Economic settings that led to excessive borrowing still there, Labour finance spokesman David Parker says; 'Policy changes needed'

The economic settings that led to excessive borrowing over the last decade are still in place, and New Zealanders will return to their borrow and spend ways once the economy recovers unless there are policy changes, Labour finance spokesman David Parker says.

Parker today took a swipe at Finance Minister Bill English's comments that New Zealanders were being scared into changing their behaviour, and were turning from debt-fuelled consumption to saving more as they watched economic developments overseas.

See article: Kiwis being scared into saving as they watch developments overseas and realise there is no more free lunch, English says.

“Bill English might believe Kiwis have been ‘scared’ into saving by the global recession and won’t return to borrowing as the economy grows, but he’s obviously got blinkers on," Parker said in a press release on Wednesday.

“The economic settings that led to excessive borrowing are still in place – speculation in housing and farmland for capital gain still attracts a tax advantage and National’s policies have made KiwiSaver less attractive,” he said.

“Unless real policy changes are made New Zealand will just go back to borrowing too much and saving too little when the economy eventually recovers."

Labour contested the 2011 general election with policies to introduce a more comprehensive capital gains tax, raise the retirement age, auto-enroll workers into KiwiSaver, raise the top tax rate, introduce a NZ$5,000 tax-free zone, remove GST from fresh fruit and vegetables, and raise the minimum wage. However, leader David Shearer said on the weekend that all policies were up for review until 2014.

You can review all policies Labour contested the election on in our party policy section here.

'The Aussies know what to do'

Parker said the Australian government was increasing the rate on its universal workplace savings scheme to 12% from 9%.

"The government there knows that once the recession is over behaviour will return to type unless it makes the changes that are needed," he said.

“Treasury forecasts show Mr English’s blind faith is misguided. It projects that every year, under National’s policies, the country will run a current account deficit and increase its international debt. By 2016, New Zealand will owe nearly NZ$200 billion in net overseas debt, up NZ$50 billion from today," Parker said.

“And the main driver of that debt spiral is a lack of domestic savings, with banks and businesses borrowing from offshore or selling assets to foreign investors. This leads to some NZ$10 billion a year flowing offshore in profits, the main contributor to our current account deficit, which is then funded by further borrowing and asset sales," he said.

“The government needs to break the cycle with policies that ensure New Zealand permanently lifts its savings level. By not doing so it shows once again its unwillingness to deal with the structural problems in the economy."

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28 Comments

And Labour with that thinking lost the election. Suspect English is probably correct, those who were geting giddy with excitement about the boom  2002-07have probably now sobered up somewhat.  Buit we should know one way or the other before the next election, my money is on old Double Dipton being right on this one.

Bit rich coming from Labour now (much like capital gains taxes). They sat back & let it all happen during the boom, and claimed what good stewards of the economy they were. It wasnt that long ago Mr Parker

Capital gains tax = Inflation  . Increase income tax maybe more effective do you understand how taxnomics works ? 

Rubbish......your'e making the assumption like all anti CGT people that it will apply to the family home.  A CGT aim specifically at owned second+properties is perfectly applicable.
Using your logic the RWT is 'inflationary'. It is not.  

No it odesnt....mean inflation.
PAYE already has a huge tax burden, on the other hand those selling and buying say shares and assets pay no tax...sorry all gains should be taxed.
regards
 
 
 

Yep, all gains must be taxed!
We can't allow people to save and invest so as to get ahead in life and become successful
That would completely destroy this socialist paradise, wouldn't it?
 
 

Both are wrong policy-wise, but English is probably right observation'wise.
 
. Parker 'can't believe we're running out of energy', so he can continue to expect that Kiwisaver will add wealth. It, of course, can't. Not in real buying-power terms.
 
And interestingly, for shares to rise, someone has to consume more, and you can't consume more per head than in housing. It usually pays to think these things all the way through.

