Budget 2014 – still more to be done

Finance Minister, Bill English, deserves congratulations for his determined focus on balancing the government’s books. It’s taken six years but he is just about there. Also the government has taken some positive initiatives for example extending free GP visits to under 13s – a very helpful step towards improving outcomes for New Zealand’s young people.

However there is still more to be done, regardless of which party controls the treasury benches, after September. In the Health area alone we need to measure the reduction in rheumatic fever cases to ensure that new policy programmes are being effective – particularly for low income households. We need to make faster progress on health initiatives such as extending bowel cancer testing, reducing inequality and taking steps to reduce obesity. We also need to do more to reduce tobacco consumption, drug and alcohol abuse.

On the debt levels in the budget:
1. The government budget surplus is not actually a surplus. At least not yet. It’s a small forecast surplus for next year – 2015-16 – that is 12 months after the election.
2. In fact the 2014-15 current year budget shows the government spending $73.1billion for the year. Its total income from all sources is $72.5billion. This is a deficit of approximately $600million. (p.A4 Dominion Post 16/5.2014)
3. In 2008, crown debt was $10 billion – now it is $60 billion. That’s just the government debt – not the total overseas debt owed by the nation. Our debt as a nation – NZ’s net international debt position – was $141.2 billion at March 31, 2014.

The government has also postponed auto-enrolment in kiwisaver worth up to $290 million. We will need to start re-investing in kiwisaver if we’re going to deepen NZ’s capital markets and reduce reliance on overseas funding. So overall the move towards budget surplus is a big achievement but it would be wrong to assume we can afford a big spend up after the election. We still have urgent social challenges to be addressed and kiwi households and businesses still have very high levels of debt – which means the government debt needs to be reduced further to give us a buffer if there is another oil shock or natural disaster. The challenge for 2014-17 will be keeping on a path to ongoing surpluses to pay down debt – while also investing to tackle urgent social challenges at the same time.

Reaganomics – 25 years on – a failed experiment

Tax cuts, increased defence spending, poor quality or no regulation and cuts to public health, education and social security were the simplistic recipe sold by Margaret Thatcher in the UK in 1979, by Ronald Reagan in the US in 1980 and by Roger Douglas in New Zealand in 1984.

This interesting video clip sets out the problems with Reaganomics. In brief government and national debt went up, government services were reduced, unemployment rose and the manufacturing base was offshored.

http://www.youtube.com/watch?v=z5CCRI1vdwE  

What are the “non-negotiables” for the Conservative Party?

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The Conservatives are still well below the 5% threshold and would be reliant on an electorate gifted by National. Colin Craig, Conservative Party Leader, seems like a likeable chap. Contrary to some conspiracy theorists I do not see him as a “fundamentalist zealot” wolf in sheep’s clothing.  

The more important question, however, is whether the policies espoused by his party are credible and whether they will make a positive difference on the issues that matter for this country. For example their commitment to Citizen Referenda sounds admirable but would its MPs agree to abide by the results of binding referenda – even where it directly contradicted the party’s own policies?

It’s opposition to Privatisation is interesting but frankly one must question how meaningful such a policy will be by early 2015. Most of the saleable public assets will have been sold down to 51% by then. Even if National still has one or two more assets to sell (or wanted to sell the remaining 51% of shares in mixed ownership companies) – are the Conservatives really saying they would bring down the government over such issues?

As for environmental protection the Conservatives seem to be in the “development is always good” camp – even if that means overturning environmental safeguards. It favours weakening the Resource Management laws in favour of development – especially in Auckland. The most important question is what are the top three “non-negotiable” policies for the Conservative Party and how different are they from the National Party view?  The answer to that question reveals what is truly important to this party.

New ACT leader likely to upset egalitarians and Christians

The new ACT leader – formerly a philosophy lecturer at Oxford University – has made comments which could alienate egalitarians and Christians. In defending public comments supporting incest Mr Whyte has moved well beyond ACT’s policy position and into his own views. His attacks on Christians and Catholics in particular won’t help build electoral support for a party which used to have conservative voters. Mr Whyte also seems set to alienate corporates who believe in philanthropy. I do not underestimate Mr Prebble’s organising ability. But there is a real prospect that ACT is about to find out the genuine level of kiwi support for its policies. http://www.stuff.co.nz/national/politics/9777804/ACT-leader-Whyte-can-t-be-grey

Elections Do Not a Democracy Make

French Revolution ousting absolute Monarchy.

French Revolution ousting absolute Monarchy.

The Economist recently published an essay on the state of democracy in the world. It shows that simply holding elections does not constitute a healthy democracy. In the UK political party membership has declined from 20% to 1%. In both established democracies and in new democracies fundamental questions are being asked about how to have a healthy political democracy which can avoid the excesses of selfish majoritarianism.

I would have also liked to have seen more on the excesses of inequality as an erosion of economic democracy but this essay is worth the several pages of reading. http://www.economist.com/news/essays/21596796-democracy-was-most-successful-political-idea-20th-century-why-has-it-run-trouble-and-what-can-be-do?frsc=dg%7Ca&fsrc=scn%2Ftw_app_ipad

Fascism on the Rise in Europe

Neo Nazis on the March in Germany in 2012.

Neo Nazis on the March in Germany in 2012.

