As the Labour caucus met in Christchurch to plot its election strategy last week, Chris Hipkins took a detour to attack the Coalition’s economic management.
Speaking to the Queenstown Business Chamber, the opposition leader said New Zealand’s economy was in poor shape and the Government was failing to fix it.
"Despite a lot of talk about economic growth, actually the most recent indicators are pretty concerning for us. They're suggesting that New Zealand's economy isn't recovering and if anything we may be going in the other direction," he said, according to an RNZ report.
Back in the North Island, Hipkins’ argument drew support from an unlikely ally.
Simon Bridges, Auckland Chamber chief executive and former National Party leader, said some fiscal stimulus or other immediate policy action was needed to revive the city.
He was responding to “pretty grim” data showing Auckland’s unemployment rate had risen to 6.1%, reflecting weak consumer spending and business confidence in his view.
“I do think there is a real case for serious policy and/or fiscal stimulus … particularly in the big cities. We need to raise the animal spirits of the business community,” he told RNZ.
Bridges said the Coalition should cut corporate tax rates, saying the “worthy” long-term growth policies would not address the current lack of momentum.
Spending headed south
There’s some logic to this argument. Business cycles are self-reinforcing: growth spurs more growth, while contraction fuels further decline.
Mike Jones, the chief economist at BNZ, said household disposable income growth had turned negative again in the June quarter and was suppressing spending.
“We’re left nursing continued downside risk on the lift in household spending that we (and others like the Reserve Bank) are forecasting for the coming 12 months,” he said.
“Certainly, consumer confidence needs to lift a long way from here for these forecasts to have any hope of panning out. The analysis above suggests that might take some time.”
Jones’ proposed remedy was for the Reserve Bank to keep cutting the Official Cash Rate, not for the Government to lower corporate taxes or airdrop bundles of cash onto Auckland rooftops.
A well-timed Treasury briefing this week advised governments to leave the central bank to manage economic cycles and avoid fiscal stimulus unless essential.
Finance Minister Nicola Willis appears to have lost track of her position on this issue.
After Wednesday’s unemployment figures, she said she was “pumping cash into the economy” and pulling every lever to create jobs.
The next day, after Treasury released its long-term briefing, she said it showed the dangers of excessive fiscal stimulus during a downturn.
“The report makes clear significant errors were made in the fiscal response to Covid. Treasury is urging policymakers not to repeat those mistakes. Our Government will not,” she said.
Is the Coalition pumping cash into the economy, or stepping aside so the Reserve Bank can cut interest rates? It can’t really have it both ways.
Cash pump
Hipkins has not taken a firm position either, though he appears sympathetic to the cash-pump approach. He told the Queenstown Chamber governments should not be bound by a 30% of GDP spending limit or a 50% core Crown debt ceiling.
“Government spending as a percentage of GDP in a small economy like New Zealand needs to be able to fluctuate, so in a period of economic crisis or in a significant shock like a pandemic you need to be able to increase government spending to get through it.”
He said a future Labour government would focus on active “investments” to reduce the need for Crown spending on automatic stabilisers such as the Jobseeker benefit.
This is roughly the opposite of Treasury’s long-term briefing advice, which implied almost half of the $66 billion Covid response spend was ineffective.
Whatever the merits of Labour’s plan, it will need something big to fund and finance its cash pump as the Coalition is already running a $10 billion deficit without moving the dial.
Enter the capital gains tax. Former staffer Vernon Small recently reported Labour’s policy council had settled on a CGT instead of a wealth tax, subject to final caucus approval.
The 2019 Tax Working Group’s proposed capital gains tax was forecast to raise an average of 1.2% of GDP once fully phased in over about a decade.
At that point, it would be barely enough to fill today’s structural deficit, meaning it would not create much room to reverse National’s spending cuts while keeping the books in balance.
But maybe Labour doesn’t have to balance the books…
Future fiscals
In June, the Green Party released a discussion paper arguing governments do not need to run a surplus to stabilise debt. As long as the economy grows as fast as debt, the debt-to-GDP ratio stays the same.
This suggests it would be acceptable to run a small annual deficit, provided it supported growth and debt levels were not already too high.
