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?
Thanks Anne. Quite right. My internal thesaurus was a bit rusty this morning. Those numbers you suggest seem sensible. They key is optimising for affordable housing and zero carbon with some sort of consistent population growth policy.
I think the problem is the artificial constraint on public debt for infrastructure has created the incentive for governments to encourage the use of private debt (all ploughed into housing speculation) to create the inflationary pressure that is missing due to lack of government investment. The two issues feel inextricably linked.
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?
The coming home to roost is actually expressed as jumping on a plane. Most ex-pats don't vote, so I doubt there'll be a political change. The exodus actually reinforces the dominance of the median-voting home owner and voting ratepayer. They win from the current mix. Except their grand kids grow up overseas...ah well...an excuse for plenty of overseas holidays in warmer places.
We’ll judging by current global temperature rises that prospect won’t be so appealing and with a block of cheese at $200 they won’t be able afford airfares anyway😂
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.
Thanks John. In my view, Labour's failure on Kiwibuild and delivery is because they weren't honest (or understood) that the 30/30 promise in 2017 meant none of it was possible any time soon. Magical thinking. I'm not so sure about National managing costs and execution. In the last 30 years, National has run bigger deficits and increased debt more (justifiably in my view) than Labour and is stuck with the same policy that means it is faffing around with talk of PPPs etc. On National managing things and PPP........Transmission Gully...
John, you say that 'National has been far better at managing costs & execution.' Did you mean National's disasterous decisions to privatise Railways, Air N Z & half of Power? Or were you thinking of the Key-English government's track record of building 43 new state houses in 9 years while flooding the country with new migrants?
Hi. As i recall, Railways was sold with a fair value buy back clause. The crumbling bridges were all coming up for replacement. The labour govt paid hundreds of million when they could have got it for $1. It was an election flag wave. I think you are misrepresenting the housing as national expanded the social housing sector and had many plans in the pipeline which labour cancelled.
And dont forget that National steered us successfully through the GFC and the Christchurch earthquake, either of which could have had a worse economic impact than covid. They didnt need an army of PR or press bribes, just rolled up their sleeves, made hard decisions and got the job done.
The Clark Labour government bought the entire railway track network for $1; National built 43 new state houses in 9 years - check the stats; Bill English acknowledged that his job in dealing with the GFC was made considerably easier because Cullen had paid down public debt to very low levels; if National had successfully steered us through the Ch Ch earthquake, Brownlee wouldn't have lost his seat in 2020; NOTHING could have been worse for NZ than mass deaths through Covid. The GFC & the earthquake don't even come close. If Labour had bungled their Covid response the way right wing governments in the US, the UK & Brazil did, thousands of us would be dead today.
Ah, I love democracy. At least we can have a civilised exchange of differing opinions, something which I fear is gradually being squeezed out under the current attempted dictatorship.
Appreciate that John A and Dean. This is the place for it. The exchanges on this site make me feel a bit useful and hopeful. Compared to some other sites and social media platforms, which I long ago stopped reading the comments. Cheers
Bernard, you are extremely useful, in fact vital to any understanding of how we've got to where we are today & a way out of it. Most NZ economists mouth platitudes & convential wisdom but have no answers. Your '30/30 mantra' analysis was brilliant! Stay encouraged!
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!
Interesting concept but its a bit like perpetual motion. It might appear like free money at first but it cant expand for long without adverse consequences. Inflation and devaluation. Think Venezuela and Zimbabwe for example
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.
Neil, wasteful government spending is not justifiable, but all governments are guilty of it, (eg. National signed off on Transmission Gully, telling us it would cost $1B but it will cost closer to $3B when all the costs are paid). Key's legacy was a third world tax system - no capital taxes, one of the highest rates of indirect tax in the world & a maximum personal income tax rate lower than Mexico's. A third world tax system has given us a third world economy & society - exactly the point of Bernard's article. Of course increased tax rates are necessary, but focused on those best able to pay. As the Bible says, 'to those whom much is given, much is expected.'
I have direct visibility of several boards who have accepted very large govt handouts to close down gas and install electric boilers. Very wasteful use of public money. Businesses would fund this themselves if and when it stacks up. Then there is the shortage of green electricity and importing dirty Indonesian coal. This is virtue signalling on steroids.
A hospital being built on reclamation that will require foundations that cost a large part of the total build cost - straddling SH1 in the down town where there is no parking
Lake Onslow - where they are already spending tens of millions on investigations for a project that makes no economic sense, wont alleviate the "dry year" problem because dry years are actually dry decades and will do nothing but reduce the total supply of electricity
and elsewhere we have investment in convention centres and stadiums while our hospitals are overwhelmed - I was a member of a labour party policy group in the lead up to the election before last - it comprised a bunch of people with not a week's worth of experience in operating or managing infrastructure (I'm formerly a retired council CEO so have a bit of experience in the area) I gave up in dismay listening to the stupid stuff they were coming up with.
