Public Address - OnPoint (Home)

2009: "Blithe" (Part 1) | Dec 17, 2009 06:31

View the gallery for this post

It's been a year of quiet catastrophes, greeted with vacant smiles.

Just a month ago in the Long-term Fiscal Statement, Treasury painted a business-as-usual scenario, where New Zealand continued on its previous course and indentured the next generation into backbreaking, unsustainable debt – 223% of GDP by 2050.

The half-year update released this week shows we're still going to run deficits for a while, but we'll get debt back down and maintain it at the long-term target of 20% of GDP by 2024.

The two are completely different scenarios, of course. The Long-term Fiscal Statement scenario is a hypothetical one which excludes the massive cut made in the 2009 Budget. It is this cut that made our debt problem disappear, it is this cut that shapes our long-term fiscal position, and it is the consequences of this cut that we will struggle to live with, and struggle for the foreseeable future.

It looks dry on the books: $650m off the new operating expenditure allowance from 2010/11 onwards. But with the release of the Long-term Fiscal Statement, we have a clearer picture of what it actually means:

Spending on public services per person real terms will be reduced each and every year for the next fourteen years. It will not return to present levels for almost forty years.

Over the same period, superannuation per person will grow by 66%. That's not an effect of the aging population. The population will age, and the number of people getting superannuation will grow massively, *and* each one of them will receive 66% more in inflation-adjusted terms.

And even as spending on public services stagnates over those four decades, more and more of it will be spent on services for the aging population. This means that spending on schools, police and other services will be hit with a double-whammy.

Babyboomer will take a bite from both ends: They will draw down an increasing amount in superannuation. They will eat up an increasing share of a stagnant pie.

And why is the pie stagnant in the first place? Because they demanded for four years that the Labour Government give up its "excessive" surpluses, and it caved with more Working for Families and massive tax cuts. And then they voted in a good-times National Government which gave them another set of tax cuts, and promised not to cut their future incomes or their present benefits.

This is not the worst possible scenario. It would be worse if National continued spending and left nothing but debt behind. That'd be worse. If we carried all the costs now and made deep cuts to services or steep hikes in taxes, that might be fairer, but it would be more painful. And perhaps the stance on superannuation will change at the next election. I hope it does – any party that fails to support a change to superannuation entitlement will be downright irresponsible.

Given how far we've wandered down this path, National's choice at the Budget might be reasonable. But the point is, this is the year it's finally bubbled up to the surface. It's time we wake up and smell the shitty coffee – we're in for a decade and a half of public sector decline.

Perhaps National can cut enough fat off the civil service to find enough money to get through next year without reducing services. But once they cut all the fat, are they going to cut all the fat again? And again? For fourteen years? "Do more with less" might work the first time, but it won't be long before it just turns into punchline.

It's downright farcical to talk about us going into surplus, as if it was just a function of economic forecasting. Like some Treasury boffin tweaked some numbers and poof - billions of dollars materialised.

All these numbers are just chalk outlines showing how deep the cuts will need to go. The knife will come next year, and the year after that, and the year after that...

(33 responses)
Digg this Scoopit!

From the floor of the Tax Working Group | Dec 01, 2009 09:58

Update #6: Morgan wants a flat 25% tax, a $10k univeral allowance, 1.25% capital tax (not CGT, but tax on capital). Conceptually wonderful idea. Clean and beautiful. So's communism.

Update #5: Gareth Morgan: "The biggest suckers in the tax system are PAYE earners. Suckers. So the government lets them have rental property, just as a sop."

Update #4: $213 billion invested in rental property. 5 times the size of our stock market. Recording a tax loss of $500m. Negative tax (subtracted from other taxes) of $150-200m. ZONK!

Update #3: Really picked up with Norman Gemmell from Treasury. First, he pinpoints the issue that right-wingers have been saying since 2005 - that Working for Families creates a high marginal tax rate and reduces incentives to get into work. It's particularly salient since WFF is high on the list of things that'll be reviewed.

It's split into two parts - there's the "100% marginal tax rate" that's often cited, but that's just one point for people earning around the $20,000 mark. Even Susan St John says that this is a poorly-designed part of the system, though noting that it only affects about 3000 families.

Gemmell's more interesting part was about abatement: That the whole problem of high effective marginal tax rate (EMTR) is caused by abatements (getting less in benefits) as you climb up in income. The way to lower EMTR is to lower abatements, but that means more people on higher incomes getting more benefits. Conversely, if we stopped high income people getting benefits, people on the margin will get hit with a very high EMTR.

Getting rid of the first bump in the EMTR is quite doable - but the trying to smooth out or wind up the boundaries in who gets WFF is going to be a fundamental struggle.

Update #2: Oh, right, nearly forgot. Alignment to 30% is going to cost $1.65b. Roughly. Ch-ching!

Update #1: Dull morning so far here at the TWG. Where's Don Brash to spice things up when you need him?

