Have your say: How should English control public debt?

Posted in News December 19, 2008 - 09:12am, Bernard Hickey

Treasury forecasts issued to Finance Minister Bill English this week predicted New Zealand's gross debt could rise as high as 38.6% of GDP by 2013 from 17.5% in 2008.

Unemployment was forecast to rise as high as 7.2% in 2010 and the budget deficit as high as 4.5% of GDP in 2011.

"While New Zealand has one of the lowest levels of government gross debt and net debt in the OECD, the Treasury forecasts show that the government will have to take action to bring debt levels back under control," English said.

"The government is committed to a range of effective policy responses to ensure the worst-case scenarios for debt and deficits will not happen."

"This would include putting the economy on a strong medium to long-term footing, limiting spending growth, getting better value out of existing spending, ensuring that tax bases were maintained, and ensuring that government assets were managed as effectively as possible."

"Cuts to government expenditure in an attempt to balance the books, and which have a substantial impact on demand, would simply push the economy deeper into recession."

"Our current focus is setting in place a plan to manage the New Zealand economy through the global economic turmoil. This will ensure that New Zealanders are as strongly placed as possible to take advantage of better economic times when they come along."

What I think

25 Comments

by Steptoe (Steps) | 19 Dec 08, 10:07am

Sounds a bit like muldoonism,

Sounds a bit like muldoonism, but drastic situations require drastic measures...before the proverbial hits the fan full on.

How should the new government handle the issue of rising public debt?

Legistate...yes regulate back to pre free market...HP/cars/houses require deposits, credit card limited to a % of income...no more "no deposit, dont have to pay till x"

Should the government start selling off assets?
No due to market pressures the price they would get is not worth the return. When times get tough its a mater of centralising, better co ordination between assets and services..we have a situation with power companies duplicating admin, services, and lack coordination, efficiency and further development, the overall infrasture

Should it raise taxes? No

Should it cut government spending and, if so, which spending should it cut?
Cut the top heavy bureaucratic BS..they are top heavy with a whole bureaucratic private industry built on them...
IE the education system is so complex, continuing to introduce new patches with new untried theories and concepts....little real money gets down to the classroom, staff tied up 2 days a week outside the class room not teaching.
With down turn in building industry, get the tradesmen teaching kids who think with their hands, and achieve..true investment in the future
IE DoC put more programs, eg breeding of endangered species with knowledgeable private breeders...weka, kakariki etc etc instead of DoC being bureaucratic control freaks, justified by expensive research that is only accepted if it doesnt threaten the DoC empire building BS.

IE health: the whole system so disjointed, thru out the country, so much wasted of admin, management consultants all duplicated many times for each board... gets more money to the front line

One of 2 things are going to happen since the Gov recognises the Proverbial is going to hit the fan
1/Walk thru the Gov bureaucracy with a sledge hammer now, in an efficient manner
2/ Have to walk thru with the sledge hammer with urgency and smash randomly away later out of necessity.

The fall out, unemployment will hit hard, just as we see happening now in the private sector....there will be marches , protests etc as there was in the 30s and 50s
These will happen either way. If it is done early much of the fall out can be re channeled...If done late, as the case in the 30s and 50s..there will be no chance of rechanneling directions.

Its going to be a tough call for any Government...do they do the politically right thing, or the right long term thing?

by Alastair | 19 Dec 08, 10:34am

How should the new government

How should the new government handle the issue of rising debt and a slow economy?

-Slash govt spending & local govt. (Some Infrastructure spending is fine)
-Dump the socialist policies
-Slash the bureaucrats on all levels (It needs to be lean & efficient)
-Completely free up the RMA.
-Slash ALL taxes to 20% and raise GST to 20%
-Slash all govt subsidies to business. (they must stand on their own)
-Privatize all govt owned assets.
-No more govt purchasing of private assets.
-Reform the RBNZ Act and change the rules to favor the export sector.
-No Govt bailouts
-Dump the emissions trading scam.

