Nice to Michael
Audrey Young blogs that Bill English has been forced into being positive about Michael Cullen’s stewardship:
“In the midst of the horrible outlook and depressing uncertainty about how bad it might get, English was forced to change his message about his inheritance from Labour because it was more important to inject some sense of positivity into the situation. He needed to do it for both political reasons and for real financial reasons.”
So we have the spectacle of English praising Cullen’s reduction of government debt down to a low of 17% of GDP. I do not have the constraint of poisoning business confidence with my words, so I am nowhere near as charitable. The Standard is eager to point out that the bad economic news at present is caused by international factors (Interesting, considering they downplayed those same international factors during the boom times and claimed credit for Labour policies).
Not to burst their bubble, but New Zealand was in recession well before the current economic crisis (though not before the sub-prime disaster started to unfold) and well before any similar recession in our major trading partners. This tells me that our debt-load was good but our growth completely sucked. Bizarrely, this actually puts us in a better place to weather the current crisis than most economies, but that is almost completely by accident. I say by accident because it is obvious that Cullen was still spending money with wild abandon right up until the election.
What on earth was he doing buying a railway when it was clear New Zealand could not afford it? What on earth was he thinking offering money to students for no return when treasury projected massive deficits. Why was some of the surplus of previous years not used to plug the large holes forming in the ACC accounts (or is Cullen trying to tell us that several billion dollars magically vanished just this fiscal year)?
Although Cullen has had some good ideas (Super fund, paying down debt), the last three years of his time as finance minister seems to have been spent having one of the largest spend-ups in New Zealand history. The sight of a chortling Cullen boasting about the kitty being bare, after having excessively taxed us for nearly a decade, cost Labour a large number of votes; possibly the election. I do not consider him a prudent Minister of Finance, by any stretch of the imagination.
I did wonder what Cullen would have done had Labour won the election. The answer is obvious. The Emissions Trading Scheme would have saved him. As the ETS kicked in the Government would have made windfall profits of $6-21 billion, enough to cover a multitude of sins. And the government could have looked virtuous while doing it – doing their bit for “climate change”.
One thing you can’t say about Cullen is he is dumb. He always has a back-up plan. I, for one, am glad he wasn’t allowed to fall back on it.
Related posts:
- I’m not dead There’s a plague scene in Monty Python and the Holy...
- No Hole on the Horizon Treasury now predicts that the Cullen fund will be $37...
- Nice if You Can Get It Well, Parliamentary services has opened the books and the week...
- Jobless I have noticed this past week that Labour, most of...
- Busy Doing Nothing Brian Fallow writes a succinct summary of the past year...
Dec 18 08 7:16 pm
And what if National had been in? If taxes were slashed, and hence government revenue, would the debt have been paid off? would the super fund have been set up? What about unemployment Labour made the promise to get unemployment below 4% and succeeded proving Bill English wrong when he said that was a hoax. Indeed, when National was in unemployment was above 6% and that costs a lot in dole payments. That being part of the reason why government spending as a percentage of GDP was actually lower under Labour than it was under National in the nineties (and of course the amount the economy grew). Obviously, mostly through no fault of their own, government spending is set to rise as the economy shrinks and as unemployment (and hence the cost of social services) rises. Without getting into any argument about the rail buyback do you think that building prisons at $300 to $600 million dollars a pop is a productive way to spend our money? We wouldn’t need to do that if National hadn’t have succumbed to the ‘hang em high’ brigade against their better judgement (as borne out by their policies in the nineties). Micheal Cullen may not have been the most prudent, but he was sober. However I think he has an undeserved reputation. As this article by Brian Easton points out: I am looking here only at central government current spending (which excludes social security transfers). We all know National’s Sir Robert Muldoon was a big spender; he outlaid 16.6% of GDP on education, health and the like. Labour’s Roger Douglas and David Caygill cut that back to 16.1%. National’s Richardson-Birch-Peters-English regime cut the figure further to 15.8%. That is what we would expect (although their cuts were not as great as Labour’s).
However, current Labour Minister of Finance Michael Cullen has kept his spending even lower: 15.6%. Of course, he has actually spent more, because the economy has expanded. He has also spent more on infrastructural investment (which is not in this total), although that has been partly funded by reduced social security outlays from falling unemployment and indexing benefit rates to prices rather than wages. But -relative to the size of the economy, he is spending about $250 million a year less than National did in the 1990s.
So Cullen has been more prudent than his reputation. Indeed, he has been able to give higher tax cuts (including the Working for Families package), more generous New Zealand Superannuation and more concessions on student loans than National would have if it had maintained its spending regime. Well, blow me down. This is not the way the parties like to present themselves.
How’s that vision Mac? Must be quite hard to see the world only in black and white.
Dec 18 08 8:19 pm
Quoth the Raven: Love how you compare Cullen’s spending in a boom time with National’s spending as they tried to dig their way out of the pit Labour left the last time round. Statistics are not helpful when you are comparing an orange and a giraffe.