Net core Crown debt was about 42% of GDP at the end of March and is forecast to peak near 46% before stabilising and easing slightly. Treasury has advised keeping debt below 50% in normal times, leaving a 40% buffer for crisis spending.
The Greens argued this limit was far too conservative, noting it was enough to fund the Covid response twice and still recover in unusually poor conditions.
More moderate estimates, they said, would allow a ceiling twice the current level without risking collapse in a crisis.
Hipkins refused to commit to the 50% ceiling when asked in May, saying that would only be decided when Labour formed its fiscal plan in 2026.
Labour could choose to run moderate deficits over the forecast period and still keep debt near 50%, while waiting for capital gains tax revenue to flow.
That could allow more capital investment and halt—though not fully reverse—the Coalition’s spending cuts without undermining stability.
None of these decisions have been made, this is just speculation. But the Coalition’s spending policies are already pushing up against the limits of current fiscal rules and tax settings.
If Labour wants to do more, it will have to do something different.
71 Comments
"The problem with socialists is that they eventually run out of other people's money" - & their grandchildrens debt financing
At the moment it seems everyone has run out of money..... economy is spluttering in Auckland.
NAct are running a 10billion def now... without pumping, time the RBNZ cut 50
The problem with Austrians is that eventually the economy withers and dies and there is no employment or infrastructure for anyone's grandchildren so they leave and go to a country with a unionized labor market, higher taxes and a redistributive government.
"The problem with socialists is that they eventually run out of other people's money"
It seems to me that East Asia - China, Japan, Singapore, Taiwan, Korea - does public spend far better than the Anglosphere. That's why they have superb infrastructure, particularly transportation.
Now the Anglosphere has some proud achievements, but I don't think you can really put us on the same level. Just look at the fiasco with the Auckland cycle bridge - truckloads of money spent on feasibility. A small group of people make out like bandits while the public ultimately gets nothing or something that is woefully over-budgeted, dreadfully executed, and under-spec'd. Once again, a small group make out like bandits (including the game of mates charade).
It seems to me that East Asia - China, Japan, Singapore, Taiwan, Korea - does public spend far better than the Anglosphere. That's why they have superb infrastructure, particularly transportation
That'll be because they developed nearly a century later, with all the benefits of the accrued knowledge and experience since.
If NZ was devoid of people and discovered in 2025 as a target for industralizing and development, we'd look a lot different than we do today.
The money supply is issued and managed by the government - the currency is created and licensed by the RBNZ. We are currency users and do not own it - technically.
The money supply is issued and managed by the government - the currency is created and licensed by the RBNZ. We are currency users and do not own it - technically.
Just because a country can issue their own sovereign currency is beside the point. If anything, it can be part of the problem - it doesn't solve the issues of largesse, optimal allocation of funds, and socio-economic planning.
https://www.youtube.com/watch?v=2aaKGm9zZlU
Where will they find the 'cash'.....that they issue?
From the horses mouth last week John Key very much said our economy is about housing so unless we get rates back towards Covid era levels the “mark to market” wealth effect of this won’t be enough to drag us out of the spending recession we are in. This recession is exacerbated by the fact that the “CPI” measure is misrepresentative of the cost of living ( as I think Dan was writing about last week) so as we have to spend relatively more on necessities that are rising in price faster than non essentials our spend goes on inflation.
I also think that MMP has drawn us away from bi-partisan politics as both side’s coalition partners are always further from the centre than the 2 main parties and have an inordinate amount of power compared to their voter support so the likelihood of “meeting in the middle” for what our country needs more than anything right now in multiple policy areas is more and more unlikely.
So it comes down to populist bandage packaged PR b.s as we inexorably cycle down in the economy and consequently society.
At this stage all I can see as a circuit breaker is a crash in the currency to iron out our cash flows offshore and the export sector grows in relative size to be able to add even more that they are.
I see that in energy policy, the gas exploration ban and the Greens make many to scared to invest in the transition power we need.
I tend to agree re the export sector but fear a crash in demand for Milk product if China has a hard landing.
