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ACT Deputy Leader Brooke van Velden argues the Government is on the wrong track borrowing up a storm

ACT Deputy Leader Brooke van Velden argues the Government is on the wrong track borrowing up a storm
Source: Cartoonstock.com.

By Brooke van Velden*

The Government’s mortgaging our futures by borrowing $140 billion. I get it, there has been a major crisis. But… have we really processed what that will mean next year, or in 10 years’ time? Is all of the Government’s spending necessary? For the spending that is necessary, who is checking that it is well spent?

The younger you are, the longer you will be paying taxes. It’s not my job to tell you what to worry about, but if it was and if you still have more tomorrows than yesterdays, then I’d say the Government’s recent debt splurge is definitely worth your attention.

By borrowing $140 billion, the Government is increasing total crown debt to a level this country hasn’t seen in close to 30 years. Or, to put it another way, $300 million is being added to the books every day.

It’s not cheap change. Borrowing for this year is set to be three times higher than the New Zealand Government has ever borrowed in one year before. By 2024, Government debt will sit at $200 billion or 54% of GDP.

New Zealand’s economy has gone through a 1-in-100-year shock, but we need to be honest about debt. It’s money that will need to be paid back.

Treasury tells us that by the end of the decade, the interest on Government debt will cost more than the Government education budget. The choices we make about debt now will take away choices in the future. We are making choices now for ourselves and those who follow us.

So, let’s be honest about the debt. We need a well thought out economic plan, or people will rightly worry about how we’ll pay the debt down and continue to pay for Government services like health and education.

Maybe we could live with those choices if we knew the money borrowed was really well spent. Here’s the kicker, though.

During COVID-19, the Government actually cancelled the usual procedures for assessing policy. Good for the Government, maybe, but not so much if you’re getting sent the bill. The Government’s asking our generation to pay for a recovery with borrowing and spending to stimulate the economy that can’t be properly scrutinised.

The Finance Minister says we shouldn’t worry because other countries are worse. That’s only because successive Governments have followed the principles of the Public Finance Act and reduced and kept debt at manageable levels. It placed New Zealand post-GFC in the strong and enviable position, compared to other countries, to be able to borrow for this crisis.

A responsible Government would leave room to borrow more in the future because of our country’s small size and vulnerability to the changing moods of the foreign debt markets. We need to reduce and pay down debt now so there’s room to respond to natural disasters. We’ll never know when the next crisis will hit or what it will look like.

There’s a better way to stimulate economic growth than a government-led recovery. It works without saddling our generation with debt. We can choose to be a low debt, low tax, high wage country with low regulatory barriers to growth.

We can let innovators, businesses, and people drive a bottom-up recovery.

When governments borrow, they’re claiming that they can do a better job than what the private sector could do with that money. But they can’t under normal circumstances. Making rushed decisions with limited oversight and an election looming, they’re even less likely to do so.

We should be sceptical of big spending Government measures, because we’ve been here before and it was not pretty.

Think Big was a massive fiscal disaster. After New Zealand lost its main trading partner and faced an oil crisis, then-Prime Minister Robert Muldoon borrowed heavily and plunged New Zealand into debt. Taxpayers spent the 1990s and most of the early 2000’s grinding it out to pay for that one. It was a tough time, and they were helped by a growing economy.

We have a choice.

We can keep going the way we are now. The Government is running up debt that will limit our choices in the future, but there’s no focus on the quality of the spend.

Or, we can make different choices and change our future. We can run the ruler over existing spending that never added up, or may have added up before but doesn’t add up now the world has changed.

That takes political courage. Some people might say, for instance, that if you talk about reducing any kind of spending, people who benefit from the spending won’t vote for you. That’s a hopeless situation.

I think we’re ready for a more serious conversation about debt and what our strategy as a country is. I think the circumstances we face mean we can’t afford not to have that conversation.

Then we can ask, how do we want people to remember us handling this difficult time? Head in the sand, foolish, procrastinating? Or should we be honest, decisive, and strategic? Sadly, right now we are on the wrong track.


*Brooke van Velden is the ACT Party's Deputy Leader and Wellington Central candidate. As part of an election series van Velden will be writing regularly for interest.co.nz between now and the September 19. Vanushi Walters, the Labour Party's Upper Harbour candidate and 23 on the list, will also be writing for interest.co.nz.

