But two recent podcasts - one with former Finance Minister Ruth Richardson and the other with economics professor Rob MacCulloch – tell me this country is in a financial state worse than 1984, the year David Lange’s Fourth Labour government began their radical reshaping of the country’s economy.
When Roger Douglas took office as Minister of Finance in July 1984 the ratio of the government’s debt to GDP was 29.6 percent.
Next month it will hit 45.1 percent or $192 billion dollars. The forecast is for it to be 47 percent in two years from now.
Those numbers make two things very obvious – we have to start spending less than we earn, and we have to start paying back our debt.
(The annual interest bill on the debt is $9 billion, three times more than the Defence Force budget.)
As in 1984 some serious economic surgery is required. The Taxpayer Union publication “A Pathway to Surplus: A plan to end waste and rebuild fiscal strength” lays out the blueprint.
Published today (May19), it’s twenty five pages of considered economic thinking and an explanation of how the Crown accounts can be returned to surplus, while at the same time paying back huge chunks of Core Crown debt during the next four years.
One idea – selling off the $75 billion assets of the New Zealand Superannuation Fund – is so radical it will just never see the light of day.
But let’s think about this. Why not? The Crown currently borrows to invest into the fund and it performs well. But reducing Core Crown Debt by $75 billion or 43 percent significantly reduces the annual outgoings in Crown interest, freeing up money for things a government should be doing in education and health.
This is essentially a philosophical debate. Do you want money in the bank for a rainy day or would you rather reduce your debt? It’s like asking anybody with a million dollar mortgage if they have $500,000 in the bank. If they have, their capital management is highly suspect. I’m no finance expert but I do know that paying off debt is the best investment you can ever make.
This TPU report then goes after the low hanging fruit which can be expunged quickly - like the Winter Energy Payment to pensioners. That’ll save $560 million this year and nearly $3 billion by 2029. In the same category are the Best Start baby benefits saving $1.7 billion during the next four years and the KiwiSaver tax credit which costs a billion dollars a year.
Then there’s the so called demographic Ministries and agencies like the Ministries for Women, Ethnic Affairs, Pacific Peoples and Maori Development. If they’re closed down and their work folded into other agencies the savings would be $2.4 billion in the next four years.
In the overall scheme of what’s required the savings from those schemes are small beer, albeit absolutely necessary. But this Taxpayer’s Union report is not afraid to address the big beast in the room: the country’s aging population and the cost we Baby Boomers (I’m 71) will impose on the nation in the next forty years.
Life expectancy has increased 12 years since the 1950s and will reach 89.7 for females and 87 for males in the next half century. By 2060 over a quarter of us will be aged 65 or more. That means fewer working age people supporting more elderly. The tax burden on them therefore has to be reduced. But how?
The TPU is in no doubt – the age of superannuation eligibility must go up, and the sooner the process starts the better. The report says it must go up to 67 and then be indexed to life expectancy after that.
We’ve done it before. The age went up from 60 to 61 in 1992 and then gradually to 65 between 1993 and 2001. The Bill English National government had a plan to start increasing the age in 2037, reaching 67 in 2040. Why wouldn’t a fiscally responsible Parliament reinstate at least that arrangement right now?
But this report also recommends that, as in Australia, individuals take far more responsibility for their retirement income. Therefore it suggests KiwiSaver become compulsory with a minimum 4 percent contribution from both employee and employer.
As well as the monster sell down of the NZ Super Fund, this report also cuts to the chase about a whole lot of other Crown assets which should be sold.
The remaining 51 percent Crown shareholdings in Meridian, Mercury and Genesis Energy, along with lines company Transpower could be worth at least $16 billion.
Then there’s the poorly performing NZ Post, the state farmer Pamu and the omnipresent poster child for a hopeless Crown asset, KiwiRail, that are all recommended to be put on the block too. The cash return from them would be close to inconsequential but at least they wouldn’t continue to be a burden on the Crown as poorly performing assets.
The medicine recommended in this TPU report is strong and the current Coalition Government leadership is unlikely to be influenced by it. Winston Peters is vehemently against both asset sales and the raising of the superannuation age so those ideas are going nowhere in the short term.
Labour politicians, having their tail constantly wagged by the socialists in the Greens and Te Pati Maori, won’t touch either of those issues either.
It’s all rather a depressing economic and fiscal outlook. Unless the Crown makes some serious efforts to pay off debt while spending less than they collect in taxes and other revenue, then this country is headed for really dire economic outcomes.
High debt levels present huge risks. We’re a small and not very diversified economy. A market downturn for our food commodity exports would make it more difficult to pay back debt, pushing up the cost of borrowing even more. And let’s not consider the impact another earthquake might have!