There is, imho, no recovery in housing when it has so much further to fall. In many cases the falls have already happened, but the owners do not realise it until sale time and no serious interest shows up. When an average house costs a mil in Auckland with average household income 150k less tax and rates and food and power... Sorry the numbers till do not add up.
Is this the way every MMP country ends up?
Where will they find the money...
Tax, tax and more tax. The Labour/socialist way.
Any more tax from a household will just depress household spending more and the economy will crater.
Average household income is currently falling now.
Tax is not necessary to increase spending. The government can run a bigger deficit up to the point where it's spending is inflationary - then it needs to raise taxes or reduce spending but not before that.
In a fiat currency monetary system tax revenue does not pay for government spending it is used to withdraw money from circulation to help fight inflation.
But, it (tax revenue) serves to keep the bond vigilantes away from your door as well, right?
Ultimately bonds dont need to be bid for....but even if you subscribe to that theory then even bond vigilantes need somewhere safe to place their funds.
Tax's role is otherwise....including inflation control, behaviour control and redistribution. The bonds (and coupon) will always be paid if they are in the issuing currency
More importantly the international banksters need to be happy...if you are shut out from cross border trade then your options are severely restricted.....you may wish to equate international banking with vigilantes.
It is clear the author really struggles with Keynesian economics and in the final sentence utters the discussion killing 'fiscal rules' - as though it is a scientific universal law governing macroeconomics. Historic economic data suggests deficit spending is normal and standard - what's more it is essential in a fiat currency monetary system.
In truth. when the economy makes it easy for workers to find jobs and get pay rises - the business sector starts to panic and can't handle it. Get the unemployment rate back up over 5% please! Okay lets do that says the RBNZ and the government in unison.
I wonder what would have happened if we had pretty much followed the UK model of limited lockdowns after the first... The All Blacks playing in front of a full stadium in Wales effectively ended the NZ experiment and Auckland unlocked... I doubt the deaths would have been game changing? cost 66billion for what?
People forget we had far fewer lockdowns than the UK. Lockdowns were a good idea if you could follow them through to elimination, and a bad idea if you couldn't. So yes the final lockdown in Auckland went on far too long. Long enough that it seems to have caused a fair few people to forget how much freedom we had in the preceding year and a half, whilst most of the world was subject to continual rolling restrictions.
Historic economic data suggests deficit spending is normal and standard - what's more it is essential in a fiat currency monetary system
It might be standard and essential, but we can also see it's tendency to get overused to the point of having increasingly diminishing marginal returns - like the last 20-30 years. If you're just running a deficit to get by, or bridge economic contraction, it'll most likely run away on you eventually.
What marginal returns are diminishing? If the economy is providing close to full employment and young skilled and educated workers can find opportunities across a range of sectors - including the government - and businesses are thriving and GDP is at 4.8% and unemployment at 3% (as they were under the previous government thanks to all the 'wasteful spending') what exactly is the problem with that? Assuming inflation is managed and brought down carefully - all our peers have managed to do this without triggering 3 recessions in 2 years - but not NZ. Our governments management of the economy has been unique.
What are the missing marginal returns you are talking about? Does 2 years close to recession, rising unemployment, falling labor participation and record population outflow deliver the marginal returns you are seeking?
What marginal returns are diminishing?
The one where you receive some sort of net benefit.
If it's spending on a public good, like education or healthcare, you'd expect it to get the same or better.
If it's a longer term economic investment, you want the return to eventually exceed the investment.
If you're spending money just to keep people in jobs that don't produce some sort of net benefit, eventually you go bust. That's not unique to NZ, it's occuring almost simultaneously across many countries. Otherwise everyone would've cracked the code of infinite money printing.
Not infinite money printing but money printing in line with economic capacity. No other countries are going broke. Not the US, not China or Japan or NZ - all with widely varying levels of debt to GDP and deficit spending. None of them are going broke or anything close to it.
So say there was a spectrum, with "broke" at one end, and wealth or prosperity at the other.
If a country continues to deficit spend, without some sort of net tangible benefit above the expense, which end of that spectrum will they hit?
Which direction on that spectrum would you feel countries like Japan, the US and NZ have moved in the last few decades? The GDP figure suggests one way, but I'm not so sure.
'Money" (in this context) is a measure of activity....you are 'broke' when there is no activity.
