The Dim-Post

April 8, 2014

Politics, lies and the Economy

Filed under: economics,Politics — danylmc @ 1:20 pm

From Russel Norman’s twitter feed:


Does borrowing fifty billion dollars over the last six years mean the Nats are bad with money? I don’t think so. We had an external shock in 2008 (the GFC) and then a massive earthquake, both of which had a huge negative impact on our economy. Interest rates for the government to borrow on the international markets were super-low during this time, so borrowing money was actually a really smart thing to do. We probably should have borrowed more and invested it in infrastructure instead of selling our energy companies and frittering money away on National’s tax switch, which cost billions and totally failed to stimulate the economy.

And I suspect Russel Norman would agree with that. What Russel is responding to here is the massive gap between National’s economic rhetoric and the stuff it actually quietly does. Yes, John Key and his Finance Minister Bill English have borrowed $50 billion dollars from overseas investors over the last six years. But John Key and Finance Minister Bill English have also spent the last six years roaring with horror at the economic plans of Labour and the Greens who want to BORROW MONEY from OVERSEAS INVESTORS! That’s why asset sales are so important, according to English – it’s the prudent, sensible alternative to BORROWING MONEY from OVERSEAS INVESTORS which will wreck the economy, except for the $50 billion he borrowed which was FISCAL and PRUDENT.

Likewise government spending. Interest rates went up recently and the Governor of the RBNZ has forecast more rises over the next two years, so we’ve heard some very stern warnings from English and Key about how the policies of Labour and the Greens will CAUSE INTEREST RATES TO GO UP! We’ve also heard a lot of dire warnings from Bill English about GOVERNMENT SPENDING. So here, via Treasury, is English’s record of government spending over his tenure as Finance Minister:


Again, having the government spend money during an economic down-turn and period of national crisis is a good thing to do. You just don’t get to do it while simultaneously thundering about how the opposition parties want to spend money, which will destroy the economy. Or rather, National does for some reason.

The point I’m trying to make here is that almost every statement Key and the Finance Minister make about the economy is nonsense, pure disinformation dipped in hypocrisy, sprayed with drivel and then airbrushed dry with horrible fucking lies. That’s not part of the conventional wisdom though, especially among political commentators who all have Bill English as a straight-talking dour, fiscal, prudent conservative instead of a big-spending, big-borrowing outrageously dishonest hypocrite who vomits out floods of obvious lies every time he opens his mouth.

It’s a big problem for the opposition. In macro terms National has done pretty-much what Labour and the Greens would have done – with some obvious exceptions like the tax cuts – but pretended that they’ve done the opposite, and warned the country that Labour and the Greens are going to introduce fiscal policies which are basically identical to National’s but which National warns will destroy the economy. It’s all such a gigantic, egregious yet successful lie that countering it is all but impossible.


  1. I should not have read the paragraph beginning “The point I’m trying to make…” whilst eating a cheese sandwich. (Typing through a haze of Whitestone Windsor Blue)

    Comment by Gareth — April 8, 2014 @ 1:24 pm

  2. The greens are especial labelled ‘economic suicide’. Not sure now, but in back to the days of the Alliance, their ‘alternative budgets’ were better costed and more rigorously audited than those of the main parties.

    Comment by Robinson Stowell — April 8, 2014 @ 2:25 pm

  3. The track looks like an orthodox Keynesian response to a recession, with higher Crown spending to counteract falling private demand. Borrowing and tax cuts are both consistent with that. One increases the capacity of the public sector to consume and the other the taxpayer. They will tend to spend on different things. As to the propaganda from National, I guess if you are only reading headlines there is a mild case for hypocrisy but certainly not if you are exposed to anything other than what might pass on TV3 for economic analysis. And, one aspect of their propaganda is dead right. The spending track for Labour and the Greens would have been higher, significantly so. And,based on current utterances, would not have tracked lower as the economy recovered.

    Comment by Tinakori — April 8, 2014 @ 2:25 pm

  4. How do you know the Lab/Green spending track would have been higher Tinakori? You just do…. is that the same as how people just know National is better with money

    Comment by lucyjh — April 8, 2014 @ 2:40 pm

  5. “totally failed to stimulate the economy.” – citation? Has there been much research as to how the economy would have performed without the tax cuts?

    Key and English borrow for current Govt spending, but the Lab/Green govt would borrow that plus more in order to fund the extra pledges they make.

    Comment by Chonet2 — April 8, 2014 @ 2:41 pm

  6. No idea what is going through John Keys brain but overseas debt holders are also long NZ dollar. Comrade Wussel from the Central Planning Committee has said that the NZ dollar is too strong. (comrades Parker & cunnlife may have said the same) Overseas debt holders, if Wussel is calling the shots, will want to off load NZ debt (then supply & demand cause interest rates to rise) or will want higher intrest rates to compenstate for a falling asset value (nz$)

    Ulitmately NZ overseas creditors will call the shots. I expect Wussel & co will knuckle under otherwise there will not more cheap funds for the Green Jobs revloution or what ever other crap Central Planning comes up with.

