More jobseekers + no more jobs = lower wages

New Zealand’s labour force grew by around 43,000 yesterday.

That is the approximate number of single parents receiving domestic purposes benefit whose youngest child is aged six or over.  As of yesterday, they all became part of the labour force; not necessarily because they all want to obtain paid employment but because Work and Income will now cut their benefits if they don’t look for it.

And thousands more will join the labour force over the coming months as sickness beneficiaries are certified as fit for part-time work and expected to look for it.

Where will all the jobs come from to meet the increase in demand for paid employment caused by forcing domestic purposes and sickness beneficiaries to look for work?  There are already over a quarter of a million jobless New Zealanders who want a job but cannot find one.  Paula Bennett is meant to be the Minister of Social Development and Employment, but her Government policies are bereft of any employment creation initiatives.

So there will be more people looking for paid work, but no more paid work available.  That creates downward pressure on wages.

Maybe John Key was reported accurately after all, when in 2008 he was quoted as saying “we would love to see wages drop”.

76 thoughts on “More jobseekers + no more jobs = lower wages

  1. “Privtaising education and health while on the surface reduces govt spending as a % of GDP does not remove the need to have decenly funded education and health systems” sic.
    It simply changes the label of the spending. It is still required so the communities resources are still used to provide it no matter what the source of funding. Except when it is privately provided the providers clip the ticket with extra profits by not providing it to those who cannot pay at the time.
    No doubt right wingers prefers private as when it is provided privately it magically becomes part of the superior tradeable sector. in other words they can make money off it at the expense of the rest of us.

  2. Returning to the topic of no jobs, more job seekers, reduced wages…. I am dumbfounded that Treasury has joined the ranks of beneficary bashing, or at least wanting to move as many working aged beneficiaries not on the UB ion to it in some bizarre hope/scheme that this will improve our economic outlook. Being rather of a student of Treasury’s commentary and policy musings since 1984 I believe for the most part they have not attcked the beneficiary for the plight of the economy and in particular the number of unemployed. They even opposed work 4 dole schemes such because they knew it would simply displace jobs or have a deadweight effect.
    Now, despite there being significant unemployment Treasury are supporting the Bennet styles beneficiary bashing by forcing more active job hunting onto people with temporary/permanent health issues, issues affecting the ability to sustain permanent work be it part or full time.
    Yes, unemployment can make you sick, and make the sick sicker, but forcing sick people into work, or more secifically job hunting, is just nuts. Treasury have lost their critical edge.

  3. I am not into producing more widgets or even flying in more tourists as it happens (as we are told this is a low productivity/low-wage sector in anycase…).
    Privtaising education and health while on the surface reduces govt spending as a % of GDP does not remove the need to have decenly funded education and health systems (and I’ll leave asiude the debate as to whether these are decently funded at present or not…) thus if the state does not fund it, user pays becomes the methodology. This means access to these services by low waged folk ensures even more of aninequitable supply situation…..

  4. Tradeable sector. LOL.
    What, the sector which makes money by firing money around in circles or the one which makes widgets with planned engineering lives of 5 years so they can sell ever more widgets.
    Why is that economically superior than the sector which makes peoples lives better with infrastructure, security and education.
    All of which the market is an abject failure in providing.

    We have already established that constant economic growth cannot happen. The world just does not have enough resources.

    Getting out of debt by out exporting other countries is just not going to happen as every country is trying to do the same thing.

    The best thing that could happen is if a large number of countries repudiated their debt. When debt was forgiven for some third world countries it actually had very little real effect as the money as made up anyway. The whole money as commodity ponzi scheme would collapse. Leaving the real trade in real goods and services to continue.

    We need to invest in a carbon and natural resource use neutral internal economy.

    This will require a large degree of Government support, but the technologies developed may give us enough exports to pay back debt and import things which are un-economic to produce ourselves.

    No country has built up a sustainable export base without some form of protection or subsidies at the start and a functioning internal economy.

    Our success with commodity exports has meant we have not put resources into developing a functioning country..

  5. I guess though Gerrit no country (with the exception of mainland China) has seen rapid growth in terms of the “tradable sector” to the tune of 80% in real terms over say a decade…and that hard mets the test of minimal government intervention in society/economy….. so I suspect to get to your dream of state spending of 20% of GDP requires the state moving out of the provision of education and health and having citizens fund therse with user pays…. that and no state-funded superannuation.

  6. Graham Howell,

    Some gearing of govt revenue raising that is neutral might assist in shifting investment from non-job growth acticities such as residental property to job-rich activities might go someway…..

    Not so overwhelming if the government is willing to even make this small start. Who was it that said the longest journey starts with the first step?

    Marco Polo?

  7. Gerrit, an 80% real increase in GDP/GNP while keeping govt spending is somewhat overwhelming… Some gearing of govt revenue raising that is neutral might assist in shifting investment from non-job growth acticities such as residental property to job-rich activities might go someway…..

  8. Graham Hopwell

    A question…. if Govt spending should more realistically be 20% of GDP what items in the current spend should be deleted.

    You give a half empty glass answer to your question.

    Question should be how to get government expenditure down to 20% of GDP without cutting services

    Half full glass answer is to build up the tradeable sector to 80% of GDP without reducing state spending.

    That will generate the jobs and increase wealth for workers.

  9. Tracking back to more jobs etc I am reminded of the need to value add. for example, with tourism, the need to provide added value to raw events or accommodation. With out agricultural products, making them into finished product rather than basic product (and I am aware some added occurs)….
    A question…. if Govt spending should more realistically be 20% of GDP what items in the current spend should be deleted.