by Roger Thompson | 19 Dec 08, 10:38am

We cannot afford the non-productive

We cannot afford the non-productive civil-servants whom Labour employed at a breakneck pace. Whilst Dr Cullen got Gov't debt under control, the fipside was to expand the bureaucracy exponentially. As taxes fall, from a slowing economy, we cannot afford this massive largesse. Sadly for us ,after 9 years of a booming commodities market, Labour taxed excessively, and spent like drunken sailors. Two examples : the interest free loans to student was an expensive bribe to buy their votes. The "working for families" package was another billion-dollar bribe, targeted to indenture recipients to vote for Labour in perpetuity. Sadly for us, National hasn't scrapped these travesties.

by ctnz | 19 Dec 08, 11:57am

In a nutshell? Simplify, Simplify

In a nutshell? Simplify, Simplify & Simplify! The entire world is in the crap because we have developed such an amazing amount of complexity in every aspect of our lives. Most basic common sense has gone, and very few people (or companies for that matter) seem to be guided by good old fashioned tried and true basic principles:

1) You can't spend more than you earn, or have saved, without getting into trouble.

2) If you have spent more than you earned or saved, stop right now and pay it off first before thinking of anything else!

3) When earning more than you spend, make sure you save plenty for a rainy day before even thinking of spending it on anything that can be considered a luxury.

I would say that should apply even more so to business and government because that's how you survive, and maybe even thrive, when things are tough!

Maybe, quietly talk to Roger Douglas and do a deal with him to use some of his old ideas (especially re: simple tax and streamlined government), then implement them in the same rapid fashion as Labour did in the eighties!

Re-introduce a few basic tried and true old finance rules (to stop dumb people getting into any debt).

Hmm... I just realised that I must sound like my father who has seen a war and real hunger... Who would have thought!

by PeterR | 19 Dec 08, 12:48pm

1. Understand the problem, then

1. Understand the problem, then share that understanding with the public.
2. Admit that the goverment and central banks have little scope to fix the problem, but great capacity to make it worse.
3. Be honest and admit that on average everyone in NZ has to adjust to a lower standard of living.
4. Don't bail anybody, including banks - debt has to destroyed.
5. Encourage bankruptcy as an alternative to a lifetime of indebtedness.
6. Engage in debate as to whether that lower average standard of living is going to be equitably spread - e.g. do current and past government employess continue to get relatively wealthier while the rest of the economy takes the pain and the unemployment
7. If the lower standard of living is going to be equitably spread, lead by example in reducing public sector salaries, perks and superannuation rather than reducing headcounts and increasing unemployment
8. Increase GST, but take no income tax on perhaps the first $20,000 of income (otherwise the only growth sector of the economy will be black)

There is no chance of this sort of leadership yet, but given where the economy is likely to go these options will become more acceptable over time - perhaps by the next election. The longer it takes, the worse will be the outcome.

Above all else, don't go back to the culture that created the problem (political omnipotence, greed, arrogance, complexity, etc).

by W. Kunz | 19 Dec 08, 2:13pm

Time for Christmas gifts. Campaign:

Time for Christmas gifts.
Campaign: "Production 2009" by the Government:
- $50.- voucher for Garden tools for each person, who spend 5 hours and more in chair per day. -
- Free book with instruction - "Sustainability in our daily life's" - for each Kiwi over 20 years of age. -

Turn New Zealand in a "Garden of Eden"- green/ clean/ honest productions/ services in all industries to make New Zealand a model for the entire world = great potential for export/ tourism/ agriculture, etc., our nation.

by Allen | 19 Dec 08, 7:37pm

Same day when Bill English

Same day when Bill English predicted high unemployment and budget deficit one news has been mainly ignored by media: "The Remuneration Authority confirmed 4.8 per cent pay rise for judges, matching the increase delivered to MPs just weeks ago", and that's on the top of some 10% payrise earlier this year.
This is good start in cutting spending...

by John Kelly | 22 Dec 08, 1:18pm

Is anyone listening out there?