It did occur to me economics is equally as gory as history. The level of hyperbole to mask the facts around economics takes the cake though. Nothing much is based on need or evidence like $20.00 increases in benefits competing with rising costs across the board. Ideologues don’t base their plans on facts about what or how much is actually needed and complete for funding for their wants over others needs.Usually children and women. Bloody disgrace and illegal.
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.
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.
Thanks Bart. Yes. My suggestion would be a simple, broad-base and very low rate land tax on all residential zoned land, with a multiple of that for serviced but empty residential zoned land.
If that was adopted then some or all of that tax could go to councils directly, although that might create an incentive to rezone land so it can be taxed which would be problematic in some cases.
Personally I think we need a higher income tax rate for the wealthy as well. Some would find ways to avoid it of course.
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.
Clive I can't focus on all your words, but your early suggestion that Bernard should hesitate to open this up because it will be 'hard to defend among experienced public servants and economists' is precisely why it should be opened up. If, like me, you are a now retired health professional who has brought up three children now each with established families and jobs overseas, you would know that Bernard's explanation is spot on for life as you have tried to live it. On the other hand those 'experts' you mention seem to be part of a meccano set, all nicely tied together but heading in a direction which is likely to be terminal.
Do you mean you didn't read it all, with 'focus on all your words'? At the end I deliberately caution Bernard about bringing health in as a symptom of not having enough debt (the failure to raise taxes is not within a civil servant's control, but I bet they have tried to advise this in various subtle ways). That surge in population to March 2019 (400,000 people above natural growth (which is 110k) in five years, completely out of DHB control) is a small reason why, but an understandable one. The debt ratio is really important, and simply cannot be argued to have in any way caused our current health mess. That's been analysed by lots of health specialists and none have suggested more national debt would help. What would help is more expenditure, better managed and on the health sector, not specifically hospitals, as we all know.
Apart from Australia, NZ has about 3% of its total population (not workers) living permanently overseas: Australia has 2% in comparison. That we as a people are somehow very disproportionately overseas has become a 'fact' from ignorant repetition unfortunately. Given our small size and isolation, it can't be a surprise one's children often choose to live elsewhere for reasons unrelated to income (they can't seriously expect NZ, with its 30-40 year decline in relative income against the top third of the OECD to somehow make them wealthier) - you have all yours away, we have 50% away, and further than Australia, which we surely seriously can't regard as being 'overseas' in a meaningful sense of time, money, culture etc. They pay medical specialists about twice in Melbourne as here. It's not something a higher ratio of debt to GDP will change. I hope with your health sector knowledge you keep the pressure up on its leaders and writers now, just as I try to present some balance in the economics sphere from my background.
Thanks Clive for your response. When i try to follow an economist's explanation, I first try to comprehend and join the details. When I can't put that together, I then step back and try to get and overall picture - you know, the wood instead of the trees. That is what i mean when I talk about not reading all your words - I tried but had to go for wider picture. I'm still struggling to find a language that we both speak but am not giving up. One of my sons has made life and a family, and obtained citizenship in the USA. The other has permanent residence, a business and family in Canada. The third in Australia. None of them are money focused, but all grew up with struggles and have wanted to achieve some security, so need a different environment to what NZ can provide. It makes me really sad because they were all brought up to be good contributing citizens.
I can see we persist with our narrow and vulnerable agricultural export focus, but if our young adults with other skills have to go away, how will that ever change? There is a bit of a crevasse between what worries me and an economist's explanation of taxes and things, but I plan to keep trying and am very grateful for Bernards' attempt to join numbers to everyday life. I feel so angry at my fellow NZers who just want more property and utes and I need numbers that help me understand why on earth our country seems to prefer them
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?
Thanks Anne. Quite right. My internal thesaurus was a bit rusty this morning. Those numbers you suggest seem sensible. They key is optimising for affordable housing and zero carbon with some sort of consistent population growth policy.
I think the problem is the artificial constraint on public debt for infrastructure has created the incentive for governments to encourage the use of private debt (all ploughed into housing speculation) to create the inflationary pressure that is missing due to lack of government investment. The two issues feel inextricably linked.
Absolutely. Some perverse feedback loops and unintended incentives and consequences.
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?