  10. “…an incredibly resource intense activity and slow going…”

    is a translation of that:..’we are expending bucket-loads of money/energy…

    …and getting s.f.a. for our efforts’…?

    ..(just asking…!…)

    phil(whoar.co.nz)

  11. frog said:…

    “…we are developing our own channels, an incredibly resource intense activity and slow going. By their nature, you often won’t know they are there…”

    um..!..any hint of what they might be….?..

    ..and when we may ‘know’..

    ..or are they still being kept ‘secret’..?

    ..and if so…why so…?

    signed:..puzzled/intrigued of auckland…

    phil(whoar.co.nz)

  12. Gerrit, we are developing our own channels, an incredibly resource intense activity and slow going. By their nature, you often won’t know they are there, but they are growing. Do you receive our weekly e-newsletters? We’re told they are very useful. http://www.greens.org.nz/get-news

  13. Kerry,

    More likely the shallowness of reporting by media.

    No, that is an excuse, the Green Party should never rely on the 4th estate media to get the message across, it must develop its own information highways to the voter.

    Frogblog is but one avenue, there are many many others.

    Relying on third parties to market a message makes it doomed to failure.

    ————————————

    Kevin Hague,

    Thanks for your response and enjoy the sunshine. Maybe the messages not being received by potential voters by using the traditional media need to supplemented/replaced, as I suggested to Kerry, through different channels.

    Irrespective of what channels are used, the sales pitch always has to be positive, promote alternatives and provide feasable answers in a sensible manner.

    First rule of selling is never rubbish the opposition. The customer voted (bought) their product for a reason and to rubbish their vote (purchase) is self defeating. Calls then a sucker (not in as many words but that is how it will feel) so you are on the back foot before you can get any message across.

  14. You see in Nauru, and NZ when Britain joined the EU, what happens to countries that have been very successful in exporting basic commodities.
    It is a dilemma that the Middle Eastern oil exporting countries know they are going to face one day.

    Earning a lot by exporting raw materials means that the need to develop the internal economy can be ignored for a time. Trouble is, as we know, this dependency leaves a country very vulnerable when the supply runs out or the external market changes.

    I understand the coal miners completely Kevin. The highest pay I could earn, with my qualifications, is working for an oil company or a trawling company.

    We do need an answer for them.

  15. Just catching up with comments on the Blog. I note your comments Gerrit about no comment from the MPs. That’s largely because it’s parliamentary recess at the moment, so a few of us will be taking a few days off while for others the recess provides the opportunity to do extended work around the country that we can’t do while in Wellington.

    It’s an interesting point that you make, that you’d like to see a different balance of posts (and I guess comment more broadly) with more emphasis placed on Green solutions and articulation of our positive message. I tend to agree with you, but in practice – at least for media comment – it can be hard to achieve as our positive, constructive comments are considered not to be news, and so never see the light of day. When I make comments I pretty well always try to balance any criticism of Government with “this is what the Greens would do about this problem”. Most recently, for example, I have been campaigning against the Mokihinui dam, but campaigning for the Stockton Hydro scheme and for a different way of making electricity generation decisions.

    I had the privilege of leading our Green New Deal work last year (thanks Kerry for posting the link), which was all about the Green Party’s different priorities, and how, if we were the Government in last year’s economic and environmental conditions, we would create jobs while at the same time protecting or restoring the environment. There’s lots more where that thinking comes from. Ultimately these are interim measures, as our economy transforms into one where jobs are concentrated in local economies (food production, local manufacture and trade etc) and the “weightless” economy, which will be able to grow without using more natural resources (cleantech, added-value through smartness, creative industries etc).

    I am daily faced with a challenge from coal miners on the West Coast: “we recognise that what we are doing is not sustainable. But this is how we feed our families, so if we aren’t going to do this, you tell us what we are going to do”. It’s a very real and entirely legitimate challenge. The biggest industry on the Coast, of course, is actually tourism, but jobs in this sector generally pay much less than mining. So I am looking to communities in Australia and the US to see how they have managed the transition away from coal mining, and also trying to predict how the localised economies driven by the end of cheap oil (especially) might change the value of other occupations such as food production.

    A very interesting conversation to have! Now back to more fiction on the deck – it rained 28 days out of 30 in September in Greymouth (Spring is our wet season) so am intending to take full advantage of the sun!

  16. “My problem is the lack of marketing expertise within the Greens to convince the voters to follow that path”.

    I am not sure if it is lack of effort by the Greens. I think not. More likely the shallowness of reporting by media.

  17. One of the things that comes from the Green dialogue. Is continual growth in jobs making widgets for more money to buy more widgets, using up more and more resources, getting future generations deeper into debt, damaging the world we live in beyond repair and working longer and harder than most other countries to do so either necessary or desirable?

    Continual economic growth cannot happen in the way it has for the past few centuries.

    New Zealand has enough resources and wealth to have a good life for everyone in the country and some left over to pay for imports of some things supply due to seasonality or economies of scale. But not if a few are allowed to export most of the wealth to pay for financial gambling.

  18. Kerry,

    We have crossed comments, rereading your initial one I concur that the strategy that you envisage and is totally doable, viable and in fact desperately needed.

    My problem is the lack of marketing expertise within the Greens to convince the voters to follow that path.

    Some people just have not been listening.

    That is because, while the message may be clear to Green Party aparatixs to the voter it is confusing, without a timeline, without a cost or saving structure, without a perceived benefit or an envisaged reward.

  19. Kerry,

    Now as a voter how would I know from Green Party MP’s, literature or reports that the Greens would be a party that advocates PPP’s if they show a viable paypack regime?

    Highly unlikely.

