sign uplog in
Want to go ad-free? Find out how, here.

Neville Bennett is worried that we are grossly underestimating the impact of the economic trends moving against us. Your view?

Neville Bennett is worried that we are grossly underestimating the impact of the economic trends moving against us. Your view?

By Neville Bennett

The new OECD economic forecast summary for New Zealand lacks coherence.

It warns of a deteriorating international context, but is bullish about the New Zealand economy being stimulated by the Christchurch rebuild.

It over-estimates the likely economic performance of the domestic economy in the years ahead.

Nevertheless, there is a welcome breath of economic realism in the OECD outlook.

After a diet of unfounded optimism in the election campaign, it provides good evidence of a global slowdown, dangers of a new financial crisis, and projects slower New Zealand growth than Treasury’s make-believe.

NZ Growth

The OECD has trimmed its forecast for growth in 2012 to 2.5% from 4.1% in May. Its main reason is the delay in rebuilding Christchurch.

It is rather bullish about Kiwi resilience and suggests good performances past 2013 as the rebuild really kicks in.

Meanwhile current activity is reasonably high because of good commodity prices and unusually low interest rates.

Households were reducing debt but business was wary of investment because of economic uncertainty.

Interest rates could start rising in 2012. My sources say that business investment is quite high, and that this is showing up in machinery imports. But commodity exports are trending down.

The OECD gives its usual advice: Government should be fiscally responsible and get back to budget surpluses, improve the quality of social spending and look to sell some state assets. The advice is a little superfluous as these are National policy planks.

I take the view that these measures will have little effect.

If National does sell down a proportion of the assets it has identified, the quantum would make little difference even if it were applied to debt reduction.

This is a profligate administration. Crown net debt is forecast to grow from $14 billion in 2010 to $28 billion in 2015, but may be higher because of earthquakes costs.

'Wealth transferred from taxpayers to farmers'

During the election build-up we did not receive a clear picture on what the proceeds of the sale would be used for. We heard of debt reduction, but also emotive stuff about investing in schools (which put asset-sales in the same category as motherhood) and later that the sales would be invested in irrigation.

The idea of transferring wealth from the public to National’s farmer mates makes me squirm.

This outcome is only too likely as National displaced the elected Canterbury Regional Council (which tried to deal with demands for free water in an orderly way, with some consultation) with a rubber stamp outfit likely to give in to demands to break even the conservation order on the Rakaia River.

Back to the SOE asset sales: if we assume that Government applies a net $4 billion from the sales to debt reduction, that would reduce sovereign debt in 2015 from about $28 billion to $24 billion. It is no panacea.

The $4 billion is an assumption, not an estimate; it might be wide of the mark. I imagine that the selling costs will be quite high as governments usually consult bankers in these matters rather than use Treasury. Some proceeds might go to schools and farmers, so debt reduction will be quite small.

Adding debt is often acceptable for business, farms or households if their net worth is also increasing. But in the Crown’s case, Treasury estimates that Crown net worth plunges from $50 billion in 2010 to $31.1 billion in 2015.

If asset sales are included, Crown net worth will fall by another amount. I do not know what is projected but guess $8 billion.

If this is in the ballpark, Crown net worth will plunge from $50 billion in 2010 to $23 billion in 2015. It is a dire situation when a doubling of debt in 5 years and a 50% decrease in net worth can be regarded as optimistic.

The government made much in the election campaign of positive budgets by 2015.

Treasury forecast a few years of positive budgets for 2015-2020 but deficits then set in as debt service and higher superannuation and health take a high toll. The Savings working group has an amazing graph which sums up a deteriorating situation.

from the Savings Working Group chart pack, page 24

Government says it is OK for NZ to have deficits at a time when sentiment has moved against them in the UK, US and EU. According to Treasury, the 2011 budget had an operating balance of -8.4 %. That was the budget position but there may have been minor changes.

In the EU, countries have signed up to limiting deficits to -3% of GDP.

But meanwhile, Greece has a fiscal deficit (-6.8%) much lower than New Zealand’s but it cannot borrow in overseas markets. Greece is frozen out of international markets because its sovereign debt has junk status.

'Question the assumptions'

New Zealand has begun to lose status in credit markets and has a huge budget deficit.

Was it wise to reduce income taxes in recent budgets when a large fiscal deficit remained?

There are strong reasons to questions the assumptions of growth of government revenue before 2015. Treasury-projected growth-rates were estimated some time ago, on the assumption that ‘the outlook for world growth has been revised up” (p.71) but the IMF and OECD have since reduced their estimates.

The world economy is cooling very rapidly.

