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Charts: How the world (and NZ) got into this mess and how we (might) get out (Update 1)

Charts: How the world (and NZ) got into this mess and how we (might) get out (Update 1)

By Bernard Hickey I spoke this morning at a business breakfast hosted by finance, accounting and IT  recruitment firm Robert Half about the Global Financial Crisis. I've compiled 30 charts which I think tell the story of how we got into this mess and how we might get out of it, although not necessarily unscathed. (Updated to include more detail for those not there) My view is that the forces of de-leveraging that are building both here and globally could see us effectively repay NZ$45 billion of debt (25% of GDP) over the next 7-10 years. That's what previous de-leveraging episodes after credit booms have delivered. Given we can expect low growth, higher interest rates and low inflation over that period, this means a lot more saving and significantly less spending growth. That will be tough for retailers and those that depend on credit fueled investment in property for their income. My longer term view is that New Zealand businesses face a battle retaining skilled stuff unless we have a real debate about economic reform and the need to reverse (or at least stop) a massive intergenerational transfer of wealth. With current policies (including the pension age stuck at 65, National Super at 66% of the average wage, publicly funded healthcare and tax-free capital gains on property), there is a risk the working generations (20-60) will be paying income taxes of above 50% and GST of above 25% by 2030 to pay for the pension and healthcare costs of the retiring boomers. Those in their 20s now face heavily indebted futures based on the decisions of their forbears to spend now and transfer the debt generated by that spending to the next generations. A workforce that will have little disposable income (after taxes) and options to flee (to Australia in particular) will have to be motivated very carefully. There is a risk, given the above, of an exodus of our skilled workers that leaves a hollowed out economy filled with retirees, landlords, farmers, migrants and beneficiaries that clock up big budget deficits and an unsustainable debt. That's without reform of our taxation system and our productivity performance to lift our growth rates and incomes. That's why I'm trying to get a bit of a debate going. Your views?

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