    Derailing the thread a bit I know but frog asked the question “where are the jobs coming from”.

    Surely in part of the now nearly 80 odd responses a Green MP (or frog) could have clearly spelt out where the Greens see job growth.

    It is the missing link (not just for the Greens but Labour and National as well), the clear spelling out of the alternative option available.

    Make a statement about lack of jobs and then make a big spiel on how a Green government would have jobs for everyone.

    I would say by looking at the responses, most of the options to create greater numbers of higher paying jobs have come from the teal sector of green ideals (as opposed to Green Party) followers.

    Why is that?

  20. Obviously I have no mandate to speak for all Greens. But;
    I don’t think the Greens are necessarily against competition on rail, or PPP’s that show clear public benefits. An example of a PPP that Greens would most likely support is initiatives like Auckland’s Icehouse. where Government and the private sector co-operates on research to the benefit of everyone. Another is Government support of sunrise industries such as bio mass generation.
    The Green new deal clearly envisages involvement by the private sector in a sustainable economy.
    PPP’s that simply pass the profits to the private sector and leave the public liable for losses are, of course, not supported by the Greens.

  21. Kerry,

    Personally I think rail should be managed like road. The tracks are supplied as infrastructure and available for a user charge for the use of anyone who wants to run a train set.

    Been advocating this change for a long time but with Alltrack merger with KiwiRail this is an unlikely prospect.

    It is not one the Greens would support in anyway or form.

    BJ,

    Answers sort of your question, the Greens need to much more open minded in enabling infastructure changes like the freeing up of the steel road network to ALL users.

    Same with PPP for roading, hospitals, schools, etc. But ideologically Greens wont go for it.

    The other problem the Greens have is that they are not pushing the Green Party alternatives to current blue or red policies.

    Just scroll down frog blog and see how many Green initiatives are trumpeted here. Any?

    Yes I know all is revealed in the Green manifesto, but the Green MP’s need to keep refering back to this and how New Zealand society would be better off.

    The electorate base need to know the Green policies and thus create desire to vote Green Party.

    Instead we get moaning about GST increases or as on this thread, a lack of jobs.

    Where are the answers, where are the policies, where are the initiatives, where is the marketing focus?

    Have said it before so at the risk of sounding repetitive, the Green Party of New Zealand needs to decide.

    Are we a viable alternative government or a activist moaning party.

    If the Greens are wanting to be considered a viable government option then start being an effective opposition with soundly marketed policy that New Zealanders can buy into.

    If the Green Party wants to remain an activist party as it is currently, all it has to do is keep doing what it does now. Knowing it will never be in government and be able to make lasting changes.

    Would love to vote for Green but the leadership needs to focus on a picture of New Zealand society and the economic wellbeing that makes it sustainable.

    Currently we are not getting that.

  22. Gerrit.
    My answer would be to use Government finance within NZ to build up Kiwi bank until we have a banking system controlled by and for New Zealand.

    It is a good opportunity at the moment. The private finance sector has cocked it up so badly that there is a huge worldwide demand for Government bonds. They are perceived as one of the few safe-ish investments left.

    See the Green new deal for some ideas on sustainable development. http://www.greens.org.nz/gnd

    Follow Singapore’s example and do not be afraid to pick winners. Invest public and private money in innovative sustainable technology.
    Follow the example of successful countries, like the Scandinavian ones, instead of slavishly following States like the US and UK which are essentially failed States.

    Accept that businesses that cannot pay the true costs of externalities. Like the real cost of labour, their use of the environment and their true costs to society are not sustainable and should be allowed to fail.
    Adam Smith.

    Regulate capital outflows and shift taxation to things like capital gains to encourage people who do useful things. Allow land prices to drop to where land use incomes cover the cost of capital. Making sustainable and ongoing income from land use more profitable than farming it for short term capital gain.

    Follow Switzerland and make New Zealand’s Government arrangements
    a democracy instead of a pretend one.
    We should control our country, not, 122 self appointed incompetents, the OECD or IMF, or a bunch of failed idealisations from a few true believers in neo-liberalism.

    Every country believes they are going to pay back debt by out exporting the others. Not possible.

    Accept that taxes are the price of having an educated, housed and healthy labour force, adequate infrastructure, a local market, social cohesion and protection, protection from unprincipled competition and from crime and invasion.

    Those who object to taxes are really just saying they want to free load off the rest of us as I doubt they would like having to provide all of the above privately.

    People (usually claiming to be right wing) keep saying they want ideas from us on how we would do things differently. I suggest there has been plenty of ideas from the Greens and others. Many on these blogs. Some people just have not been listening.

  23. “One of those chair polishing CEO’s that Kerry was on about?”

    Definitely. I am sure we could find an ex tradesman or local business owner, who knows about building up companies, to manage rail effectively for a lot less than $850 K.

    Personally I think rail should be managed like road. The tracks are supplied as infrastructure and available for a user charge for the use of anyone who wants to run a train set.

    I know of several transport sector companies who would have liked the opportunity.

    Photo conveniently forgets real inflation when he quotes his idea of Teachers salary rises. There was a large element of catch up in the last 9 years.

    Since the 80’s, even in the top 10%, there has been a big income shift from those who have specific skills to those who juggle finance and administer.

  24. New Zealanders have been ill served by red or blue governments over the last 40 years.

    True. Give Green a chance.

    :-)

  25. Kerry,

    One answer would be to tax all capital leaving New Zealand at 75%. Would ensure most money was reinvested in New Zealand.

    How much new investment money would come in would be interesting.

