OnPoint: Budget 2009: “Aww, shit.” (Final Update)
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Shouldn't it be $88 billion plus the interest accruing on that debt? So there may be even bigger spending cuts ahead?
Nope. It's $88b of savings, rather than debt, so it goes the other way.
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firstly, that graph assumes no growth forever, right? If we can actually recover from this recession, then we'd expect debt to fall.
No, it doesn't assume that, but if growth was better than expected, then yes, the debt position will become better.
secondly, 60% debt/GDP would only put us where most developed nations are now. Why should we be the only ones with tiny government debt, how does it help us?
Because it's not just public (government) debt that counts, it's a combination of public and private. It's the total that matters. High debt means that more money goes overseas to service our debts (public and private), which worsen our current account deficit, increasing the cost of borrowing, our exposure to international credit markets, etc.
Debt is bad. Not worse-than-Hitler bad, but it's not a trivial issue that only matters for high-flying/falling financiers.
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Spending growth will in fact be negative in real terms (and going backwards as a percentage of GDP). So someone in fact got more than their "cap spending at inflation" demand.
Yes. But it can't go up forever, right? So the fact that it's coming down is not necessarily catastrophic.
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Debt is bad. Not worse-than-Hitler bad, but it's not a trivial issue that only matters for high-flying/falling financiers.
When I looked at the first graph, I thought "wow, good thing we're starting from a base of close to zero".
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Long on bean counting, short on vision and driven by the Treasury. I don't know why people bother voting for National, all they do is elect a bunch of pin stripes from the Terrace.
Hey, don't fall into the trap of dismissing experts when you disagree with them. Otherwise, all you've got to work on is truthiness.
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On this basis the government should just borrow a trillion dollars, invest it, and keep the one billion profit that it makes after a year.
You get diminishing returns on investment (i.e. Your first billion would be invested in the best places, but by the thousandth billion, there'd only be really shitty opportunities left); and the more you borrow, the greater your exposure to risk, so the higher the cost of borrowing.
Point being that it's entirely possible to profitable to borrow $20b and invest it, but not profitable to borrow $200b and invest it.
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This will mean the 90's sinking cap all over again, the deferral of maintenance, the underfunding of public services for a decade. But doing it this way means they don't have to announcethey're doing it.
I agree that it's basically a sinking cap, but I think it's going to be anything *but* hidden. It's going to be painfully obvious at every subsequent budget that things are getting squeezed out, and that other things are being cut entirely so that new things can be squeezed in. The risk isn't that no one will notice, the risk is that they'll keep blowing these spending targets because it hurts too much.
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Standard & Poors delivered their verdict at about 4 p.m. What time did Bill English sit down? Fast readers, eh?
Nah. Everyone at the lock up had a copy since 10am. That's quite a bit of nerd-time.
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Fascinating and very useful analysis Keith. I should have listened to what you were saying more closely in the lockup.
Heh, nah - you were sitting right next to me, which meant that you heard my argument while it was still in its Rainman-phase. "Narrrh! Narrrh! 88 billion over 14 fiscal years which is 27 of the 30% decrease in debt as % of GDP. Naaarh!"
For the new spending track to be kept to there will be increasing amounts of cuts required to other parts of core Govt expenditure.
The simple truth is the only ways out of this mess fiscally speaking will be to restore the country to growth or to change the way we think about fiscality.
Well... cutting spending is one way to restore the government's position. Sure, it's not cost-free, and it's not pleasant. But if they stick with it hard enough and long enough, it can't really "not work".
Much like amputation.
Still its amusing that Standard and Poors found it nice and compelling.
I suspect it's like NCEA. "To achieve credit rating AA+, student must be able to identify prudent debt level and demonstrate intention to reduce debt, and be able to outline path to reach debt objective to teacher."
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George, re: CGT etc, I'm right there with you in thinking that a fundamental rethink of why and how we tax is desirable. I love the idea of consumption tax as well - someone who earns $10m in productive work is a boon to society, even before he pays a cent in tax; someone who spends $10m on a luxury superyacht, not so much.
However, just because an idea is fundamentally good, doesn't mean it's not full of unforeseen thorns and perverse effects. And it represents a massive disruption to the economic system, as everyone scrambles to adapt.
Just sayin', big changes are not easy, especially when you're an incumbent.
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It's going to be painfully obvious at every subsequent budget
Especially with expert fisking like this - thanks, Keith. Don't know if you've also seen The Standard's simple graph of average hourly wage rates based on the Budget projections. Voters just might notice that trend in their wallets.
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Yeah, but that's just a consequence of the economic environment rather than any policy impacts.
Having said that, one thing that people will feel is the Nat's use of fiscal drag to effectively raise taxes for the foreseeable future. Full points for irony!
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Having said that, one thing that people will feel is the Nat's use of fiscal drag to effectively raise taxes for the foreseeable future. Full points for irony!
Except that for a while anyway - perhaps beyond this term - it will be lowering average taxes as wages drop...
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I'm holding them responsible for failing to address employment rather than for the dire global situation. I know it's complex but it seems a quite deliberate choice to focus on keeping happy the same cabal of international financiers who got the world into its current pickle. Instructive comparing what Cunliffe said beforehand about what the focus should be from Labour's point of view. I haven't caught up on all the analysis yet.
Can someone find figures about the cost per job in capital-intensive heavy construction compared with other industries? Had to laugh at English saying there were lots of jobs - installing insulation, building roads and guarding prisons. Real ambitious knowledge economy stuff.
