Tuesday 5 May 2015

New Zealand's economy is sinking into depression

The most important economioc news for New Zealanders appears like an announcement in Pravda, without any comment.

The government does not want you to know the country is sinking into depression. Quite simply the NZ "rockstar economy" is disppearing down the plughole

Commodity prices take a tumble

4 May, 2015

Commodity prices fell 7.4 percent in April - the biggest monthly drop since the financial crisis.

The ANZ Commodity Price Index shows the prices for the country's exports are 15 percent lower than April last year, and 18 percent lower than their peak in February 2014.

Dairy product prices led the declines, down 15.2 percent, and were one-third lower than they were 12 months ago.

Government books deteriorating, English says

Finance Minister Bill English.
Finance Minister Bill English -  Chris Skelton/Fairfax NZ
1 May, 2015


Finance Minister Bill English has held out the prospect of future income tax cuts but has stayed tight-lipped on whether they will be signalled in the May 21 Budget.

But he has also warned the Government's books are deteriorating and the likely deficit this year will be higher than forecast in December.

"We remain committed to further reductions in income tax rates or thresholds, when fiscal conditions permit," English said on Friday in a pre-budget speech to the Wellington Employers' Chamber of Commerce.

But he would not disclose details of new spending because "you wouldn't open your Christmas presents before Christmas".

He said the Budget deficit this year was now expected to be higher than forecast by Treasury in December and next year's surplus would be lower than the $600m tipped five months ago.

"While progress on surpluses is slower than expected, we are on track to surplus and repaying debt," he said.

National has campaigned through two elections on a return to surplus in the 2014/15 year, but recent comments from English and Prime Minister John Key indicated they had all but given up on achieving that..

English on Friday said the surplus target was important because it imposed a discipline on government, but a small deficit "should it eventuate this year, isn't a risk to the economy" .

He indicated spending would not be cut to achieve a surplus, saying "because we are confident about the ongoing improvement in the Government's finances, it won't constrain our decision-making in the Budget".

The provision for new spending initiatives would remain at $1 billion for each of the next two years.

"We will not be pursuing cuts in services or income support in a knee-jerk response to lower tax revenue. Such measures would undermine the confidence of New Zealanders in the quality and effectiveness of public services," he said

"We won't change that approach just to turn a small forecast deficit into a small forecast surplus. Other things matter more."

He defended the "steady and sensible management" of the Government's books which he said had helped reduce pressure on interest rates and the exchange rate.

Without slashing and burning, the Government had reined in the "runaway expenditure" of the previous Labour Government.

He said in the last six years under National the annual cost of new initiatives was less than $2.9b compared with $20b in the last six years of Helen Clark's Government.

Crown expenditure was expected to be $73b this year, nearly $4b lower than was forecast in 2011.

The Government was on track to reduce expenses to less than 30 per cent of gross domestic product (GDP) in the next two years.

Government debt was peaking at about 26 per cent of GDP and would drop in the next few years.

The economy was on track for solid economic growth building on the almost 3 per cent average growth over the past four years. Unemployment was expected to fall below 5 per cent over the next two years, English said.

He also signalled a continuation of the "social investment" approach to spending with an emphasis on paying more upfront to secure long term results.

He pointed to efforts to help people who had just returned to work to stay independent, because they are likely to slip back onto a benefit. He said 70 per cent of those receiving a benefit had been on one before.

So it was worthwhile helping them stay in work "because not helping them will cost us more, and likely mean a harder life for them and their families".

He said the current low level of inflation - currently 0.1 per cent and well below the 2 per cent mid point of the reserve bank's target band - was "mostly good for New Zealand households". It would mean unemployment should keep falling, interest rates would stay lower for longer and real wage growth would be sustained.

"But at the same time very low inflation and lower commodity prices mean growth in the nominal economy - which is the dollar value of what we produce each year - is more muted than expected."

Treasury now expected nominal GDP over the next four years to be about 1.5 per cent lower than it forecast in last year's Budget, equivalent to $15b less.

"To put it in context that is more than half of the impact of the global financial crisis."
That was putting pressure on the Government's books with $4.5b less revenue over the next four years than was forecast in May 2014.

So the forecast Budget deficit for 2014/15 year - the year the Government had pledged during the election campaign to return to surplus - would be bigger than the $570 million forecast by Treasury in its December update. 

The forecast surplus for the 2015/16 year would also be slightly smaller than the $600m tipped by Treasury in December, English said.


This is what the government does NOT want you to know.  

This is the government debt at 19:10 NZT (in US$) on the 5 May. This translates to $NZ86.66 billion

To view GO HERE



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