The coming home to roost is actually expressed as jumping on a plane. Most ex-pats don't vote, so I doubt there'll be a political change. The exodus actually reinforces the dominance of the median-voting home owner and voting ratepayer. They win from the current mix. Except their grand kids grow up overseas...ah well...an excuse for plenty of overseas holidays in warmer places.
We’ll judging by current global temperature rises that prospect won’t be so appealing and with a block of cheese at $200 they won’t be able afford airfares anyway😂
Ha! Most of my household is dairy free. And I'm back to Colby.
We only have the 18 month tasty for a treat now and again 👍
Open it up please Bernard ASAP
Patrick Medlicott
Thanks Patrick. OK. But I realise it's not unanimous, which makes me a tad anxious.
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.
Thanks John. In my view, Labour's failure on Kiwibuild and delivery is because they weren't honest (or understood) that the 30/30 promise in 2017 meant none of it was possible any time soon. Magical thinking. I'm not so sure about National managing costs and execution. In the last 30 years, National has run bigger deficits and increased debt more (justifiably in my view) than Labour and is stuck with the same policy that means it is faffing around with talk of PPPs etc. On National managing things and PPP........Transmission Gully...
John, you say that 'National has been far better at managing costs & execution.' Did you mean National's disasterous decisions to privatise Railways, Air N Z & half of Power? Or were you thinking of the Key-English government's track record of building 43 new state houses in 9 years while flooding the country with new migrants?
Hi. As i recall, Railways was sold with a fair value buy back clause. The crumbling bridges were all coming up for replacement. The labour govt paid hundreds of million when they could have got it for $1. It was an election flag wave. I think you are misrepresenting the housing as national expanded the social housing sector and had many plans in the pipeline which labour cancelled.
And dont forget that National steered us successfully through the GFC and the Christchurch earthquake, either of which could have had a worse economic impact than covid. They didnt need an army of PR or press bribes, just rolled up their sleeves, made hard decisions and got the job done.
The Clark Labour government bought the entire railway track network for $1; National built 43 new state houses in 9 years - check the stats; Bill English acknowledged that his job in dealing with the GFC was made considerably easier because Cullen had paid down public debt to very low levels; if National had successfully steered us through the Ch Ch earthquake, Brownlee wouldn't have lost his seat in 2020; NOTHING could have been worse for NZ than mass deaths through Covid. The GFC & the earthquake don't even come close. If Labour had bungled their Covid response the way right wing governments in the US, the UK & Brazil did, thousands of us would be dead today.
Ah, I love democracy. At least we can have a civilised exchange of differing opinions, something which I fear is gradually being squeezed out under the current attempted dictatorship.
Appreciate that John A and Dean. This is the place for it. The exchanges on this site make me feel a bit useful and hopeful. Compared to some other sites and social media platforms, which I long ago stopped reading the comments. Cheers
Bernard, you are extremely useful, in fact vital to any understanding of how we've got to where we are today & a way out of it. Most NZ economists mouth platitudes & convential wisdom but have no answers. Your '30/30 mantra' analysis was brilliant! Stay encouraged!
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!
Interesting concept but its a bit like perpetual motion. It might appear like free money at first but it cant expand for long without adverse consequences. Inflation and devaluation. Think Venezuela and Zimbabwe for example
I repeat, 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.
Thanks Neil. I'd start with the $20b given to businesses in the last two years. Garnered more success is somewhat subjective, I feel.
Neil, wasteful government spending is not justifiable, but all governments are guilty of it, (eg. National signed off on Transmission Gully, telling us it would cost $1B but it will cost closer to $3B when all the costs are paid). Key's legacy was a third world tax system - no capital taxes, one of the highest rates of indirect tax in the world & a maximum personal income tax rate lower than Mexico's. A third world tax system has given us a third world economy & society - exactly the point of Bernard's article. Of course increased tax rates are necessary, but focused on those best able to pay. As the Bible says, 'to those whom much is given, much is expected.'
I have direct visibility of several boards who have accepted very large govt handouts to close down gas and install electric boilers. Very wasteful use of public money. Businesses would fund this themselves if and when it stacks up. Then there is the shortage of green electricity and importing dirty Indonesian coal. This is virtue signalling on steroids.
in Dunedin we've got ...
a $100million cycle way that is no use to anyone
A hospital being built on reclamation that will require foundations that cost a large part of the total build cost - straddling SH1 in the down town where there is no parking
Lake Onslow - where they are already spending tens of millions on investigations for a project that makes no economic sense, wont alleviate the "dry year" problem because dry years are actually dry decades and will do nothing but reduce the total supply of electricity
and elsewhere we have investment in convention centres and stadiums while our hospitals are overwhelmed - I was a member of a labour party policy group in the lead up to the election before last - it comprised a bunch of people with not a week's worth of experience in operating or managing infrastructure (I'm formerly a retired council CEO so have a bit of experience in the area) I gave up in dismay listening to the stupid stuff they were coming up with.
