Wednesday, 22 November 2017

Government Spending Hard and Real

That Did Not Take Long

We are watching a political debate occurring in the New Zealand parliament over government spending and the fiscal deficit.  It becomes clearer by the day that the present government, led by the socialist Labour Party, either lied deliberately or ignorantly dissembled over its spending plans. 

The former Minister of Finance, Steven Joyce has been vindicated by the latest wave of forecasts coming from the major trading banks.  Joyce had claimed during the election that Labour's economic plan had a hole--a bunch of spending was not taken into account.  But the Labour Finance Spokesman, Grant Robertson solemnly promised that Labour's figures and projections were accurate, credible, and reliable.  The Commentariat cheered Robertson, and mocked Joyce--who was accused of lying and deliberately misleading the voters.

Now, just little more than a month after the election, Robertson, now Minister of Finance, is rapidly revising his figures and projections.  Funny that.  He--and his party--are exposed either as incompetents or frauds--or both.  Joyce has been vindicated.
Economists See Government Debt Rising Billions More Than Labour's Plan
Hamish Rutherford
Finance Minister Grant Robertson maintains the Government still plans to cut New Zealand's debt levels, as economists warn billions more will be borrowed over the coming years.  In Opposition Labour laid out a fiscal plan which would borrow around $11 billion more than National had proposed, but still cut debt as a share of the total economic output from 24 per cent to 20 per cent by 2022.

The plan formed a major point of contention during the election campaign, as National finance spokesman Steven Joyce was widely mocked for his claim that Robertson's plan had a major "fiscal hole".
  But bank economists, who monitor the likely issuance of government bonds, are warning of pressure for Treasury to borrow billions more than Labour had signalled because of new spending promises.

ANZ has forecast that Labour will borrow $13 billion more than Treasury's pre-election fiscal update maintained the former Government would over the next four years, although around $3b of that would go to the NZ Super Fund. This would see net Crown debt at 23 per cent of gross domestic product, 3 percentage points higher than Labour's plan.

Outgoing ANZ chief economist Cameron Bagrie said the estimates for new spending were "conservative", including an assumption that the new $1b a year regional development fund would come entirely from existing budgets.  "[S]pending pressures are all headed one way – and a lot depends on the economy holding up."  In the days following the election Bagrie had also warned that if National had been able to form a Government, it too was likely to borrow more than planned to secure the support of NZ First.

BNZ has also indicated it expects borrowing to be stronger than Labour had flagged. Strategist Jason Wong said the half year economic and fiscal update would probably show "in the order of" an additional $2b-$3b a year in bond issuance in the coming years.  BNZ senior economist Craig Ebert said the figures were hard to determine so early in the term, but borrowing "could amount to a number of billion dollars" more than Labour had outlined.
Since it has assumed power, Labour has indicated once again--and there are no surprises here--that it believes taxes are "pixie dust".  If it throws tax payers' money at "problems" or government policies, hey presto, things will come right.  That's all that is needed.  Spending the money is the magical potion.  The quality of the spend never gets considered.

What is creates is a never-ending demand for more spending, as the problems don't go away--they actually get worse.  The spend is what economists call "low quality".  The law of unintended consequences comes into play.  But, says the present government, the fiscal deficit will actually reduce in relative terms.  Why?  Because the government now has donned rose coloured classes.  It assumes its spending pixie dust will work such magic, that economic growth will be turbo-charged, and the fiscal tax take will be bigger, better, and brighter than ever.

What is overlooked is this: government spending is hard and real; the alleged economic growth is a will o' the wist hope.  Moreover, we can be sure that the present government's spending plans do not take into account the costs of another major earthquake, or another global financial crisis, or some other extraneous crisis.  When one has a pixie-dust view of the world, such things simply do not occur.  We all are supposed to live happily ever after. 

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