Funding furore is enough to bug voters (while marring the PM’s image) – and then the covid-19 virus comes along

Is  it  the   kind of headline  that  will  win  votes at the general  election?  “Rock-star reception in   Fijian  village”    followed  by a   sub-head  “Rapturous   greeting for  Ardern  during visit to launch $3m  sanitation project”.

The  reporter  (veteran Barry  Soper, Newstalk ZB’s  political  editor) poses the  rhetorical  question:  “Is there any wonder that Ardern loves going overseas?”

As   well,   there  has  been  the effusive   welcome  from  Fiji  strongman  Frank  Bainimarama  who,  according  to  another  reporter,  is  expecting, even “demanding”,  Ardern to  pressure  Australia  on  its climate  change  inaction.

Point of  Order  suspects  Ardern  may be  less  forthcoming than  Bainimarama  would  like,  when  she  meets  Australia’s  Scott Morrison.  Almost certainly  climate change  won’t be on the agenda  in the  Morrison-Ardern  talks.

Still, that  won’t  diminish  Ardern’s  popularity  with   those  New Zealanders   who  delight    in her   being  billed   as  one of the world’s  leaders,    by global  media   like  the  US  Time  magazine   which  featured  her  in a cover story   recently. Continue reading “Funding furore is enough to bug voters (while marring the PM’s image) – and then the covid-19 virus comes along”

Finance Minister puts on his arts hat to invite applications for funding from a culture trough

Taxpayers were called on to cough up $87,994 million in the 2019 Budget, accounting for much of the $120,984m which the Treasury estimated would be collected in government revenue this financial year.

In his Budget speech, Finance Minister Grant Robertson said:

So, today in this first Wellbeing Budget, we are measuring and focussing on what
New Zealanders value – the health of our people and our environment, the strengths of our communities and the prosperity of our nation. Success is making New Zealand both a great place to make a living, and a great place to make a life.

This week, Robertson sounded a hog call for oinkers to gather around a trough he cares for as associate minister of arts, culture and heritage.

He was inviting us– or some of us – to get our snouts into a $7 million swill titled the Regional Culture and Heritage Fund.  

Employment Minister Willie Jackson, meanwhile, was dishing out money from another trough, the He Poutama Rangatahi (HPR) scheme.

How much?

Jackson didn’t give a firm figure in his press statement, but the headline on it said “over $1 million”. Continue reading “Finance Minister puts on his arts hat to invite applications for funding from a culture trough”

How NZ’s productivity growth might be fostered by finding what makes “frontier firms” tick

We suspect some readers – maybe many – faltered when Finance Minister Grant Robertson announced he has approved the terms of reference “for an inquiry into the economic contribution of New Zealand’s frontier firms”.

Frontier firms?  What are they and give us some examples?

Robertson explained that these are the most productive firms in the domestic economy within their own industry.

“These firms are important as they diffuse new technologies and business practices into the wider New Zealand economy.

“While we do have some world-leading firms, we need them to lift performance and productivity to create a pathway for more firms to succeed on the world stage,” Grant Robertson says.

He referred to work undertaken by the Productivity Commission in 2016 which suggested that New Zealand’s firms – on average – were about one-third less productive than international firms in the same industry. Continue reading “How NZ’s productivity growth might be fostered by finding what makes “frontier firms” tick”

Yep, our net debt will rise but Mike Hosking (among others) should check out the US for eye-watering borrowing figures

Economists quoted in a Reuters report were unfazed by news that the New Zealand Government has cut its growth forecast for 2019/2020 and is flagging a budget deficit along with a plan to invest more than $12 billion on infrastructure projects.

National – to be expected – found fault with the government’s fiscal plans and the resultant implications for the country’s public debt.  The Nats were supported by some commentators.

What the debt fretters would say about the monumental public debt in the United States, where the focus on presidential impeachment proceedings tends to divert attention from the fiscal folly of the nation’s leaders, can only be imagined.

For those who want the NZ numbers, the Treasury has posted them here.

Westpac Bank said the treasury update was a “damp squib” and would have little impact on forecasts for GDP, inflation or interest rates.

Spreading the substantial lift in planned capital spending over many years was “a wise way for the government to run its infrastructure programme”, said  Westpac senior economist Dominick Stephens.

S&P Global was relaxed, saying New Zealand’s sovereign credit rating can absorb more fiscal spending even as it delays a return to budget surpluses.

But hey. What would they know.

NZ Herald readers were treated to the wisdom of broadcaster Mike Hosking, host of the Newstalk ZB Breakfast show,   who declared:

“Nineteen billion dollars of debt is an eye watering amount of money. It blows net core Crown debt to over 21 percent of GDP.”

The capital investment announced by Robertson became a “spendup” in Hosking’s commentary and it resulted (he said) in New Zealand joining

” … too many other countries adding a pile of debt to the next generation to fund our lack of ability to pay for today’s requirements.

“Money might be cheap, but it’s still not our money, and that’s bad economics.”

The New Zealanders who have borrowed $275 billion for housing should take note (if they weren’t aware of how they have financed their way into owning a house).  It’s not their money.

Whether it’s bad economics is another matter.  The same goes for government borrowing.

But we wonder how much eye watering would be induced in Hosking if he mused for a moment on the magnitude of the US Government’s burgeoning debt.   

Early this year the US government’s public debt climbed above $22 trillion,a rise of more than $2 trillion from the day President Trump took office in 2017. 