If Parker cant believe that then he'd better brighten up really fast...."as the economy grows" nope he really can believe it can he...
Funny that his Govn did nothing for a decade....a CGT would have been easy....instaed they played with social engineering.....thanks labour....not......
Shares are poked....the P/e today alone is insane let alone once everyone figures out that the earnings are going bye bye...
 
regards

Same old, same old has started here from the usual suspects.
Just answer the question of how NZ Inc gets its penchant for borrowing under control.
If we don't , they will do it for us. They are of course the same ones who profit over our profligacy now. If we con them long enough we can do a Greece on them except that unfortunately our exchange rate will plummet.  At least that way everybody gets poor together.

Can't believe Labour put out that comment, they were in control at the time and they let everything ran wild. 
And it's bit rich of David Parker, when he was a minister he ordered a top of the range Citroen for his own use paid for by tax payers - talk about debt-fuelled consumption (a Kia Rio would be less debt for the country!!!)

Labour are all over the place like booze on the pavement.  The Greens and Wini Firstand Last parties are all over them like a rash

CGT is a joke, the only lever that matters in regard to property finance is the LVR, up that to 20% deposits, and you automatically ensure that savings are higher, and net debt is lower.  Of course this will wreck havok with the economy which is built upon adding a continually growing pile of debt.  I'm not sure that Parker wants to cool off credit expansion too much, rather is playing the "tax the rich" card.

Tightening bank credit is absolutely the right approach but you cannot do it in isolation unless, as you observe, you want to crash the economy. However, you can do this alongside the policy of paying for new infrastructure with new money directly injected into the economy interest and/or debt free by the RB. 
As I suggested here (and back in Feb 2011 post-EQNZ), the process of monetary dialysis will see the money supply remain at a constant (and prescribed level) as debt is retired and new credit harder to come by and, at the same time, fresh clean money is brought into the system.
You need both actions to run concurrently but it is a policy whose time has most certainly arrived.
http://sustento.org.nz/system-cure-monetary-dialysis/

 

http://sustento.org.nz/to-print-or-not-to-print/

 

 

Agree with you on CGT, but there are other levers than LVR.
For example, we could get rid of tax deductibility of mortgage interest (which gives investors an advantage over owner-occupiers, hence distorting the market). We could also change the banks risk weightings for investment property, and require them to treat these as business loans. Another mechanism would be to include house prices in the CPI measure that the RBNZ targets. It's too late for this bubble of course, since it's already inflated, but it could be introduced to counter the next one.

Go easy on David P Hugh...he's been told hot air rises...it's the only lift Labour are likely to get.

The Cro Magnons are no better, for all the name-calling.
Only by looking at the big picture, can you see what happened(s). Hugh is quite right re the bubble, But - without it, China wouldn't have exported so much crap, which allowed them to buy dairy produce, which.......
 
No point in blaming a horse for the merry-go-round slowing.

Fair's fair. They are allowed to change.

Hugh, some fair points, but see my post below about forgiveness.
Whats worrying is he's still not talking about planning reform in the mix - a major shortcoming.
One would think affordable housing should be a core objective of a LABOUR party

Fact is Parker implicitly recognised Labours role in the problem, a decade is mostly Labour only 3 and bit years National.  The difference is pre and post the GFC – the debt orgy on the upside ended up on the bank balance sheets as all acted as though the bull-run would go for ever.
The GFC is a shake out like no other, it should not be a surprise that views change, if fact it is more of a surprise the views don’t change!  We should be encouraging debate on what should be not wasting effort pillorying those who are changing their position.  It is a bit like her who must be obeyed pointing out my failings, demonstrated in a deed or omission, some years ago.  I can be sorry but what can I do about it?  Other than trying not to do or not do it again.
Ask yourself on this side the GFC where do we see any new thinking?  Where is the debate around policy changes coming from?  It is a pretty narrow view that argues what we have is working – don’t we need change, Bernard talks of it a lot and there is good debate on these threads. 
With a 90 cent cross to the US$ in prospect how much do we have to lose before the policy framework targets domestic inflation.
The answers to the questions from Hugh , in my view, are yes and yes.
www.johnwalley.co.nz
 

