A policy experiment in the South Pacific

Apparently we ran an experiment in economic policy here in the South Pacific which is described here:

[New Zealand] Treasurer Bill English said last week that he would cut public spending as a share of gross domestic product by more than twice as much as the Abbott government has announced.

In fact, without a minerals boom to line government coffers and despite a huge repair bill from two devastating earthquakes, New Zealand’s budget will be back in surplus by $NZ400 million ($370m) next financial year, rising to $NZ3.5bn by 2018.

English, now in his sixth year as New Zealand’s Treasurer, commendably chose not to emulate the world’s greatest treasurer Wayne Swan and kept a tight leash on public spending before and after the global financial crisis, preferring to cut income taxes and lift consumption tax. The Key government, facing election again later this year, is now reaping the rewards.

It wasn’t just our Wayne who took this road to ruin. Virtually everywhere was the same, with the US leading the way into an economic darkness it is impossible to see ending any time soon. But try to tell someone that Y=C+I+G is an economic death trap. But if you doubt it, look at the comparison with Australia.

The culmination of almost two decades of mainly populist budgets, the Abbott government will spend $6200 a person on cash welfare next year, over 25 per cent more than New Zealand’s government will on each of its citizens (converting all amounts to Australian dollars).

Education spending, at $2900 a person, is 10 per cent more generous in Australia but health expenditure is torrential by comparison: Australian state and federal governments will lavish more than $4600 a person to keep Australians alive and healthy, almost 50 per cent more than is spent in New Zealand. No methodological quibble could bridge such stark differences.

The relative splurge extends to hiring, too. Australia’s population of 23.5 million is about 5.2 times New Zealand’s, but as of June last year we had 8.4 times as many public servants: 1.89 million across our state, federal and local governments compared with New Zealand’s 226,000. . . .

Apart from a bloated public sector and a wellspring of whingeing, what does Australia get for its vastly more indulgent public spending? Much higher taxes, for one thing. The marginal income rate most Australians will pay from July — 34.5 per cent — will be higher even than New Zealand’s top 33 per cent rate, which makes a mockery of our 49 per cent top rate, which will be higher than China’s and France’s.

Undisciplined government spending will pull an economy into the dust. Such spending is a disaster both economically and then politically as governments try to pull things right.

And then there is also the delusion that low interest rates will propel an economy upwards, yet another Keynesian bequest.

Even rising interest rates have been unable to dent record high confidence levels among New Zealand households and businesses.

There is no “even” about it. High interest rates, or at least high enough to shut non-productive borrowers out of the money market, are a major factor in keeping an economy on track and growing. Economic theory today is comparable to the theories Adam Smith was writing about criticising in 1776 if not actually worse.

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60 Responses to A policy experiment in the South Pacific

  1. Badjack

    Abbott should watch and learn from Keys and English and not listen to his NZ in-laws

  2. Infidel Tiger

    I’d move there if I didn’t have to put up with insufferable rugby talk all day.

  3. Alfonso

    Alas, much of NZ life is influenced by unelected elite Maori group “rights”, the sort of thing you’d get if ex Justice Kirby had a Constitutional preamble to “interpret” the “tone” and “intent” of the rest of the Constitution.
    An ex National Party MP told me many years ago that an Asian immigration program will provide a group unengineered by the NZ school system as a way of beating the tail wags dog society NZ has become.

    (Bring on the referendum as soon as you like Tone…..but I fear tears before bedtime for the privilege mongers).

  4. brc

    I wonder what the ratio of administrators to doctors and nurses in the nz health system are? Surely our costs are the armies of paper pushers that infest federal and state health?

    If only it was an oz state. Then we’d see what competitive federalism could do as people decamped for a ten year working stint under lower taxes.

  5. pete m

    lol IT, before reading the comments I was going to say you should move to NZ!

    I thought all it needed to make the move was a job.

    Actually NZ is a beautiful country and I’d live there quite comfortably. You’d have an amazing amount of choice for day or weekend trips away, on either island.