The restriction on activity is real resources (expertise,materials and labour) not the measuring mechanism.
So
How can territories go broke? Or maybe a better term would be "fall into poverty"? Which we know can and does happen.
Why would we bother having a market if the government could just produce all the activity the public needs to exist?
Many societies did exactly that.
Our constraint is we desire (need?) products that we cannot produce ourselves and so we trade....that trading mechanism is controlled by the banks.
Many societies did exactly that
Smaller groups. Once you get to a certain population or level of civilization, you usually end up with some sort of market system. And lending. Hence religious texts thousands of years old mention usury and avarice.
Our constraint is we desire (need?) products that we cannot produce ourselves and so we trade....that trading mechanism is controlled by the banks.
The transaction and lending maybe. Ultimately you need goods or money to trade for other goods you may need.
"The transaction and lending maybe. Ultimately you need goods or money to trade for other goods you may need."
The international system....I guess we could always try using physical gold instead.
But seriously, the banks would be satisfied with government spending if they judged the proposal likely to succeed....just as they do with a business loan application. Government can spend AND remain unpenalised by the banking system if they spend wisely.
It is a quality measure not quantity.
Sure.
If if we look at how our government (of any persuasion) has spent money for the last few decades
Did they shoot for quality, or quantity?
The philosophy seems to be if we keep doing it long enough, eventually we'll get it right. Reality seems to dictate if something's not working, you need to do something different if you want a different result.
It is not just our government spending that is of concern....we have failed to invest in infrastructure both privately and publicly.
So yes we do need to do something different and the body best placed to do that is the state...especially after relying on the private sector for decades has shown that they wont (in the areas needed or to the required scale)
And that investment needs to be cognisant of future conditions and our ability to (physically) maintain it.
It is not just our government spending that is of concern....we have failed to invest in infrastructure both privately and publicly
We have. We have power, roads, hospitals, schooling, etc. trouble is, they're of an older nation. So we're having to compete with nations who've developed a lot more recently, and can't deploy the same sorts of green fields infrastructure, because the net return of re-doing something you've already done is fairly questionable.
Hence no one clamoring for infrastructure spending can actually outline whether it'd be of a net return for the nation. We'd do it, get some GDP improvement while we're doing it, but struggle to actually get a return on investment.
I take it you are referring to a financial return.....when we create the required currency.
I agree however we may struggle to utilise/maintain it...but the reasons wont be financial.
I take it you are referring to a financial return.....when we create the required currency
Or earn it, when we produce more/cheaper goods and services to sell someone else. If it's just as a public good, presumably you'd then need to go an earn funds somewhere else to compensate. We largely seem to be doing the former, without doing the latter. You seem to think maybe we don't need to?
Not at all....the restriction is what we can provide ourselves and what we must seek from elsewhere.
We can pay for anything we provide ourselves and we can pay for anything from without as long as the NZD is tradable.
We have run a persistent trade imbalance for decades with no sign of that position reversing and the banks have been happy to trade our currency.
How can territories go broke? Or maybe a better term would be "fall into poverty"? Which we know can and does happen.
Surely the answer to that is when the world loses faith in your currency? e.g., Argentina at the moment.
Really enjoying this back and forth discussion.
Argentina is not broke....there is still economic activity, but they are constrained by a lack of faith in their currency due to decades of poor decisions and defaults of foreign denominated debt. they still have all their resources and abilities, provided they dont sell them to outside interests and their expertise dosnt leave the country or die without being replaced.
Oh sure, they have economic activity but not the job opportunities for their educated and their currency is such a mess (changing wildly on a daily/weekly basis) that they as consumers have to calculate it back to US dollars to get any sense of what they are actually paying for an item. From a citizens perspective - they are broke (the citizens that is).
We had two Argentinians on working visas staying with us recently. One with a degree in ag/hort; the other a qualified baker - working the kiwifruit orchards was more beneficial than staying at home and working the bakery (as the other one with a degree in ag/hort couldn't find work other than being employed by his partner in the bakery business). Did they feel 'broke' - for sure, even though they had no debt. So, they are over here spending much of their wages into the NZ economy and sending the excess back home - enjoying the exchange rate against their currency.
