Yes, Labour Recklessly Borrowed $100 billion. National's doing the same. How Finance Minister Willis & Shadow Minister Edmonds Put their Own Careers Above the country's Interest.

This Blog is about giving some gentle advice to National Finance Minister Willis, and her Labour opposite number, Barbara Edmonds, on the theme that people in glass houses shouldn't throw stones. Willis did media this week, saying how the weak state of the NZ economy was down to the Labour Party, which "threw caution to the wind the past five years", being from 2018 to 2023, by going on a reckless, an outrageous, a lunatic, "$100 billion borrowing" spree that added that same amount, $100 billion, to public debt. Labour did do an awful job on the economy. Edmonds should admit, not deny it. As for its over-the-top borrowing that left NZ with a gigantic debt pile to which Willis rightfully draws attention, I'd like to humbly draw the Finance Minister's attention to the latest Treasury numbers below, which record her as doing .. the same .. actually, adding more than $100 billion.

The Treasury Table below shows the details. The row important to us is the government's cash inflows & outflows. Its called, "Net Cash Flows from Operating & Investing Activities". Any short-fall has to borrowed by issuing public debt. This 2024 year, the government has a cash deficit of $31 billion; next 2025 year its $26 billion. From 2026 to 2028, the cash deficit is projected to be $28 billion, $22 billion & then $11 billion. The total for the next 5 years, 2024 included, is $118 billion. Gosh, seems National is "throwing caution to the wind" and going on a reckless "$100 billion" borrowing spree itself. Actually, you only need include 4 years, 2024-2027, to take it over the $100 billion mark. Should you want to calculate the exact quantity of government bonds that will be issued to cover the cash deficit, its recorded in the row called "Cash Flows From Financing Activities". Total government bonds issued from 2024 until 2028 is expected to equal $115 billion ($28b + $25b + $28b + $23b +$11b). That will lift our government debt by that same amount.

What's the moral of the story and advice to Willis and Edmonds? That she, and her Labour counterpart, are taking us, and NZ, for a ride, putting their own careers & political parties above what's good for the nation. Neither is borrowing more or less than the other - it would be nice of them to tell millions of folks reading & listening to the news that truth.

Nobel Laureate Paul Krugman's GDP Graph Confirms the Bottom has Fallen Out of the New Zealand Economy

High profile US Economist Paul Krugman has written a New York Times article in which he shows in one graph the incredible resilience and performance of the American Economy. The dark blue line below tracks the pre-pandemic long-run trend in Real GDP. Meanwhile the orange line is actual real GDP. Krugman remarks that now, in the post-pandemic years, actual GDP is tracking significantly above its forecast pre-pandemic trend. As far as US GDP is concerned, America is fully back to business - as if the pandemic never happened:

US Economy

I've produced a graph below that can be used to compare the US experience to NZ's. It comes from Treasury's Half-Yearly Economic & Fiscal Update, released yesterday. The red-line is the pre-pandemic long-run trend in Real GDP. Meanwhile the light blue line is actual Real GDP, and the black line is actual Real GDP per capita. On both Real GDP and GDP per capita bases, our actual performance is now 7% lower than where NZ was expected to be, before the pandemic. Treasury predict we will keep underperforming at that level for the foreseeable future. To put numbers on these amounts, we're talking $28 billion per year in lost output. Should it go on indefinitely, it will add up to a $560 billion total loss (=28/0.05, with a 5% discount rate used). In terms of personal incomes, we're losing $4,000 per year, compared to where we should be tracking. The bottom has fallen out of NZ's economy.

NZ Economy

What happened? Labour Leader Chris Hipkins wrought destruction with his never-ending lockdowns. He sapped our energy; took away the mojo of a generation of young Kiwis who grew up spending those years on devices. He stole the excitement of a nation. Converting the $560 billion into lives, it equates to 45,000. The short-term saving of lives Hipkins touts himself as achieving during the pandemic is outweighed by a potential long-term loss of 45,000, ranking NZ one of the world's worst in terms of lives loss due to Covid. Why's Dunedin struggling to pay for its hospital? Hipkins took the money. He should leave politics, taking his wrecking ball with him. These graphs show he's unelectable. Meanwhile Finance Minister Willis' "prudent", old-school, conservative, steady-as-she-goes, Bill English-John Key approach isn't working to get things back on track. She's desperate not to be labelled a Ruth Richardson-austerity-style Finance Minister. Whatever the politics, the graphs show this ain't no business cycle. The Big Bank economists got it wrong describing it as such. No, this is "secular stagnation". Thanks Mr Krugman, for revealing it.

Sources:

https://www.nytimes.com/2024/10/30/opinion/krugman-glorious-economy-harris.html

https://www.treasury.govt.nz/publications/efu/half-year-economic-and-fiscal-update-2024