  6. I am the Walrus, koo koo k'choo

    Mostly agreed, but there’s no need to insult Adam Smith in that way.

    Smith was a pioneer in a difficult subject area, operating with almost zero statistics. The current crop have no excuse.

  7. Education spending, at $2900 a person, is 10 per cent more generous in Australia but health expenditure is torrential by comparison: Australian state and federal governments will lavish more than $4600 a person to keep Australians alive and healthy, almost 50 per cent more than is spent in New Zealand. No methodological quibble could bridge such stark differences.

    So do Australians live longer than Kiwis?

    To the DataMobile, Batman!

    Based on death rates in New Zealand in 2010–12:

    Life expectancy at birth is 83.0 years for females and 79.3 years for males.
    Life expectancy at birth has increased by 0.8 years for females and 1.3 years for males since 2005–07.
    Female life expectancy at birth is 3.7 years higher than male life expectancy at birth, down from the largest difference of 6.4 years in 1975–77.
    The gap between Māori and non-Māori life expectancy at birth has narrowed to 7.3 years. This compares with 9.1 years in 1995–97, 8.5 years in 2000–02, and 8.2 years in 2005–07.
    Life expectancy at birth is 76.5 years for Māori females and 72.8 years for Māori males, compared with 83.7 years for non-Māori females and 80.2 years for non-Māori males.

    In Australia:

    Australia 79.7 years for males; 84.2 years for females. So SLIGHTLY better.

    But for Aboriginal people, worse:

    For the Aboriginal and Torres Strait Islander population born in 2010–2012, life expectancy was estimated to be 10.6 years lower than that of the non-Indigenous population for males (69.1 years compared with 79.7) and 9.5 years for females (73.7 compared with 83.1).

    So you can spend half as much money and have almost identical outcomes, except that Indigenous health improves under a conservative government. Gosh.

  8. How about Australian versus NZ infant mortality – another key indicator of national health?

    Infant mortality rate: total: 4.49 deaths/1,000 live births
    male: 4.8 deaths/1,000 live births
    female: 4.15 deaths/1,000 live births (2013 est.)

    Infant mortality rate: total: 4.65 deaths/1,000 live births
    male: 5.22 deaths/1,000 live births
    female: 4.06 deaths/1,000 live births (2013 est.)

    So again, about the same.

  9. Sorry – top one is Australia, bottom one is NZ.

    So again, spending half the money gives you almost identical results.

  10. Actually NZ is a beautiful country and I’d live there quite comfortably. You’d have an amazing amount of choice for day or weekend trips away, on either island.

    Ah, but the accent is turrible. Plus they deep-fry frankfurters in batter.

  11. Fisky

    Wow has Australia gone to the dogs or what? I think it might be time for Australians to drop the arrogant, condescending attitude to Kiwis.

  12. rugbyskier

    Ah, but the accent is turrible.

    Thire’s your first mustake Phullupa, ut’s ‘eccint’, cuzzy bro.

  13. Thire’s your first mustake Phullupa, ut’s ‘eccint’, cuzzy bro.

    It’s as good as going to Mass. Our PP is a Kiwi. He preaches very eloquently about Sun.

  14. brc

    When I meet people OS, I always tell them to go to NZ instead of OZ. it’s cheaper, there is more to see and you can actually drive between destinations in a reasonable time. The whole lord of the rings schtick is a bit old now though.

  15. Habib

    What’s it say when a soft left pack of Kiwis make you look like a cringing craven of statist jellybacks?

    Even under the hideous Hulun Clurk Un Zud was never the socialist basketcase and intrusive nanny state this morass has descended into. By crikey Dick, eh.

  16. MemoryVault

    The whole lord of the rings schtick is a bit old now though.

    Consider yourself banned from Middle Earth – and that’s just for starters.
    Wait until Treebeard hears about this.

  17. Consider yourself banned from Middle Earth – and that’s just for starters.
    Wait until Treebeard hears about this.

    Damn straight.