It is possible the USA enters another recession which would be a bell-weather for headwinds in kiwi exports.

My impression is that Treasury forecasts need downward revision and that the period of NZ budget deficits may be extended because growth in GDP may be slower than the 4% forecast for 2013 and 3% for 2014. Revenue would fall. Even if the fiscal deficit is 'only’ -4.7% of GDP in 2012, government must recognise that it may be regarded as totally unacceptable by rating agencies and debt funders.

Balance of payments

The credit agencies are worried about external imbalances (or the 'balance of payments'). The latest data reveals a downward trend since 2009 and a small but growing deficit of about $2 billion a quarter.

Rating agencies pay much attention to Current Account Deficits (CAD) and have already raised the CAD as an issue, although the deficit is only 3.7% of GDP.

There have been persistent weaknesses in the export performance, although these are quite positive at present. Imports have been subdued owing to the recession, and the rating agencies may feel imports will grow as treasury projects strong increases in private consumption of about 3% p.a. 2013-15, and massive investment as Canterbury’s earthquake recovery takes place.

Imports will grow enormously, by around 7% p.a. and the CAD is projected at -5.2% in 2013, -6.8% in 2014 and 2015.

Rightly or wrongly my lecturers always insisted that a CAD of -6% was unsustainable, requiring many adjustments including massive devaluation. A devaluation would help exporters and discourage imports but it would have inflationary consequences. Treasury has factored in a projected 90-day interest rate of 5% in 2015 but this may be understated.

For reasons hard to explain briefly, the scenario of high CAD and devaluation tends to lead to increased external debt. This is appreciated in Treasury’s forecast. Net external debt is 78% of GDP now and it rises to 85% in 2015.

The OECD data projects a poor outlook on trade in goods and services, and its assessment of the CAD is -5% in 2012 and -5.9% in 2013: a very worrying trend.

In view of the Treasury’s and OECD’s projections I consider government should be thinking more radically in broadening revenue streams (Capital Gains Tax, Financial Transaction Tax) encouraging savings, stimulating manufacturing, and looking again at retirement policies.

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.


Any reliance on a ChCh rebuild is misplaced.

Most of the big hotel and office building owners have already declared that they won't be rebuilding.

The vast majority of homeowners with written off homes have already made alternate plans - which generally involves the purchase of existing dwellings in ChCh or elsewhere.

Sections are languishing on the market (and prices being reduced => no demand from red zoners).  Few homes are being built even where insurance is available (Pegasus etc) => little interest or demand in a rebuild.

Vacant commercial land is virtually being given away in damaged east central areas.  Land prices are in many cases 50-70% below pre earthquake value.

Anyone forecasting massive spending is in lala-land.

very good article


"... sales would be invested in irrigation.

The idea of transferring wealth from the public to National’s farmer mates makes me squirm."

Yes, I have been wondering about that.  Would the irrigation schemes pump up the value of the land, & farmers benefitting get a tax-free capital gain, courtesy of the long-suffering tax-payer? 

That would be absolutely criminal & amazingly corrupt.

And would the water be charged at the commercial cost of producing it?  or would it be a subsidised rate, again courtesy of the taxpayer?  If someone else got that sort of benefit, it would be called socialism.


Philu, me old raving lunatic.........?

A little knowledge is a dangerous thing. That is the west today. The only people with any brains have given up trying to make money the honest way, largely thanks to political initiative-stifling. All the money sloshing around the investment world chasing "safe" investments and "high returns", SHOULD be in productive businesses, but the politicians almost everywhere have made that "too much hassle".

The only part of the world that is still like the little Gaulish village holding out against the invaders, is Southern and heartland USA. Small government, low taxes, fiscal responsibility, no urban growth boundaries, low cost land, less punitive anti-employer laws, no property price bubble at any time, and of course no crash, no anti-resource-extraction small-mindedness, businesses moving in from the lefty States like California, massive net in-migration, massive jobs creation (enabling level-pegging of unemployment figures which the critics say is "high", but....), steady building and construction activity......

And the received wisdom is that "too much free market" was the PROBLEM? Yes, Wall Street was a problem - but they are merely the top layer of rent-seekers chasing political distortions in the economy. There were no pickings for them in Texas at any time.


Research by Motu and the Reserve Bank vindicates yours and Hugh's position that housing affordability is directly related to urban development constraints imposed by local governments. I would hardly lay all the blame on the environmental movement for planning regulations. After all there are many vested interests who stand to gain from ever appreciating house prices. Property investors, partime Mom and Pop houseflippers, newspapers, lawyers, councils themselves, the bankers. Btw, the heartland States of America, aren't worthy of such uncritical celebration when you account for the massive Federal Fiscal transfers to keep their economies afloat. Who has to pay for them? The highly taxed , tightly reglated Blue States.