Is anyone listening out there? The government doesn't need to borrow debt- money created by the banking system. The government has the sovereign right to issue debt-free money and spend it into circulation. As CH Douglas, founder of Social Credit movement wisely said .. if something is physically possible, it is financially possible... or words to that effect. If the proposed infrastructure spending by government makes sense as an interest-bearing debt-bond by the government, it makes even better sense as a Bill of Credit with nil interest. This is how the American Revolution was financed, how the American Civil War, and also I believe the Australian government did something similar with it's WW1 debt, so that long after that expense was repaid, the English nation was still labouring to clear it's own interest-bearing debt to the Banking system.
Our economists, educators and politicians have only been exposed to monetary theories that suit the existing debt-money power. Our elected representatives owe it to us, the taxpayers and ultimate security for these loans, to ask the question 'why pay ourselves interest?'
Imagine the stabilising effect of removing the compounding of national debt-interest from our nation's economy.

by Iain Parker | 22 Dec 08, 7:45pm

I'm with you Mr Kelly

I'm with you Mr Kelly - I hope you have sought the appropriate channels to assist in putting your words into action.

by David C | 23 Dec 08, 5:28am

I'm not with Mr Kelly

I'm not with Mr Kelly or Iain Parker.

I can't believe you are pointing out the Actions of the American founding fathers and their experience's with fiat currency. Then you are using that as a justification for pushing your fiat currency theory.

That is so absurd have you ever heard the phrase "not worth a continental dollar"
The founding fathers printed so much money that they destroyed the value of the dollar, thats why they adopted a gold standard. Go and read some history please before posting.

It does not matter if the government prints the money or if the bank prints the money. Fiat currency ALWAYS fails, look at history for a single example of a fiat currency that has stood the test of time, you can't find one.

by raf | 23 Dec 08, 2:35pm

David, You may also wish

David,

You may also wish to read some history on the abuse of gold backed money starting with the first run on the Bank of England shortly after incorporation.

http://sustento.org.nz/the-first-run-on-the-bank-of-england/

It's helpful to have a physical anchor to our money but ultimately it's the people controlling its issuance that have contributed to its downfall.

by Iain Parker | 23 Dec 08, 3:07pm

David C, dont you worry

David C, dont you worry about me, I have spent twelve years studying the entire history of currency and banking back to Hammurabi's Code 1760 BC. Everytime in history a Debt Free Based Public Money System has succeeded, it has been infiltrated and undermined by Debt Based Private Money interest wishing to regain a monopoly on the money supply in order that the masses have to then borrow it off them with tribute attached by the way of compounding interest.
David, you need to look a little deeper than a quick google search.
If the Gold Standard were to be returned today, only those that have monopolised the bullion supplies using their ill gotten gains from the current central banking scam would once again have a monopoly on the money supply because they would of cource be the only one with significant holdings of bullion.

by Iain Parker | 23 Dec 08, 3:11pm

David C, have a look

David C, have a look at this if you are the least bit serious at getting the full story of international monetary mechanisms http://www.youtube.com/watch?v=9yYEFuN2v08

by waymad | 23 Dec 08, 3:48pm

Back to the point, chaps

Back to the point, chaps and chapesses. Which was, rather than the trackless maze of Alternative Systems, how to handle public debt.

My take is perhaps a little different. It's not so much about how 'English' or 'the Nats' should 'control' public debt. It's about the willingness of other savers to finance it.

NZ is the size of Melbourne. It's incredibly easy to just fall off the radar. And as capital placement becomes more finely attuned to the vagaries of its proposed recipients (rather than the past couple of decades, believing in rating agencies, and particpating in various mass delusions), we may well find that a rather dim view is being taken of our foibles.

Such as:

- massive welfare dependency and its effect on work ethics,
- our tendency to think 'she'll be right' and not be terribly proactive
- our tendency to try to 'lead the world'/be the social lab rats (the ETS and Fonterra's online auction of commodities are two telling recent examples).

We may well, in fact, be at the mercy of our various creditors. Lord knows, there are enough of them.

So the illusion of 'control' is just that - an illusion.

by raf | 23 Dec 08, 4:49pm

Waymad, Perhaps its time to

Waymad,

Perhaps its time to jettison our dependence on overseas creditors.

Domesticate our money supply, let the currency fall, balance the accounts and then apply a very strict control to our money supply.

The RBNZ had a once in a lifetime opportunity when the Kiwi was up at 0.80 to sell as much as they could. I reckon they could have sold $50bln at least with a carefully orchestrated programme.

Bye bye overseas debt.