    Mind you, I am still in favour of handing over Tasmania to Sir Peter Jackson to be turned into a Lord of the Rings theme park, with him as governor for life, and Hobart renamed ‘Hobbit’. Launceston could become Lothlorien, and Queenstown could be Mordor.

  18. Infidel Tiger

    When I meet people OS, I always tell them to go to NZ instead of OZ. it’s cheaper, there is more to see and you can actually drive between destinations in a reasonable time. The whole lord of the rings schtick is a bit old now though.

    I always warn people off coming here.

    I just can’t think of anything we’ve got that someone else doesn’t do better and cheaper.

  19. MemoryVault

    handing over Tasmania to Sir Peter Jackson to be turned into a Lord of the Rings theme park

    Great idea Philippa.
    Unfortunately, I think you’ll find digging hobbit homes is classified as ‘mining’ by the Tasmanian Greens.

  20. David

    He preaches very eloquently about Sun

    Philippa he is an Inca?

  21. Steve Kates

    Mostly agreed, but there’s no need to insult Adam Smith in that way.

    Smith was a pioneer in a difficult subject area, operating with almost zero statistics. The current crop have no excuse.

    Agree completely. Now fixed to say what I meant.

  22. He preaches very eloquently about Sun

    Philippa he is an Inca?

    He looks like one in profile, but he’s actually half Irish and half Italian.

    Sun. Not THE Sun. Sun. Urujunul Sun, in some cases.

  23. Great idea Philippa.
    Unfortunately, I think you’ll find digging hobbit homes is classified as ‘mining’ by the Tasmanian Greens.

    They’d be first up against the wall when the Elves come.

  24. David

    Sun. Not THE Sun. Sun. Urujunul Sun, in some cases

    Mea culpa.

    Forgive a Jewish boy his weak attempt at humour.

    :-)

  25. That’s all right, pet. You’re a mensch.

  26. crocodile

    English, now in his sixth year as New Zealand’s Treasurer, commendably chose not to emulate the world’s greatest treasurer Wayne Swan and kept a tight leash on public spending before and after the global financial crisis, preferring to cut income taxes and lift consumption tax. The Key government, facing election again later this year, is now reaping the rewards.

    Really. In 2007, NZ total net debt was at 5% of GDP. Today, close to 30%. All this with a tight leash on public spending.

    http://www.treasury.govt.nz/budget/forecasts/befu2013/017.htm

    “While operating cash flows are positive by 2015/16, net capital spending is expected to exceed these cash flows. As a result, residual cash remains in deficit for each year of the forecast period. These deficits are funded by an increase in net debt.”

    They’ve effectively created a surplus by borrowing money. Quick, let’s tell Joe.

  27. Robert Blair

    The ceilings.

    I am used to the high ceilings you get in the older Melbourne homes. I know that most modern Australian homes have 10 foot ceilings, but even the old houses in New Zealand (outside of the Colonial Governor’s mansions) have low ceilings.

    If I moved there I would have to have a house built, and maybe even need to bring an Aussie builder over to do it.

  28. tomix

    Went to NZ in 1975 when jobs were hard to find in Qld. There weren’t any to find in Auckland and there was a 12 month wait for the dole. The tallest building was 10 storeys and was built in 1960 and that was also the vintage of the newer cars on the roads.

    Their problems with the welfare state started in the 30s and [imo] can never be unwound. Check out the fawning wikipedia biography of the architect, aussie Michael Savage.
    http://en.wikipedia.org/wiki/Michael_Joseph_Savage.

  29. Cold-Hands

    Another example where our Kiwi cousins are showing the way is with the treatment of the NZBC, now comfortably dismembered and operating commercially, with no apparent detriment to the denizens of Aotearoa.

  30. I am used to the high ceilings you get in the older Melbourne homes. I know that most modern Australian homes have 10 foot ceilings, but even the old houses in New Zealand (outside of the Colonial Governor’s mansions) have low ceilings.