Bill English make a dig at government spending, saying that the productivity for the rest of the economy is sound, it'the productivity of the public sector that needs to be scrutinised more.

Stuck will ruling out capital gains tax, but remained coy on other options like land tax.

Made a point that fiscal drag will put the average earner into the top tax rate by 2022, if nothing changed, and this was unacceptable. Which means that something had to give.

Bob Buckle and Rob McLeod basically laid out the aims, which is to find a way of paying for an alignment of the personal/trust/companies rate to 30%. It's about ironing out the kinks in the tax system, which is fairly apolitical stuff. But with to lower the personal rates, they've got to put in something else, which wanders back into political territory again.

Yawn. Hope this gets more interesting.

(26 responses)
Digg this Scoopit!

Taskforce 2025: A Space Odyssey | Dec 01, 2009 00:00

The answer is less government. What's the question again?

The report is quite spectacular in how far it goes beyond the frontiers of right-wingedness.

Whereas normal right-wingers say that the government shouldn't pick winners by backing specific industries or technologies or companies, Brash & Co have taken this several step further: The government shouldn't even aim for goals like "more savings" or "more research" or "diversify exports", because that's basically trying to pick winners.

Whereas normal right-wingers believe that when the government step out of the way, the market will step in to provide something better, Brash & Co just don't care. If it doesn't make economical sense for parents to go to work and send their kids to an early childhood centre, then it's not worthwhile. Whatever the market delivers up is, by definition, the optimal outcome.

For primary healthcare subsidies, not only do they ignore the point of the entire field – to ensure people don't get sicker and require more serious medical intervention – and claim that there's no public benefit, but they seem to take ideological offence, warning of "increased regulatory control and administrative hassle that tends to accompany greater government funding, stifling innovation and enterprise".

What does that even mean? That individuals fail to innovate with medication at home? That we don't have enough entrepreneurial alley-surgeons with a scalpel and a bottle of scotch?

But the bit that takes the cake is what we usually consider to be actual productivity: People. Out of a 150 page report, this is the section on human productivity. In its entirety:

The size of the workforce, and the level and quality of "human capital" – the skills and aptitudes each of us acquire through work, training, education and experience – are important parts of any story of wealth accumulation and improving living standards

It seems unlikely that deficiencies in this area can explain much about why our incomes lag so far behind those in Australia and elsewhere in the OECD. There are no direct measures of human capital, but data indicate that the share of the New Zealand population with a tertiary qualification is now among the highest in the OECD (having increased markedly in recent decades). Skill shortages were a common theme in business surveys this decade – but that is to be expected when demand is running well ahead of the economy's underlying productive capacity. It is well known that New Zealanders in employment work long hours by international standards: across the population as a whole, hours worked per head of population in New Zealand averaged 887 in 2008, higher than in either the United States (852) or Australia (864), and well above the figure for the OECD countries as a whole (805).

Our workforce is maxed out, with high workforce participation, high employment rate and long working hours; our businesses report a skills shortage, but that's nothing to be concerned about, because it's just demand outrunning our "underlying productive capacity"… as in skilled workforce. Ah, so businesses are reporting a skills shortage because there's a shortage of skills. Nothing to worry about then. Less government, that's what we need.

WTF, Don?

It's hard to avoid the conclusion that this is a big fat patsy, generating outrage so that whatever the Tax Working Group report suggests will look moderate and sensible by comparison.

Stay tuned: Will live blog from the TWG.

(154 responses)
Digg this Scoopit!

Manufacturing Dissent | Sep 25, 2009 02:01

Doesn't anyone else get suspicious when a Minister jumps out, on her own initiative, and declares that her portfolio is in crisis?

We now have more prisoners behind bars than at any other time in New Zealand's history," Ms Judith 'Crusher' Collins said. "At Monday unlock this week - where prisoners throughout the country are counted - there were 8509 people in prisons or police stations, which is 16 prisoners more than the previous peak of 8493 prisoners on 7 September 2009."

Honestly, what kind of journalist would believe that she said it because "the public has a right to know"? Because if that was the case, then the public might also have a right to know that there'll be even more prisoners next week. And even more the week after that.

It's called an upward trend – and it's predicted to go up, and up, and up. Whether it's next Thursday, 8th February 2011 or the end of the Mayan calendar – pick any day, and we'll probably have "more prisoners behind bars than at any other time in New Zealand's history". (Except for Christmas, when the prison muster is at its annual low.)

Sure, there's a serious capacity shortfall that's only going to get worse. It's a problem that needs to be dealt with, but have we really suddenly hit a "crisis point"?

None of this is new. A cabinet paper prepared by Collins' office in January stated pretty clearly: "The first new prison capacity is required in late 2009/early 2010." It stated pretty clearly that in the short-term, that capacity has to come from double-bunking. It also stated that union agreement was required to allow the additional double-bunking to proceed. Then, in the Budget, they got $364.4m to do it. That's right: $364.4m specifically for double-bunking.