Please open it up. That, or start running classes in introductory history and economics for journalists, to teach them their Basic Facts.
This !!
It did occur to me economics is equally as gory as history. The level of hyperbole to mask the facts around economics takes the cake though. Nothing much is based on need or evidence like $20.00 increases in benefits competing with rising costs across the board. Ideologues don’t base their plans on facts about what or how much is actually needed and complete for funding for their wants over others needs.Usually children and women. Bloody disgrace and illegal.
Ha! Love it. New business model. I shall approach the Public Interest Journalism Fund....actually best not. Life's too short for that.
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.
Thanks darkhorse. You are right that population is central to all of this. And we haven't had open discussions about that either.
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?
There's about 5-10% of the voting population who swing both ways with their votes. They are the contested ones who decide elections.
Thanks 😊
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?
Have you watched the movie “Idiocracy”. It demonstrates this perfectly.
only need to watch the news! 😆😆
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.
Thanks Kath.
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.
Thanks Bevan. If only I could see through the bloody wintry clouds. So looking forward to a sunny day!. Cheers
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
Thanks Bart. Yes. My suggestion would be a simple, broad-base and very low rate land tax on all residential zoned land, with a multiple of that for serviced but empty residential zoned land.
If that was adopted then some or all of that tax could go to councils directly, although that might create an incentive to rezone land so it can be taxed which would be problematic in some cases.
Personally I think we need a higher income tax rate for the wealthy as well. Some would find ways to avoid it of course.
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
Clive I can't focus on all your words, but your early suggestion that Bernard should hesitate to open this up because it will be 'hard to defend among experienced public servants and economists' is precisely why it should be opened up. If, like me, you are a now retired health professional who has brought up three children now each with established families and jobs overseas, you would know that Bernard's explanation is spot on for life as you have tried to live it. On the other hand those 'experts' you mention seem to be part of a meccano set, all nicely tied together but heading in a direction which is likely to be terminal.
Do you mean you didn't read it all, with 'focus on all your words'? At the end I deliberately caution Bernard about bringing health in as a symptom of not having enough debt (the failure to raise taxes is not within a civil servant's control, but I bet they have tried to advise this in various subtle ways). That surge in population to March 2019 (400,000 people above natural growth (which is 110k) in five years, completely out of DHB control) is a small reason why, but an understandable one. The debt ratio is really important, and simply cannot be argued to have in any way caused our current health mess. That's been analysed by lots of health specialists and none have suggested more national debt would help. What would help is more expenditure, better managed and on the health sector, not specifically hospitals, as we all know.
Apart from Australia, NZ has about 3% of its total population (not workers) living permanently overseas: Australia has 2% in comparison. That we as a people are somehow very disproportionately overseas has become a 'fact' from ignorant repetition unfortunately. Given our small size and isolation, it can't be a surprise one's children often choose to live elsewhere for reasons unrelated to income (they can't seriously expect NZ, with its 30-40 year decline in relative income against the top third of the OECD to somehow make them wealthier) - you have all yours away, we have 50% away, and further than Australia, which we surely seriously can't regard as being 'overseas' in a meaningful sense of time, money, culture etc. They pay medical specialists about twice in Melbourne as here. It's not something a higher ratio of debt to GDP will change. I hope with your health sector knowledge you keep the pressure up on its leaders and writers now, just as I try to present some balance in the economics sphere from my background.
Thanks Clive for your response. When i try to follow an economist's explanation, I first try to comprehend and join the details. When I can't put that together, I then step back and try to get and overall picture - you know, the wood instead of the trees. That is what i mean when I talk about not reading all your words - I tried but had to go for wider picture. I'm still struggling to find a language that we both speak but am not giving up. One of my sons has made life and a family, and obtained citizenship in the USA. The other has permanent residence, a business and family in Canada. The third in Australia. None of them are money focused, but all grew up with struggles and have wanted to achieve some security, so need a different environment to what NZ can provide. It makes me really sad because they were all brought up to be good contributing citizens.
I can see we persist with our narrow and vulnerable agricultural export focus, but if our young adults with other skills have to go away, how will that ever change? There is a bit of a crevasse between what worries me and an economist's explanation of taxes and things, but I plan to keep trying and am very grateful for Bernards' attempt to join numbers to everyday life. I feel so angry at my fellow NZers who just want more property and utes and I need numbers that help me understand why on earth our country seems to prefer them