This week’s Budget is unlikely to present anything radical or earth shattering. The KiwiSaver tax credit might go, but so what? It’s the lowest of the low hanging apples.
A pre-Budget announcement giving even more money to Hollywood film studios to make movies here tells you all you need to know about the economic philosophies of Nicola Willis and Chris Luxon.
They’re timid and not prepared to face reality head-on. That can wait for some other government.
Next month it will hit 45.1 percent or $192 billion dollars. The forecast is for it to be 47 percent in two years from now.
Those numbers make two things very obvious – we have to start spending less than we earn, and we have to start paying back our debt.
(The annual interest bill on the debt is $9 billion, three times more than the Defence Force budget.)
As in 1984 some serious economic surgery is required. The Taxpayer Union publication “A Pathway to Surplus: A plan to end waste and rebuild fiscal strength” lays out the blueprint.
Published today (May19), it’s twenty five pages of considered economic thinking and an explanation of how the Crown accounts can be returned to surplus, while at the same time paying back huge chunks of Core Crown debt during the next four years.
One idea – selling off the $75 billion assets of the New Zealand Superannuation Fund – is so radical it will just never see the light of day.
But let’s think about this. Why not? The Crown currently borrows to invest into the fund and it performs well. But reducing Core Crown Debt by $75 billion or 43 percent significantly reduces the annual outgoings in Crown interest, freeing up money for things a government should be doing in education and health.
This is essentially a philosophical debate. Do you want money in the bank for a rainy day or would you rather reduce your debt? It’s like asking anybody with a million dollar mortgage if they have $500,000 in the bank. If they have, their capital management is highly suspect. I’m no finance expert but I do know that paying off debt is the best investment you can ever make.
This TPU report then goes after the low hanging fruit which can be expunged quickly - like the Winter Energy Payment to pensioners. That’ll save $560 million this year and nearly $3 billion by 2029. In the same category are the Best Start baby benefits saving $1.7 billion during the next four years and the KiwiSaver tax credit which costs a billion dollars a year.
Then there’s the so called demographic Ministries and agencies like the Ministries for Women, Ethnic Affairs, Pacific Peoples and Maori Development. If they’re closed down and their work folded into other agencies the savings would be $2.4 billion in the next four years.
In the overall scheme of what’s required the savings from those schemes are small beer, albeit absolutely necessary. But this Taxpayer’s Union report is not afraid to address the big beast in the room: the country’s aging population and the cost we Baby Boomers (I’m 71) will impose on the nation in the next forty years.
Life expectancy has increased 12 years since the 1950s and will reach 89.7 for females and 87 for males in the next half century. By 2060 over a quarter of us will be aged 65 or more. That means fewer working age people supporting more elderly. The tax burden on them therefore has to be reduced. But how?
The TPU is in no doubt – the age of superannuation eligibility must go up, and the sooner the process starts the better. The report says it must go up to 67 and then be indexed to life expectancy after that.
We’ve done it before. The age went up from 60 to 61 in 1992 and then gradually to 65 between 1993 and 2001. The Bill English National government had a plan to start increasing the age in 2037, reaching 67 in 2040. Why wouldn’t a fiscally responsible Parliament reinstate at least that arrangement right now?
But this report also recommends that, as in Australia, individuals take far more responsibility for their retirement income. Therefore it suggests KiwiSaver become compulsory with a minimum 4 percent contribution from both employee and employer.
As well as the monster sell down of the NZ Super Fund, this report also cuts to the chase about a whole lot of other Crown assets which should be sold.
The remaining 51 percent Crown shareholdings in Meridian, Mercury and Genesis Energy, along with lines company Transpower could be worth at least $16 billion.
Then there’s the poorly performing NZ Post, the state farmer Pamu and the omnipresent poster child for a hopeless Crown asset, KiwiRail, that are all recommended to be put on the block too. The cash return from them would be close to inconsequential but at least they wouldn’t continue to be a burden on the Crown as poorly performing assets.
The medicine recommended in this TPU report is strong and the current Coalition Government leadership is unlikely to be influenced by it. Winston Peters is vehemently against both asset sales and the raising of the superannuation age so those ideas are going nowhere in the short term.
Labour politicians, having their tail constantly wagged by the socialists in the Greens and Te Pati Maori, won’t touch either of those issues either.
It’s all rather a depressing economic and fiscal outlook. Unless the Crown makes some serious efforts to pay off debt while spending less than they collect in taxes and other revenue, then this country is headed for really dire economic outcomes.
