http://pundit.co.nz/content/the-budget-a-longer-term-prognosis
The Budget: A Longer Term Prognosis.
by Brian Easton
A major preoccupation of the budget was preparing for the next major >financial crisis. To do so it is reducing government spending relative
to GDP. Where do tax cuts fit in?
Our politics reminds me those weekly serial movies where each week the >heroine ends in an impossible situation but next week she miraculously >escapes and the action moves on to the next impossible situation.
True for a budget too, as far as the populace is concerned – they will
soon move on. Yet for serious analysts there is a lot in one but it
takes time to draw it all out. (Written grumpily – I spent two hours
on Friday chasing an oversight I had made in a spreadsheet.) When you
have finally got your head around it, political life has moved on, and
there is not much interest in any deep thinking.
The government encourages this by handouts which capture the attention
of the superficial who faithfully reproduce them as news. Have you
noticed how often the government mentions new policy (announced as a
four year outlay to bulk the number) but fails to draw attention to
closures and downward pressures in their spending programs? If they do
not have any new policies the minister announces the department’s
budget as if it is fresh, rather than a rollover from the previous
year.
Thus far I have worked on two budget issues. The first is the Treasury >forecast of the economy. They are expecting stronger growth in the
economy than I expect (although their forecast will not be very
different from that of the majority of economists who, in my
experience, tend to be a bit optimistic).
In any case the big problem remains. Despite forebodings, the Chinese
economy is still growing. I am reminded of a decade ago when serious >economists were worried about the US economy, although no one exactly >predicted the trigger for the Global Financial Crisis.. It is
instructive that the Minister of Finance – but not the Prime Minister–
has said he wants to get our public debt down to give the government
more room to move.
I shant go through some other wrinkles but the main driver of the
economy appears to be overseas borrowing. The Treasury does not give
its estimate of the level of overseas debt but it appears to be rising
faster than GDP or exports. This is private debt, which a neoliberal
says is of no concern to the government. If you are a central banker
you say ‘nonsense’, especially as most is coming through the banking
system and the Reserve Bank may have to bail it out (as it did after
the GFC); that usually requires some assistance from the Treasury.
I am sure that is what Bill English means when he talks about getting
public debt down; it gives him room to manouevre when we hit a private
debt wall. It is good to see there is some anticipation, although it
is hardly a comprehensive strategy which would also address the
private overseas borrowing more directly, especially as it is
distorting the housing market.
The other issue I have looked at is the pattern of government
spending. Sure, ministers have gone out of their way to baffle you
with numbers, but actually ...
One of the major purposes of the government budget is to set the
balance between private and public spending. This is largely a
political judgement but the curious fact it that historically New
Zealand’s right-wing and left-wing governments have both been
committed to increasing public spending and, perforce, reducing
private spending; the exception has been social security where
National has been less enthusiastic than Labour.
That no longer appears to be the pattern. Quite out of character with
its historic record (neo-liberal Ruthanasia in the early 1990s aside),
this National government is committed to reducing public spending. It
depends on how you measure it but, for a number of technical reasons,
I use the Core Government Spending to GDP ratio In simple terms, the
ratio has fallen, whereas traditionally National is associated with a
rising proportion (excluding social security).
Under the previous Labour-led Government, Core Government Spending
rose to a trend level of 31.8 percent of GDP at the end of its term;
this (fiscal) year – under National – it is expected to be 29.9
percent (and is projected to fall further to 28.5 percent in 2020).
The 1.9 percentage point fall represents a reduction of about $4.7b in
public spending this year.
Every major spending area is experiencing reductions, with the
exception of New Zealand Superannuation whose share relative to GDP is >continuing to grow because of the aging population and because, unlike
social security benefits, the rate is indexed to after-tax wages
rather than just to prices. (Even so, many superannuitants are
suffering from discomfort while on a public healthcare waiting list or
from financial stress if they skip the wait by being treated
privately; many face inadequate home and residential care if they
become frail.)
So, for instance, public spending on healthcare is lower today
relative to GDP than it was in the past (let alone allowing an
increment for rising relative prices, population aging and our
affluence). The reductions not only impact on the high-user elderly
and their families. Recently the Minister of Justice (Amy Adams)
complained about inadequate mental health care impacting on the
justice and corrections systems; Law and Order spending is being
relatively cut too.
