"Responsible"? They lie to you and assume you're too stupid to notice. [UPDATED]

UPDATE: Professor Robert MacCulloch: "It's a rigged budget ... so she can get a soundbite. ... Media got suckered." The promised return to surplus is a “phony” and “reverse-engineered” political exercise designed for election headlines rather than economic reality.

It's one of those rare occasions, this budget, when commentators have mostly taken the finance minister's own spin as a given and burrowed instead into the details. The result however is to ignore context, and to focus on the irrelevant to the exclusion of the important. That's why the finance minister is looking so goshdarned pleased: because her lies are going mostly unchallenged.

The finance minister tells you that this election-year budget contains "no sugar hits." That New Zealanders won't be bribed on election year with their own money.

That's a lie.

The small matter of a $450 million "emergency contingency fund" has been set aside "in a time-limited contingency" if the cork remains in the Straits of Hormuz -- betting, of course, as she does in her heroic forecasts, that the cork will at least be loosened, allowing a wee flutter when polls show it's needed. 

Yes folks, the true "emergency" being provisioned for is an election debacle. That's what the slush fund is for.

The finance minister also tells us repeatedly that she's being responsible.

That's why she's set aside "just over $1 billion" for unspecified "improvements" to KiwiRail. Which is of course a big win for Shane Jones and his friend Winston. This is their billion-dollar slush fund for the election, which is just over double the fund she's allowed for her own party.

Responsible?

It's also handing councils $400 million in “growth incentives” now while only walking slowly to bring council's rates under control. And this is only because the finance minister can't bring her own govt's costs sufficiently under control to allow the GST component of new housing to go to councils (the real growth incentive she was encouraged to enact).

Responsible?

As Michael Reddell observes (one of the few commentators to put his head under the bonnet with the proper focus, New Zealand remains among the advanced countries with the largest structural fiscal deficit -- which have got "materially worse" under this Government.

 

As the Taxpayers Union notes, "Despite branding this a 'responsible Budget,' Nicola Willis has today confirmed the Government will have borrowed more by 2029/30 than Treasury forecast just five months ago." Over a billion dollars more.

So have things got any better under this National finance minister rather than the last Labour liar? Has it hell.  Reddell again:

In the last full year Labour was responsible for core Crown operating expenses were 31.7% of GDP 

In 24/25 32.6% 

In 25/26 32.6% 

In 26/27 32.6%

Responsible, hell!

And of course, this Government went to the country promising "no new taxes." That's another long-term lie. 

The budget has announced three new taxes on banks and shareholders -- sorry, two "levies" and one "charge" -- that will of course immediately be passed on to customers -- "the Beehive can try to frame it as a levy on the big banks, but this new tax will be paid by savers and mortgage holders. It’s a sleight of hand."

So that's just yet more charges and "levies" to add to the other new taxes already whacking New Zealanders since the last election's promise of "no new taxes (Levy (n.) an officially imposed fee, tax, or penalty demanded by a government or organisation). The full list:

Road User Charges on Electric Vehicles (April 2024)
GST on Digital Platforms -- the "App" Tax (April 2024)
Trustee Tax Rate Increase to 39% (April 2024)

Offshore Online Casino Gambling Duty (July 2024) 

Increased ACC Levies on Electric Vehicles (2025)

Customs and Excise Goods Management Levies (April 2026)

Prudential Regulation Levy on Banks and Insurers (announced Budget 2026)

Company Shareholder Loan Integrity Rules (Budget 2026)

Thin-Capitalisation Changes for Foreign-Owned Banks (Budget 2026)

And finally, the promise of "returning to surplus" by 2029?

To use Michael Reddell's term, that's just vapourware:

Not only has the projected date for getting back to budget surplus (on the standard OBEGAL measure) kept being pushed back but the projected surpluses for 26/27 (the yearr today's Budget directly relates to) have worsened by more than 4% of GDP in 3 years (under both governments).

Responsible? They lie to you and assume you're too stupid to notice.

Why trust them now?

This National-led coalition came to power promising to slash bureaucrats and savage red tape. Since then, the numbers in the coercive sector have declined only slightly (around 2,000-3,000 trough dwellers), and are still well above 2017/2020 levels. The ACT Party, of whom the leader is now Deputy Prime-Minister, went to the election specifically promising massive regulatory reform, and had that written into their coalition agreement. 

On Wednesday, the ACT Party posted a pictorial illustrating how over-regulated we are.  To which the redoubtable Michael Reddell asked the obvious question: 

How many regulatory bodies have been closed down, or substantially hacked back, in the first 2.5 years of this government?

No answer. So he asked again:

How many of the 267+ regulators had been abolished or substantially hacked back under the current govt, 2.5yrs in?

He's still asking.

So here's a question for you: what value is a government who promises to do this term what they promised to do last term, but didn't.

Would that meet the definition of "trustworthy"?