So, let's get this straight. Collins knew about the problem, got solutions to the problem, approved those solutions, then got the money to pay for those solutions. And yet, here we are, with talk of highest prisoner numbers ever, imminent capacity crisis of dooom, suggestions that troops might be called in, oh and, by the way, privatisation.

Of the money Corrections got in the Budget for double-bunking, $218.6m was operating funding. And yet, here we are, with Corrections saying that they have no money to pay corrections staff more, blaming them for holding up double-bunking, and floating privatisation and mass sackings as a solution – as if cramming more prisoners in the same space was a great opportunity to train up fresh staff on lower pay under new management.

It's not a stretch to suggest that they're just manufacturing a crisis. The formula is pretty simple:

'Prisons in crisis! We'll have to stick them in containers! We'll have to send in the troops! We'll have to stick them in police vans! We'll have to send them out onto the streets! We'll have to keep them in your children's room!

Or, I guess, if you really pushed us – because we totally didn't come into office wanting to do it – but if you left us with no other choice, I guess we could privatise the prisons. I mean, that does sound like a better option than keeping violent offenders in your children's room, doesn't it?'

I don't know if private prisons are a good idea or not. I don't know much about prisons. I didn't even watch Prison Break (that tattoo was retarded). But I suspect that the push for privatising prisons, however cynical the methods, isn't just about ideology. It's about reducing the cost of a tsunami that coming right for us.

It comes down to the opposite of what Collins said. We shouldn't be worried that prisoners numbers are as high as they are now – we should be worried that they'll never be this low again. According to the current forecasts, the prison population will grow from 8,500 now to 12,500 by 2018.

It'll cost $1.8 billion over the next ten years to build the prisons required to house these people. It'll cost $1.9 billion to operate these prisons over the same period.

Yeah. That's right. Billions.

This is what the Treasury had to say about our prison population (emphasis added):

This paper signals the need for $1.795 billion capital in Budgets 2009, 2010, 2011, of which $19 million is for growth in CPPS (Community Probation and Psychological Services) capacity and $1.776 billion is for the construction of prison beds. This is greater than 40% of the allowance for new capital spending for these three budgets. This will significantly constrain the Government's ability to put new spending into productive infrastructure.

Furthermore, building this many beds will result in an annual operating increase of $400 million per annum by 2018, and require 2500-2700 additional full-time equivalent employees."

Instead of building hospitals, schools and cycleways, we may have to spend 40% of our capital spending allowance on prisons.

It makes me hurl.

The real debate shouldn't be about whether it's $1.8b worth of prisons or $1.6b, whether they're cargo containers or reinforced concrete, private or public: It should be about why we have such an high prison population in the first place.

Really? Or am I just being a candy-assed liberal? I'll leave you with this other gem from the Treasury:

New Zealand's current imprisonment rate is 185 per 100,000 people, which is the 4th highest in the OECD. The prison population forecast in this paper signals that our imprisonment rate will increase to 270 per 100,000 by 2018."

--

In case you're wondering (I was, which was why I OIAed all this stuff in the first place), the growth in the prison population isn't National's fault. Well, not the fault of the law and order stuff they campaigned on, anyway.

According to Justice and Corrections estimates:

- The repeal of the Bail Act 2007 is expected to require approximately 170 additional beds by 2018.
- Increasing the aggregate sentence by 20% for all offenders committing offences against children is expected to require approximately 130 additional beds by 2018, and
- Ensuring that repeat serious violent offenders with a sentence of five years or more serve the entirety of their sentence is expected to require approximately 40 additional beds by 2018.

Total: 340 above the original forecast by 2018. About a tenth of the total increase. It's not nothing, but it's not the source of the problem, either.

(90 responses)
Digg this Scoopit!

Gotcha? | Sep 03, 2009 12:44

Here are some things I know about gotcha.co.nz.

It's registered to one Cameron Slater, of GOTCHA Publishing Limited, which is based in 35 New Road, um... Belize City, Belize.

35 New Road, Belize City, Belize, is the office of Orion Corporate & Trust Services. They help people set up Belize International Business Companies (IBC).

Why would one choose a Belize IBC? Aside from not having to pay any taxes in Belize, they also guarantee the confidentiality of directors and shareholders in that company.

No information pertaining to the identity of directors & shareholders is filed in any public register in Belize. As a licensed registered agent, we ensure privacy for our law-abiding clients. The only thing that must be filed with our IBC Registry is the name of the Registered Agent and the Memorandum and Articles."

(Registered Agent would be Orion themselves.)

Overseas companies trading in NZ have to be registered as a company in New Zealand, for disclosure and tax purposes. Cough cough.

The copyright notice on Gotcha.co.nz, as of Tuesday, read "Copyright © 2009 Gotcha Publishing Limited" (i.e. Gotcha operates a NZ site...). Gotcha has ads served by tpnads.com, which is registered to a NZ company (...which receives revenue from a NZ company).

Gotcha Publishing Limited is not on the companies register.