Indicative of the short-termism of the government is how they dealt
with a series of housing difficulties which came to a head just before
the budget. There seems to have been no anticipation (despite the
claim they knew there were problems) nor solid policy development
about a housing strategy. Instead the government rushed around with
its bandaids none of which will be particularly effective. (Blaming
the Auckland Council will be of great comfort to someone living in a
car in Invercargill.) Meanwhile government spending on housing is
expected to fall slightly relative to GDP over the next few years.
The spending cuts are being used to fund past income tax cuts. The
Prime Minister says he wants more tax cuts next year. (He has
mentioned $3b, which amounts to about 1.2 percentage points of GDP.)
The Minister of Finance has differed. His priority is reducing debt to
be ready for the next global financial crisis. But he has also
indicated that he is worried about further cutting of government
spending. Perhaps through his portfolio, the Minister of Finance is
more in touch with the difficulties the cuts are causing. But it also
may be that English belongs to the traditional National Party with its >preference for cautious incremental increases in public spending,
whereas John Key is to his right with a preference for tax cuts and
damn the public sector.
I am not sure one should get politically excited about their
disagreement. It is normal in politics. But in New Zealand it usually
occurs behind closed doors, not in the public arena. Will the public
be aware of it in a week’s time?
On Tue, 31 May 2016 17:38:04 +1200, Rich80105<rich80105@hotmail.com>
wrote:
http://pundit.co.nz/content/the-budget-a-longer-term-prognosis
The Budget: A Longer Term Prognosis.
by Brian Easton
A major preoccupation of the budget was preparing for the next major >>financial crisis. To do so it is reducing government spending relative
to GDP. Where do tax cuts fit in?
Our politics reminds me those weekly serial movies where each week the >>heroine ends in an impossible situation but next week she miraculously >>escapes and the action moves on to the next impossible situation.
True for a budget too, as far as the populace is concerned – they will
soon move on. Yet for serious analysts there is a lot in one but it
takes time to draw it all out. (Written grumpily – I spent two hours
on Friday chasing an oversight I had made in a spreadsheet.) When you
have finally got your head around it, political life has moved on, and >>there is not much interest in any deep thinking.
The government encourages this by handouts which capture the attention
of the superficial who faithfully reproduce them as news. Have you
noticed how often the government mentions new policy (announced as a
four year outlay to bulk the number) but fails to draw attention to >>closures and downward pressures in their spending programs? If they do
not have any new policies the minister announces the department’s
budget as if it is fresh, rather than a rollover from the previous
year.
Thus far I have worked on two budget issues. The first is the Treasury >>forecast of the economy. They are expecting stronger growth in the
economy than I expect (although their forecast will not be very
different from that of the majority of economists who, in my
experience, tend to be a bit optimistic).
In any case the big problem remains. Despite forebodings, the Chinese >>economy is still growing. I am reminded of a decade ago when serious >>economists were worried about the US economy, although no one exactly >>predicted the trigger for the Global Financial Crisis.. It is
instructive that the Minister of Finance – but not the Prime Minister–
has said he wants to get our public debt down to give the government
more room to move.
I shant go through some other wrinkles but the main driver of the
economy appears to be overseas borrowing. The Treasury does not give
its estimate of the level of overseas debt but it appears to be rising >>faster than GDP or exports. This is private debt, which a neoliberal
says is of no concern to the government. If you are a central banker
you say ‘nonsense’, especially as most is coming through the banking
system and the Reserve Bank may have to bail it out (as it did after
the GFC); that usually requires some assistance from the Treasury.
I am sure that is what Bill English means when he talks about getting >>public debt down; it gives him room to manouevre when we hit a private
debt wall. It is good to see there is some anticipation, although it
is hardly a comprehensive strategy which would also address the
private overseas borrowing more directly, especially as it is
distorting the housing market.
The other issue I have looked at is the pattern of government
spending. Sure, ministers have gone out of their way to baffle you
with numbers, but actually ...
One of the major purposes of the government budget is to set the
balance between private and public spending. This is largely a
political judgement but the curious fact it that historically New
Zealand’s right-wing and left-wing governments have both been
committed to increasing public spending and, perforce, reducing
private spending; the exception has been social security where
National has been less enthusiastic than Labour.