Reducing the coercive sector of the economy

While too many pundits still labour under the misapprehension that the primary job of government is to continue subsidising Wellington's economy with make-work jobs, one insightful twitterer offers several good reasons why reducing the size of the public service is a good idea:

• Reduces complexity 
• Reduces waste 
• Reduces cost 
• Reduces an out-of-control deficit 
• Stops unnecessary government programmes 
• Reduces power and influence of the state 
• Frees up people who work in the coercive sector of the economy to work in the productive sector of the economy

Ideally, it reduces that coercion. As Walter Williams noted: 

Powerful government tends to draw into it people with bloated egos, people who think they know more than everyone else and have little hesitance in coercing their fellow man.

Fewer know-alls given power --> less coercion.

Ideally.

However ... Michael Reddell is exactly right: National's announcement looks more like last-minute electioneering that a genuine plan for improvement.

63657 core public service Full-Time Equivalent employees (FTEs) as at 31/12/25. Of those 24834 are in Corrections, MSD, & Ministry of Children. Seems unlikely there would be material cuts in any of those ... To cut 8000 FTEs off the rest by 2029 would mean a 21% cut.

No doubt it could be done, but over its first 2.5 yrs the govt has done very little to cut public service numbers, so people would reasonably be quite sceptical that the same senior ministers will suddenly sharply change their approach. ...

One might sympathise with the spirit of [Nicola Willis's announcement] (I do) but can't help noticing that there are no specifics (at all) beyond the baseline cuts for 26/27 for some agencies in the Budget. Beyond that is little more than handwaving. 

Talking up 20% real cuts (2+5+5 + 2% pa inflation) means almost nothing at this point (6 months from an election, with her party averaging say 28% or so in recent polls) without specifics. It has the feel of budget-accounting gimmickry: just enough to get Treasury to count the savings in the forward fiscal projections (& thus avoiding any more slippage in the date for getting back to surplus on the measure the govt likes (but Treasury doesn't). 

Had the speech been given in Dec 2023 it would have been one thing, but they've had 2.5 yrs to work out what they want to cut & still the answer seems to be "not much at all, but perhaps this latest rhetoric might get us beyond the election."

As for track record, recall that in the 2025 Budget, core Crown expenses for 25/26 were to be 32.0% of GDP, UP slightly on the 31.8% for the last full year under Lab.

And simply saying "Cut!" without specifying on which portion of the bureaucratic anatomy the knives should be sharpened leaves the Government, as before in this term, hostage to the decisions of the capital's Sir Humphreys.

[So] simply telling us that you'll cut some spending quite a lot in future (really I will...) brings to mind both the old economist's joke (let's assume a can opener) and St Augustine on continence and chastity ...  but not yet.

Scratch a conservative, find a statist

The newly minted Dr Matthew Hooton slithered into print on Friday last to make the case for state control of international trade.

Did I say make a case? Not a bit of it. The ever-odious doctor in conservative ideology simply told us that solutions to the international diesel dilemma will, and I quote, "require some sort of state control over international trade that we haven't seen since 1984."

"Diesel rationing," says the sickening spin doctor, "needs to be implemented urgently."

Reasons for this sudden need to abandon free trade, the price system and our minimal and ever-decreasing freedoms? Nah, just rhetoric: "If we run out of diesel," says his fire-filled column, "Covid will look like a rehearsal."

Covid, if you remember, was when government locked us up. There are people who enjoyed that -- and who still look with rosy-eyed affection at every over-bearing measure taken back then. 

This repellent reptile is clearly one of them.

The oxymoron of 'smart active government'

"[L]ast month [MBIE and MFAT issued a draft report asking] ‘How can we accelerate the growth of high productivity activities in the New Zealand.’ …

"It was the ‘accelerate the growth of high productivity activities’ that prompted me to look a little further: the focus apparently was not economy-wide productivity and policy settings but the sort of ‘smart active government’ stuff MBIE has long championed, involving clever officials and politicians identifying specific sectors to focus on and specific interventions to help those sectors. …

"On a day when the dysfunctions of our public sector were on particularly gruesome display it seemed even less appealing and persuasive than usual. In a month when the government had been a) buying a rugby league game, b) increasing (again) film subsidies, and c) subsidising expensive New Zealand restaurants (via the Michelin corporate welfare), all in the name apparently of 'going for growth. …

"[T]he draft report is unlikely to be any use to anyone looking for illumination rather than support (the old two uses of a lamppost line). … [T]here is a list of types of interventions that have been or are being used in [other] countries but no effort at all to assess what role (positive or negative) these interventions have played in contributing to medium-term productivity growth. It certainly isn’t impossible that some might have been helpful, some will almost certainly have been harmful …, and perhaps many will have just been ornamental or redistributive …  

"N]ot once in the entire document is there any suggestion of the possibility of government failure, capture etc.

"Then the draft report moves on to four domestic case studies … None of it seems to display any scepticism, only a sense that we (governments) haven’t been sufficiently focused or willing to persist with particular sector supports. … And the whole document ends with a question that shouldn’t even be being asked by government departments: ‘How might we identify higher productivity and growth potential?’ …

"[T]heir mindset and fairly shallow analysis in documents like this helps provide cover for governments more ready to paper over symptoms, toss out some cash to favoured firms/sectors, and avoid insisting that the hard structural issues are identified and addressed).