    And all that cash flowing from New Zealand back to Pacific Island nano states through Western Union would cease (or be smuggled). Be interesting what the economies of Nuie, Cooks, Samoa, etc. would suffer if we stopped the flow of money being sent from workers in New Zealand.

    Real problem has not been capitalism but lack of government “balls” to stand up for the New Zealand citizen.

    New Zealanders have been ill served by red or blue governments over the last 40 years.

  26. Gerrit. I have personal knowledge of the real profitability of two of the think big projects. The refinery and the Bluff smelter. They appeared to be losing money because the companies concerned inflated the value of input stocks from overseas and under declared the return.

    The smelter to cut taxes in NZ. One manager told me quite openly they paid none at the time and why.

    The refinery to make it appear a bad investment so the oil companies could acquire it cheaply. The refinery made back its purchase price for the oil companies in one year.
    It would have been well worthwhile to keep it. The asset sales were sheer robbery. The culprits should be jailed, not knighted.

    Of course the IMF made privatisation, de-regulation and so called freeing up the economy a condition of funding to many countries. Resulting in mass starvation around the world, peasant farmers forced off their land to make room for agri business and other delights of unrestrained capitalism.

    Instead of cutting company taxes in New Zealand resulting in more investment. Big business have just run companies in NZ into the ground and asset stripped for short term profit.

    Capital reinvestment in NZ manufacturing/production has shrunk to 1/3 of reinvestment in the 70’s. Similar figures to the UK and US. Not surprising as New Zealand companies no longer have a well paid middle class local market base.

    I wish all the people who want a low wage low tax economy, so they can get rich off the backs of the rest of us, would vote with their feet and go to countries who already have it, like the Phillipines, Haiti and Somalia. Enjoy having to employ armed guards to go outside your gate.

  27. No argument from me regarding your proposals.

    The only rider I would have is that any state owned enterprise has to perform by returning a 10% dividend to the state (otherwise why own it?).

    No feather bedding.

    Would like to see in the annual accounts a KPI on how much SOE’s are returning to the shareholder.

    If the NZRailway CEO is on $830K per annum, he better be returning 10-15% dividends to the state otherwise why the high salary?

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10677282

    One of those chair polishing CEO’s that Kerry was on about?

    Another KPI any SOE should have to provide is Shareholder Value Added (SVA). Huch much was the value of the business increased?

  28. Hi folks, Photonz asked some time back about changes in real incomes and in relation to productivity improvements of 33% since 1978 and then quoted the increase teachers pay for a much shorter period (50% dollar increase over a decade). The comparison is flawed because (a) teachers are a sub-group of the labour market not the entire labour market and I would think it diifcult to measure teacher productivity… is a teacher with a class of 40 more productive than one with 20! and (b) the ten year versus 42 years (or whenever the 33% measured to)…..
    As for changes in real incomes…check out Mary Mowbray, now retired from MSD for her work on changes in real incomes. her work covers most of the period 1990-2005 and prior to that there is research by Brian Easton. Comclusion: real wages fell for vast majority but did increase for the top 10%.
    As for those paying zero tax…. The WFF employer subsidy does ensure those getting about $700 gross with one child get FTC and IWTC of $153 if child over 16 146 if under whereas PAYE is only $133.91 so they (or their employer) gain.

  29. You write like a true ideologue. Basically, what you are saying is that the Fourth Labour government were forced by circumstances to privatise our assets, but they weren’t true believers in reducing the state’s involvement in the economy. Because they weren’t true believers, they didn’t have the stamina or strength to take the full dose of the necessary medicine, and consequently their reforms didn’t work. However, if we had followed Friedman’s (or whoever) gospel to the letter, by now we’d be living in a really prosperous and free heaven where every one had maximum liberties and so on.

    Samuela, the reforms did work once they had been given the time to work completely. Obviously when you had state owned entities with a huge surplus of labour, you are going to get a spike in unemployment which would have a depressing effect on wages over the medium term whilst they were re-employed in productive jobs. Expecting that reforms will work overnight is ridiculous, and part of the problem with the reforms of the 1980s was that they were rushed (but of course they had to be because the government was up to its eyeballs in debt).

    Also, consider the assets that were privatised by the Fourth Labour Government and when they were privatised; they started off with the less productive ones (with the Bank of New Zealand excepted), and then only after the situation went badly south in the wake of the 1987 Stock Market crash did you see larger entities being privatised.

    An alternative path would have been to keep the assets and use them to generate an income for the government. Similarly, deregulation of the economy was purely ideologically driven. If a country is broke a sensible option would seem to be to regulate imports, in other words don’t spend more than one earns. Douglas took the exact opposite action, he slashed regulations and reduced tariffs so that imports flooded into New Zealand.

    The problem with keeping the assets is how would you have been able to use them to generate a multi-billion dollar income stream; by the mid 1980s, that was the level of the annual deficit. We were at the point that if we had not found some way of keeping the New Zealand Government solvent that the IMF would have needed to bail us out.

    Also, it wasn’t New Zealand that was broke; it was the government that was broke. I do not see how raising tariffs would have helped the situation at all; remember, we needed to get a multi-billion dollar income stream. I would also note that the tariffs had resulted in some real perverse problems; for instance, the inputs for farmers were tariffed, so they needed subsidies – would it not have made sense to remove tariffs on input goods?

    The reason they were not able to carry out their plans as far as they would have liked to were because they were simply too unpopular, and eventually even Lange could no longer stomach what they were trying to do.

    They were unpopular because of the speed at which they occurred. Had Muldoon started the reforms in 1975 instead of borrowing up large and wasting the money on unproductive items, then it would have been conducted at a much slower pace and the country would have been able to handle the impacts far more easily and they would not have been as negative. When you remove 100,000 unproductive employees from the government workforce, of course you are going to have a depressing effect on wages.