Cactus Kate is a lawyer. She had some really bad food in Belize on 27 July.

I was in email contact with her on Tuesday, asking her who the directors and shareholders of Gotcha were, and why it was registered in Belize. She was very angry.

Thursday. Cactus Kate is no longer a blogger on Gotcha, citing... well, I'm not entirely sure.

Gotcha's copyright notice now reads "Copyright © 2009 Gotcha!."

–

Ya know, I didn't actually care about tax arrangements, professional consequences for break the law, income declaration to people who might be interested, or breaches of the Companies Act – I just wanted to know who was behind the site. Oh well.

(144 responses)
Digg this Scoopit!

Nick Smith. Spanking. Now. | Jul 27, 2009 21:03

On Q&A on Sunday, Nick Smith claimed that Greenpeace's campaign for a 40% emissions reduction was unaffordable, and cited a report showing that it would have "a cost of about $15 billion per year at 2020", or $60 per person per week.

This is catastrophically bullshit. The report cited by Smith wasn't even about emissions reduction!

It was a report about carbon credit allocation, which the authors note (in big bold letters in the "Key Points" section in the first goddamn page):

With international trading, New Zealand's AAU [aka carbon credit] allowance... [is] not analogous to a domestic emissions target."

In case it wasn't clear:

To be clear, this report investigates the impact of changes in New Zealand's AAUs under the framework of an international agreement whereby New Zealand takes responsibility for any emissions above a given amount. This is not the same as investigating different domestic emissions targets and should not be interpreted as such." (Emphasis added.)

The point is hardly ambiguous: NOT DOMESTIC EMISSIONS TARGETS.

In fact, in all the scenarios discussed in the report, New Zealand's emission was held at 87.7Mt. Every single one of those scenarios assume the same level of emissions!

That's because the report was investigating how New Zealand would fare at different levels of carbon credit allocations. Carbon credits are worth money. So the more we get "for free", the richer we'd be – obviously. If we didn't have enough, we'd need to buy them from other countries; this would hit our balance of payments and exchange rates, and that'd make us poorer.

When the report said that "40%" would cost $15b, it meant that if our carbon credit allocations were reduced by 40%, and our emissions level was unchanged, then it could cost New Zealand the equivalent of $15b.

So the cost that Smith talks about is categorically NOT the cost of cutting New Zealand's emissions.

It is the opposite. It is the cost that New Zealand could face if we DON'T cut our emissions. Every unit of emission that we reduce now is a unit that come off this "$15 billion" price tag that Smith talks about.

Of course, the "$15 billion" was the worst-case-scenario. It's not outlandish, but it's definitely on the high end. But since Smith thought it was a reasonable enough scenario to use for his own ends, I'm happy to hold him to it:

According to the analysis that Nick Smith has been waving around, if we keep to the current emissions trends, it will cost us $15b per year – or $60 per person per week – by 2020.

Of course, cutting emissions will cost money too. But it'll be offset by the reduction in the carbon credits we have to purchase. That's the whole point of an emissions trading system.

That Smith managed to get it so spectacularly wrong is either gross dishonesty, or an abject failure in reading. Either way: SPANK!

(Irony points: The press release accompanying the release of the report: "New reports help inform climate change policy.")

(Apology: Sorry for the gratuitous bolding and exclamation marks. I get pretty worked up about these things. If you were listening to this in person, you'd have spit in your face and some hearing damage.)

(165 responses)
Digg this Scoopit!

"Smokescreen," I scream | Jun 24, 2009 09:22

Can somebody take this up for me?

Can the Minister for Corrections explain why the previous prisoner forecast, included in the Briefing to the Incoming Minister in November 2008, required 275 new prison beds per year, while the new forecast projects a requirement for 555 new prison beds per year?*

* (5000 beds required by 2018 = 555 new beds per year; original forecast was 2200 beds required by 2016 = 275 new beds per year.)

Was it because somebody - not naming any names - made some iddybiddy policy changes?

Drop me a line if you're gonna to ask this.

--

It's the same bloody pattern again. Focus on the "controversial" stuff, like shipping containers and double bunking, and making it sound as though National has a very new approach to solving an old problem that they are carrying from Labour.

Nevermind that the double bunking is just using "supplementary beds", which is not new or novel - they are following the plan they inherited from Labour down to the letter.

Here. Page 23. The line goes into "supplementary beds" territory. It means that "hey, we're probably going to have to double bunk by mid-2010".

And now, Key and Collins are making the hard calls... by telling us that we're probably going to have to double bunk by mid-2010.

The tough act is a smokescreen for the *actual* news, that the number of new beds required are expected to double.

(67 responses)
Digg this Scoopit!

What gorilla? | Jun 23, 2009 00:37

While his lovely assistant Judith Collins paraded in front of you in her sparkly leotard swinging shipping containers, John Key has just said, right to your face, 'we're going to spend $385m on prisons in the middle of a recession, and we want to spend $380,000 on each prisoner because this is where our spending priorities are.'

Dude. You've been gorilla'd.*

Here's the pattern. National offers up a novel-yet-slightly-controversial-in-a-newsworthy-way way of cutting government spending. The usual punters leap at the bait. News media jumps all over it, incisively and impartially getting to the bottom of the trivial distraction, and completely misses the massive spending.

Isn't the real story here that National is spending $385m from its "stimulus package" on the least productive spending imaginable, housing a disproportionately high and ever-rising prison population?

No? How about something more Garth McVicar, then: $380,000 per bed? It's another sign of the government putting these scum first, pampering them with reinforced walls and indoor plumbing while their victims are outside, completely without steel bars and razor wire! None at all! Raar!

No?

To the guy/gal who thought this up: Well done, have a slow clap.

Clap. Clap. Clap.

The shipping containers are not a big deal. There's nothing inherently inhumane about corrugated weathering steel, it's just a construction material. Then again, there's nothing inherently spartan about them either.

So how can they save so much money? They can't. The $643,000 vs $380,000 figures are rigged.

The Spring Hill Corrections Facility (where the $643,000 figure came from) was built in the middle of a national construction boom and global spike in the price of oil and steel. That's the excuse that Corrections gave for going massively over-budget:

The difference in budget for these two [Spring Hill and Otago Corrections Facility] facilities has resulted from three main factors:

The extreme pressures of the current boom in construction, which are common across the overall New Zealand construction sector at this time, combined with other external market factors, which are impacting the cost of labour, materials and commodities such as fuel. These pressures are especially marked in the Auckland and Otago regions, where the facilities are located."

If it had gone within budget... (crazy assumption, I know, but since we are comparing hypothetical prison beds with hypothetical prison beds, it's just as crazy to assume that the shipping container prison will be within budget)... if Spring Hill had gone within budget, it would have cost around $435,000 "per bed".**

This is why Collins never gave a costing for what conventional construction would cost *now*. She is comparing the cost of a real prison rushed through a building boom with the cost of a hypothetical prison in the middle of a recession. Of course there's a bloody big difference.

So, that brings the savings back down to $55,000 "per bed". Good. Great. If it checks out, by all means do it, but:

The average cost of keeping an offender in prison is currently $90,746 per year, which is lower than that of comparable countries, despite including depreciation which is not costed in many countries. The average annual cost of managing an offender on a community sentence is $3665, ranging from $2,000 for community work to $25,000 for Home Detention."

Saving $55,000 is not very much when that prison bed will cost you $90,746 every single year. That's the gorilla in the room, right there.

* The older (original?) version of the experiment featured a gorilla, rather than a moonwalking bear. I'm on the fence about which one is awesomer.

** "Cost per bed" had nothing to do with beds, or cells. It's just the total cost of the prison divided by the prisoners it's designed to hold. It's convenient to say "cost per bed" because it sounds like it's a $600,000 bed, but only a small portion of that is spent on the prisoners' actual living arrangements. The rest is on training and rehab facilities, and amenities like walls and fences and razor wire.

(90 responses)
Digg this Scoopit!

The Super Fun(d) Shell Game | Jun 03, 2009 01:15

Borrow to save? Not saving so we'll have more money? WTF?

National is saying that cutting contributions to the NZ Super Fund is a good thing because it'll save $19.5b in debt over the next 14 years, while Labour says that this is a bad thing because it takes $35b off the value of the NZSF in 22 years.

Naturally, both are true – they're just completely useless pieces of information.

We're comparing between two options: a) Fund NZSF and let debt go up or b) Don't fund NZSF and let debt go down. As Kiwiblog suggests, we need to know the cost of both.

For those of you interested in spreadsheets, it's here. For those of you who are not, here's the skinny:

In 2031, if we contribute to the NZSF at pre-Budget levels, we'd have $124b in the NZSF.

In 2031, if we take a NZSF contribution holiday as prescribed in Budget 2009, we'd have $86.5b in the NZSF, and we'd have $14b less debt (methodology below).

This means that, by suspending NZSF contributions, we'd be $23.5b worse off by 2031.

Kiwiblog and the DomPost were way off because they didn't take into account the fact that NZSF earnings are taxed. The more that goes into the fund, the biggest it gets, the more it earns and the more taxes are returned. This wasn't included in the Treasury backgrounder that Farrar shanghaied because it didn't deal with tax or debt. But the lost tax revenue adds up to a lot: $16b by 2031. That's why it's so much more than the $8b difference that Farrar suggests.

I don't think Bill English wiped $23.5b off the books for shits and giggles. So WTF is going on? The NZSF offsets the impact of debt on the current accounts, so that ain't it. But it doesn't necessarily offset debt for our exposure to the international credit market... which would be something that S&P had on their checklist.

So it was, at the very least, partly done for the benefit of the credit rating agency. But $23.5-friggin'-billion to appease *one* credit rating agency? Surely there must be more to it than that. I don't really know why. My working hypothesis is that a government in the future would have a strong argument for reducing Super eligibility if the Super Fund was dry; the same government, if faced with mounting debt instead, would have to explain why Super should be first against the wall.