Over the next 10 years, annual federal deficits — when Congress spends more than it takes in through tax revenues — were expected to average $1.2 trillion, which would be 4.4 percent of gross domestic product. 

This was much higher than the 2.9 percent of GDP that has been the average for the past 50 years.     

Although debt can serve useful purposes, very little of its growth over the last 50 years has been for the right reasons, according economist Pierre Yared.

His paper in the Spring issue of the Journal of Economic Perspectives lays out the political factors behind the growing debt and how governments can commit to fiscal responsibility.

An article on the Amercian Economic Association website says Americans of all political stripes are concerned about the growth of national debt. 

Four in five Democrats and Republicans feel their leaders should do more to address the problem. 

They are right to be worried. 

Yared says modern governments—not just in the US but in countries around the world—are behaving like someone who wants to exercise but is never ready to start today.

The current era of political polarization, close elections, and aging societies give politicians strong incentives to leave the debt problem for future leaders.  

The AEA spoke with Yared about the dangers that high levels of debt pose and some potential solutions for bringing it back under control.

A transcript edited for length and clarity is included in the article.

It includes:

AEA: To look at a particular example, US debt levels are over 100 percent of GDP. How concerned are you about the trajectory of US debt?

Yared: That’s a big question. I don’t think anybody has the answer to that. Just to be clear, that number does not net out the debt held by the agencies. And once you do that you get a smaller number of federal debt held by the public as a percentage of GDP. And, the latest number is 76 percent. Nevertheless, you’re absolutely correct. Debt has been on an upward trajectory. What concerns me is the long-term trend, not the specifics of where we are right now. Because over the long term, situations change. It’s better to take advantage of the good times, so that when situations do change we’re not stuck with problems.

Hosking and those who share his concerns about New Zealand’s fiscal position should take note of the level of American net debt – it’s 76% of GDP.

Then he can ease back on the eye watering.  New Zealand’s net Crown debt is around 20 per cent and is far from frightening – at least for now.

Crackdown on the banks was not as severe as had been feared – RBNZ board might have had a muffling effect

The roll of drums sounded  for  many  months — but the  Reserve  Bank’s call  on  how  the country’s banks could  withstand  a  one-in-200-year financial  crisis  landed  with  less of  a bang, more  like a whimper,  last week.

At least, that’s how  the  markets  interpreted   the  decision of the Governor,  Adrian  Orr,  whose  early  belligerence  had struck terror  into  the boardrooms of  trading banks,  particularly those with  headquarters across the  ditch.

By Monday, economists decided the changes, being softer  than  originally  proposed,  would  prove less of  a headwind  to the economy than   initially envisaged.

The overall  level  of  capital  required    will  still  have  to  rise  from a minimum of  10.5%  currently to  18% — -but the banks  will have longer to raise the capital. And  the RBNZ softened  what  it will consider as tier one  capital  to include redeemable preference  shares, offering  a cheaper  way to  raise money. Continue reading “Crackdown on the banks was not as severe as had been feared – RBNZ board might have had a muffling effect”

Labour’s poll slide: let’s see if Jacindamania (and a tax cut?) can compensate for Cabinet’s incompetents

Labour’s rating  with  voters has  dropped   to its lowest in  two  years, according to  the  latest  Colmar  Brunton  poll.   This has provoked a  flurry of  action  by   ministers,   with  a  $400m  new spend on  schools  and  promises  of   big  infrastructure  projects  to  be  announced  in the  half-year  fiscal  update.

Finance  Minister  Grant Robertson    is sticking to his mantra  that the   economy  continues to grow at faster rates than the countries it compares  itself    with, notably  Aust, the UK    and   the  US—even though the Treasury   says  overall NZ GDP growth  is likely to  fall below Budget forecasts.

Two  per cent  GDP  growth  is  hardly  likely  to  create  any  surge of  enthusiasm,  especially if it keeps trending down.  For the  man and woman in the street,   cost of living  inflation  is  eroding  the impact of   any  recent  wage  increases.

As  for  the  politics,   the  government’s  claim  for its performance  in  what was   to be the  “year of  delivery”   echoes   hollowly. Continue reading “Labour’s poll slide: let’s see if Jacindamania (and a tax cut?) can compensate for Cabinet’s incompetents”

Labour said “let’s do this” in 2017, the “year of delivery” was 2019 – and next year voters might consider a fresh approach

 With  a general election  due  in  less  than  a  year,  party  strategists are   already  perusing  poll results  intently,  testing  political  trends and working on  how to  frame   the shape of the  campaign itself.

This  could  be  especially    difficult for   those in  the  Labour camp. The  problem   is the  long  list    of policies   unfufilled,  stacked  up    along   the   promise    of   the  2017  slogan:  “Let’s  Do This”.

Voters’  memories  are   short,   but  not  so   short  that  they won’t  recall Labour  was  going to  solve  the  housing “crisis”  with KiwiBuild,  eliminate  child  poverty,  make the tax system  fairer  with a capital  gains tax,  repair  the  “broken”  welfare  system,  and    “fix”  the health sector  after  “nine years of  neglect”.

As well,  there was  the  commitment  to  invest  in  public transport   rather than new   highways.

And  just  as  2019  began, Jacinda Ardern  in her role as  Prime  Minister   promised  it  would be the  “Year  of Delivery”   Continue reading “Labour said “let’s do this” in 2017, the “year of delivery” was 2019 – and next year voters might consider a fresh approach”