Thanks, Anarkist.

Bear in mind that Motu are just NZ's confirmation of all THIS:

They'd have to be crooks to have come up with any other findings. "Smart Growth" advocacy is riddled with manipulation of data and false findings (I know all their tricks). So are case studies like the "Auckland CBD Rail Loop" study.

That chart of US fiscal transfers is ambiguous. Note that the authors specifically comment:

"....smug liberals may not realize that either an independent Republic of Texas or some kind of Greater Texas would be fine....."

I would say from what I know of the "transition" taking place within the US, that if these investigations were re-done for a later period than 1990-2009, the picture would much more closely support what I am saying. California would be the big one to "flip", and this on account of its decline into "liberalism" and over-regulation in more recent years.

Boeing building a new factory in North Carolina, epitomises the shift going on. By the time they had planning permission in Seattle, Airbus would have all the orders. Not to mention the workforce problems in Seattle, with unions trying to do to Boeing what they have already done to GM.


Well said Neville – we await the Jubilee – it is going to be a shit of a process getting there. 

The ponzi scheme has run out of suckers, there is no lender of last resort for a total sovereign debt many times bigger than the real economy of the world can hope to repay – Armageddon leveraged….

Dunno if that will happen, it didnt in the GD of the 1930s...Jubilee's before that were far smaller events....maybe the Islamic dedict of not being allowed interest has some merit.



Your islamic credit yurk is a crock of you know what steven..always has been...The capital obtained is not the same as the capital to pay back....the pay back always seems to be somewhat larger....funny that...!

Trimmed growth forcasts by close to 40%, thats more then a trim IMO.  That insignificant period of surplus may as well not even exist, and I doubt it will.  Deficits will grow, thats the nature of democracy, where the sheep vote for the greenest grass.

Whats the solution?  There is none just muddle through untill we end up like Greece, taxing more to pay the debts means there is less money in the economy, shrinking it.  Keeping up the charade that things will always be bigger and better in the future helps noone.  What have the Greeks done wrong?  What will be our excuse when we end up like them.  I never borrowed the money, I just work hard and pay my taxes.  All just the victims of the global fiat debt based ponzi scheme.  Defaults are guaranteed, and its our fault because we put up with it.

Agree. Defaults are guaranteed.

All the money sloshing around the investment world chasing "safe" investments and "high returns", SHOULD be in productive businesses, but the politicians almost everywhere have made that "too much hassle".

Sovereign debt is an even bigger bubble than mortgage backed securities, and just as useless as MBS's as "collateral" on the books of financial institutions.

We are in the decadent phase of democracy. It was nice while it lasted. Sir Alexander Tytler and Erik Von Kuehneldt-Leddihn were right. Even the mortgage backed security nonsense was all about decadence and loss of reason - "everyone KNOWS house prices can NEVER fall....." and they can only go up - median multiples don't matter. If they were 3.0 historically and they are 6.0 this year, we expect them to be 7.0 next year. When they are 9.0, we will expect them to be 10.0 next year. DUH. DUH. DUH. The only people with any intelligence left, were "shorting" this, and they were widely regarded as crazy. DUH again.

The only perverse pleasure one awaits, is the sight of socialist politicians continuing to promise they won't sell assets and won't lay off public employees and won't reform welfare, health, or education; when there is no-one left to borrow from, money printing already causing hyperinflation, and tax hikes guaranteed to REDUCE revenue and shrink the economy. I doubt the public will learn even so. We are too deeply dug in now, with our scandalous false consensus on "Rogernomics". The Anglo world has to have its first Hugo Chavez yet, and NZ might be the first to get him.

Chris Martenson sums up the global situation, in a logical way. 6.4 minutes in it shows how credit growth has stalled in the US, and explains the effect on the economy. 

Thats a fantastic piece...


48% of NZers voted for those who chose to ignore NZ's parlous financial situation. We had three years of so-called 'rebalancing the economy'. We can look forward to 3 years of 'ChCh rebuilding' to save us. Some chance!

In the meanwhile, NZ's infrastructure, which does earn actual profits, will be sold off to anyone, mainly overseas, who is trying to get their pretend money such as euros or yuan or US dollars changed into actual assets.

I over-indulged on Chang beer last night and I've woken up grumpy. But the spineless lot that got elected a week ago deserve our opprobrium.

I'd say more like 99.9% of those who voted, voted for those who chose to ignore NZ's parlous financial situation 

Too right RobinT, little substance beyond Key's smile and wave.