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61 Comments

20
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I read that article twice and couldn't tell what the proposed alternative was - can anyone find it?

The alternative he stated is "We can let innovators, businesses, and people drive a bottom-up recovery." That's the solution. Only problem is that the majority want the govt to take care of household's 'lack of liquidity' until anything like this can provide for them.

True, although now's a good time to push the envelope on innovation-driven growth since we're less likely to lose our skilled workers to better job markets.
The government can speed up this process by reforming RMA and and anti-dumping regulations, fast-tracking vocational funding and shovel-ready projects, and providing budget boosts to the likes of Callaghan, Kainga Ora and CRIs.

The government can speed up this process by reforming RMA and and anti-dumping regulations, fast-tracking vocational funding and shovel-ready projects, and providing budget boosts to the likes of Callaghan, Kainga Ora and CRIs

That all sounds very good, but at the end of the day, someone needs to roll up their sleeves and get it done. You have a lot of fiefdoms to deal with and they're probably bunkered down. People like to talk about change, and it all sounds good in a glossy brochure, but actually making it happen often requires a lot more than good intention.

We would also need to incentivise innovation rather than just easy speculation in land. Otherwise the money printing will just flow into land and not into innovation and we'll be no further ahead.

Exactly right. A Government seriously committed to the longer term health and sustainability of the NZ economy should have the balls to heavily tax land speculation, and with that money seriously incentivize and promote productive investment, innovation, research and development, investment in education of the workforce, hiring and risk-taking in the real economy, and wide infrastructure development not limited just to new roads, but also extended to a realistically and efficiently designed public transportation network.
We are not going to get ahead just by selling houses to each other: this is just a fool's paradise. We are getting ahead only by increasing overall efficiency and productive flexibility.

It takes selfless voters with attitude of doing what’s best for country’s long-term future... are they out there?

Exactly.
Shallow piece.

Like all politicians, good on talk poor on delivery.

The recent and current government borrowing freezie motivation is to get reelected, and politicians will do anything to maintain power. Just look at whats happen to the National Party in recent times.

Truth is I'm not confident any government can deliver much. Politicians hardly attract the right people to work for them, but surround themselves with spin doctors and the yes crowd. The whole system needs a clean out, and less bureaucracy. This will only happen when the system is bankrupted.

Which is the point of the article?

Same here. Give some detail please. I suspect it will be the old 'reduce taxes (for the wealthy), reduce government, vouchers for health and education'.

Same here. Give some detail please. I suspect it will be the old 'reduce taxes (for the wealthy), reduce government, vouchers for health and education'.

The problem here is that the above article is old-fashioned, sensible thinking - in a careful manner ( trying so hard to be politically correct and non-controversial).
None of what's written applies any more - we have - MMT!
Debt never has to be repaid if you run your own currency; the size of that debt is immaterial.
Perhaps ACT needs to be part of the Present and not be so stuck in the Past.

bw,

MMT. I have been trying to get my head around this. If theorists like Stephanie Kelton are to be believed, then its the answer to everything. Unlimited amounts can be thrown at infrastructure, at forgiving student debt and giving all US citizens a basic monthly income to deal with unemployment.

To quote from Aftermath by James Rickards; "This means that there is no limit to how much the Treasury can spend. If that's true, there is no social problem from poverty to infrastructure to education that cannot be solved with more spending".

So, paradise awaits through unlimited spending? I think not. because the real source of money status is not in the end, state power, but confidence. To quote Rickards again; "What is the invisible confidence boundary at which the intellectual failure of MMT becomes plain?

No arguments with me in any of that.
But it does 'do your head in' when MMT is so eloquently argued, and there are clever people out there who really believe it is 'the answer'.
Maybe it's the last gasp of a doomed 'capitalist' society. I hope not, but we are about to find out.....

The problem with MMT is that it's right, until it isn't.
There's that invisible boundary of confidence that separates say Argentina from the USA.
MMT works until that boundary is crossed -- but the problem is that there's no mathematical law that tells you when you are at risk of breaching it, it's all 'animal spirits', politics and spin.

That was the problem with capitalism.

As it is finding out.