    If I moved there I would have to have a house built, and maybe even need to bring an Aussie builder over to do it.

    I’m only 5′ tall, so I’d be fine. All the Kiwis I meet are little as well, so perhaps that’s why.

  31. Squirrel

    A unitary state with a unicameral legislature surely would make it easier to get the nasty stuff done, and done quickly, and then move into the broad sunlit economic uplands etc. etc…..

    In the interests of balance, it’s probably worth noting that frugal NZ surely benefited from the big spending by Australian governments, post GFC, but without being shackled with the resultant debt and the unrealistic public expectations. In a similar vein, I have seen what looked like credible reports of New Zealanders moving/travelling to Australia to get access to medications and medical treatments which are not publicly subsidised at home; although to the extent those reports are true, they would almost certainly not explain the full difference in health expenditure per capita between NZ and Australia – this is probably fairly close to the mark on that score:

    “brc

    #1316904, posted on May 23, 2014 at 3:14 pm

    I wonder what the ratio of administrators to doctors and nurses in the nz health system are? Surely our costs are the armies of paper pushers that infest federal and state health?”

  32. crocodile

    In the interests of balance, it’s probably worth noting that frugal NZ surely benefited from the big spending by Australian governments, post GFC, but without being shackled with the resultant debt and the unrealistic public expectations

    NZ net public debt, in GDP terms is about 2.5 times the size of the Aussie debt. Frugal my arse.

  33. .

    We don’t have a right to pour a bucket of crap over New Zealand now.

    We have JC to thank for this.

  34. Aynsley Kellow

    ‘Plus they deep-fry frankfurters in batter.’

    You obviously haven’t encountered the culinary delights of the Dagwood Dog, Philippa!

  35. Honeybadger

    No Senate, no capital gains tax and no stamp duty. But a very belligerent ‘maori industry’ which is currently demanding there be quotas of unelected maori on local Councils. e.g Rotorua. They are also pressuring the government to grant more and more land to them under the guise of being diddled, under the Treaty of Waitangi. Government seems to be caving in. So all is not rosy in Aotearoa (maori are advocating this be the new name of NZ).

  36. .

    Aynsley Kellow
    #1317160, posted on May 23, 2014 at 7:14 pm
    ‘Plus they deep-fry frankfurters in batter.’

    You obviously haven’t encountered the culinary delights of the Dagwood Dog, Philippa!

    The most objectionable part is the price, usually!

  37. Alfonso

    I love NZ.
    It has nearly all the Statist control legislation that exists in Australia but no-one takes any notice.
    Lead by Maori.
    Including the coppers.

  38. H B Bear

    Jeez when people are looking enviously at New Zealand you know things are crook.

  39. egg_

    “What’s it say when a soft left pack of Kiwis make you look like a cringing craven of statist jellybacks?”

    It may be the only hope here also.

  40. Andrew

    Thire’s your first mustake Phullupa, ut’s ‘eccint’, cuzzy bro.

    I think it’s “ixx’nt” – at least on the South Island.

    Incidentally I was driving through Otago and I enraged one of the locals through a cultural misunderstanding (in which he started something he couldn’t finish). He eventually caught me and berated me loudly at a servo, but for the first minute I didn’t realise he was yelling at ME. Then I said “sorry, in English please?” which just infuriated him more. In the end I just said “Sorry mate, can’t understand a word you’re saying” and turned my back and walked off while he was in mid sentence.

  41. .

    Hilarious. I wish you had filmed it on a smartphone. He would have kept on blowing up more and more!

  42. Infidel Tiger

    We don’t have a right to pour a bucket of crap over New Zealand now.

    We have JC to thank for this.

    If only JC had worked with Abbott.

  43. Notafan

    New Zealand, never stops raining and in Wellington when I was there in 2010 there were ‘slups on the line’ and passengers on the other train line were told to make their own way home. We managed to get a bus.
    There were also articles complaining that in the medical profession the equivalent of each years graduating doctors (300) were emigrating every year. Seems like our Medicare system was just too good.