Only now do SOME of the NZ economic commentators seem to be getting it.

It's not that I think the other pollies have it right either. But at least Goff threw a little bit of actual policy into the ring.

Rodney Dickens has been writing some excellent exposees of growth forecasts for years. I am with Rodney - 4.5% was just plain nuts, and even 2.5% is still nuts.

To return to the historic trend where growth cycled between 3% and 6%, WITHOUT needing any temporary bubble ponzi type "stimulus" (like we had 2000-2007), we will need to UNDO a heck of a lot of the tourniquets we have applied to our economy since those times. The regulatory distortion of the housing construction cycle alone, will stop us ever resuming a stable 3% to 6% growth cycle. We have had our "boom"; the evidence from Britain and other markets is, that once urban growth restraints are applied, you only have one BUILDING "boom" accompanied by a bubble in prices, followed by a crash - from then on, the "cycle" involves increasing volatility in property PRICES and DECREASING response of "supply". The building trade in Britain has been shrinking along with the number of homes built, for decades.

Population growth means Britain should have been building around 400,000 homes per year. They last actually did this in one year back in the 1960's. In spite of an increasing identifiable shortage of homes (now in the millions), each "housing cycle" has PEAKED at lower and lower levels of homes built, 300,000, 250,000, 150,000 - and down to almost nothing in the "busts". While of course PRICES have become more and more crazy during the "booms", and the price trend has steadily risen, meaning higher and higher "troughs" in price. The average age of a first home buyer has risen (it is now 39), and birth rates collapsed - except among the feckless underclass.

So welcome to the future for NZ unless we toss out the idiot ideas on urban "growth" coming from people like Len Brown, not to mention the loonies on the ChCh council who can't even change their thinking after a disaster has put their city on its knees. What is more, we are engineering this future for ourselves with 4 million people in a similar space that most countries have 60 million. Well DONE, socialist planners.

That's "housing" and its role. I believe ACT put out a handy list somewhere once, of the incremental policy impacts on growth rates - all those policies that reduce growth by 0.1% to 0.2% each, add up. When there is a dozen or so of them, you definitely need to revise your expectations of growth downwards. Ultimately you need to revise your expectations of standards of living and taxpayer funded services downwards too, but this seems to require actual sovereign default these days.

And your theory on coping with peak oil and climate change is? 

Google Bern Grush, “Less is More: The US $10 Gallon”.

It is online as a PDF, hard to link to.

Grush predicts that there will be a VMT “rebound effect” as oil-replacing technologies reach critical mass.

We have actually had massive scope already to trade off vehicle size and performance and comfort, and maximise the benefit of technology, to retain our “automobility” in the face of rising oil prices. Oddly enough, we do not seem to have done much of this. V8′s and large SUV’s seem to find willing buyers.

The increased reliability of vehicles as they age has brought automobility to lower and lower income earners; this is another phenomenon that is often not noticed. The cost of fuel is actually a low proportion of the “total costs of automobility” – a high proportion is “depreciation”, which is copped by wealthy new car buyers. Low income earners main obstacle to achieving “automobility”, used to be the repair costs and low reliability of the old cars they could afford to buy.

"catastrophic Anthropogenic Climate change" is a fraud. Phil Jones and Michael Mann and the IPCC cabal (80 scientists) are politically motivated crooks (as leaked Climategate emails show, more than once now), same as politically motivated left wing economists, judges, journalists, historians, teachers, sociologists, criminologists, urban and transport bureaucrats, etc etc etc. Mathematics and Sports are about the only things not yet hijacked by politically correct moral relativist denial of truth and reality. (Will the All Blacks ever be obliged one day to give goals away to teams from "disadvantaged" cultures)? is not the place to debate it.

I used to debate this stuff on Kiwiblog and gave up because of the Nats doing their "Tory in Name Only" grovel to media-driven political correctnesses (i.e. falsehoods), not just on climate change, either. My intention for some years has been to quit the country. I am working on it. I expect to watch the NZ food riots one day on Fox News from somewhere civilisation still has a chance to exist (see my comments above about southern and heartland USA)

He is clueless then. He ignores engineering and thermodynamic limits, then time and scale limits, as do all means continue to pray and smoke your wacky backy.........thats all thats left...



Yes, he's many unjustifiable assumptions.....


> oil-replacing technologies reach critical mass

...and these are?

I see, science and mathematics has nothing to do with it then.

Of course it is. It is just a question of WHAT data you apply your mathematics TO.

Malthus' mathematics were correct, it was his WORLDVIEW that was wrong.