Hello domestic debt......then there is control.

After that its balanced (ish) trade.

Alas it didn't happen.

by David C | 23 Dec 08, 9:23pm

Ahhhhhh!!!!! Keynesian economics Iain No

Ahhhhhh!!!!! Keynesian economics Iain
No thanks I'm an Austrian.

by Iain Parker | 24 Dec 08, 7:36am

David C, Keyneism, Hayekism, Monetarism,

David C, Keyneism, Hayekism, Monetarism, Capatalism, Socialism, Communism - all did not stand a show because of the source and form of their funding, the created credit of the privately owned banking conglomerate, who ultimately run the show from behind the scenes and ultimately loaned their hostages more created credit than they could repay, enslaving them by way of debt.

by Iain Parker | 24 Dec 08, 8:17am

Waymad - the reasons that

Waymad - the reasons that viable alternatives to the present must be discussed is because to continue with the present will see us completely foreign owned by the multinational subsidiaries of the private banking conglomerate, don't believe me, I notice Bernard has not posted anything of this article http://www.stuff.co.nz/sundaystartimes/4800875a6871.html

What this is saying is that our foreign lenders of bogus created credit are about to once again as they did in 1961 and 81, once again hold debt to our head like a gun and insist we sell them what remains of the vital infrastructure of NZ or face economic sanctions. They find this and opportune time because they now have John Key, one of their favourite sons at the helm and their previous co-operatives in the Roger Douglas influenced Act Party. Make no mistakes this would have eventually happened under Labour also, because although their executive were not actually in the game we suffered the private banking conglomerate and their structural adjustment programs by puppet strings. The bankers act now because they now have their allies back in the drivers seat and their is less likelihood of any alternatives to the current debt slavery system being explored, where as under Labour their was a chance they may have returned to the very roots upon which they were founded, that being using our public credit facilities to reduce our subservience to foreign lending from the private banking system, which they already knew back in England 1909 to be a fraud.

by Iain Parker | 24 Dec 08, 8:42am

Waymad - another thing I

Waymad - another thing I would like to point out, you say it is about the willingness of foreign savers to lend to us, since the goldsmiths banking scam the current privetely owned central banking conglomerate are not and never have been savers, since they have never laboured or produced a thing to earn/save any credit they have ever loaned out, they created it out of freshair, thus they have never ever had any consideration for their side of the contract.
To understand this further please read this article by one of the very best and to understand even more you read other articles on this site;
http://www.webofdebt.com/articles/dollar-deception.php

by Badger | 24 Dec 08, 10:13am

QUOTE: John Kelly Says: December

QUOTE:

John Kelly Says:

December 22nd, 2008 at 2:18 pm
Is anyone listening out there? The government doesn't need to borrow debt- money created by the banking system. The government has the sovereign right to issue debt-free money and spend it into circulation

end quote

Unfortunatly that system misses the biggest underpin of currency which is energy!

Energy makes the world go round not printed money in any form under any doctrine!

If you dont get the energy equation then dont yabber about alternative currency!

Gold has a energy component, printed paper in any form dosnt....

by raf | 24 Dec 08, 10:36am

Badger, John is quite right

Badger,

John is quite right when he says we can issue currency rather than borrow it from overseas. There are implications for that but longer term it is the way to go.

In terms of fiat versus commodity backed currency there is the EBCU

http://www.gaianeconomics.org/ebcu.htm

and The Terra

http://www.terratrc.org/aboutus.html

But the main issue about any move away from fiat currency will be who controls it and who supplies the commodities.

Personally I think the first step for NZ is to regain national sovereignty over its supply of money. Then once that has been achieved there will be many possibilities for moving forward such as commodity backed currency, community exchange systems and so on and so forth.

But until the public takes back the power of the issuance and control of money there will be no change to the current flawed and fractured system.

by waymad | 30 Dec 08, 10:49am

Sorry, Iain P and others:

Sorry, Iain P and others: you get the Mormon-on-the-doorstep answer:

I have my own religiion...

by John B | 01 Jan 09, 8:07pm

We need to get rid

We need to get rid of the Kiwi $ and switch to A $'s.
Eliminate the Reserve Bank and all it's costs.