  44. Aynsley Kellow

    Andrew:
    ‘I think it’s “ixx’nt” – at least on the South Island.’
    Having grown up there, I would dispute that! The accent is more a North Island thing. Nobody has ever picked me as a Kiwi, but then I was raised in civilized (and now razed) Christchurch.

  45. TonyOrlando

    “Much higher taxes, for one thing.”

    LOL what a clueless author. New Zealand has no tax free threshold. So someone on 80 000 Australian dollars would pay $18800 tax including Medicare under the Australian system, while under the New Zealand tax system they would pay $19450 – including the ACC levy. On top of that you get a 15% GST, with no exceptions.

    Hardly surprisingly then that wikipedia tells us Australia takes in 26% of GDP as tax and New Zealand takes in between 31-34.5% of GDP. The difference in the public payroll is almost certainly largely driven by the fact that New Zealand has a tiny army. Of course you are welcome to cut that if you want…..
    Education may be 10% more expensive but since the average New Zealander earns 26% less than the average Australian what do you expect?

    Like all the other statistics in that article the health statistics are wrong, but since it is difficult to locate where he/she derived the information from it is difficult to say how wrong.
    Suffice to say that according to WHO NZ spends 10.3% of its GDP on health and $US3300 and Australia spend 9.4% of GDP and $US4070. However this includes private expenditure and the private health sector in NZ is tiny. And we also have higher salaries and far better public hospitals.

    But if anyone wants to experience economic nirvana in New Zealand, well off you pop.

  46. johanna

    Aynsley, funny how rarely people make the connection between NZ accents and Scottish ones, which is what they are.

    I’ll never forget the revelation some years ago of watching some Scottish TV show (can’t remember the details) where the locals spoke exactly like the parody NZers. I do remember that it was set in central Scotland somewhere.

    Looking at the credits of NZ soapies, which I enjoy as a guilty pleasure, there are an awful lot of Scottish surnames there – like Canadian TV.

    Is Kellow a Scottish name?

  47. Aynsley Kellow

    johanna,
    There’s a bit of regional variation. I went to the University of Otago, and found some differences between Christchurch (an Anglican settlement) and Dunedin (the Edinburgh of the South – a Scottish settlement) such as pronouncing ‘castle’ (long A) as ‘s ‘cassle’ – as is common in Australia, where the Gaelic influence is stronger. (Australia has long had about double the proportion of Catholics).

    There seem to be some Australian variations as well: especially the over-pronunciation of ‘oo’ (‘school’ as ‘skoo-ill’ in Sydney).

    I understand ‘Kellow’ can be Scottish, but I descend from a mob in Wiltshire, where there is a cluster (the main concentration being in Cornwall). Interestingly, the Cornish kellow is the plural of ‘kelli’ in Old English which means ‘wood’. ‘Aynsley’ derives from ‘an’ (‘one, only’) and ‘leah’ (meaning ‘wood, clearing, meadow’), so I could be ‘One Wood Woods’, which might explain my wooden personality. Perhaps ‘One Clearing Woods’ might be a bit better!!

  48. Mike a.

    The NZ public sector is a more frugal one than the Australian one. Its mainly i think just a habit acquired from it being a poorer coutry and tax dollars being a bit scarcer. New Zealand government agencies get used to getting by with less. You see it everywhere in NZ and especially notice it if you have worked in similar institutions in Australia.

  49. Notafan

    Doesn’t NZ also lack an airForce?
    It doesn’t have a car industry either so hasn’t wasted billions propping one if those up, either.

  50. egg_

    “It doesn’t have a car industry either so hasn’t wasted billions propping one if those up, either.”

    The affordability of cars in NZ should be a model for our (fully imported) future as a tiny island nation (population wise in a global market), too.

  51. Notafan

    The highway between Auckland and Wellington, on the other hand.

  52. brc

    The whole lord of the rings schtick is a bit old now though.

    Consider yourself banned from Middle Earth – and that’s just for starters.
    Wait until Treebeard hears about this.