Welcome to the path many good kiwis will take unless some government here changes their current settings/attitude.
"Welcome to the path many good kiwis will take unless some government here changes their current settings/attitude."
Agreed...and your comment re your guests confirms what I outlined.
Fiscal rules are (loosely) self-imposed by each government as a requirement of the Public Finance Act.
They are not like scientific laws at all. More like regular, changeable legal laws.
Thus my point about Labour likely having to reform them (à la Germany debt brake) if it wants to do more (Keynesian) stimulus than National & co.
As for the Treasury report I think it is espousing a given view of economics and not reality. Treasury, like most of the NZ business community, believes that low levels of unemployment (3% under the previous government) achieved by so called 'wasteful spending' is a bad thing and must not be allowed to happen ever.
And I think as a result we can expect unemployment to keep rising and stay well over 5% for the remainder of this governments time in office. Its a feature not a bug.
Many exec teams are looking at Income to Expenses ratio's and staff will have to go this quarter. they no longer see a bounce back and believe that it will be easy to rehire if it occurs, most of the IT staff we let go last year went to Aussie. I am not sure it will be as easy to rehire as they think, perhaps just use Tata staff instead.
Agreed. I was surprised by the small rise in unemployment for the June quarter so it's likely that significant layoffs are still to come for NZ workers.
Its a feature not a bug.
Yeah, and a stupid feature at that. People with money spend money back into the economy - especially people with modest means/money. People with no money spend it all back into the economy, but that spend doesn't include a trip to the hairdresser; a latte and a muffin for morning tea while you are out doing that shopping; or a beer in a pub after work.
Who said we are a nation of shopkeepers? (meaning, I assume a nation of small businesses). And to my mind when they (small businesses) are doing bad (no matter how good Fonterra is doing) - the NZ economy is doing bad. When folks have little to no discretionary money to spend - NZ will always, always, always struggle. When people have little to no discretionary money to save; our economy cannot be resurrected by an active RE/housing market (no matter what John Key says). And people without employment are in BOTH those categories, with no net worth and only mounting debt. And then the very employers that would normally hire these unemployed, just get smaller and smaller until they close.
Is this not understood by the TSY pointy-heads/policy analysts? If small business is doing poorly, no amount of monetary policy will save us; no amount of road building will save us. People with no money do not borrow and neither do they spend in our multitude of small businesses. The supermarkets take all.
So this stupid feature of our current government's economic worldview/management will get what it seeks to locally manufacture - more unemployment.
When COVID hit in the US - Trump sent individual taxpayers cheques (signed by him - of course, hahaha). Perhaps the smartest move of any government in the west :-). Here, we sent it to the employers - a huge number who chose to swindled the system.
Is this not understood by the TSY pointy-heads/policy analysts? If small business is doing poorly, no amount of monetary policy will save us; no amount of road building will save us. People with no money do not borrow and neither do they spend in our multitude of small businesses. The supermarkets take all.
The Super Markets take it all from the poor
The Banks take it all from the middle class.
The rich are doing just fine.
I reckon 90% of NZ are not that happy right now
Thank you! Couldn't have said it better!
And if the rich are doing just fine, they can pay more tax. But CH's idea of a CGT just will not make it - he's years and years too late on that one.
LVT as a minimum - and a higher rate of LVT for unimproved land (like the stuff John Key espoused to having "all over the place", whilst bemoaning the interest rates -.... What an up himself land banker - a bit like the "I'm sorted" Luxon.
"...And if the rich are doing just fine, they can pay more tax...''
why should they?... just because they're not "poor"?...how do you presume to judge their individual efforts, risks & rewards?
apart from the explicit "othering" & Marxist assumptions & prejudices in that statement it reeks of typical socialist envy forever seeking the lowest common denominator for everyone as the nadir of ambition & motivation
From Cullens TWG: "...12 per cent of individuals pay just under half of all personal taxation, and the top 3 per cent account for almost a quarter of all personal tax paid." & over half of NZ households pay no net income tax after credits and transfers (and let's pass on IRDs HNWI study which compared apples & oranges to support David Parkers extreme prejudices)
why should they?... just because they're not "poor"?...how do you presume to judge their individual efforts, risks & rewards?
Are you familiar with Maslow's hierarchy of needs?
My belief is that what is morally right as a society is for every human being to have their needs met at the two bottom rungs of the pyramid (physiological and safety needs). Many of these needs (e.g., potable water; safety; sanitation, etc.) are met largely by government, and paid for by the beneficiaries (the citizenry) through taxation. Other needs (e.g., food, property, employment) are provided by a mix of government and the private sector. If some people's employment or non-employment does not bring in enough money to afford food (for example) - then it is equitable that those whose employment, or non-employment (e.g., interest/dividends; inheritance; good fortune/luck) exceeds what is required to secure those basic needs contribute through some form of asset (e.g., non-employment) taxation in addition to whatever labour taxation that might be due.
As far as that stat about 3% of NZers paying near 25% of all personal tax - that to me simply reflects the poor logic in the way we (a capitalist society) values labour. To me, the guy on top of the roof, doing back-breaking work, often in full sun - ought to earn at least as much as the doctor who eventually relieves his pain by writing a prescription and cuts out those skin lesions and sends them off to the lab for diagnosis. So, that argument (about the percentage of overall tax on labour) to me is simply a strawman.
The guy on the roof is putting in a whole lot more individual effort each working day.
The Super Markets take it all from the poor
The Banks take it all from the middle class.
The rich are doing just fine.
I reckon 90% of NZ are not that happy right now
And the problem they are all facing (the takers and the rich), is that the country is waking up to this and becoming more and more unsettled as they get financially squeezed and the wealth divide becomes more apparent.
For the elite to rule they must keep the plebs thinking they can work their way out of it through debt loading and hard work vs structural change that would penalise the former.
I asked ChatGPT about periods of government surplus in NZ for the past 40 years and then I asked for the levels of private sector debt growth for the same periods.
Period Government Surplus Period Private Sector Debt Trend
Mid-late 1980s Surplus (e.g., 1987–88) - Private debt rising from ~65 % of GDP
Mid-1990s to early 2000s Sustained surpluses - Private debt climbed toward 110–130 % GDP; household debt grew sharply, peaked at around 157 % of GDP in September 2009.
Mid-2010s Surpluses (e.g., 2014–2017) - Private debt continued increasing, led by household borrowings
2018–19 Surpluses (~NZ$3–7 billion) - Private sector debt still high (over 130 % GDP)
Yes—private sector debt rose significantly during nearly all those government surplus periods. In particular, household borrowing surged, consistent with an ongoing accumulation of private debt relative to GDP.
Economist Steve Keene (and Minsky before him) observe the significance of private sector debt cycles and how they are correlated with government deficit spending.
Rising private sector debt always reaches a peak at which point the private sector is maxed out - no-one can afford to take on the additional repayments of more debt. If we correlated levels of private sector savings then we would see these declining during periods of government surplus.
MMT expresses this as:
public sector deficit = private sector surplus
Where the public and private sectors are on different sides of the ledger and double entry accounting is applied at the macroeconomic level.
Perfect. Thank you.
I asked Chat GPT about levels of private sector savings during periods of government surplus:
Summary: Savings During Surplus Periods
Surplus PeriodHousehold Savings Trend
Late 1980s Flow savings positive (~4%), but declining trend onward
1990s – Early 2000s Flow savings turned negative—households were dissaving
Mid-2010s Flow savings remained negative (~–1% to –2% of GDP)
2018–2019 Still negative flow savings despite government surpluses
2020–2021 (COVID shock) Major spike in savings (up to 7.6% in 2021)
Key Takeaways
-
Flow-based private sector savings did not increase during most surplus periods—typically, households were dis-saving.
-
Only COVID-related conditions reversed the trend temporarily, with large short-term savings spikes.
Interesting summary from ChatGPT that appears to support the MMT claim that:
government deficit = private sector surplus
Given that when the government does run a surplus the private sector has to drawn down savings and increase its debt exposure.
Taaaaaaaaaaaax
Just putting it on the credit card leads to poverty. Slowly then all of a sudden
And if you own the credit card company?