Get rid of FX risks for exporters to our major market

Eliminate the current account deficit at a stroke.

Who worries about Queensland's Current Account !
There's no way out - in the words of Warren Buffett:

For some businesses and even some industries - there is no valid strategy !

Running trade deficits means we are borrowing to pay the interest on our debt.

by john H | 03 Jan 09, 8:45am

We need to firstly make

We need to firstly make sure the key issues that effect all Kiwis are sorted.
These are police departments , Health and educatiion.
Deploy all key persons and funding to these priorities.
Take persons and monies from other departments that are not a priority and build up and foster, so that going forward what ever the country has to fall back on, we have the political and personal key elements to build on secure.

Safe and secure country.
A solid Health and Medical system
A good robust Education System

by waymad | 03 Jan 09, 7:18pm

For a good early-and-accurate prediction

For a good early-and-accurate prediction of - well - a whole lotta stuff - try James Fallows: 'Countdown to a Meltdown'.

www.theatlantic.com/doc/200507/fallows

Hat tip - John Robb, Global Guerillas.

http://globalguerrillas.typepad.com/globalguerrillas/2008/12/rc-radar-la...

And don't forget that investments and related decision move at the speed of light. Pollies move at the speed of - well, less than light.

So carefully designing elaborate top-down schemes has an inherent flaw. Those designs are routed around within minutes, hours or days.....

by pschodavid | 12 Mar 09, 5:49am

Let the workers revolt and

Let the workers revolt and take down the dogs who started all this trouble. let them have ownership and administration of production, distribution of goods, and a society characterized by equality for all individuals, with a fair or egalitarian method of compensation. easy

by Kieran | 12 Mar 09, 8:18am

Reduce debt and spending when

Reduce debt and spending when the reccession is over otherwise we will be battling a depression instead in the mean time:

-temporarily stop super fund payments
-keep the tax cuts
-Increase new infrastructure spending
-Reform the RMA in a radical way ASAP so projects can start sooner
-make sure private debt in the housing market decreases at a faster pace with urgent legislation of the lending practises and criteria of all banks.
-change the tax rules around investment property
-stop kyoto and emmission trading
-make sure large employers do not go belly up

We need to ensure the economy stays as healthy as possible so when the world comes out of this potential depression our recovery will be faster. If the economy is wounded and only just hobbling along we will be left in the dust. The government has plenty of room to keep the economy intact in the short term and thats what Key and English need to do so that long term policies can be implemented sooner.

by uk_kiwi | 12 Mar 09, 9:37am

Whatever they do, it needs

Whatever they do, it needs to be softly softly to keep onside with nervous international investors. Instead of randomly slashing taxes and spending and sending the country into deep depression, they need to re-target spending on productive things, and gradually reduce taxes so they aren't forced to take on too much debt too fast.

Some ideas:

*Amalgamate local authorities to streamline local government and apply a consistent template nationwide - this would massively reduce compliance costs for small businesses

*Reinstate the R&D tax breaks and encourage/financially help out firms that keep workers employed in NZ (unlike F&P)

*Back NZ finance companies- only the prudent ones are left now and they are major funders of building work. Without them most builders and tradies will leave the country as there will be no work.

*Since destructive cheap alcohol is such a cause of accidents and crime, why not add an ACC levy to it instead of petrol or cars. At least raise the taxes to around Australia's level

*Increase taxes on bars, gambling, ciggies, and takeaway food. Easy revenue there plus health and social benefits

*Remove GST on "healthy" food if it's not too much of a bureaucratic nightmare. Encourage local production of food and local markets.

*Means test the old-age pension- why should millionaire pensioners with 4 houses get a benefit when working people are struggling to make ends meet? They already do it for students, beneficiaries et al.

*Estate taxes - dream on, I know

*Remove the LAQC tax loophole for property speculators - leave it for productive businesses

In this section

Offers for readers

Follow the news from interest

The comment stream

Recent comments

Editors choice

Finance sector jobs

The news stream

Latest news

Most commented

Most viewed

Reader poll

Have your say: How should English control public debt?

Related Topics

25 Comments

interest.co.nz, Helping you make financial decisions

Text Size: