Labour MP Jacinda Ardern and National MP Nikki Kaye.
Labour's Jacinda Ardern and National's Nikki Kaye on New Zealand's economic situation.
JACINDA ARDERN
You can be forgiven if you missed the latest judgement on the state of New Zealand's economy last week but, unfortunately, it was news that should act as both cause for alarm and a warning: our credit rating has been down graded. On its own, it may not sound ground-breaking, but the implications for us are serious. Essentially, we are in the schtook and now everybody knows it.
The title credit rating downgrade may not convey the magnitude of the situation as well as it should, but John Key's own words in 2009 when his government was trying to talk up our chances of maintaining a good rating does. He stated that: "a credit downgrade of that sort would mean lenders would no longer see us as a good credit risk, they would be reluctant to lend us money, and when they did, they would charge us ever-higher interest rates. I don't want to see New Zealand weighed by down by that burden." Well now it seems that we are, and the first question has to be "why?".
There is no way, of course, that you can ignore the fact that we're in a global recession, but so is the rest of the developed world. Going into the recession, we were probably better placed than most (John Key has even said that most countries would give their right arm to be in the position we were in). Michael Cullen and Labour saw net crown debt down to zero, consistently generated budget surpluses ( I still remember the taunts from National each budget that we were hoarding people's money) and we had the strongest continuous economic growth since WWII. That relative advantage depleted away pretty quickly though. Since 2008, our debt has grown dramatically and we have fallen from 6th to 11th in the employment rankings within the OECD and amongst those who experienced the same recession we have, and all the while the government has stood on the side-lines and waited for things to get better.
To say that the National Government has done nothing though would not be entirely fair though. They did bring in tax cuts. This could have better stimulated the economy had it been targeted at those who needed it most, rather than 42% going to the top 10% of income earners. Instead, we have $37billion in extra debt to show for it (that's a 1700% increase in net government debt in less than three years) flat growth, and a large number of kiwis who feel worse off.
But this is also where a significant part of where our issue lies. The debt carried by the Government is nothing compared to what we carry as individuals. In fact, 84% of our external debt to overseas debtors is not held by the crown, but by us. It's our home loans, our credit cards; the amount that people borrow just to survive. Our dependence on people outside of New Zealand to keep us afloat is our biggest weakness and our biggest vulnerability. The fact that the Government wants to get us out of that situation by selling our assets offshore not only astounds me, it shames me. It's a short term fix that doesn't solve a long term problem. Basically, we need to export more.
We have a huge opportunity to not just pull ourselves out of debt and boost our credit rating, but to get off the treadmill of debt by re-gearing our economy. First, lets make sure people aren't borrowing to live by making the minimum wage a living wage at $15 an hour and everyone's first $5000 tax free. Let's boost our savings by stopping the cuts to Kiwisaver and investing in the super fund again. Let's broaden our tax base, pay down crown debt, and re-orientate investment into the productive export economy by introducing a capital gains tax. And finally, let's grow our economy through an R&D tax credit and support our exporters by getting off the side-lines and changing our monetary policy.
Ultimately, no one is asking for John Key's right arm, they're just asking for a plan. Labour has one, the rest lies in the hands of voters.
Jacinda Ardern is on Facebook and Twitter @jacindaardern
NIKKI KAYE
One of the reasons people tell me they like our Prime Minister John Key, is his ability to work through tough decisions in a calm, positive and fair way. I remember vividly the caucus when Bill English put up the graphs of our economic situation showing that New Zealand would be in deficit for decades. I am sure there would have been a few Prime Ministers of old who would have panicked and slashed social spending. However, the thing that I understand from my constituency work is that at the end of any decision to reduce spending is often a family or a person that can be severely affected. We have learned from the past that while reductions in bureaucracy can be good, some reductions in expenditure can lead to significant long-term social and economic harm. Our challenge has been to carefully reduce spending with the least impact to New Zealanders.
In 2008 we were handed a NZ economy that had gone into recession long before the global financial crisis. New Zealand had high inflation, high interest rates, forecasts of never-ending deficits, and ever-rising government debt. Add on top of this a global economic downturn, two major earthquakes in our second-largest city, a billion dollar leaky home settlement and several major finance company collapses, it was not surprising to see the PM acknowledge the other day that he has a few more grey hairs than three years ago.