    A country that is in fact in control of its own currency doesn’t “have” to borrow from someone else.

    Of course, but in a deficit situation, all you end up with is inflation. If you have a government that keeps the books balanced over the longer term and only borrows to a moderate degree, then there should not be any problems.

    Indeed, we are in an envious situation at the moment because over the last fifteen years, we have been paying down debt and don’t have the massive debt balances of other overseas nations – and we can thank the Fourth National Government for starting that process with the Fiscal Responsibility Act and the Fifth Labour Government for maintaining it.

  30. A country that is in fact in control of its own currency doesn’t “have” to borrow from someone else. To create more jobs one has to do more work HERE, not somewhere else. No? This is the opposite answer from the one touted by globalization and free-trade advocates. It is the opposite of the answer taken back then, the opposite of the answer that is destroying the economies of larger nations than NZ, all the time dropping our money into the coffers of the bankers.

    How to achieve that answer is really the question. What does “do more work HERE” actually mean? Producing more that we ourselves consume would be one part of it. Producing more that we export to others would be another. Is there more? I think consuming less overall also enters the picture. So 3 things to do.

    1. Consume less.
    2. Produce more of what we consume.
    3. Produce more that we can export.

    How do we DISCOURAGE consumption? General economics would say we make it more costly. OK… we hiked GST. That’s actually a good thing on this count. Sucks in other ways but for this argument it works.

    Other candidates?

    How do we produce more of what we consume?
    1. Making it more expensive to buy from overseas would be part.
    2. Making it cheaper to produce here would be part.
    (any more?)

    How do we produce more for others to consume?
    1. Making it cheaper to produce here
    (same question, any other ways? )

    We have allowed the Friedman shuffle… and discovered that the deck is stacked. Time for other answers to be tried. This hasn’t worked. Not even close. We will be (apart from the bankers and a few others) poverty stricken tenants in our own country with nothing at all of our own if we continue.

    respectfully
    BJ

  31. Samiuela,

    You may pidgeon hole my beliefs into any space in your mind. Same with your beliefs on what happened when Lange took office.

    The problem with your alternative scenario, on keeping the assets, was that with the country unable to pay its debt and obligations (like paying the benificiaries), it had to borrow to keep afloat. The assets it held were not paying the taxes to keep the economy alive.

    They like all state assests, unless properly run on the sound business constraints of needing to make a profit to pay taxes on, were non-tradeable sector items.

    Places like the Post Office and Railways were but distribtution vehicles to hide real un-employment. They never returned a dividend to the state.

    When you borrow from people like the IMF they impose restriction and conditions. (Just look at what the Greeks have to do today).

    Whether or not reducing the government size in the economy was foremost
    in Douglas or Prebbles mind I dont know.

    ———————————————-

    So what do you think New Zealand should do to create more tradeable jobs?

    After all that is what frog was asking. Where will the jobs come from?

    Just adding more state jobs is not the answer as they are non tradeable sector and non tax paying except for GST.

    I reiterate, cut business tax, remove provisional tax, invest KiwiSaver only in New Zealand, increase GST to 25-40% , remove income tax completely, just for starters.

    Actually those are the very things that Douglas advocated but Lange could not handle the transition from people dependendent on the state to people being completely independent from it.

  32. Gerrit,

    You write like a true ideologue. Basically, what you are saying is that the Fourth Labour government were forced by circumstances to privatise our assets, but they weren’t true believers in reducing the state’s involvement in the economy. Because they weren’t true believers, they didn’t have the stamina or strength to take the full dose of the necessary medicine, and consequently their reforms didn’t work. However, if we had followed Friedman’s (or whoever) gospel to the letter, by now we’d be living in a really prosperous and free heaven where every one had maximum liberties and so on.

    You know, I’ve heard something very similar from the opposite side of politics. For example, the Soviet Union was never a true communist nation: communism was subverted by Stalin and the bureaucracy. Consequently it was bound to fail. If it had truly followed what Lenin/Trotsky/Marx/Engels (insert your own favourite revolutionary) envisaged, then it would now be a socialist utopia.

    Notice the similarities?

    Now returning to New Zealand. There are a number of faults with your argument:

    1) The Fourth Labour government did inherit a mess from Muldoon. However to assert that the _only_ option was to follow the extreme neo-liberal path which they took is incorrect. The Fourth Labour government chose the option of selling off its productive assets (at bargain basement prices as you noted) and deregulating the economy. An alternative path would have been to keep the assets and use them to generate an income for the government. Similarly, deregulation of the economy was purely ideologically driven. If a country is broke a sensible option would seem to be to regulate imports, in other words don’t spend more than one earns. Douglas took the exact opposite action, he slashed regulations and reduced tariffs so that imports flooded into New Zealand.

    2) You claim that the Fourth Labour government was not driven by a motivation to reduce the state’s involvement in the economy, just to balance the budget. Well, I expect that to this day Douglas would disagree with you, as I imagine would Prebble. Maybe some of the other ministers were hoodwinked into believing that the actions they took were the only options open to them, but I very strongly suspect that at least Douglas and Prebble had strong ideological motivations to reduce the state’s role in the economy. The reason they were not able to carry out their plans as far as they would have liked to were because they were simply too unpopular, and eventually even Lange could no longer stomach what they were trying to do.

  33. Even some of the right wing commentators are starting to see the neo-liberal, globalisation, IMF prescription for what it is. A way of transferring wealth from the many to the few.