"[Yet] this sort of stuff helps keep lots of officials busy and feeling useful."

~ Michael Reddell from his post 'Government departments championing…bigger roles for themselves'

A coward's budget [updated]

The New Zealand Government's gross debt — the amount taxpayers must service — will now increase by another $73b by 2029, reaching a massive $283b.  That's $94,000 for every New Zealand family (with nearly $6000 of that just to pay the government's interest!).

Things are desperate. It's the middle year of an election cycle. Time for something bold.

No?

No.

Its not about doing more with less, or vainly trying to to. It's about doing less with less. Less with our money.

Ms Willis has failed us on both counts.

Let me give you two examples. (Three Four if you count my polite suggestion yesterday to gradually raise superannuation age, and include Lindsay Mitchell's today to time-limit welfare assistance.")

Several years ago when Helen Clark's Labour Party was about to lose an election , then Finance Minister Michael Cullen placed a fair proportion of New Zealanders onto welfare. His Welfare for Working Families programme made sure that, until ended, more than half of the country will now be beneficiaries. On the mooch. More than half of the country pulling down more from other taxpayers than they can ever give back.

This National Party Finance Minister could have done nothing with the programme — allowing inflation to make the maximum threshold for the programme dissolve.

She could have ended it altogether — signalled in good time, of course, to let folk plan ahead — but ending it could have saved $2.5-3billion. 

Instead, she raised that threshold below which working families get welfare. Around 142,000 New Zealand families. Which means even more working New Zealanders will continue to be moochers off (further normalising the behaviour perpetuating the Welfare State).

Many years ago a National Party Finance Minister introduced an Accommodation Supplement to, supposedly, help out poorer renters. Of course, it did nothing of the sort: instead if helped out their landlords, who could simply raise their rents to meet this new "supplemental" monetary demand for their supply. The Supplement — a grant to landlords — currently costs around $5 billion.

This National Party Finance Minister could have announced a lowering of the Supplement, saving some of those billions.

She could have announced it would end altogether, saving them all (while lowering rents). Instead, another expensive, destructive market-distorting subsidy continues.

I highlight these two measures because, for all Nicola Willis's hand-wringing about being prudent, about being responsible, about needing to achieve a surplus — and with the economic system flatlining while government debt vaults up decade by decade, bold measures to get there are not just a nice-to-have but a have-to-have — this budget is neither prudent, nor careful nor responsible.

Not being bold is to be irresponsible.

It's to be a coward.

Opposition parties are trying to paint this as an austerity budget. National Party pollster David Farrar boasts that it isn't.

It bloody should have been.

More here from others:

The Taxpayers’ Union is slamming Budget 2025 as a waste of time and hype, asking ‘is that it?’

"Nicola Willis has failed,” says Taxpayers’ Union Spokesman Jordan Williams. “This Budget could easily have been delivered by Grant Robertson."

“Willis promised to tackle the last Government’s ‘addiction to spending’. Spending is going up as a proportion of the economy in this year’s Budget compared to the current year. Core Crown Expenses are forecast to be 32.9 percent in 2025/26 compared to 31.8 percent under Robertson in 2022/23.

“She promised to balance the books. The OBEGAL never gets into surplus according to Treasury forecasts. Willis has had to make up a new measure to exclude the ACC deficit to create an illusion of a laughably small surplus in 2029.”

“And she promised growth. But the headline measure – an accelerated depreciation regime – is basically no better than what the last Labour Government tried immediately after COVID.”

“According to the Budget documents, the Government's headline ‘growth’ policy adds just 1 percent to GDP over 20 years. It is laughable in its small size.”

“More spending, more debt, and nothing to materially shift the dial and grow the economy. It’s not a Growth Budget, it’s a fudge-it."

Further:

"Spending as a share of GDP is materially higher than in the last fiscal year Grant Robertson was responsible for."  

Liberty Scott:

It's very much a centrist budget to not please those wanted a balanced budget and shrinking of the state, and of course isn't a budget of new grand larceny and profligate handing out to preferred causes, it basically just holds the line of NZ's Jacinda-era bloated state. ... a[nother] kick-the-can-down-the road budget.

Eric Crampton mentions some political sleight-of-hand:

"At some point, we have to wonder about the fiscal responsibility provisions in the Public Finance Act matter, because those effectively say you should not be running structural deficits for a decade, and we will have been running structural deficits for a decade. The ones during Covid were excusable - now, not so much. ....

"If you want to see the state of the government's books on the more traditional OBEGAL measure, rather than the one that excludes substantial ongoing ACC deficits, you have to go to the "Additional materials" in the online appendix. 

"Here 'tis. No return to surplus."

Michael Reddell:

"The Growth Budget" has just one growth-oriented policy [i.e., accelerated depreciation for business investment], estimated by Treasury to raise GDP by a mere 1% over 20 years (0.5% in total in the next five). 

"We were, of course, promised 'bold steps.' 

"Simply unserious."

UPDATE: More from Michael:

"[T]he government chose to title its effort [yesterday] 'The Growth Budget.' The Minister spoke today against a backdrop emblazoned repeatedly with that label.... the Prime Minister made a big thing of the need to accelerate growth ... The Minister of Finance in announcing the Budget date ... [boasted] 'the Budget will contain bold steps to support economic growth' ...