That no longer appears to be the pattern. Quite out of character with
its historic record (neo-liberal Ruthanasia in the early 1990s aside),
this National government is committed to reducing public spending. It >>depends on how you measure it but, for a number of technical reasons,
I use the Core Government Spending to GDP ratio In simple terms, the
ratio has fallen, whereas traditionally National is associated with a >>rising proportion (excluding social security).
Under the previous Labour-led Government, Core Government Spending
rose to a trend level of 31.8 percent of GDP at the end of its term;
this (fiscal) year – under National – it is expected to be 29.9
percent (and is projected to fall further to 28.5 percent in 2020).
The 1.9 percentage point fall represents a reduction of about $4.7b in >>public spending this year.
Every major spending area is experiencing reductions, with the
exception of New Zealand Superannuation whose share relative to GDP is >>continuing to grow because of the aging population and because, unlike >>social security benefits, the rate is indexed to after-tax wages
rather than just to prices. (Even so, many superannuitants are
suffering from discomfort while on a public healthcare waiting list or
from financial stress if they skip the wait by being treated
privately; many face inadequate home and residential care if they
become frail.)
So, for instance, public spending on healthcare is lower today
relative to GDP than it was in the past (let alone allowing an
increment for rising relative prices, population aging and our
affluence). The reductions not only impact on the high-user elderly
and their families. Recently the Minister of Justice (Amy Adams)
complained about inadequate mental health care impacting on the
justice and corrections systems; Law and Order spending is being
relatively cut too.
Indicative of the short-termism of the government is how they dealt
with a series of housing difficulties which came to a head just before
the budget. There seems to have been no anticipation (despite the
claim they knew there were problems) nor solid policy development
about a housing strategy. Instead the government rushed around with
its bandaids none of which will be particularly effective. (Blaming
the Auckland Council will be of great comfort to someone living in a
car in Invercargill.) Meanwhile government spending on housing is
expected to fall slightly relative to GDP over the next few years.
The spending cuts are being used to fund past income tax cuts. The
Prime Minister says he wants more tax cuts next year. (He has
mentioned $3b, which amounts to about 1.2 percentage points of GDP.)
The Minister of Finance has differed. His priority is reducing debt to
be ready for the next global financial crisis. But he has also
indicated that he is worried about further cutting of government
spending. Perhaps through his portfolio, the Minister of Finance is
more in touch with the difficulties the cuts are causing. But it also
may be that English belongs to the traditional National Party with its >>preference for cautious incremental increases in public spending,
whereas John Key is to his right with a preference for tax cuts and
damn the public sector.
I am not sure one should get politically excited about their
disagreement. It is normal in politics. But in New Zealand it usually >>occurs behind closed doors, not in the public arena. Will the public
be aware of it in a week’s time?
Doubtful, Brian.
You see, the Herald is currently promoting the return of "The Block"
on TV. This is where the beating hearts and core thinking of yer
average voting Kiwi really resides: the edifying spectacle of the >swarthy-shaven hod-carrier with both eyes sharing the same socket, and
his squawking, dungareed slattern, dreamily cobbling a home together
from substandard chinese-sourced materials. The ultimate outcome of
their labours and reckless borrowings is then validated and approved
under some of the slackest rules and compliances known to modern man.
Their proud, new edifice is mostly paid for, and therefore ** owned**
by foreigners, i.e. the overseas banks whose shipped-out profits
sky-rocket precisely in parallel with New Zealand's out-of-control
private debt which, you will note, comes early in Easton's piece. In
my earlier posting, this was also the No 1 in my list of New Zealand's
record of steady economic decline.
Easton's entire article is right on the button.
As for his, "The spending cuts are being used to fund past income tax
cuts."
Again, Easton's nailed it: bare-faced financial fiddling.
This is the zero-sum economics of barrow-boy spivvery cynically
dressed up as "pragmatism." The Sum, in all its millions - far too
much of it gained from zero-productivity activity and government
borrowings - goes to the already wealthy (sucking in even more
exports), leaving the less fortunate majority to eke out their
existence as best they may on the Zero, their stagnant low incomes being >their reward for increased working hours.
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