Fact is Parker implicitly recognised Labours role in the problem, a decade is mostly Labour only 3 and bit years National.  The difference is pre and post the GFC – the debt orgy on the upside ended up on the bank balance sheets as all acted as though the bull-run would go for ever.
The GFC is a shake out like no other, it should not be a surprise that views change, if fact it is more of a surprise the views don’t change!  We should be encouraging debate on what should be not wasting effort pillorying those who are changing their position.  It is a bit like her who must be obeyed pointing out my failings, demonstrated in a deed or omission, some years ago.  I can be sorry but what can I do about it?  Other than trying not to do or not do it again.
Ask yourself on this side the GFC where do we see any new thinking?  Where is the debate around policy changes coming from?  It is a pretty narrow view that argues what we have is working – don’t we need change, Bernard talks of it a lot and there is good debate on these threads. 
With a 90 cent cross to the US$ in prospect how much do we have to lose before the policy framework targets domestic inflation.
The answers to the questions from Hugh , in my view, are yes and yes.
www.johnwalley.co.nz
 

I'd agree. Parker is a nice, honest, sincere, and not particularly dumb man.
 
Anywhere between James Watt and now, he'd have been enough. Sustainability, though? The only one I ever heard who 'got it' was Hodgson. Not that you'd have heard him in-retro on TV3 - he was a bit smarter than that.
 
Have you read this fellow, John?
 
http://physics.ucsd.edu/do-the-math/2012/02/the-way-is-shut/

Energy issues are really scary – what puts it into perspective to me is the fact that a reasonably fit person can sustain about 200 watts output on a bicycle, even a elite athlete can only manage 600 watts in bursts – a kilowatt hour costs around 20 cents.  Can you imagine the line forming to pedal the bike for 5 hours in exchange for 20 cents…
Not a nice line of thinking to turn in on...
www.johnwalley.co.nz

Whether it's nice or no', if it's happening you have to address it.
 
I run a totally functional house on an average of less than 100 watts.
 
Probably helps that it doesn't leak       :)

You're not listening.
 
No offence, but if I wanted chanted mantra and repetition of sacred phrases, I could get it at any church. Still standing, that is. I looked for a spared denimination, but no the wrath of physics appears to be ecumenically impartial. Hard to believe, so to speak.
 
Could I suggest, Hugh, that you spare the time to read the ALL of that Astrophysics Professors' posts. (I linked above) ?
 
We do, indeed, need to do something about what happens, not so much the urban fringe, but to our 'productive due to large inputs of fossil fuel farming land'. It's far too unpopulated for a powerdown future. My next two articles address the issue, though not in in-depth technicality. Put your obviously considerable experience towards contemplating what will fit.
I'll give you a starter; the future is not randomely-sited, closely-packet, tile-roofed leggo-clusters. The future also has a permanently reducing income, so expect your menial multiple to gang a wee bit aft aglee. It also transcends the disintegration of the global, just-in-time food system. That both feeds your urbanites, and monoculturally harvests the land they don't live on. Two variables on the top side, and a sliding denominator. You'll get it.
 
 

In light of the supposed property bubble in China, which is also a supposed example of over-supply, I question the impact of increasing supply, when demand for a 200k house is set by the ability to get a 10k deposit.  To deflate the property bubble, China had to limit new purchases to 2 per person, increase LVR's and Banks CFR's. 

Hugh,
No disagreement on the lack of cheap land (CERA should have moved on this a long time ago....in fact, this was widely discussed after TEDxEQChCh last year). 
You have to keep pressing them. 
And it also pays to remember who really owns all the land :-)

CGT is fine in theory, and when house prices are booming.The problem is, if revenue becomes dependant on it, when the housing party stops, there is a revenue hole. this is the problem facing Australia. Stamp duty revenue falls in the same basket.
Apart from CGT, I don't have too much problem with what he's saying. Yes Labour stuffed up big time, but people learn and change, and deserve a second chance if they can demonstrate they have learnt and changed

PDW - no but will take a look soon.
Hugh - no issue with land supply but it is only one componemt of the problem, other than that all I was trying to do was defend the right for people to change their minds. 
I think Parker has done that - I repeat yes and yes.