"They did not deliver.

"There was a single growth-oriented initiative in the Budget ... [T]he best Treasury estimate is that it will lift GDP by 1 per cent, but take 20 years to do so

"This year’s Budget represents another lost opportunity, and probably the last one before next year’s election when there might have been a chance for some serious fiscal consolidation. The government should have been focused on securing progress back towards a balanced budget. Instead, the focus seems to have been on doing just as much spending as they could get away with without markedly further worsening our decade of government deficits. ...

"We used to have some of the best fiscal numbers anywhere in the advanced world, but as things have been going – under both governments – in the last few years we are on the sort of path that will, before long, turn us into a fairly highly indebted advanced economy, one unusually vulnerable to things like expensive natural disasters. ...

"The government seems to have become quite adept at rearranging the deckchairs (cutting spending that they consider low priority and increasing other spending) but they are choosing to make no progress at all in reducing the structural deficit. ...

"Which brings us to the most recent IMF Fiscal Monitor released a few weeks ago [showing how our] primary deficit now compares ... Depending on your measure we were (based on HYEFU/BPS numbers) worst or close to worst in the advanced world. Today’s Budget will have done nothing to improve that ranking."

Adrian Orr irresponsible to the last

"What of yesterday[, when Reserve bank governor Adrian Orr up and abruptly left]?

"... We had brief press releases from the Bank and from the Minister but no real answers. We are told there were no active conduct concerns – although there probably should have been, when deliberately misleading Parliament has happened time and again, and just recently – and yet the Governor just disappeared with no notice on the eve of the big research conference, to mark 35 years of inflation targeting that he was talking up only a week or two ago, (I also know that one major media outlet had an in-depth interview with Orr scheduled for Friday – they’d asked for some suggestions for questions). And with not a word of explanation. 

    "If you simply think your job is done and it is time to move on, the typical—and responsible – way is to give several months of notice, enabling a smooth search for a replacement. 

    "He could easily have announced something next week, after the conference, and left after the next Monetary Policy Statement in May.

"Instead, it is pretty clear that there has been some sort of 'throw your toys out of the cot and storm off' sort of event, which (further) diminishes his standing and that of the Bank (but particularly the Board and its chair). 

    "It all must have happened so quickly that we now have this fiction that Orr is on leave for the rest of the month ... After several hours of uncertainty, the Board chair finally decided to hold a press conference, which he didn’t seem to handle particularly well and (I’m told—I only have a transcript—in the end he too stormed off) we still aren’t much the wiser. ...

"I guess it is probably true that Orr can’t be forced to explain himself, although since he is still a public employee until 31 March I’m not sure why considerable pressure could not be applied. But even if he won’t talk the answers so far from either Willis or Quigley really aren’t adequate. You don’t just storm off from an $800000 a year job you’ve held for seven years, having made many evident policy mistakes and misjudgments, as well as operating with a style that lacked gravitas or decorum etc, with not a word. 

   "Or: decent and honourable people, fit to hold high public office don’t.

"... I had heard a story—apparently well-sourced—that the Bank had actually been bidding for a material increase in its funding, on top of the extraordinary increases of the last five years ... and Orr has long been known more for his empire-building capabilities than for his focus on lean and efficient use of public money, But ... [it] surely it can’t be the whole story.

"Comments by Quigley suggests that perhaps Orr was getting to the end of his tether, and some one or more recent things made him snap, reacting perhaps more than a normal person would do faced with the ups and downs of public sector life. It seems highly likely the budget stuff, and the desire to keep pursuing whims, was part of it, but it can hardly have been all. 

    "I don’t suppose he felt any great compunction about misleading Parliament so egregiously again…..but he should. And all this time – having stormed off with no adequate explanation—Quigley declares that he still had confidence in Orr.

    "Surely yesterday confirms again that both of them, in their different ways, were unfit for office.

"[Not to mention] the latest estimate of the losses to the taxpayer from the Bank’s rash punting in the government bond market in 2020 and 2021. $11 billion dollar in losses. Three and a bit Dunedin hospitals or several frigates or…..all options lost to us from this recklessness, undertaken to no useful end, and a loss which Orr endlessly tried to play down (suggesting it was all to our benefit after all), and about which not one of his Monetary Policy Committee members—one now temporarily acting as Governor—either dissented or gave straight and honest contrite answers. 

    "It has been 43 years since a Reserve Bank Governor was appointed from within. That is an indictment on the way the place has been run."

~ Michael Reddell from his post '$11 billion and out'

"Don't ignore the reputational harm Willis is inflicting on our financial system by proposing untested, populist policy measures driven by short-term political motives."

"The Minister of Finance [Nicola Willis] has, over the last couple of weeks, been trailing various possible changes in the financial system. ... trying to beef up Kiwibank ... overriding various bits of policy that are now squarely the legal responsibility of the Reserve Bank ... chang[ing] the law to force the Reserve Bank to lower bank capital requirements, and provide carveouts for some or other favoured groups. ...
    "But if you really want to make a change like that you do it after wide and serious consultation, or perhaps even as part of a well-trailed campaign promise, not simply (as it seems) to play distraction because another government agency might be about to release a briefly awkward report. ... if you want to be taken seriously as a Minister of Finance, you don’t just drop such a view into an interview – with, it appears, nothing in support – you outline carefully your case, or commission some reviewers to look into the matter carefully. ...
    "I don’t suppose it is very likely that Willis and the government will end up doing any of the things she trailed in last week’s 'Herald' interview. ... [But don't ignore] the reputational harm Willis is inflicting on our financial system by proposing untested, populist policy measures — arguably driven by short-term political motives. ... it hardly enhances any reputation Willis aspires to to be (and be seen as) a more serious Minister of Finance (focused on things that might make a real difference) than her predecessor. ...
    "Willis could readily have changed the chair of the Reserve Bank board when his term expired ... She could have filled the vacancies on the board with people better qualified than those Robertson appointed. But [she] hasn’t done anything about that either. ... suggest[ing] she isn’t really serious about any of this.

    "In the same vein, each year the Minister of Finance writes a Letter of Expectation to the Board... [Her] 2024 letter ... has not a hint of any of the sorts of issues/concerns Willis was raising in the 'Herald' interview. She also hasn’t revised the Financial Policy Remit(a new tool) issued by Robertson a couple of years ago. ... [S]he has shown no sign of doing any of the things she could (e.g. Board chair and vacancies, unwinding new indemnities the Bank has been given) or of using any moral suasion (e.g. through the letter of expectation) around financial policy issues or the Bank’s budgetary excesses.
    "So it all just looks a lot like a search for a good headline ... rather than a Minister with any sort of serious interest in ... a much better central bank ... Perhaps in that sense she and the Governor ... deserve each other. It is just that New Zealanders deserve much better from both ..."

~ Michael Reddell, from his post 'Still a bad idea'

So maybe, just maybe, we shouldn't give central bankers the keys to the whole monetary system.

"To repeat one of my consistent lines, human beings are fallible, they make mistakes. Central banks – here and abroad – are made up of humans, so they make mistakes. Really serious ones, of the sort seen in the last few years, shouldn’t happen but they do. One might even offer perspectives in mitigation: the pandemic was something quite extraordinary, and many people (here and abroad) misread the macroeconomics of it for too long. But those responsible need to take responsibility for the mistakes that were made."

~ Michael Reddell from his post 'Still avoiding responsibility'

" The 'vision' seems to be to catch Australia. Wouldn’t that be great?"

"[T]he Prime Minister announce[d] a bold new economic performance goal. ... His 'vision' seems to be that economic growth in New Zealand over the next 16 years will be so strong that we’ll have matched – perhaps even exceeded – what is on offer abroad. .... The 'vision' seems to be to catch Australia.
    "Wouldn’t that be great? ...
    "[Luxon] ... reminded us of his firm focus ('resolutely and unapologetically') on 'delivery.'

"So having set out a bold vision what is the Prime Minister offering as a policy programme to achieve it? It isn’t, after all, a small ambition. ...
    "The Prime Minister does lay out some substance on the [first-hundred] days [etc.] ... but to a first approximation what it mostly does is undo stuff the previous government did and restore something like the policy set of 2017. ... [but] we weren’t making any progress then either in closing gaps to the rest of the advanced world ...
    "[I]t is welcome, and sounds good, but…..we’ve heard lines about fixing the RMA before, including from the previous National government.
    "And that was sort of the problem with the entire economic strand of [the PM's] vision. It brought to mind ... [John Key's] 'concrete goal' [in 2008] of closing the income gap with Australia by 2025.' ... [I]t all made no difference whatsoever. ... the goal ... would have greatly benefited New Zealanders had it been seriously pursued. It wasn’t. ...
    "[T]here ha[s] been a lot of talk over the years. ... Who knows if Mr Luxon is any more serious about his 'vision' – laudable on its own terms – than John Key was about the 2025 goal. ... but Key and his government did nothing even close to being equal to the task to make it happen. There seems little basis – whether in [Luxon]’s speech, his campaigning last year, or anything about what his government is and isn’t doing now – for believing it will be any different this time. ...
    "It would be great to be proved wrong on that, because the people who pay the price of empty political aspirational rhetoric never matched by policy seriously equal to the task aren’t Prime Ministers, who eventually move on to gilded retirements, but the children and grandchildren of ordinary New Zealanders.
    "If, as he should be, the Prime Minister is serious about that aspiration of New Zealanders (net) coming home not just because mountains and beaches make it a nice place for many to live, but because economic performance means you don’t have to leave for a higher income, the concrete policies need to start matching the rhetoric.
    "In the PM’s own words, delivery matters."