    Comment by Simon — April 8, 2014 @ 2:49 pm

  7. How do you know the Lab/Green spending track would have been higher Tinakori?

    Pretty simple really, by listening to what they say and reading their policies. A very constant theme in both parties in the last five years has been no cuts/reprioritisation and more spending. This recipe requires either (or some combination of) higher taxes (and a cut in demand) and borrowing. Russel Norman was not very long ago advocating quantitative easing at a time of economic growth and interest rates higher than zero.

    Comment by Tinakori — April 8, 2014 @ 2:50 pm

  8. “This recipe requires either (or some combination of) higher taxes (and a cut in demand) and borrowing”

    whatever happened to revenue?

    Comment by framu — April 8, 2014 @ 3:06 pm

  9. Not sure how to enter $50billion in my calculator and divide it by 4.5million people but what ever the answer is it is a hell of a lot of debt per person. I think it was Muldoon during election campaigns who was showing graphs and using the debt even for new-born babies to frighten the voters, and succeeded.

    Comment by xianmac — April 8, 2014 @ 3:18 pm

  10. Actually it would be a good move by Labour to create the above graphs and stats re debt of $50billion to explode the English/Key myths. Even if the borrowing was a good move. “Pay off debt in good times. Borrow in bad times to stimulate growth,” someone said recently.

    Comment by xianmac — April 8, 2014 @ 3:22 pm

  11. Framu whatever happened to revenue? – In a recession and certainly post GFC, revenue will be lower – hence the need to borrow to make up the operating deficit (where your revenue is less than your expenses).

    In fact this is what the forecast was in 2008.

    From the pre-election fiscal update 2008

    Core Crown revenue growth falls …
    Figure 2.1 – Core Crown revenue excluding the NZS Fund
    Core Crown revenue excluding the NZS Fund is forecast to fall from 34.2% of GDP in 2007/08 to 32.7% of GDP by 2012/13, while in a nominal sense over the same period it is forecast to increase by around $10 billion. The trend in core Crown revenue is primarily driven by what happens in tax revenue.

    … as the economy slows …

    As mentioned in Chapter 1, the forecasts for nominal GDP have been reduced by just over $8 billion since the Budget Update (on a June year basis), with GDP in 2011/12 (the final forecast year in the Budget Update) being about $2 billion lower than in the Budget Update.

    Figure 2.2 – Core Crown tax revenue.
    A reduction in the forecasts for domestic consumption as past imbalances start to unwind over all forecast years is a key feature of the macroeconomic forecasts. This reduces the GST forecasts. It also has flow-on effects for business income taxes as reduced spending leads to lower profits, which have also been squeezed by an increase in the forecast wage growth track. The increased wage forecast provides some offset to the forecast reductions in tax revenue via an increase in the source deductions (PAYE) forecast.

    Source: The Treasury

    Comment by WH — April 8, 2014 @ 3:24 pm

  12. “A very constant theme in both parties in the last five years has been no cuts/reprioritisation and more spending. ” Before you be sure, you’d need to analyse the cuts National have made- have they indeed saved money? (Hint: laying off public servants and hiring them back as contractors may not. Some of the changes have been expensive – look at the budget for, eg, merging ministries to create the MBIE. The tax cuts didn’t work out completely revenue neutral’ as promised. What have charter schools cost? Etc.) So there are a lot of assumptions in your statement. You may be correct. You may have done the research. But unless you have it’s exactly the ‘beltway-wuffle’ Danyl is describing.

    Comment by Robinson Stowell — April 8, 2014 @ 3:25 pm

  13. I think the case for hypocrisy is slim, unless you back to National berating Cullen for excessive frugality.

    The Nats have been pretty open about their mixed path of spending restraint and borrowing.

    Norman does go on about the borrowing in a misleading way and yet he’s the one trying to portray himself and his party as being morally superior.

    He generally goes on about how the borrowing had just gone on tax cuts to the rich which is similarly not connected with reality.

    Comment by NeilM — April 8, 2014 @ 3:35 pm

  14. Core Crown spending has gone up – at the same time as revenue has deliberately been cut. Outside of faith-based-economics or Treasury, that means a large hole in government expenses. The only way for that to work is for substantial growth to occur. And aside from Canterbury’s insurance rebound, the country is actually going backwards.

    Comment by George — April 8, 2014 @ 3:42 pm

  15. Has there been much research as to how the economy would have performed without the tax cuts?

    The lower-income brackets spend their tax cuts and stimulatory payments, creating economic demand. The rich put theirs in the bank and in property, which is good if the supply of money is constrained, but in New Zealand it never is.