So this is National laying the tracks towards a future cut in Super eligibility, albeit doing it spectacularly expensively. I'll try to get some answers from English during the week. Hopefully, a journalist who is paid to do this can beat me to it.

(To journos: Look at this Treasury model. Line 34. This is how much the Crown loses in tax revenue because of the contribution holiday. This line is not counted in the fund balance because it comes *out* of the fund balance. It's about $10b gross, and $16b by 2030/31 if you include interest.)

--

That's the public service part. And now, for your amusement and mine, a fisking of Kiwiblog's "Some Super Facts", with a lot of gratuitous swearing:

1.

Phil Goff's (and the Dom Post's) insistence on borrowing to save is bizarre."

Fucking hell, Farrar, even by your own calculations, investing in the NZSF (that's "borrowing to save") comes out on top by $8b. On what planet is a choice that results in $8b more considered "bizarre"? Sure, there is an argument on what are appropriate levels of debt exposure, but the onus is most certainly on English to explain why an option that loses the country money is the better one.

(As discussed above, the $8b figure is way too small.)

2.

"Over the 11 years 2009 to 2020, there would be $19.5 billion of borrowing. Then the interest on the borrowing (calculated at 6.73% - the average cost of Govt bonds according to the Super Fund) would be $7.7 billion. So by 2030, the Crown would have an extra $29 billion of borrowing."

Um, you forgot 11 years. After a 11 years contributions holiday, we'll need to spend the following 11 years on contributions overtime (coined here first!), where we have to put an extra $13b back into the NZSF to partially make up for what we lost during the holiday.

However, you also forgot 11 years of compound interest, so you've actually underestimated the cost of borrowing quite a bit. (Until you count the lost NZSF tax revenue, as discussed above. Then you're back to being wrong the other way.)

3.

You earn $60,000 a year. However your living expenses comes to $70,000 a year. You have a $10,000 a year shortfall. Due to this shortfall you are not making any repayments on your $200,000 mortgage. In fact you are having to borrow an extra $10,000 a year against your mortgage to cover your living costs. Now your house is worth only $350,000 so you know you can't keep borrowing for much more than a decade before your credit runs out."

Your analogy is stupid. Would you like to know how stupid your analogy is? I will illustrate it with an analogy of your analogy:

You earn $60,000 a year. Lex Luther aims a $290m death-ray at your $350,000 house. He threatens to destroy your $12,000 house (revalued after Lex Luther aimed a death-ray at it) with you and your family in it unless the government contributes to the NZSF at the Budget 2008 rate. You and your family can't move from the couch, because you're sitting on a dead-man switch which would activate if the total weight (in whole numbers) of the persons on the couch did not equal a prime number. The members of your family weigh 89kg, 72kg, 45kg and 35kg. If the switch was activated, it would send an explosive-laden train with twenty-two orphans who would all grow up to discover the cure for cancer into another explosive-laden train filled with twenty-three property speculators.

Superman was disestablished by the Razor Gang. The average yield for 10-year Government bonds is assumed to be 6%. There is a kitten in your basement. It is very cute.

This demonstrates that the contribution holiday would lead to kitten death.

More seriously though, your analogy is crap because:

a) Your person has a debt that's 330% of his annual income. New Zealand has a debt that is 8.7% of GDP.

b) Your person has an annual deficit that's 16.7% of his income. New Zealand's operating deficit is 3.3% of GDP.

c) A person who invests $2,000 probably pays more fees, proportionally, than an institution that invests, say, $20,000,000,000. Probably.

d) A mortgage for a person earning $60,000 is probably more risky (and therefore more costly) than a loan to the Government of New Zealand. Probably.

e) I'm pretty sure that New Zealand will still be creditworthy in 2019. I think that would be the case – and I don't say this lightly – even if we had Gerry fucking Brownlee as the Minister of Finance for the next ten years.

f) Unlike governments, households... oh fuck it, it's just a really crap analogy, okay?

4.

So remember this. Even if you discount the reduction in debt and finance costs by suspending contributions (which you shouldn't anyway), the long term impact is that future taxpayers have to pay for 92% of superannuation, instead of 89%."

So... $19.5b plus interest is a huge amount of debt to be racking up, but $37.5b in the Super Fund is practically insignificant, because you've expressed it as a percentage of total Super spending per year?

*That's* your magic trick?

(Methodology: Debt is assumed to incur 6% interest per annum. 100% of reduction in NZSF contribution is assumed to go towards debt repayment (i.e. Reduces debt). 100% of reduction of tax revenue from the NZSF (as a consequence of a lower NZSF balance) is expected to be funded out of debt (i.e. Increases debt).)

(127 responses)
Digg this Scoopit!