~ Michael Reddell from his post 'Words and (in)actions'

 

The New Govt: Long on undoing the last government’s agenda; short on making for a much better future

"[T]HIS WAS SUPPOSED TO BE the government of busting public sector bloat, not simply matching previous excess...
    "First, the ministerial list with its 28 ministers and 2 under secretaries ... And then there all the portfolios: 76 of them by my count (up by five, I think, from the previous government, and 68 in the first Ardern ministry). ... It seems to have become a cheap form of pandering (pure portfolio labels themselves don’t cost much, but over time portfolio labels probably tend to beget activities and expenditure) to almost every conceivable sector and population group.
    "It is almost as if your existence isn’t validated until the government has created a ministerial portfolio that covers you.... None of it speaks of a government that is serious about shrinking the public sector and back-office bloat. The amounts involved of course aren’t individually large, but the pennies add up, and people look to actions at least as much as words....

"THE BIGGER QUESTION ACROSS all these documents ... is to what extent the new government’s programme mostly unwinds some of the bad stuff the previous government did and to what extent it genuinely sets a pathway to a much better future. Whatever you think of the state of things when National left office in 2017 – and at least there wasn’t a fiscal deficit – our average productivity performance was then as poor as ever, business investment lagged that in most OECD countries, and no real progress was being made towards abundant and easily affordable housing. And, for example, the Wellington City Council still wasn’t well-run and was still prioritising ideological vanity projects over basics (water, most notably).
     "There is a long list of stuff in the documents outlining the new government’s programme that I like. ... it is long on things (small and large) undoing the last government’s agenda, most of which I put big ticks next to.
    "But it seems .. short on making for a much better future [even] relative to 2017....
    "Time will tell. ... There is a reasonably encouraging list of things to unwind (although many more things could have been added), but having done the unwinds little in the agreements suggests any sort of full-throated seriousness about actually reversing decades of economic failure or the scandal that is house prices in land-abundant New Zealand. I doubt we will even hear again that stuff about once again being a world economic leader: with such an unambitious forward agenda, and weak policy capability, the gap between rhetoric and reality would quickly just be too sad ... "

~ Michael Reddell from his post 'Reading the documents'

Why does National's modelling matter? [updated]

"I have no idea why Luxon and Willis will not release their working [to detail their foreign-buyers tax plan], or a detailed carefully written up description of them, or why they won’t release Castalia to describe in detail what they did on this item.
    "But it isn’t reassuring. Not, as I’ve said repeatedly, that it matters much at all macreconomically, but because it seems to say quite a lot about their likely approach to governing. Trust matters in politics and government, but trust is earned, and is reinforced by verification. It isn’t won, in functional polities, with a smile and some bluster and a refusal to provide any supporting detail, all while in interview after interview actively misrepresenting what they have done."

~ Michael Reddell, from his post 'Marketing Brochure?'

UPDATE: on Twitter John Elliot makes a fair point, albeit well soused in whattaboutism:

I must confess I was surprised at the time, since Kiwibuild's numbers at the time were so clearly laughable.

As was Ardern's pledge to "fix"child poverty by throwing money at people. Sadly, she never learned PJ O'Rourke's should-be-famous welfare dictum:

"You can't get rid of poverty by giving people money."

This is not to say that the political press gallery here is party political. No. It's to say that they're as f'ing useless as the politicians on whom they purport to report.

National's Tax Cuts [updated]

 

UPDATE: Eric Crampton:

"Paring government spending back to what Labour had promised, pre-Covid, would ... free up over twelve billion dollars, or about seven thousand dollars per household.
    "Instead, they're embroiled in disputes about the amount of money that would be raised by a tax that never made much sense in the first place....
    "The only real tax cut is a spending cut. ... Is it crazy to expect a National-led government to not want to outspend Ardern 2019?"

Punters are questioning National's promised tax cuts at this election. But National promises tax cuts at every election. 

Do they deliver?

Do their figures add up? 

Do they even care? 

Because when we look at promising tax cuts before an election, and breaking that promise thereafter ... well, on this very thing National has form. Just think back to the election in which John Key came to power ...

Out of power for 9 years before that 2008 election, and desperate to get back in, National in opposition had been promoting tax cuts for six of those years. "Significant" tax cuts. In May of that election year, after the delivery of Michael Cullen’s budget, John Key reaffirmed that “We believe in tax cuts. We believe in the power of tax cuts. And we will deliver them.” Asked to quantify it, Bill English promised “significant personal tax cuts” of “about $50 a week to workers on the average wage."

And as they watched their poll numbers go up on the back of that pledge, they kept right on promising.

But 2008 was also the year the Global Financial Crisis began, remember?

Didn't bother them in the slightest. They kept right on promising those tax cuts even as the housing collapse hit the US economy and the Dow Jones began its year-long slide. They kept up with the promises as NZ was declared officially in recession and our own housing markets began to slide.

And as John Key's former employer Merrill Lynch collapsed, and the US Federal Reserve started bailing out banks and bond buyers with billion-dollar loans, Bill English promised voters “a credible economic package to take account of the changing economic climate.” “Our tax cut programme will not require any additional borrowing,” he lied, comparing Michael Cullen’s record with his own promise to deliver “an ongoing programme of personal tax cuts.”

The promised programme never arrived. The borrowing did.