    A reminder of this… which I posted on the open thread.

    http://www.zerohedge.com/article/introduction-road-through-2012-revolution-or-world-war-iii?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29

  34. Even some of the right wing commentators are starting to see the neo-liberal, globalisation, IMF prescription for what it is. A way of transferring wealth from the many to the few.

    Gerrit. Private banking is real efficient. At removing wealth from the productive economy, taking control of our economy from where it should be (us) gambling on futures and derivatives markets and causing continual economic crashes.
    Where there are natural monopolies, or lack of competition, in business they have proven to be highly inefficient and expensive without some form of State control. The fake competition amongst power and oil companies comes to mind.
    Any endeavor, public or private, depends on the quality of management and staff. There are many dysfunctional and inefficient companies who get away with it because their market position.
    I like to quote North Dakota at they moment. The are one of the US States that have suffered least in the recession. At least partly due to the State controlling their banking through the State bank.

    When oil gets very expensive we may well look back and be pleased the rail system was bought back from destruction by short term asset strippers.

  35. I’m in agreement that we spend too great a proportion of GDP on government activities, but I don’t accept that the government spending is the problem per se; time for the old record – raising GDP so that the percentage of government spending drops is a much better answer than slashing government spending.

    If we raise our productivity, then unless something really wierd happens, then unemployment (and especially long term unemployment) will rise. There will be an increasingly large group of people who we will never find work for. I’m relaxed about that too, and funding them, as a price to pay for overall higher prosperity.

    Same with inflation; if we have a period of excessive inflation, that’s an acceptable price to pay.

    If we can recover some of thew ground we’ve lost over the last half century, we will achieve what governments talk about. But its gonna be a slog getting there, and many sacred cows will not fare well…

  36. Zedd,

    There used to be Govt. work schemes

    Abandoned becasue they are untradeable sector and non tax paying (ex GST) jobs.

    Simply another form of benefit.

    .. thats hardly an insentive !!

    What incentive would you put in place that enabled the creation of tax paying jobs?

  37. This scene adds up to the call for more job opportunities. I think that this implies a better governance to survive with the current economic condition and make further development to cover for unemployment. It is time to move on and build a system that will generates a beneficial approach to this major problem.

  38. There used to be Govt. work schemes & promotion of training/apprenticeships.. where are these ? all I hear is “get them off the benefit & into work”.. but where are the jobs ??
    There are thousands of people applying for handfuls of supermarket jobs.. thats hardly an insentive !!
    Kia-ora

  39. Samiuela,

    Just to follow up, you will remember David Lange’s horror after defeating Muldoon that the cupboard was well, bare. New Zealand was stoney cold broke.

    He borrowed (the other option was to reduce expenditure – Ruthanasia) but as the Greeks are finding out right now, that if you borrow you need to show a repayment plan.

    That repayment plan was to sell state assets. Not for the fundamental reason to reduce state involvement in the economy but to enable borrowings.

    You will remember that famous photo of the four labour ministers eating their fish and chips while planning to save the New Zealand economy from collapse.

  40. What do you think privatisation of state assets was if it was not shrinking government involvement in the economy and letting the private sector take over?

    A lot of the privatisation of the Fourth Labour Government was done to provide them with additional funds – remember, they were running multi-billion dollar deficits and were borrowed to the hilt. If it had been primarily for shrinking government involvement in the economy, then the privatisation process would have been a lot slower and would have involved more sharemarket listings by the government instead of selling to investment entities.

    In saying that though, they did wish to reduce government involvement in the economy, largely because it had become unviable; hence the elimination of various sources of revenue such as tariffs and the reduction in income and corporate taxes.

  41. samiuela,

    No they did the sell offs to try and balance the books, not reduce the fundamental requirement to minimise the state involvement in the economy.

    Mute point I know as the outcomes may well be similar but fundamentally it was done to balance the books.

    Those sales again highlight the state inability to be pragmatic and street savy in business.

    How the heck Prebble allowed Fay and Co to value New Zealand rail and then sell the asset to the valuers, at the valuers price, is beyond comprehension. Same for government print and numerous other entities.

    Just very bad business acumen by politicians who were never cut out to be business savy.

    As witnessed by Cullen buying back the rail system for 3x the value.

    The selling and the buying back was just lacking simple business smarts.

  42. john-ston

    Sweden has a VAT (GST) rate of 25%. Makes investing worthwhile and curbs expenditure. Encourages savings.

    More the direction we should be heading. Tax consumption, not job creation.

    I thought that was Green policy anyway.

  43. Excuse me Gerrit,

    Are you trying to rewrite history when you say “Rogernomics and Ruthanasia where not about shrinking governments and increasing the tax take but trying to budget income versus expenditure”? What do you think privatisation of state assets was if it was not shrinking government involvement in the economy and letting the private sector take over?

    I won’t argue the merits or otherwise of privatisation, just point out that you’re dead wrong in your assertion that the fourth Labour government and the following National one did not try and shrink the government’s role in the economy.

  44. Kerry, I would also note that Sweden has a corporate tax rate of 26.3%, which is lower than our corporate tax rate. Finland has a corporate tax rate of 26%, whilst Denmark has a corporate tax rate of 25%, with Norway having a corporate tax rate of 30%.

    Therefore, business in Scandinavia is lower taxed than it is here; the people might be taxed higher, but ultimately it is business that you need to encourage because it is business that will improve our wealth and give us jobs.

  45. Kerry says “The answer is to broaden the tax base”

    To include the 40% of workers who currently pay zero tax? (after calculating working for families etc)?

  46. Kerry,

    Shrinking Government has worked really well in increasing NZ prosperity! Right!

    We will never know because New Zealand never has had a shrinking state sector.

    Rogernomics and Ruthanasia where not about shrinking governments and increasing the tax take but trying to budget income versus expenditure.

    Totally doomed to fail as they did.

    Who said anything about lowering wages?

    Australia and Scandanavian economies have attributes (scale – closeness to market – history – willingness to mine and drill for resources – etc.) that New Zealand does not have or is willing to investigate.

    A better example for economic comparison would be Tasmania versus New Zealand.

    Absolutely agree to broaden the tax base by including churches (they tax churches in Sweden) Maori corperations and charitable groups.

    You will recover more tax from these groups then any “rich prick” tax.

  47. No. The answer is to broaden the tax base so that banking, capital gains earners,and high earners pay their fair share. Instead of moderately high wage earners paying all the tax.
    Lowering wages does not ultimately help business as people on low incomes do not buy much.
    Business’s and the economy are doing a lot better in higher taxed and higher wage countries such as Australia and Scandinavia.
    Shrinking Government has worked really well in increasing NZ prosperity! Right!

  48. Another reason the state should never be more then 20% of the economy.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10676787

    They simply cannot pick the right investment.

    Be it IT companies or railways, they pay over the odds for negative results.

    They got lucky with Air New Zealand because the have an excellent CEO in there.

    Question is, should the government sell Air New Zealand (list on the NZX) and pump that money into keeping benificiaries in the manner they are accustomed or should they reduce business taxes to encourage greater private business development and job creation?

  49. Zedd,

    Im sure the majority of kiwis would like to see full employment & less drain on the public purse.. but this is the real world !!

    No the real world is that economically the house of cards that takes from fewer and fewer tax payers to give to more and more tax recipients is about to fall down.

    There can only be one answer and that is to reduce the state expenditure in the economy from 40+ percent down to 20.

    To do that requires not just a cut in government expenditure but an increase in private business growth.

    We do not have governments (Red, Blue or Green) capable of making that change.

    So that welfare safety net, being held up by less and less tradeable sector cash, will inevitably fail.

    That is real benificiary bashing, living in a fools paradise where money just gets borrowed from our childrens children.

    Ask yourself, is the current welfare system sustainable?

  50. Kerry says “So on your own figures Labour productivity grew 33% from 1978. Now work out how much real wages grew.”

    For teachers it’s 50% wage growth in ten years. How much did their prodcutivity increase in the same period?

    One factor increases jobs and wages more than anything else – companies making good profits.

    Unfortunately half the polititians do everything they can to stop the one thing that will create more jobs than anything else.

  51. Thanks Photo’
    The reference is actually in NZ management magazine. Productivity rise and wages from around the 50’s. No online reference unfortunately.
    The magizine also publishes research which is not very complimentary about NZ management. Citing the focus on cost cutting, high management salaries and financial chicanery rather than customer service and growth.

    It is wrong to say increase in government spending does not increase productivity. Where would our productivity be if the spend on education was the same as a proportion of GDP, as it was in the 50’s.

    I agree we need to address things like low investment in productive business and barriers like trying to guess provisional tax. We may disagree on where. I think the emphasis should be on low energy sustainable technology. Where NZ could become a leader given the will.

    I do not think having cheap labour encourages business efficiency or productive investment. It is basically a transfer of business costs to the rest of society. A subsidy. It also cuts the value of local market consumers to SME’s. You only had to look at the Kaitia shopfronts during Ruthenasia to see what cuts in low incomes do to small business.

  52. Im sure the majority of kiwis would like to see full employment & less drain on the public purse.. but this is the real world !! putting the boot into the beneficiaries by Minister Bennett & threatening to cut off their benefits isn’t going to take this nation closer to her business plan outcomes. Putting the effort into promoting job creation just might help & get us moving in the right direction ? “WAKE-UP PAULA”
    Kia-ora Koutou

  53. With respect Kerry (and it is genuinely due) you did say labour productivity grew by 83% Look back at your 5.37 pm posting.

    So on your own figures Labour productivity grew 33% from 1978. Now work out how much real wages grew.

    If you want to quote productivity figures in context to wage figures you must have corresponding time periods.

    Reference required on your wages increase 14% over what time period?

    You also need to delete the productivity increases over time related to the non tradeable sector (non tax paying except for GST) from the overall figure. Increases in government spending is not an increase in productivity (nor is buying and selling property).

    dbuckley, Totaly agree but with anti-business stance taken by Labour and National (supported by the Greens) an increase in the tradeable sector productivity is unlikely.

    New Zealand so desperately seeks equality but wont implement any policy to make it sustainable.

    To make equalty sustainable requires capitalisation (we measure equality by money – pay rates).

    But capitlisation requires a return on investment (or do the Greens advocate and practise investment without a return?).

    So the conumdrum. How to create a socialist equally paradise using capital to procure productivity increases.

  54. Does 140 staff and 4 ships count. Also my own business for 13 years.
    No I am not on the ferries. I was on tankers before I went ashore and now container ships. I have done a few different things. I get bored easily.
    Also what do you think a ship Master/Mate does. Budgets, planning, staffing, schedules etc.

    I never said labour productivity grew by 80% in one year as you well know.
    So on your own figures Labour productivity grew 33% from 1978. Now work out how much real wages grew.

  55. Gerrit is on the money, but only at one end of the problem.

    We need to improve New Zealands average productivity. Don’t think theres much argument about that.

    Problem is, its almost impossible to do whilst we have our core businesses (agriculture and tourism) being such low productivity businesses, and there being no realistic prospect of them improving to the point of having a useful impact.

    Thus in the economic space that is left we need to stop more low productivity business forming, businesses that will drive us further down the OECD producivity scale.