In June, the Green Party released a discussion paper arguing governments do not need to run a surplus to stabilise debt. As long as the economy grows as fast as debt, the debt-to-GDP ratio stays the same.
And just how would the Greens-who would raise the debt level straight away- propose to stimulate the economy to somehow grow quickly enough to keep pace? Given their intense distrust of business and their hardline views on how climate change should be tackled, it's really hard to see how they propose to square the circle.
Why anyone would look to Hipkins for answers is beyond me...
He is going to be rolled before the election, he is merely a place holder.
We voted him out, we will not vote him back in, it must be new faces for them to even have a chance.
Yeah right, who's the alternative?
This is roughly the opposite of Treasury’s long-term briefing advice, which implied almost half of the $66 billion Covid response spend was ineffective.
It isn't though. Hipkins is talking about a pipeline of beneficial things that can be accelerated when there is spare capacity in the economy. They started setting this up in 2022/23 with changes to infrastructure investment management and to be fair the current Govt has continued the aporoach.
Its basic common sense, utilise spare productive capacity to do useful stuff, rather than juicing asset prices with low interest rates. Treasury are so, so, full of it with that briefing. I was genuinely embarrassed for them. The whole thing reads like it was written by a frothing at the mouth old libertarian and then 'plain Englshed' by one of those floppy haired young tossers from the TPU.
There's a cold hard reality settling in here.
Our economy depends on a steady inflow of cash. This comes from (i) govt spending, (ii) revenue from exports, and (iii) banks making new loans.
This inflow has to overpower the outflow of (i) govt revenue / taxation, (ii) spending on imports, and (iii) loan repayments.
Within the economy, we have significant inequality so some people are spending every dollar, while wealthier folks are busily saving money. The cash inflow into the economy has to therefore overpower the outflow and net domestic savings.
Once you understand this and you know where to find the data, you can see very clearly that we are nowhere near any kind of recovery. The economy is shrivelling up.
The answer here is pretty obvious. Govt needs to expand its balance sheet and spend more on stuff that needs doing. But, the wider economic strategy needs to be cognisant of those inflows and outflows. What can we invest in or legislate for that will reduce our current account deficit? How do we slow the flow of financial assets offshore? What taxes can pull the money spent back out of the economy without hitting the pockets of people struggling or slowing investment in productivity?
My money is on a decent capital gains tax, but obviously if it were up to me I would get back closer to the tax settings we had 65 years ago when we built stuff and made real progress.
My house made more then me from 2005 to 2021... almost every year, definitely on average.
That's a lot of missing people's profit to try and find? We where all enjoying it ... while it lasted.
AND IT WAS TAX FREE
Asset price inflation - and people cashing out on that asset price inflation - only works while freshly printed bank credit is feeding the bottom of the ponzi scheme. I am not sure we were all enjoying it. You and I, perhaps, but the rest of the population was subjugated by the ponzi. It's completely unsustainable but we seem to be willing to try it again.
It will only work if you believe there is a bigger fool, in many cases you can't even find a new fool to take hold of the bag you currently hold....
Market has not fallen enough to bring the boys to the yard. Still another 100bps off the OCR will help lower the mortgage
By my calculations, we're back on at an OCR of 1.5 - 2.
Tend to agree
The issue being, that more are waking up to the machinations of this and cannot see, after calculating, the benefit of buying a house vs other investments or locales. The youth have options, they are mobile and can up and leave to wherever they wish for better pay, lifestyle etc, and clearly are. Maybe we will one day see more of an influx back to NZ by citizens wishing to return but I won't hold my breath for 10 years at least.
Although it only 'made' that tax free gain provided you sold.
Not saying this was you, but we saw many friends borrowing (increasing their mortgages) based on those unrealised gains - who then didn't sell. And (in Wellington anyway), many saw their inflated RVs (the ones they borrowed on) reduced by more than their increased borrowings.
Quite disheartening for many. I see a lot of renos pre-2021 (the building consents are dated on the realestate.co.nz website) - who are now on the market and can't get the price of even their new deflated CVs. And sadly, I don't think the deflation is yet over.
Everyone only talks about Capital Gains Tax...no one ever mentions Capital Loss Credits
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.