Even in October of that election year, after “the books” had been opened and several more dead rats fell out, Key and English both said “the pledge to deliver about $50 a week to workers on the average wage remained on track." And then 18 days before the election, they doubled down: "National is not going to be raising GST," John Key told journalists. "National wants to cut taxes, not raise taxes."

Readers, he lied. After the election, he broke that promise without even blinking.

GST was raised.

No taxes were cut.

And instead of those tax cuts of about $50 a week, with "no new borrowing," they delivered lots of the latter,* very little of the former, and a whole raft of tax increases and new taxes,:from rises in GST to increases on ACC levies and excise taxes, topped off with Nick Smith’s "ETS taxes" on fuel and power to counter climate change, and Steven Joyce's fuel tax hike to pay for more roads.

They flat-out-lied to voters. Baldly. (And no fear saying they couldn’t know about the economic crisis when they made their promises.)

Here's what I said back in April 2009, 

Significant tax cuts were a key election-winning promise for National, remember?
    And now they want to recant on that promise, just as I told you they would back in October. “Economic conditions” and a projected "decade of deficits” make it impossible, say Prime Minister John Key and his Finance Minister Bill English, to deliver the latter two of the three rounds of tax cuts they promised so loudly back in November.
    Excuse me boys, but isn’t it the case that these tax cuts, promised less than five months ago, were a key reason that the public gave you the jobs you have now? Shouldn’t you be doing now what’s necessary to do what you promised then?
    Isn’t it just a bit rich to say that “economic conditions” now make it impossible to deliver what you promised back before the election, because it was obvious back then to anyone with eyes to see that economic conditions were going to make it necessary to cut the government’s coat according to the cloth it could afford.
    To say that it wasn’t obvious to you back then is not an excuse not to deliver now, it’s a reason for your supporters to realise that you're either not competent enough to do your jobs -- since the whole world and his grandson could see back in October what was coming -- or else you’re a pair of liars.
    No other alternative explanation is possible.

So: can you believe this Party this year when they promise significant tax cuts? That you'll ever see their promised "Back Pocket Boost"? Says Michael Reddell, who has been examining one part of it:

When the fiscal deficit as it as large as it is, a major political party promising tax cuts really should be able to convincingly suggest to the public that the cost will be fully covered and that if their programme was adopted it would not worsen the already-large deficit. National’s package does not pass that test at present.

Fool me once ...

* Taking the debt from ten billion to sixty-six billion dollars...

Hey, big spenders!

"And so we go into the PREFU this afternoon, and [to] whatever spin the two parties’ spokespeople are going to put on fiscal prospects,with (a) a governing party that has already run up really big deficits, adding more fiscal expansion in their election year budget, with no specifics on how they might close those deficits (including in the face of ongoing cost pressures), and b) a main Opposition party which was seemed content to go along with Labour’s expansionary stance (just rearranging some of the tax and spending pieces), but in fact seems to have ended up with an even more expansionary stance themselves....
    "We have had 20 years in which New Zealand governments ran net debt as a share of GDP materially lower than the median OECD country. [But now with] the big Covid spending well behind us, both parties seem okay with debt still rising rapidly (they may say otherwise, but judge them not by the handwaving medium-term rhetoric but by their specific and immediate actions and commitments)."

~ Michael Reddell, from his post 'Previewing PREFU'

Productivity? Or the opposite... ?

"Anyway, here is how the chart of labour productivity levels looks [now] across countries....

"[I]f there is something to that point [that measurements may differ across countries] ... [we might make] comparisons of how New Zealand has or has not dropped down the OECD league tables ... over the last 10 years ... a period half governed by Labour and half by National.
    "Here I’ve shown (ranked top to bottom) the levels of real GDP for 2012 and 2022, and in the final column I’ve identified where a country has changed by more than two rankings over that decade:

"Most of the material movements are in the bottom half of the table. There are some stellar performers, most notably Turkey and Poland. And there are some really really mediocre ones: Portugal and our own New Zealand. We’ve dropped six ranking places in a club of only 37 members in just a decade....
    "But there is no sign that either of our major parties (well, or the minor parties) care, or have any ideas, any credible narrative, to reverse our economic decline."

~ Michael Reddell, from his post 'Does any political party care?'

UPDATE: To make the comparisons even clearer ... or more stark:

INFLATION: Orr lies

"[T]he Reserve Bank Governor [Adrian Orr]... likes to make up stuff suggesting that high inflation isn’t really the Reserve Bank’s fault, or responsibility, at all....
    "Late last year there was the line ... that for inflation to have been in the target range then (Nov 2022) the Bank would have to have been able to have forecast the Russian invasion of Ukraine in 2020. It took about five minutes to dig out the data ... to illustrate that core inflation was already at about 6 per cent BEFORE the invasion ... It was just made up, but of course there were no real consequences for the Governor....
    "And then there was last week’s effort in which Orr ... attempted to brush off the inflation as just one supply shock after the other, things the Bank couldn’t do much about, culminating in the outrageous attempt to mislead the Committee to believe that this year’s cyclone explained the big recent inflation forecasting error (only to have one of his staff pipe up and clarify that actually that effect was really rather small)....
    "It is, of course, all nonsense....