Budget 2009: "Aww, shit." (Final Update) | May 28, 2009 14:27

It's a simple, simple Budget. It's only goal was bringing down the debt track. This is the scary-o-graph showing the debt track that the government was heading towards, with the alternative line showing the impact of the policy changes:

The changes are expected to bring down debt by more than 30% of GDP by 2023. That's about $88b.

There are no magic beans here. To get $88b less debt, you have to squeeze $88b out of the books (well, $88b minus interest). So which $88b got squeezed?

The bulk of it comes from changes to the future spending allocation, which was reduced from $1.75b to $1.1b. $650m doesn't sound like much, but it doesn't just add up – it compounds.

This allocation is an addition to the sum the government can spend each year. Which means that every time another $650m is added, that's another $650m for every year after that. Each $650m stack up on top of the previous one.

So, if it's a $650m in the first year, it'll be $1.3b in the second year, $1.95b in the third year, and so on. And if you're counting the total spent, you're counting the entire stacks. So, for the three years, it'll be $650m + $1.3b + $1.95b, and so on.

In 2011/12, the reduction in spending will be worth about as much as stopping contribution to the NZ Super Fund. By 2022/23, it'll amount to a $9.8b reduction in spending a year.

To put it into perspective, the Super Fund contribution will be worth $2b that year, and the tax cuts that have been deferred would cost $840m.

This graph shows how much of the reduction in debt comes from this "reduction in future operating allowance" line (as a % of GDP):

So, how has National managed to reduce future debt? By cutting a fuckload of future government spending.

--

Update 1: So what about the tax cuts, then?

Technically, they've been deferred. Deferred till when? The government is not expected to be back in black until 2018. So, here are the hints that we got. When I asked English whether they'll reconsider the tax cuts while the government is running a deficit, he said that the government will consider them if the growth track gets better (which implies that yes, they will consider them while the government is in deficit, as long as they're moving out of it). When Bernard Hickey asked if English seriously expects to be able to reinstate tax cuts before the next election, English said no.

So it sounds like it'll be reconsidered towards the end of the fiscal recovery period, which is a decade away, give or take. With two elections between now and then, the tax cuts as promised in the 2008 election are as good as dead.

Fiscal hawk says: YUSSS! In yo face!

Meanwhile, National are still reaffirming their commitment to aim towards a top rate of 30%. It all sounds a bit silly, given that it'll take them close to a decade to even glad-eye a top rate of 37%.

--

Update 2: Less money for Super Fund = Less money for Super

The other $19.5b elephant in the room is stopping contributions to the NZ Super Fund while the government is in deficit – i.e. the next 11 years.

The argument that they're running is that it doesn't make sense to borrow money to save, since you have to pay interest to borrow. That sounds simple enough – except that it's not, since you get interest on your savings, too.

Rod Oram suggested that the long-term returns on the NZSF will be actually be greater than the cost of borrowing – i.e. that borrowing to invest in the NZSF *is* profitable. One argument in support of that is that the government is a very safe borrower, and thus can borrow at a lower rate than your average investor. So while borrowing to invest is a bad idea for individuals, it can work for a government over the long-term.

When I ventured to the other side of the lunch table, Bernard Hickey presented the opposite case, saying that the return on investment will never match the market interest rates, and that the whole NZSF should be put into debt repayment instead.

Gah! A comparison of the rate of return on the NZSF vs the cost of crown borrowing would be most enlightening, gentlemen.

But regardless of which way is better, there's no getting around the fact that less money deposited means less money can be withdrawn. Here is where English gets super-shifty:

Contributions to, and the size of, the Fund do not affect future New Zealand Superannuation entitlements or payments. The size of the contributions and the Fund merely affect how much future New Zealand Superannuation payments will be paid by the Fund, instead of from future revenue."

It's crazy-talk.

He's saying that it's okay that there's less money, because we can afford Super payments as long as future governments pay for it. Except that the NZSF exists precisely because future governments can't afford to.

Of course, English can't bind future governments, so he (and future governments) can go on saying that they're committed to something that they're not paying for – and continue to not pay for it – right up until they have to fork out the dough.

There's no getting around the fact that cutting NZSF contributions cuts the ability of future governments to pay for Super. This means that Super entitlements are more likely to be reduced.

Of course, loading future governments with debt also cuts their ability to pay for Super. One might be slightly better than the other, but both mean less money for the future, and no amount of book-jiggling can change the fact that less money means less money.

--

On one hand, the fiscal hawk in me is quite satisfied with the depth of cuts in this Budget. Given the current economic outlook, there's no way around the fact that very deep cuts are needed. Things like the $2b cuts by the razor gang, and even the "deferral" of the tax cuts are just smokescreens.

All the real work is done by the reduced operating allowance. It's impact will be felt more and more as time goes on. Each and every subsequent Budget will have to make do with an increasingly inadequate pool. And at the end of it, there'll be a big-ass shortfall in the NZSF.

This is like the opposite of pulling teeth.