No Link, BW is correct in that the answer lies with MMT. But it is not a panacea that makes all problems go away. True the Government can set virtually any goal and fund it simply by creating the money (tax is used to control inflation and manage behaviour) but there are significant constraints, only they are not debt that must be repaid. The constraints relate to resources that impact on the environment, towns and cities. Unconstrained spending would produce significant adverse environmental impacts. And then there is demand, so it is no good for example to create manufacturing industry that makes widgets which no one wants to buy (unless of course you are a genius like Steve Jobs and can create a market for that widget out of nothing).

Significant Government regulation is also required to manage business and corporate behaviour. A clear example of why is the housing market. With plenty of money available, and with COVID more created by the Government the only area in the country that has seen significant inflation has been housing. This is because the banks, and the housing/rental market has not been properly regulated. The impacts of this has been housing costs that are largely unaffordable for ordinary Kiwis, and homelessness, an aspect that in the 1970's was almost unheard of and would have been considered utterly unacceptable.

MMT never says that a government can spend without limit but that the limit is the capacity of the economy to produce goods and services without causing inflation. If there is unemployment and unused resources then the government can fill the gap and put them to work. The governments Covid 19 response gives us the perfect example of this in action.

You are describing basic Keynesian economics, not MMT.

Problem being if you over cook your printing the currency devalues too much. No one will want to hold your debt and imports become increasingly expensive

11
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That article simply serves to emphasise just why ACT should never get its hands on the levers of power.

It has learned Nothing from all the neo-liberal failures of the past 30 plus years. What does it want? Above all, low taxes despite all the evidence showing that that really only works for a tiny minority of the population.

ACT always have a good talk about idealism. Reality is that most of them seem to come from a background that is incongruent with their ideals.

"It has learned Nothing from all the neo-liberal failures of the past 30 plus years."

I have to chuckle when this line is trotted out. Unless you're living in an ideological bubble, NZ was in aboslutely DIRE straights in the 80s. The neoliberal reforms implemented by Labour have lead to a quintupling of tax revenue in 30 years, which pays for WFF, increased benefits, night classes, super, you name it.

Without an economy where people actually work and produce and don't get paid to do nothing, you don't have the income needed to fund your leftie wishlist. Labourites would rather go back to the good old days of Muldoon command and control than let a worker keep a little more of the fruits of his labour, it seems.

11
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Problem is you're looking only at a subset of generations, and this living it up has relied upon accessing the value of the previously socialised spend (e.g. affordable housing) and drawing forward growth from the future in the form of inflated household debt. And now NZ has society where wages are completely disconnected from critical aspects of building a life, e.g. house prices. Instead, central banking and government pay people to do nothing by pretending money grows on houses, while neglecting a key facet of stable society.

Now we even see Grey Power demanding that younger generations subsidise private health insurance for them, after years of voting for politicians who run on taxing less when they were working. Entitlement mentality doesn't stop.

Gotta address these ideological bubbles. ACT have some good policy suggestions, but they're not coming up with answers to fix fundamental issues behind the imbalance between productive investment and land speculation.

11
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Sorry to point this out to you but most countries of West and OECD were in a "mess" in the 1980s, with mass unemployment, riots, societal breakdown and social malaise.
Not just NZ. And from 1984-94 NZ managed the great achievement of reducing FT male employment by a full 10%. How much extra productivity did that get you?
NZ had a balance of payments problem from 1974-2010 and only China grovelling changed that. Now NZ is facing a large drop in export demand due to recessions coming in most other countries so the BoP will deteriorate again. So, NZ is not "solved" and increasing inequality for 30 years did not help, and neither does sucking rents up to the top 20% whilst half pop cannot afford a house.

Reform was needed yes. We WERE in dire straits. But that doesn't mean that the reform shouldn't have been less severe.
I think it is it's severity that people had a problem with, but the fact that reform was needed.

The author says we need to reduce and pay down debt now so that we have room to respond to a natural disaster - then in the next paragraph says governments shouldn't be borrowing to respond to a crisis like this. This article is incoherent and contradictory, I am reconsidering voting for Act after reading this.