The big mistake all Malthusians make, is to apply their mathematics to the CURRENT state of science, as if we have reached the limits of progress.

THIS is the rational "last word" on the subject:

George Reisman: "Environmentalism Refuted"

But many of the Malthusians are raving envy-blinded socialists who admit between each other that they are in "a race to collapse global capitalism BEFORE technological solutions render their Malthusian pretexts for economic white-ant tactics redundant".



Even Malthus' mathematics was faulty as both Murray Rothbard observed. The geometrical and arithmetical ratios of these increases, to which Malthus … seems to have attached considerable importance, as well as his other attempts at mathematical precision, are nothing but faulty expressions of this view which can be passed by here with the remark that there is of course no point whatever in trying to formulate independent "laws" for the behavior of two interdependent quantities. The performance as a whole is deplorable in technique and little short of foolish in substance.[2] 

I think people who are simultaneously socialists and Malthusians are rather dotty and confused, especially when you consider the social milieu that the "miserable Parson" arose from. He was the prime apologist for the British aristocracy and his rhectoric was designed to exonerate them for the suffering of the former occupants of the commons, who'd been thrown off their lands thanks to the Enclosure Acts of the 19th Century. Karl Marx absolutely destested him, but he wasn't the only one in the period. The famous free-marketer and labour campaigne William Cobbet called him the "monetebank parson" and condemned the newly introduced New Poor Laws as, “Malthusian bill designed to force the poor to emigrate, to work for lower wages, to live on a coarser sort of food”. 

The hatred of the English working classes for Malthus—the “mountebank-parson” as Cobbett rudely called him (Cobbett, though England’s greatest political writer of this century, lacked the Leipzig professorial scholarship and was a pronounced enemy of the “learned language”)—was thus fully justified and the people’s instinct was correct here, in that they felt he was no man of science, but a bought advocate of their opponents, a shameless sycophant of the ruling classes. 

And later, the hysterical anti-population brigade, the likes of Vogt, Erlich, and Hardin, were refugees of the Progressive eugenist movement, which has been thorough tarnished by the "excesses" of the Nazis. They were a product of one branch of the environmentalist movemnent that emerged from a suprising quarter, amogst the WASPs that congregated in elite Ivy League universities and their belief were progulmated with funding by America's wealthiest in dividuals and companies. 


Wow, you're well read. Thanks for the support.

I presume you've read George Reisman, "Environmentalism Refuted", and understand it, unlike the Malthusian loons on this thread?

However there is a huge difference in the level of maths and scientific understanding between then and now. Its obvious you dont do dont understand engineering and it seems no to maths as well. 

All you come back with is a belief in science will fix it for you....thats a very shaky and illogoical premis to gamble on...

and then of course you go on to your raving blind foaming at the mouth over "socialists", congrats you make yourself look like a raving loon yet again.


" will fix it for you....thats a very shaky and illogoical premis to gamble on....."

It hasn't been before now. I thought that was what "the enlightenment" was all about.


I struggle to see what science or mathematics there is behind such of your proof against climate change as: politically motivated crooks (as leaked Climategate emails show, more than once now), same as politically motivated left wing economists, judges, journalists, historians, teachers, sociologists, criminologists, urban and transport bureaucrats, etc etc etc. 

Is the world flat too?

I didn't say that bit was about science or mathematics. That bit is about culture and politics.

This is not exactly the site for it, but here are some particularly good unrelated examples of the kind of crooked activity I am referring to, that infests almost every area of the West's governing bureaucracies today:

So the IPCC rogues are just trying to apply the same "no lie succeeds like a big lie" tactic that is typical of the modern Left.


Neville missed didn't look at the forest from the other side...the side where all the lenders live....from their viewpoint this country is ripe for the farming of the taxpayer long into the future...the local parasites see business and residential mortgages as investments in their 'farm' fully supported by the RBNZ...the international parasites look at the taxpayer as their farm and they will not kill off the farm...will they Neville!.


That graph is an eye opener....Also just look at NB's graph...and no mention of this by National....oh and guess what Labour are exactly the same.....they are the opposition and they are keeping their mouths shut just as firmly.

Yep and the stupid thing is we are encouraging them (the lenders) to do it.


Neville , in my humble opinion you are wrong about Government reducing taxes , the tax burden was simply shifted the incidence of taxation from taxing our labour to taxing consumption / spending ( PAYE went down and GST went up ) There was no reduction in taxes, although the tax take seems to have fallen due to extrnal factors.

Frankly I prefer tax on spending/ consumption  ( GST) rather than taxing me for getting up and going to work for 10 - 12 hours a day everyday.