question but surely the route out of the 30/30 problem is to increase the govt revenue stream, by increasing taxation as a percentage of GDP?
We can of course follow Mr Key's approach of setting NZ up as a low wage economy, with low taxation and minimal infrastructure. But if we want better public services surely the only real solution to that is to increase the tax take at both national and local levels.
I'm not sure I understand why New Zealand is so focused on being a low taxation country.
cheers
Bart
Bernard, I wouldn't open up your article on the '30/30 mantra' today because it's an opinion that for the debt part it would be hard to defend among experienced public servants and economists - and the hyperbole/inappropriateness of the word 'mantra'. Your graph shows that core crown net debt was around 10% when the GFC it in 2008 and served its purpose as it went out close to 30% while public countercyclical spending supported jobs.
NZ has an enormous burden of private debt to GDP, at least triple the public debt, and this in itself is a risk to the country. A small part of the reason it has been agreed by pollies since the late 80s that having a 'shock-absorbing' target around 30% (adj for today's definition) is our private failing to save. But the main reasons are first, the fact that at around 30%, as it grows in size as GDP grows in size, on our average growth and reasonable interest rate assumptions, servicing remains a similar proportion of Govt revenue. And second, we are a very vulnerable economy, in terms of our export revenue, viewed from a lender's perspective. We have a narrow export base, vulnerable to disease and customer whim, and it's these receipts that pay debt. We have found this 30% mid-point and a political commitment to it delivers us debt at almost the cheapest rate possible, but if we decided we'd like it higher (remember, if we did, it would relentlessly take more of our taxes to pay to sustain it) the price of new debt would rise.
The tax take as a proportion of GDP is mainly a political argument - its level and distribution and means of doing this (eg, a CGT as a means). I'd like to see it higher, and shouldered by gains on capital, which as you point out there is no longer any political constituency for, absent reasoned widespread information on our position and inspired political leadership. We've now got a 'relative elite' in both main voting blocks defending the stupid (eg current Nats) calls to cut taxes.
I think you have it wrong about the motivation for restricting local authorities' borrowing, which I thought self-evidently was their complete inability, demonstrated over many decades and in all places, to spend what they have on purposes within their remit. I for one am so glad they have been restrained, even if their allocation of what they have has produced shit running in my streets.
Finally, I would not open this up to wider circulation until you had done some more work on it, as it does not reflect the quality of work you usually deliver, and why I am here. Keep your gunpowder dry, and focus its use. Don't use health issues now as an example of what has gone wrong with our tax 'meanness' or unwillingness to spend now and pay later. There are so many better reasons why our health troubles now are there, compared to trying to adduce them as an example of a failure to borrow more. We increased our population an average of 1.8%pa a year in the five years to March 2019 - that probably has a greater influence on health access now than a remote debt ceiling argument which is tendentious.
cheers