    Oh no. Don’t tell me I’m not welcome at the dungeons and dragons table in the library, either?

    Seriously. Fly air NZ and then tell me lotr isn’t done, to death It’s a fantasy book for teenagers with no dates to go on. Let’s move on now.

  53. MemoryVault

    It’s a fantasy book for teenagers with no dates to go on. Let’s move on now.

    Blasphemer!
    Next you’ll be claiming “Once and Future King” isn’t a history book.

  54. johanna

    Heh, Aynsley, on that basis “Bryan Brown” must mean “lump of petrified wood.” :)

    I didn’t know that the differing pronunciations of “castle” was a Gaelic-influenced thing. The denizens of Newcastle, NSW don’t use the “cassle” version, and there are plenty of Catholics there. Presumably it was imposed by the Protestants who ran the NSW government.

    Going back to NZ, there is indeed a wide range of accents there. Some of them are barely distinguishable from Australians, while others could have just got off the boat from Scotland.

  55. Ellen of Tasmania

    Philippa,

    I’m happy to live in Middle Earth, but NO Peter Jackson, please. Let’s just work from the books.

    That Jackson man shouldn’t have been allowed to get near Tolkien’s work. The Weta Workshop, yes.

  56. Aynsley Kellow

    Ellen,
    I must confess to remarking about the attractions of SW Tasmania for a generation weaned on Tolkein back in 1988 – one of more early critical reflections on the aesthetic elitism inherent in the wilderness movement.

    I had ‘The Hobbit’ inflicted on me at primary school, and I have thought since that that was about the right level for Tolkein (and Dungeons and Dragons). By university I had had moved quickly through early video games (something called ‘Brickle’, from memory, and the sophistication of Space Invaders) to pinball, on which one could win a bottle of whisky at the Captain Cook Hotel, the quintessential student pub in Dunedin. All that Tolkeinesque stuff seemed a bit infantile (and lacking in ‘spirited’ outcomes!)

  57. .

    TonyOrlando
    #1317358, posted on May 23, 2014 at 11:42 pm
    “Much higher taxes, for one thing.”

    LOL what a clueless author. New Zealand has no tax free threshold. So someone on 80 000 Australian dollars would pay $18800 tax including Medicare under the Australian system, while under the New Zealand tax system they would pay $19450 – including the ACC levy. On top of that you get a 15% GST, with no exceptions.

    Want to quantify property, payroll, excise & tariff taxes and give a source for those conjectures you’re making pal, before you go off half cocked and call someone clueless?

    Maybe someone on 200k shouldn’t pay 49% – and envy someone on 80k paying little tax? Did that cross your mind?

  58. Ellen of Tasmania

    Sorry, Aynsley, but I have never had ‘The Hobbit’ inflicted on me (unless you’re talking about the movie)- it’s a joy I return to annually, followed by LOTR and the chance to visit my favourite ‘people’ and places. I will think it a sad day indeed if I ever think I’ve grown out of or beyond it. I’ve just enjoyed a series of lectures by Michael Drout on all things Tolkienish.

    Certainly there are landscapes in Tassie that are a bit like Middle Earth but, alas, no hobbits or elves.

    I know nothing about computer games. To each his own.

  59. TonyOrlando

    Want to quantify property, payroll, excise & tariff taxes and give a source for those conjectures you’re making pal, before you go off half cocked and call someone clueless?

    Sources are the published tax rates of the respective IRDs and an excel spreadsheet.

    It is difficult to calculate fairly all the various sources of revenue, which is why I used the % of GDP as a comparison – and guess what, New Zealand is still higher taxed.

    Maybe someone on 200k shouldn’t pay 49% – and envy someone on 80k paying little tax? Did that cross your mind?

    Sure if you earn 200k you are better of in New Zealand – of course you a lot less likely to get 200k in NZ – but if you think you can, then like I said, off you pop.

  60. .

    So Tony you’re not even sure of your figures and you can’t supply a link?

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