    Low minimum wage, trial periods, these are all tools to get people into work at (almost) any price. But the problem is these are (mostly) low productivity jobs (at any price) and thus matters are made worse, rather than better. Every one of these jobs drives New Zealand further down.

    What is required is to adjust the business landscape to make low productivity businesses an unattractive proposition. Increasing the minimum wage “frequently and agressively” (to quote myself!) will drive poor productivity businesses out of business, or they will adjust to a value proposition (and thus productivity) that is sustainable.

    What the government needs to do is to create a business environment that makes it more attractive for those who do invest in business to invest in businesses of value here rather than buggering off offshore.

    In this respect the Left needs to stop whining about inequality and the rich getting richer, but to recognise that its only the dreamers and the adventurous getting rich (and richer) that can make this system whole system work.

    We need to aspire to the American Dream, not to the Tall Poppy Syndrome.

    The rest of us benefit in our labour being better paid, as even the lowest paid will be not in dire straights as they are today. In particular, the agriculture sector will stay stuck in its timewarp of fifty years ago, and thus food prices will be a smaller proportion of everyone’s income.

    Job done.

  56. Kerry,

    Dont you work on the ferries? Been a ship master?

    I dont think you have ever sat in a CEO chair, been responsible for topline and bottom line figures, or decided the future of a comapny through strategic planning, budgetting, forecasting, etc.

    Your tone is quite clear that you havent.

    Still I would be pleasantly suprised that an ex CEO of a company lives in the BOI and works on the inter island ferries.

    Remember I asked you who you worked for (Bluebridge or Interislander) once?

    Back to productivity.

    If we read this

    http://www.stats.govt.nz/browse_for_stats/economic_indicators/productivity/industry-level-productivity-1978-2008.aspx

    we see that table 2.2 “Labour productivity growth by sector” last year labour productivity overall in the measured sectors, grew 1.1%

    A huge and far cry from your 83%

    To quote the report

    MFP growth is presented in table 2.3 by growth cycles. From 1978–2008, MFP in the measured sector increased at a rate of 1.1 percent a year.

    In fact the report should be compulsory reading for all politicians and advocates of increased wages.

    Just pray tell us where they will be generated from (the increased wages that is – politicians grow randomly in the ground .

  57. Kerry,

    Labour productivity increase 83%. Average increase in ordinary time wages 15%.
    Investment in productive business down to 6% from 16%.

    You have a link to those figures for others to check the validity of your statements?

    Or is that just a figment of the imagination.

    Productivity up 83%. What over the last 30 years? or the last 3 years?

    You cant just pull figures from the sky and expect people to believe them to be true.

    If NZ business cannot make it work with the supposed advantages they have I suggest you look at the overpaid chair polishers in charge.

    Why? You think you, the unions or the government can do a better job?

    If so why arent they doing that already? It is so easy to screw workers, keep productivity up and have a ROI for the shareholders of 10-15%. Yep real easy.

    Add to that trying to maintain the top line (sales) figures high enough to keep the business viable and sustainable ensuring the security of the workers jobs.

    Yep real easy.

    So why arent you polishing the CEO chair seat?

  58. Labour productivity increase 83%. Average increase in ordinary time wages 15%.
    Investment in productive business down to 6% from 16%.
    Wage earners who could support a family on one wage now need two wages plus debt to do the same.
    Sounds like business have already socialised their costs enough.

    If NZ business cannot make it work with the supposed advantages they have I suggest you look at the overpaid chair polishers in charge.

    Yeah! policies of cutting Government expenditure and taxes are working really well.

    Looks like we will continue to borrow against our children’s futures so a few people can take the wealth away.

  59. dbuckley,

    No doubt you will explain in your eludication how higher wages will not lead to higher prices, inflation and thus leaving no one any better off.

    Looking forward to your essay.

    Anyone else know how to increase wages without productivity increases?

    Better still tax the worker less so that the TAKEHOME pay actually increases. That would be a good start but where will the money for government expenditure come from?

    Oh dear, looks like we are looking at continiung borrowing against our childrens and childrens children future.

  60. In New Zealand, wages have to go up. All wages have to go up. Thus the minimum wage has to go up too.

    There’s a really important “why” to this, but I don’t have time to elucidate it now, maybe later…

  61. toad,

    I know, provisional tax time has just been, what a downer to investment provisional tax is.

    If PAYE was to have to be paid provisionally ahead of actual earnings, nobody would want to go to work.

    Never mind setting up a business to employ people.

  62. So the Greens want to make it harder for employers to employ people, by opposing trials and wanting minimum wages to go up…..then they complain about unemployment

  63. Indeed, Gerrit, but almost all of government policy still incentivises investing in property, not in enterprise that creates jobs.

    I’d dispute your “current welfare is not sustainable” bit though – assuming you meant welfare to working age New Zealanders. The Welfare Working Group’s misuse of statistics to reach that conclusion is an appalling exercise in propaganda.

    The real elephant in the room as far as welfare is concerned is actually NZ Superannuation.

  64. Jobs are created by private or public investments. It is not the welfare ministers brief to create jobs.

    The whole of parliament (including the Greens) should be looking for ways to gain investments into businesses to create the jobs.

    And leaving people on current benefit levels is not sustainable. The tradeable sector is collapsing under the weight of the non tradeable sector.

    Therefore there is only one alternative. Investment into jobs by tradeable private sector businesses.

    But seriously, except for the chinese aqua farming venture in Opotiki (havent heard the Greens shout about this sustainable aquaculture venture – good for Maori, good for the economy, etc.) who is investing in New Zealand?

    Who would want to?

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