    Comment by George — April 8, 2014 @ 3:46 pm

  16. Even Danyl is starting to crack now. It’s going to be a very long and brutal six months for the left.

    Comment by Swan — April 8, 2014 @ 3:53 pm

  17. ahh – damn it – revenue was already in there – thats what you get for skim reading then posting. Sorry folks

    i withdraw previous comment

    Comment by framu — April 8, 2014 @ 3:55 pm

  18. “The only way for that to work is for substantial growth to occur. And aside from Canterbury’s insurance rebound, the country is actually going backwards.”

    You may not like Key or English’s views on the economy but relying on Clint as the economic oracle is a sign of desperation

    Comment by Tinakori — April 8, 2014 @ 4:24 pm

  19. You may not like Key or English’s views on the economy but relying on Clint as the economic oracle is a sign of desperation

    Ad hominem much? According to the following tweet they’re based on Statistics NZ’s own figures. No oracles here – that’s Treasury’s job.

    Comment by George — April 8, 2014 @ 4:40 pm

  20. According to the following tweet they’re based on Statistics NZ’s own figures.

    … and further down the tweet list you’ll note that Clint admits he was using the wrong data.
    ” I used CPI as I had it to hand. Using GDP deflator lifts results ~4%: Akl down 2% since 2008, Chch up 12%, Rest up 1%.”

    Comment by Phil — April 8, 2014 @ 4:59 pm

  21. “A very constant theme in both parties in the last five years has been no cuts/reprioritisation and more spending.”

    So is not spending a few billion on RoNS that don’t actually achieve anything, and thus having a few extra billion to spend on other things not “reprioritisation” ?

    Personally, I’m of the view that both houses are equally “bad” – just bad in different ways. NZ didn’t do too badly the last time the left had the reins for 9 years, and it’s not doing too badly with the right in charge either. In the end, advantaged people like myself aren’t much affected, while those that aren’t as advantaged tend to struggle under both regimes.

    Comment by lefty — April 8, 2014 @ 5:40 pm

  22. So how long is it going to take to pay back the debt, absent tax hikes and assuming this recovery is genuine? We’ve been in recovery fro a few years now, and the confidence pixies are saying the economy is going gangbusters, and yet there’s this big old hole where the surplus ought to be? So, when are National going to be good Keyensians and put taxes up on them that can afford it?

    Or, are they going to be the shit sort of convenience Keynesians that will umm and ah a bit and make a few token leans towards paying down the debt before getting down to the serious business of calling a surplus ‘overtaxation and basically theft of money that should be returned to the top earners who the only ones who actually pay tax’. And the debt can go fuck itself.

    Comment by Pascal's bookie — April 8, 2014 @ 6:58 pm

  23. @Pascal: Asset sales are the standard neoliberal response to debt.

    Comment by kalvarnsen — April 8, 2014 @ 7:45 pm

  24. @kalvarnsen, debt is the standard neoliberal excuse for selling assets. Hasn’t been a western country without debt since the great depression pointedly showed what a terrible idea that was. What did they do with that debt? Built so many assets they ended up owning half their country. So, they sell them, usually for a gigantic profit, as the “opposition” talks up the price by promising criminally high returns.

    Anyhoo, the reason all these kind folk tell such great stories is that they really aren’t all that different to each other. Labour thinks the top tax rate should be 39% with a 2% savings boost and national thinks it should be 33% with a 2% savings penalty, which is 37% vs 35% in case you lost track. National put GST up and Labour’s going to leave it up, just like last time around. National sell dodgy assets for $billions and Labour buys them back when they go broke for $1.

    So what are they supposed to ask for a vote with? Tales of how their economic policy might help a different 0.1% of the population to the other party’s policies? How houses are out of reach for regular people so it’s super-important to subsidise landlords and prevent low-price houses being on the market, while passing laws which make it most profitable for developers to build mansions at the far end of holiday highways? By people who are a bunch of fucking landlords?

    Comment by tussock — April 8, 2014 @ 8:25 pm

  25. @tussock: Is that what caused the Great Depression?

    Comment by kalvarnsen — April 8, 2014 @ 11:07 pm

  26. In the eight months to the end of February, the tax take was $1.1 billion lower than forecast, helping push the deficit for this year higher, figures released on Tuesday show.

    The economy is hardly growing. Unless you own lots of cows or know how to swing a hammer.

    Comment by George — April 9, 2014 @ 8:46 am

  27. You don’t get it Tinakori. Danyl’s point isn’t that the Nats are more or less prudent than the others, but that they LIE about what they’re spending. Yes you can surmise that Labour would spend money on things, but you cannot quantify how much nor how much more than National has. All we know is that Labour would have spent elsewhere and probably the tax take would’ve been higher.