The real tragedy of the last Labour government was lost opportunity. Despite 10 years of good world economic conditions Labour's policy settings encouraged household debt to balloon, investment in infrastructure was insufficient and growth was fuelled by property speculation and growth in government jobs, rather than the productive sector. NZ has a long standing debt issue and the rating agencies and markets are increasingly sensitive to high levels of foreign debt. This debt has been built up gradually over several decades, but from 2000 to 2008 this trend accelerated. During that time New Zealand households were spending about $1.11 for every dollar they earned, the tax system was encouraging rampant, debt-fuelled property speculation and government spending grew unsustainably high.
What is clear is that not only have Labour not accepted responsibility for the lost opportunities of their period in government but they have failed to understand the seriousness of our situation by continuing to consistently argue for further spending by promising to borrow more and tax more. In the current environment we believe that would be very irresponsible and it would make our challenging economic situation even worse. Labour's tax policy would see NZ with a complicated tax system with six different tax rates. I believe it is irresponsible for Labour to go into an election with a capital gains tax policy that does not answer very basic questions about what it means for New Zealanders and their businesses but instead is dependent on an all-powerful expert group to work it out. On top of this the Opposition's spending plans would need over $7 billion more borrowing over the next five years at a time when the ratings agencies have
sent us a very direct message that more debt is bad in the current global environment.
The thing I have realised in politics is that most people are reasonable when they have the facts and people actually give you marks for how well you respond to the hard stuff. I think we need to accept that the recent credit rating downgrade is a clear message from global markets that the lending rules have changed in a world that is becoming more uncertain and more allergic to debt.
The ratings agencies have acknowledged that our Government has made progress in getting deficits and debt under control, despite the global financial crisis and substantial extra cost of the Canterbury earthquakes. The pill that we need to swallow is that despite the measures we have taken to reform the New Zealand economy, as a result of the deteriorating global outlook ratings agencies are now much more sensitive to even lower external debt levels.
Over the last three years our reform of the tax system has increased tax on the speculative property sector by about $800 million a year. We have also cut the taxes on savings, work, and investment and increased GST taxes on spending. If you go and spend something now you pay 20 per cent more tax on it than you used to. New Zealanders have responded to these tax changes by being more careful with their spending and reducing their debt. Households are now saving again, and this year we'll have the first positive savings rates in about 15 years. New Zealand's private savings have started to increase and as a result we have reduced our total external debt.
The results of this reform show a path to surplus over the next three years and that we are on track to halve the deficit in the next year and then halve it again in the year after. The current account deficit is now half of what it was three years ago. Our net international investment position which balances off our debts and assets offshore is 30 per cent better now than we expected just a couple of years ago. Those to the right of us are calling for radical spending cuts that would disproportionately affect the most vulnerable New Zealanders, cut growth and cost jobs. Those to the left of us are calling for us to tax, borrow and spend more. We are following a balanced economic plan that we believe is right for New Zealand.
Our economic plan is about significantly reducing the size of the bureaucracy across government, investing billions in modern infrastructure including schools, hospitals, public transport, roads and broadband and boosting funding for science and innovation. We have made it easier to do business through RMA and Building legislative changes, reformed the financial sector, and pursued an ambitious trade agenda with many countries throughout Asia to provide greater opportunities for NZ businesses to earn more.
If we are re-elected we want to continue to build a stronger country both socially and economically by having less New Zealanders on welfare and more people in paid work. This is about reforming our welfare system to be a place with greater mutual obligations where people who are in need get assistance and people are supported to get back into work.
Recent polls indicate that the issue that will decide how many New Zealanders vote at this election is the economy. One of the reasons many people tell me they are voting National is because they believe that we have dealt with a pretty difficult economic situation and we have the best economic policies and leadership to improve our economic situation. While I believe we have responded well to some very tough economic circumstances, what is clear is that if we are re-elected we will need to step up again to the challenges that New Zealand faces.
Nikki Kaye is on Facebook and Twitter @nikkikaye
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