High debt levels present huge risks. We’re a small and not very diversified economy. A market downturn for our food commodity exports would make it more difficult to pay back debt, pushing up the cost of borrowing even more. And let’s not consider the impact another earthquake might have!
This week’s Budget is unlikely to present anything radical or earth shattering. The KiwiSaver tax credit might go, but so what? It’s the lowest of the low hanging apples.
A pre-Budget announcement giving even more money to Hollywood film studios to make movies here tells you all you need to know about the economic philosophies of Nicola Willis and Chris Luxon.
They’re timid and not prepared to face reality head-on. That can wait for some other government.
God help us.
DISCLAIMER: I’m a supporter and small dollar donor to the Taxpayers Union (TPU), a former Board member and a host of their podcasts.
Peter Williams was a writer and broadcaster for half a century. Now watching from the sidelines. Peter blogs regularly on Peter’s Substack - where this article was sourced.
DISCLAIMER: I’m a supporter and small dollar donor to the Taxpayers Union (TPU), a former Board member and a host of their podcasts.
Peter Williams was a writer and broadcaster for half a century. Now watching from the sidelines. Peter blogs regularly on Peter’s Substack - where this article was sourced.
10 comments:
A Government that specialises in tinkering around the edges will never cut it. A sobering read Peter.
Stop the Maorification of the country and all the Treaty claims. Stop the Climate Fund payments. Help the unemployed to find jobs and have able-bodied people working. Stop large payments to families. I was told of a family that was getting $700 a week in subsidies. Some elderly people would freeze in the winter without the Winter Payment, so that's not an option unless you means test. Cut parliamentarians salaries in half and reduce the number of MPs to 50.
We have to remember that it's governments that get people into these situations in the first place with stupid policies. Even now they refuse to act on the never-ending Treaty claims, so how will the situation improve?
Reporters now have insufficient knowledge or experience (or paid time) to handle other than simplistic topics. huge reliance is placed on press handouts.
Great piece Peter, some real discussion points. You are correct, we are going nowhere fast. Debt is not a problem until it is. Everyone should be listening to guys like Warren Buffett and Ray Dalio. But why on earth take advice from 2 guys like that.
Let's not mention the left, for anything to work or be successful for those nutters basically you need to do the opposite of what they promote. Remember, the left teach and actively encourage failure.
Dalio and Buffett do NOT live in NZ. Trump @8.06am is closer to the reality of NZ life. Strengthen the Cullen Fund. Investigate Singapore's Super fund it is the best model. Allow self managed super and salary sacrificing as in Australia. And forget about the Ebenezer Scrooge economics of forcing people to work when they are aging.Scrap the electricity reforms and start again. There is so much in the way of abysmal previous economic management decisions to remove that billions could be saved in the twinkle of an eye. And yes stop pandering to Maori and their Mafia tactics. Increase tax rates to tax Maori corp-orates and claw back their rorts!
When we have a Govt that has doubled down on comrade Ardern’s climate nonsense, how in the world are we ever going balance the books. Only the foolish believe unicorns and fairies.
New Zealand's commitment to the Paris Agreement carries a significant financial cost. Initially, meeting its Nationally Determined Contribution (NDC) under the agreement was estimated to cost around $14 billion. This estimate has since been updated to a potential $30 billion by 2030 for buying offshore carbon credits to compensate for emissions.Additionally, international climate finance commitments and the potential for future costs associated with climate change impacts could add to the total financial burden.
If only Luxon would read and follow the advice of the Kiwi Trump above !
Exactly what needs to be done.
If Luxon is concerned about his personal profile, he should look at the real Trump and figure out that being bold brings accolades and endearment.
(Not that I endorse US Trump for any of his nutty stuff)
The 10 billion core NZ debt interest is a real handbrake, needs to be fiscally examined and challenged to reduce the cost of this borrowing. Yes the debt has to be repaid but surely some of the highest interest borrowings can be targeted and eliminated. Ms Willis and her second budget are the turning point for National and PM Luxon , I doubt they have a clue of the real importance to NZers.
I know of two government employees who's jobs could be 98% > 100% completed by AI right now....these are just people in my community who are both talented and nice hard working individuals, but who don't need to be employed by the NZ taxpayer in order for their jobs to be done - or could be employed to do something much more useful for the taxpayer.
Better yet - send them both to the private sector to contribute to the actual economy.
When the economy consists of nearly all govt employees (the NZ I'm living in) then there is no real economy.
I respectfully disagree with the proposition to sell NZ Pension Fund. My views are here: https://zoranrakovic.substack.com/p/why-selling-nzs-pension-fund-would
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