    Comment by Vita — April 9, 2014 @ 2:52 pm

  28. “26.In the eight months to the end of February, the tax take was $1.1 billion lower than forecast, helping push the deficit for this year higher, figures released on Tuesday show.
    The economy is hardly growing.”
    Tax revenue lags economic recovery, as brought forward tax losses get offset against current profits. Plus it takes a while for the provisional tax take to go up: for most taxpayers it is based on LAST year’s earnings (the safe harbour option), not the current gang-busters rock-star year.
    But I think we all agree: the reds & blues broadly agree on all but a few small areas.
    I think the “economic suicide” of the greens doesn’t come so much from their fiscal promises, as from their proposed regulatory burden.

    Danyl, any chance you can overlay a line graph (rhs) of actual Core Crown Expenses (by the looks of things you have data at hand)? It would be neat to see if the $ stayed on roughly the same track, highlighting (I assume) that recession is the cause of the spike in % of GDP.

    “Hyefu forecast a tax take of $65.7 billion next fiscal year,” and $1.1B is 1.7% of that, $550M little more than 0.8%. That’s not too bad a forecasting “error” is it?

    Comment by Clunking Fist — April 9, 2014 @ 3:07 pm

  29. … but that they LIE about what they’re spending

    They do? They’re not politicians by any chance?

    Comment by Tom Hunter — April 9, 2014 @ 4:30 pm

  30. @kalvarnson: not the initial cause, nor the only one (the new central banks were starkly unhelpful), but it was the response of standard economic models at the time that governments should slash spending to balance their budgets in times of recession, to avoid going into debt that would be difficult to repay.

    That drove the Wall Street crash of 1929 into an ever-deepening depression which spread around the world. Some democracies handled it by bringing in Keynesian reforms and others got Fascism. Fortunately for us, John Maynard Keynes wrote his books in English.

    Starting a subsidised public savings program in a boom and turning it off and ramping up state borrowing in a bust is standard Keynes. Parties criticising each other for it is just bullshit party propaganda. Bill English is an imperfect finance minister because he personally fucked up with South Canterbury Finance, and isn’t pushing the Christchurch rebuild along fast enough in a time of moderate-high unemployment and continued homelessness, and is casually corrupt, and various other problems. But borrowing a big lot of money and throwing it around in a long recession is fantastic, and criticising that is insane. Celebrate it.

    Comment by tussock — April 9, 2014 @ 8:48 pm

  31. What point is there preaching to people about $50 billion in government borrowing – or even the hypocrisy of it – when people are willing go into huge hock to buy over-priced houses, allow their mortgages to be further boosted so they can buy the good things in life, and then kid themselves about how prudent they are or shrug their shoulders that things will work out. Muldoon’s stunt worked forty years ago when there was still a substantial number of the Depression Generation alive who could pinch penny’s tight. But even then they either did not or would not care about a strange and intangible thing called an unfunded future liability.

    The good news for you and the rest of the Left is that this should enable a Green-Labour government to pull the same stunt for their own purposes, the main stumbling block being the need for competence in political messaging that can produce a believable story to justify it or allow people to further ignore it. Green-Labour aren’t there yet, but as Margin Call‘s Will Emerson says, “…they’ll figure a way..

    Comment by Tom Hunter — April 10, 2014 @ 10:10 am

  32. Some good points there, Tom. When we bought a house, our debt was 400% of our “GDP”. Of course, after that, we ran “surpluses” for 20 years…

    “Some democracies handled it by bringing in Keynesian reforms and others got Fascism.” Are you sure about that? I read somewhere (where?) that the non-US English-speaking countries kept spending on an even keel and were “fixed” by 35/36, whereas the US got the New Deal and generally went on a spending spree, with recession bumping along until WWII.
    The Japs have been running deficits for a while now (as well as loose monetary policy), and their govt debts is 150% of GDP, with little to show for it in terms of growth, but clever them for being rather rich to start with.

    Comment by Clunking Fist — April 10, 2014 @ 1:48 pm

  33. Very simple solution – publish the New Zealand Debt Clock – at present showing $77 billion plus, it makes a very clear picture showing the added interest every single second, tells of the amount of money owed by each New Zealand citizen and the ratio of debt to GDP (about twice that of Australia). If people don\t respond well to having to read facts and statistics this is a great visual tool.

    Comment by Jan — April 10, 2014 @ 1:55 pm

  34. @ Tom Hunter – I’m sure Penny is relieved that Muldoon’s stunt no longer works.

    Comment by Gregor W — April 10, 2014 @ 3:43 pm

  35. I’m sure she was too…. bloody @^#^@& editing… that won’t let me post the rest of the comment!!!!

    Comment by Tom Hunter — April 10, 2014 @ 9:09 pm

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