Cullen was blessed with years of excellent revenue because of the enormous amounts of cheap money being splashed around the global markets. Unemployment was at an all time low. Instead of stimulating the economy, he either spent or saved the money. The consequence of this is that, while we have low debt, our economy is sluggish and heavily reliant of the cheap credit that is no longer available. We now have one of the most generous superannuation provisions in the world, but we do not have the knowledge based economy we were promised. Which do you think we will need the most in the next few years?
Oh, and PLEASE stop calling Working for Families a tax cut. It is a rebate. Rebates lose about 20% of their value in churn. They are also prone to perverse incentives and inherent unfairness brought about by their disassociation from the tax structure. Tax cuts are a far more efficient way of stimulating the economy. It is hard to see how one can consider Easton a competent financial commentator, when he apparently thinks rebates, pensions and student loans are “good” spending for an economy.
Dec 18 08 8:23 pm
“If taxes were slashed, and hence government revenue”
One does not follow the other necessarily.
“would the debt have been paid off?”
Why not? Most of the money is gone because Labour spent it on things that were not worth doing. By not doing those things, we would have been able to pay off plenty of debt.
“would the super fund have been set up?”
Who knows? If we’re going that far back, had National been in the same money would have been put into debt, so largely the same net result would have been achieved.
“What about unemployment Labour made the promise to get unemployment below 4%” – Yes, they promised to do it and it happened, but I promise that the sun will rise tomorrow too.
Governments can’t create jobs, they can just make the conditions right for businesses to grow. National was doing that too.
“Indeed, when National was in unemployment was above 6% and that costs a lot in dole payments. ”
Actually, many of those have simply moved to the sickness benefit – so they’re still costing us, just under a slightly different budget heading.
“That being part of the reason why government spending as a percentage of GDP was actually lower under Labour than it was under National in the nineties (and of course the amount the economy grew).”
The economy grew like crazy, as did Cullen’s spending, as did inflation. National managed to achieve the same real growth, without the inflation.
“do you think that building prisons at $300 to $600 million dollars a pop is a productive way to spend our money?”
Depends who gets locked up. Some criminals would just go out and commit more crime, costing far more in police work, insurance, legal bills and lost productivity, than it would to keep them in jail.
“We wouldn’t need to do that if National hadn’t have succumbed to the ‘hang em high’ brigade”
Funny, I thought criminals were locked up because they broke the law…
Dec 20 08 2:02 pm
Mac – From Easton’s website: He holds degrees in mathematics and economics from the University of Canterbury, and in economics from Victoria University of Wellington. He is a Fellow of the Royal Statistical Society, a Chartered Statistician, and a Member of the Royal Society of New Zealand, and a Distinguised Fellow of the New Zealand Economic Association. In May 2002 he was appointed to the Prime Minister’s Growth and Innovation Advisory Board.
So excuse me for thinking he is a competent financial commentator. If we were discussing VDs than you would be a competent commentator. It was him that said WfF is a tax cut not me, but I agree with him. If it reduces your tax burden than it’s fair to call it a tax cut. It’s funny how the Americans have no problem calling this kind of thing a tax cut. Bush gave out lots of tax rebates, Obama plans to give tax credits to families (much like Labour’s WfF) and the right wing American commentators have no trouble calling them tax cuts.
Love how you compare Cullen’s spending in a boom time with National’s spending as they tried to dig their way out of the pit Labour left the last time round. Nice to see you recognise the harmful effects of the fourth labour government. I would completely agree with you. Douglas’s neo-liberal reforms did immense damage to this country and the National government of the nineties carried on with it, with harsh labour laws and more privatisation. So we seem to agree on the damage that those right wing policies did to our nation. Also, remember who’s in coalition with National. During the economic boom time we averaged a GDP growth greater than that of Japan, the U.K, the U.S. and Australia whilst in the nineties Australia and the U.S. grew faster than us the others growing slower. Furthermore, our unemployment was one of the lowest in the OECD only two other nations averaged under 4% in the last five years.
We now have one of the most generous superannuation provisions in the world, but we do not have the knowledge based economy we were promised.
So do you think cutting the R&D tax credits and cancelling the fast forward fund would help to build a knowledge based economy? What about student allowances?
Why not? Most of the money is gone because Labour spent it on things that were not worth doing. By not doing those things, we would have been able to pay off plenty of debt.
You could name some of them. How about building useless prisons becuase Labour also took a punitive appraoch to crime.
Actually, many of those have simply moved to the sickness benefit – so they’re still costing us, just under a slightly different budget heading.
We’ve not only had record low unemplyment we’ve had record high employment so your argument doesn’t hold muster. Further, the total number of benefiaries is down. Sickness benefiaries increased 53% under the three terms of National in the nineties and 33% under Labour. Population increases have much to do with those numbers.
Funny, I thought criminals were locked up because they broke the law…
I happen to think that many laws are unjust and more can be done on rehabilitation to reduce recidivism. Then again I’m not a freedom-hating conservative.