The author says we need to reduce and pay down debt now so that we have room to respond to a natural disaster - then in the next paragraph says governments shouldn't be borrowing to respond to a crisis like this. This article is incoherent and contradictory, I am reconsidering voting for Act after reading this

I noticed that. It's a stream of consciousness ramble that's trying to impress his peers I suspect.

her*

12
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“We can choose to be a low debt, low tax, high wage country with low regulatory barriers to growth.“

Yes, right let’s do it! Easy peasy, just like that! All we have to is waffle our way to wealth.

Sad to see such rubbish printed on this site.

If this is the standard we can expect from the deputy leader of a political party, heaven help us.

We’ve been putting up with far worse from the COL since 2017.

Act got 0.69% of the vote last election. Lets not bandy about the L word..

Someone needs to offer up a viable alternative. There lies the problem.

A plan starts with stated vision... you happy with Labour’s or National’s?

the only alternative way is to form a deep partnership with China on all fronts.

What is your position on the treatment of Drew Pavlou?
https://9now.nine.com.au/60-minutes/drew-pavlou-launches-legal-action-ag...
Is this what you want for NZ?

this clown should be put into prison for spreading lies and hatred.

13
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Enough irony to move a compass..

Thought that would be your position. Just confirms that why China is held in growing disdain around the World. You have better qualities than that.

The only way that government world over knows and doing to avoid the disaster is by printing and distributing money particularly more the need in election year.

Will this avoid the disaster - consequence of coronavirus that led to total lockdown - full stop of people's movement and economy comming to a halt.

During the great depression it is widely felt that government worl over did not act in time so based on that are being pro active by printing and throwing money with no one actually knowing where will all this lead, so is a guess work based on hope.

Wait and Watch as is hit or miss and hopefully should know by end of year if it is hit or missed.

As has been stated by global commentators -any borrowing now is our last chance to invest in a sustainable world. Get this wrong and we are left with an empty tank and no ability to change course.

All govt spending is taxation. Money taken off the productive to give to politicians to allocate. A recipe for disaster.

Any borrowing now will add to the already monumental pile of debt that my generation has to pay off. It's all very well believing the world's going to go up in smoke unless we indebt ourselves up to the eyeballs, but you aren't going to have to pay for the consequences now are you, in any sense. Skin in the game.

The debt being piled on now is being done to protect the asset base of the boomers. End of story. I’ve argued this for eternity, my concern for those following behind, not for those who climbed the ladder and then pulled it up.

taxation only deletes currency it never finances the government. All government spending is made by issuing new currency. Spending comes first and taxation and borrowing occur afterwards. Only the government can create net financial assets for the private sector to fund our savings. Some further explanation here.
https://gimms.org.uk/fact-sheets/sectoral-balances/

My opinion: This is just a political piece aimed at getting votes rather than going into any sensible detail or alternatives. The timing is correct however as it is now we need to start looking solidifying a longer term plan around debt now we are over the initial fire fighting stages ( many would say we are not over the initial stages however ). Unfortunately the motivations surrounding this piece is about votes and a nearing election rather than that sensible conversation.

I was there in the 1990's when the ACT policies ruled. It was an economic and social disaster. We are still suffering from the reduced growth caused by needless austerity. If you don't think we are in a crisis now with Covid-19 when do you think we will actually have to spend money? If it was Armageddon the ACT guys would still be saying perhaps we should keep our powder dry until a real crisis strikes.

When the economy is growing full on and the tax revenues are flowing then ACT jumps up and says instead of paying off debt let's give all the most wealthy individuals big tax cuts. All of a sudden when the opportunity to lighten the load on the next generation is actually available, that's when they don't care about the debt anymore.

"We can let innovators, businesses, and people drive a bottom-up recovery."

Except that right now the private sector is not investing and innovating, they are laying off and surviving.

It would be a very brave individual that decides now is the time to mortgate up the home and start a new business.

Quote: "We can choose to be a low debt, low tax, high wage country with low regulatory barriers to growth."

We can just choose that, can we? Experience would suggest otherwise. Roger Douglas & Co already tried to turn is into Singapore in the 80s, and it didn't work. Not that most of us actually want to be Singapore.

Indeed. High wages eh?
Show me neo liberal tax haven paradise run by their lot, with high wages??
Their whole project is to suck wealth up, which of course, destroys demand. Duhh

We have been all conned into taking on crazy levels of debt to own assets. It is like a gigantic squid sucking the life out of the NZ economy. We have dropped rates, flooded the economy with cheap foreign labour. What is left to do to protect the debt/asset ponzy?