The Global Financial Crisis and its aftermath has breathed new life into long moribund extremist parties on the fringes of many European nations. For example, in Greece the Golden Dawn party gained 21 seats in the 300 seat Parliament during the May 2012 election. According to the Greek Political Review :

“One of the two pillars of the contemporary party system (Pasok – centre left)) has imploded while the other (New Democracy centre-right) is struggling to cope with pressures from above and below.”

“A party of the radical left (Syriza) got its highest share in history and came close to winning an election. Extremism is here to stay with the neo-Nazi Golden Dawn maintaining its share of the vote despite being implicated in highly visible incidents of violence. And while Greece is struggling to balance its commitments to its lenders with soaring unemployment, crime and social malaise, political leaders are facing the need for a shift to a new political culture of coalition governments and power-sharing.”

In Germany a well-organised NPD is gathering support on a platform of withdraw from the EU, replacement of the Euro with the Deutschmark, and repatriation of foreign criminals. The NPD party gained 7% of votes.

In Austria the nationalist Freedom Party in 1994 won 33 percent of the vote in Carinthia region and 22 percent in Vienna, showing that it had become a force capable of reversing the old pattern of Austrian politics. In the 1994 Austrian election, the FPÖ won 22 percent of the vote. With the death, through a traffic accident, of its leader (Hader) in the early 2000s the Freedom Party lost its momentum. But many other smaller neo Nazi groups continue to operate either legally or underground.

The failure of social democratic (or conservative) parties to respond to the fears and concerns of lower-middle class and working class communities – especially in provincial and rural areas leaves the door open to far right groups to develop. One of the lessons of history is that in the midst of an economic crisis if the major parties lose the confidence of large segments of the population then extremist groups tend to emerge.

“Rock star economy already waning”

Recent figures for short term GDP growth caused one analyst to tag NZ as a “rock star” economy – at least compared to the lower growth statistics chalked up by other OECD economies.  However, such statistics are simply a snapshot in time.  The figures of 4% growth will look good in 2014. But with no changes in policies what will the economy (and the environment and society) look like in 2020? The recent growth figures do not delve into the fundamental character of the NZ economy.  For example if the figures related to one–off events, such as the Christchurch earthquake rebuild and the record high dairy prices, were backed out of the results our economy would more likely resemble a bloated, aging “has been” heavily reliant on old crowd favourites like dairy exports and showing only the occasional glimpse of innovation around hi-tech manufacturing or creative content.

That’s not to say that some of the current policy-settings have not been helpful. The commitment to balancing the government’s books and paying down government debt is helpful. Some of the welfare and labour market reforms have arguably been helpful – although it is important to get union buy-in if labour market reforms are to stick. Even the cheerleaders among the financial analyst community point out the risks with New Zealand’s worrying high level of overseas (public + private) debt as a percentage of GDP and our seemingly permanent Current Account deficit. This is not a healthy condition for New Zealand’s long term economic development.

If the NZ economy is to build a credible “rock star” brand then it must move on from being a one hit wonder and diversify both its product base and its export markets.

Our reliance on agricultural products makes us vulnerable to global commodity price changes and to external threats such as disruption of trade routes and foot and mouth disease. Durable change to the balance of our economy will take substantial political will and a commitment to a coherent longer term strategic plan. But we can’t go on as we are. Short term responses such as selling public assets is not the pathway to sustainable prosperity or rewarding employment opportunities.  Neither, by the way, is renationalisation of businesses operating in genuinely competitive markets.

Mining and oil exploration are at best short term “growth jump starts” rather than part of a long term plan for economic (or environmental) success. In the short term they might help buy us some time and to diversify export earnings. However, if such projects proceed then the government should use it’s powers to ensure that a fair share of the benefits remain in NZ, that local workers are trained and employed, are paid fairly and have safe working conditions before the projects begin. Such energy exploration projects are not the solution in themselves – but they could contribute export earnings while we move towards other hi-value product lines. A levied contribution from successful energy projects to a Kiwi Development Fund could, for example, provide longer term local capital for kiwi-owned, more sustainable, employment-generating business initiatives.

Small and innovative countries can prosper in the global marketplace but they need to take stock of their strengths today and build innovation and resilience if they are to compete successfully in the global economy. We cannot rely on a 1950s economic base in the 21st century. Let’s not hinder agricultural export growth – I wish them every success. But also let’s move beyond a rather myopic view that there is nothing else – and never will be. Like an aging rock star relying on past successes and short term thinking – we will go into a long slow decline if we do that.

Israel and Denmark can teach us some useful lessons about how small countries succeed in the 21st century. We also need to give much greater consideration to the development of new NZ-based industries around hi-tech: hi-value manufacturing focussed on export markets; IT software development head-quartered, and at least partially-owned here; high-quality NZ education training services based here but sold at a premium in offshore markets; and of course hi-value NZ creative content. These may involve strategic partnerships with offshore companies; they may involve some tax breaks and Research and Development support (which should be transparent) but if it contributes towards a durably prosperous, fair and more balanced economy then so be it. We should at least try innovative ideas and evaluate them after a sufficient time. If some of them succeed then perhaps we can finally begin to pay down some of our high overseas debt and chalk up our first Current Account surplus in 40 years.