See for example:

• INFLATION: A critique of the “crisis-push” doctrine
• INFLATION: The Elimination of "Less Supply" as the Cause of an Inflationary Rise in Prices
• INFLATION: "Under such a system, the increase in the quantity of money is limited only by the self-restraint of government officials."

"Bottom line: all those stories trying to distract people ... with tales of the evil Russian or the foul weather or whatever other supply shock he prefers to mention, really are just distractions (and intentionally misleading ones ...). The Bank almost certainly knows they aren’t true, but they have served as convenient cover ... We are now still living with the 6 per cent core inflation consequence. It is common – including in the rare Bank charts – in New Zealand to want to compare New Zealand with the other Anglo countries. But what the Bank has never acknowledged – and just possibly may not have recognised – is much larger the boost to domestic demand happened in New Zealand than in the US, UK, Canada or Australia. And domestic demand doesn’t just happen: it is facilitated by settings of monetary policy that were very badly wrong, perhaps more so here than in many of those countries."

~ Michael Reddell, from his post 'Excess Demand'

The govt debt blowout

 

"Sobering to realise net govt debt was $5.4bn in Jun 2019 & is set to be $95bn by Jun 2025."

~ Michael Reddell

INFLATION: "We are] still at risk of really bad macro forecasting errors, and central banks unable to live up to their rhetoric."

"[F]inance minister Grant] Robertson has been both an active and passive party in the serious decline in the quality of our central bank over recent years, and ... only the Minister of Finance – current or future – can make a start on fixing the institution. Institutional decline – and it isn’t just the Reserve Bank – has been a growing problem in New Zealand, and the current government’s indifference has only seen the situation worsen...
    "But, for better or worse, when most people think of a 'monetary mess' at present they probably primarily have in mind inflation.... [and] there simply isn’t any compelling evidence ... that any or all of the many things one can criticise Robertson for really go anywhere towards explaining how badly things have gone with inflation ...
    "[T]o me the evidence very strongly suggests that what happened over the last two to three years was that (a) central banks badly misunderstood what was going on around the macroeconomics of Covid, (b) so did almost all other forecasters, here and abroad, and (c) there isn’t much sign that central banks with better qualified more focused people or more open and contested policy processes did even slightly discernibly better than the others. I wish it wasn’t so.... 

The Survey of Professional Forecasters , published by the Philadelphia Fed, shows a clear 'hedgehog' – one that systematically overestimates the Fed’s willingness to hike interest rates, up until the time of the first hike in 2015, at which point SPFs estimations have underestimated the speed of hikes.

    "[I]t is remarkable how the [central banks'] forecasting errors are so uniformly wrong in one direction at a time. But they make for pretty hedgehogs.... If hedgehogging is unintentional, as Jonathan Newman observed on Mises.org a few years ago, 'their models are junk.' If the tendency is intentional, they are just trying to project unwarranted optimism – which is indeed the suggested explanation among those who’ve studied the Fed’s forecasting failures.
    "[W]e – and other countries – [are] still ... at risk of really bad macro forecasting errors, and central banks unable to live up to their rhetoric."

~ composite quote from Michael Reddell, from his post 'New Zealand’s monetary policy mess,' and Jokaim Book, from his post 'Central Banks' Forecasts Are Basically Garbage'

'Colonial' technology

"[P]rior to, say, 1769 [t]hese islands and the descendants of their first settlers had been almost entirely cut off from the rest of the world- whether people-to-people movements, trade or technologies.... Consistent with the absence of so many technologies and trade here, material living standards were very low.
    "'Colonial' is one those ill-defined words. Sometimes it means lots of permanent settlers from abroad, and sometimes just a period of control and government by a foreign power. In New Zealand, of course, it involved both, although the control by the foreign power was very short-lived. But, as people sometimes point out, even if these islands had never fallen to any foreign power, or if there had been little or no foreign settlement, many of the technologies would still have found their way here.... And that is a good thing."

          ~ Michael Reddell, from his post 'Colonial Constructs'

"People can run all the clever lines they like about how many of the people in those bottom quintiles have things now that comparable people in 1981 didn’t have. But it is doesn’t excuse the entirely manmade disaster of the housing markets in New Zealand and Australia" #QotD

"In 1981, when our societies are as whole were substantially materially poorer than they are now, (Australia’s real GDP per capita was about 80 per cent higher in 2016 than in 1981), young people at the lower end of the income distribution was just as likely to own their own home as those at the upper end of the income distribution. But now people at the bottom at less than half as likely to own their own place. In a well-functioning market that simply wouldn’t have happened. But we – and Australia – having housing and urban land markets rigged by central and local government politicians and their officials, and the people at the bottom are the ones who how most severely and adversely affected.
    "A decent society has to be judged, in considerable part, by how it treats the poorest and most vulnerable among us. People can run all the clever lines they like about how many of the people in those bottom quintiles have things now that comparable people in 1981 didn’t have. But it is doesn’t excuse the entirely manmade disaster of the housing markets in New Zealand and Australia ..."
          ~ Michael Reddell, from his post 'Housing policy failures bear heavily on the poor'
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