There is only on winner and that is the banks shareholders in Aussie, and their shareholders which are in....does anyone know?

Interesting that she doesn’t mention that it was the previous Labour government (Cullen/Clarke) and to a lesser degree Richardson government that allowed the Nats to borrow and now this government.

Debt is NOT repaid, it is rolled over. Only people with mortgages pay debt off.
It is long overdue that people in political parties and the media stopped lying about this.
This government debt will not be repaid and no one in government or opposition or the RBNZ says it will, or even that that is the intention.
Do you really believe that USA is going to repay the current $26.5 trillion of debt?? it owes.
The world total debt pre CV19 was about $350 trillion, or about 30% more than in 2008-09.
Commentators need to grow up and talk to us like adults.
Without a debt jubilee or default , none of this world debt is going anywhere except up.
Repaying means that an economy has to use some of its growth to pay capital off the debt.
interest rates have been falling for 10 years. People are not paying capital, they are paying interest.
What do these nun-ties think QE is for. This is extend and pretend to infinity.
Government and economic elites do not want to consider normalising anything, it is way past too late.
Only way to make GDP growth increase to over 2% for OECD is to give back consumer power and disposable INCOME to bottom 40% its been removed form over the last 50 years. And no that is not going to happen.
So, no spare cinema growth = no debt payment. For chrissake, grow up!

12
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National and Act are stuffed at this election because they have to argue (to go along with their usual mantra) that we need tax cuts and less spending, which means taking money off the people Labour is currently supporting or has done prior to CV19. What a popular message. Oh, and add in, lets bring in lots more cheap labour and foreign students so we can have another CV 19 outbreak. Oh, plus lots of "vision" about building tunnels in 10 years time, whilst reducing borrowing. utter drivel

Not sure the author has quite got to the rotten core of the problem and the dangers and dragons that lie there.

Firstly, she appears to be thinking about debt as it was under the previous monetary system. We are now in a world where our double entry based money can be created by either the private banking system (mainly via writing new mortgage lending) or by the central bank (via monetising the government debt, whether you call it QE or MMT). There are unknown dangers here. John Law thought he knew how to control this unstable system, too, and it didn't end well. Modern John Laws, the high priesthood of our times, the central bankers, also believe they can control the uncontrollable and calm the waters of the current financial storm. Maybe they can, maybe they cannot.

Secondly, she appears unaware of the underlying cause of our present situation, which is the result of running a dysfunctional business model for several decades. Because growing real export business is slow, successive governments have chosen the sugar diet of excessive foreign capital inflow, either directly, with immigration, or via the Aussie banks. This inflow must be balanced by reduced inflow via exports of goods and services, by the subtle mathematics of double entry. The negative current account balance is the symptom of the disease - we are living off foreign capital inflows, instead of earning a living.

I could go on (and on), but those two points seem central.

Absurd.

Its a 100 year shock, the government should be borrowing to cover the reduced demand.

We just have to pray we don't get another 100 year shock in the near future.

Nonsense.

This is a case of exponential growth within a bounded system. We are up against the limits, the virus was merely a (and increasingly looking like 'the') trigger. There will be more such, bigger such, and more frequent such.

https://www.amazon.com/Collapse-Complex-Societies-Studies-Archaeology/dp...

I doubt the writer has even heard of it

Yep just a puff piece. Doesn't tell me anything more about Act's plan to improve the lot of the average Joe Citizen.

Seems that my previous comment was nixed by a moderator, given that it wasn't inflammatory or abusive I can only assume it was due to the fact that it was low effort, ironic really given that I put about as much into that comment as the author of this piece put into writing it.

The author has done little then repeat the same tired rhetoric based dogma of debt bad, taxes bad, power to the "innovators, businesses, and people", standard libertarian "invisible hand" of the free market will save us all!!! etc etc. The author has provided nothing that is constructive to the situation at hand, nothing concrete in terms of policy or legislative reform or how their party would do better if in government.

Describing this as a puff piece is an understatement.

If you were to not have intervention during this crisis we would already be in another great depression.

Wow. Very refreshing to see a politician not wanting to take reins of economy with pork-barrel spending!