Revenue projections certainly suck, and I don't wish Bill English's job on anyone right now. Overall this Budget was not nearly as bad as I expected, but I look forward to seeing more detail winkled out. For example, the boost in ORRS funding for disabled students is welcome after years of the Labs dragging the chain, but I notice what seems to be a large cut in funding for equipment and housing modifications (unless the responsiblity has been quietly transferred to DHBs).
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For example, the boost in ORRS funding for disabled students is welcome after years of the Labs dragging the chain
It had been boosted by more money in the last Cullen budget, no? But sitll no result from the Special Needs Resourcing Review, and what is needed there is a pretty significant change of culture, rather than more money. When the people who are in charge of delivering the funding consistently underspend their budget, and see it as a proud achievement, it means there's much, much work to do.
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PPPs are just an expensive way for the government to pretend its not borrowing.
No, sir. I'm agin 'em.
And just out of interest, I note that the tax legislation is being repealed 'under urgency'.
Is there any legislation passed under this government that hasn't been "under urgency'?
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Meanwhile, I was kind of hoping the economic xenophobia had left the building with Winston Raymond Peters and his personality cult.
Stupid stupid me. I really hope Michael Cullen is somewhere quitetly cringing at the "Bill English sucked dirty foreign banker dick" crowd.
Still, Telecom did pick a hell to be extra incompetent and cut off my internet access.
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Having a listen to the radio and reading the paper, it seems to me the main political battleground to come out of this budget is the gutting of the Cullen Fund. Eleven years? Bill English won't be the finance minister in three years let alone eleven.
National has a perfect record of being wreckers of any atttempt to fund retirement in a sensible way. Gutting the Cullen fund has given Labour a long-term political gift on a plate.
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For example, the boost in ORRS funding for disabled students is welcome after years of the Labs dragging the chain, but I notice what seems to be a large cut in funding for equipment and housing modifications (unless the responsiblity has been quietly transferred to DHBs).
Re ORRS. Not quite as it seems Sacha. Firstly, this extra money has come out of another part of the MoE Budget, possibly special education related (I haven't worked this out yet). I've had every Labour Minister of Education in the last 9 years give me figures about how much ORRS funding has risen in their time. And it has. But it hasn't stoppped inequities in the system of delivery of education for children with special educational needs. We are just not supporting the numbers of children in schools who need extra support one way or another (and that is way more than are supported by ORRS).
But most scary is that the Assoc Minister with responsibility for Special Ed, Heather Roy, has no commitment to inclusive education so there is actually likely to be more resources for special schools in the long run at the expense of supporting children properly in inclusive mainstream settings. (See Gio's comments above)
Secondly re disability services. There is a lot to worry about here. The Budget transfers a lot of responsibility for services eg disability from DHBs to primary health care providers like GPs. What is this going to mean, especially now that disability and mental health are not govt priorities?
Re the cut to housing modifications etc through the MoH - that was already very tight and a much lower entitlement than ACC provides. But ACC is about to have a review (probably from another bunch of middle aged businessmen friends of the govt) and you can expect that all current provisions will be cut. So don't have an accident or an illness that requires housing modifications or equipment like wheelchairs as the message is it will get tougher. Specially if you are already poor.
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Tom:
It would save a lot of time if you just linked to the Labour Party talking points, or at least properly attributed.
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Knowledge-economy-jobs are only good if we've got someone to export ideas/technology etc.. too, and who's buying at the moment? I'm not meaning to suggest we should all be rushing for our shovels, nor am I suggesting completely ignoring R'nD was a great idea, but still.
It pains me to say it, but I think National's first budget seemed eerily sensible all up. Could just be the relief at retaining the interest-free student loans clouding my judgment though.
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Setting aside the superannuation debacle, I think the strangest thing we have in this budget is how it seriously goes against what pretty much every other developed-world economy is doing to get itself out of the recession. That is, having a half-decent stimulus package for more than just the rich, and really focusing on keeping people in work. Kind of like the Green New Deal really.
Are we right and the rest of the world wrong, or vice versa? Personally I’m going to go with the majority.
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It would save a lot of time if you just linked to the Labour Party talking points, or at least properly attributed.
If you could point out anything factually incorrect in what I wrote I'd be grateful.
otherwise STFU
k
thnx.
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Yes. But it can't go up forever, right? So the fact that it's coming down is not necessarily catastrophic.
Agreed, it just has to be clearly articulated at such - we are going to have less money each year to spend on services. TBH I'm not too against that (spending as a percentage of GDP has to have a point that you want it to level out at) but let's be upfront.
Forecasts past the next Parliamentary term are pointless anyway - basically all we've had is National telling S&P "honest man, we'll spend HEAPS less if we're around in 10 years". It's borderline nonsense.
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Some interesting 'savings' in the Education Budget, such as in several areas of early childhood education including not reducing teacher/child ratios as previously planned, also cuts to 'gifted and talented', support for students at risk and deaf education. Large cuts to the Ministry of Ed's budget for supporting teachers, especially in any area that is not related to narrow literacy and numeracy standards.
And there may be more ORRS money over 4 years, and it is unclear how this will be used, but remember the pay equity work on school support staff - eg teacher aides - has been stopped. Also some supplmentary special ed money has gone.
So a bit of shifting deckchairs, and the overall Budget barely keeps up with inflation
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