But to be fair, a) it has to be squeezed from somewhere, somehow, and slow is less traumatic than fast; and b) it's not the end of the world – government expenditure will go up for a few years because of the recession (and more people are made unemployed, etc.), then it'll be whittled down as the cuts start to bite, but it will end up at current levels by the end of the projection period.

There's undoubtedly an ideological element at work here, too. When asked to elaborate on the "structural problems" in the New Zealand economy, English pointed to excessive government and household spending, as if the government, too, has been putting granite bench-tops on the mortgage. The idea that government spending is, in and of itself, a hindrance to the economy whiffs of a pretty strong ideological bent.

But hey, it's a right-wing government that *had* to make some pretty steep trade-offs, and it chose to cut into medium- and long-term government spending. It's a perfectly valid trade-off to make.

Even cutting the Super Fund is a legitimate choice - but to cover it up with "cutting the money available for super won't affect your super" is just trying to weasel their way out of the consequences.

Bottom line: Things are bad. Making things less bad is possible, but there are consequences. Harden up.

(141 responses)
Digg this Scoopit!

Wolfram Alpha: Tech journos FAIL | May 19, 2009 02:23

Wolfram Alpha is not a search engine. The creator of Alpha, Stephen Wolfram, subtly hinted at this when he said:

We are not a search engine."

And in its FAQ:

Is Wolfram|Alpha a search engine?

No. It's a computational knowledge engine: it generates output by doing computations from its own internal knowledge base, instead of searching the web and returning links."

Not only are some tech journalists unable to semantically parse the sentence "not a search engine", but they don't seem to know what a search engine – arguably the most important invention of the internet since the internet itself – actually is.

A search engine uses "web crawlers" to visit every webpage it can access, sticks the information in a catalogue and allows users to search through it.

Alpha is a closed semantic database. It is filled with entries that are semantically linked to each other. It has nothing to do with searching the web.

(Think of search engines as a crack team of hot-shit robot librarians. By night they go read through all the books, figure out what's in each one, and write it all down in a central catalogue. By day, when you come in and ask them for information, they go through the catalogue, figure out which ones you might want, then dump a few million books on your lap. Oh, and the library is full of porn.)

Wolfram Alpha, on the other hand, is like an encyclopedia. It is a closed database. It has what's inside, and it has references to source material, but the volume of knowledge that it holds is a tiny tiny fraction of what's available in the whole library.)

A semantic search engine has the properties of both. It can scurry around the internet cataloging, indexing information and automatically discern semantic relationships based on the information it gathers. Alpha does not do this. It merely searches its own database using semantic relationships that are defined by human staff.

Treating Alpha as just an answer box (from Associated Press. FACEPALM.) misses the point entirely. It's not a knowledge base for humans. (Most) humans understand semantic relationship the old fashioned way. With words. Alpha barely does this. It gives you graph titles in lieu of explanations. Not so helpful for humans.

Alpha's promise lies in the fact that other computers can ask it questions and get answers that are meaningful to them; those machines can then use the answers and pass them along with the semantic relationships (i.e. What the answer means) intact.

It's a knowledge base for machines. And it's a really important building block to allow machines to understand things about the real world. This would, in turn and in time, allow us to understanding more things about the world.

In theory, you should be able to ask a computer about global warming, and it will find that it is caused by greenhouse gases, which includes carbon dioxide; at the same time, under entries for fossil fuel combustion, it will list carbon dioxide as an output, and it will link to the total amount of emissions resulting from fossil fuel combustion. With the semantic relationships joining all these facts together, a computer should be able to put them together and understand a link.

In theory. Right now, it's kinda shit.

It knows that a World War II happened between 1939 and 1945, that a Adolf Hitler was involved and a Nazi Germany was involved. But it has no idea what Adolf Hitler did apart from the fact that he was a head of state, it doesn't know what country Adolf Hitler was a head of state of, or whether Nazi Germany participated in any wars.

It doesn't work because the data simply isn't there. It's sum knowledge of WW2 is start date, end date, a dozen countries and a dozen head of states. It's not much.

Worse, not only does it not know much, but it doesn't even know what it knows. It knows that WW2 involved Nazi Germany, but it doesn't know that Nazi Germany was involved in WW2. This means that its understanding of its own semantic relationships is broken. Very bad.

Its natural language processing is also lousy, but NLP search is for chumps and charlatans (that's the fancy name for "consultants"). NLP is useful for improving web crawling and indexing, but FFS people, it's 2009 – users can make a goddamn search query without the aid of complex NLP algorithms.

On the bright side, Alpha works as pretty awesome statistics calculator. It's basically the Mathematica suite as an online tool, and knows things like the indefinite integral of the Fibonacci sequence. Which… pretty much means that it has virtually zero value for the average user in the short-term. But when it actually works, and its database expands exponentially, and people start building tools to work with it, and it starts connecting with other services… then it'll rise up and destroy us all.

Still not particularly useful for your average user, but more interesting, anyway.

(25 responses)
Digg this Scoopit!