That current account deficit...

So the numbers out of StatisticsNZ today make slightly scary reading. The current account deficit in the March 09 year is 8.5% of GDP, or around $15bn. The net balance between NZ's assets and liabilities is up to 98.2% of GDP - $186.2bn.

Is it a problem? Well, some people say yes and some people say no. In part it depends what kind of economy you want. I regard that large external debt as a problem because I want to see more of the income New Zealanders generate retained and spent in New Zealand, and I want us as a community to not be susceptible to bullying by the corporate representatives of those to whom we owe all that money (i.e. the "Ratings Agencies". This year's Budget could have been a lot better without that pressure.

I don't really buy the arguments that some who say it's not a problem present, as they odon't have the same goals I do for our future economic development. I am more interested in thinking like this at the Treasury (arguing that net of debt costs, the inflow of foreign capital leads to higher real incomes per capita as it has largely been spent on productive investment, but it isn't a commonly heard argument, and explicity doesn't make the case that the situation is sustainable.

Just from a risk mitigation perspective, it's probably not good to have the whole value of your annual production sitting as a debt load you have to service. So we should probably try and turn it around.

Then the question is how you change things.

There are two ways to close the current account deficit. One is to think about the trade side, and one is about the investment side. I'd be very happy to see a multipronged approach to the issue given how large the debt is and how long it will take to turn around.

On the trade side, you simply want to achieve large trade surpluses that help pay for the costs of the debt and more than meet the costs of our goods and services imports. Given that we want imports, reducing them as a policy response (through trying to minimise them or through trying import substition approaches) has no good track record, and is a bit like denying yourself the whole point - things we want that we do not make.

If exports are your focus, the NZ Institute and others have pointed out that our exports as a share of GDP have not really lifted much in the past twenty or thirty years. A range of policy approaches have not worked - not Muldoonist fiat and protection, not Rogernomics scorched earth, not Labour's modest rebalancing and re-growth of industrial policy. (In the latter case it may be a little too early to tell, to be fair.)

So we need new approaches. I don't know if that's a scale issue or an approach issue: should we invest another $200m a year in market opening, trade promotion, business plan development, sector programmes, picking winners, whatever, here? Or do we need completely new approaches - and if so, what are they?

On the investment side, we did have some hopeful things happening, but things have gone backward with the change of government. KiwiSaver and the NZ Super Fund were leading to the accumulation of new financial assets by government and by the public, but both have been put on the shelf. The Crown contribution to national saving has been turned by policy and by recession into a Crown contribution to the national debt.

It's a simple equation. If we want Kiwis to own more of their own country, and/or more of other people's countries (which has the same effect on the deficit), then we have to save more as a nation. Individually and collectively we need to consume less and save more.

Some things that might help with that?

• changes to the tax burden - esp the weird non-taxation of residential property
• relative shifts in tax burden from income to consumtion and from savings to consumption (tho this has distributional impacts that would need to be fully compensated for if looked at, in my view)
• restoring cut savings assistance programmes, esp. KiwiSaver and the NZ Super Fund

There must be more, though: your thoughts?

Government could be part of the solution, though the public mind seems to be that a big surplus is an excuse for a tax cut, instead of commendable savings for the future through lower public debt. It would also only be able to contribute to national savings through cutting already-low levels of public spending (not really a viable option), or through increasing taxes - which is politically close to impossible at the present time.

I think we need to have a bigger and brighter public debate to decide whether we really think this is a problem, and if so, how to tackle it. At the moment the country is only really whinging about it - something we love to do, sure, but which isn't going to change anything.

Comments

[GNZ]

If you can just get those three done, we should write your name into the national anthem.

[George D]

You had 9 years. You spent 6 of them with Peter Dunne.

The burden of proof is on you and your party before we take any of your suggestions (however nice, worthwhile, and similar to many Green policies and arguments), as anything other than wishful thinking.

Brendon Burns lovely spiel about how pigs deserve better on RedAlert this week was symptomatic of this disconnect - you're the bloody Government, or at least you were, and hope to soon be again. We can't set your policy. Jim Motherfucking Anderton is your agriculture spokesperson, and he has never shown even the slightest interest in the hell tens of millions of animals suffer annually in NZ. Doesn't Mr Burns know this?

I don't understand it. I really don't. Every person in Labour I meet, every single one, says good things, believes good things, and has ideals. But on a raft of issues, Labour threw every principle these people believe in out the window. Why should the people like myself have any confidence that this won't be the case if you get back into power again?

This isn't directed at you, because you again are one of these lovely people. I just hope to get an explanation of why there is such a huge gulf there.

And don't tell me it's the fault of the people of New Zealand, who are too conservative. On some issues, sure. I respect that, and know that Labour can't move the ocean, at least not immediately. But to take factory farming again the great majority of New Zealanders want an end to factory farming, across a number of reliable opinion polls. It's a warm fuzzy issue. You had the chance, but you refused.

[GNZ]

It would be good pollitics to convince people like George that you all agree with them even if you have absolutely no intent of actually helping them.

FWIW I'd be in favour of welfare for pigs (in as far as I'd sacrifice the net costs of not having that sort of farming for the benefits of having better animal welfare laws) but I suppose I am like so many others in that I would be unlikely to vote on that issue. A reasonably well thought out plan along the lines of Jordan's property tax/further consumption taxes on the other hand would more or less guarantee my vote (and possibly campaign involvement).

[George Darroch]

It's awfully silent in here.

[GNZ]

indeed

[Rob Davies]

Concerning also then are the changes to the Fast Forward fund, effectively guaranteed income for research & development, and a return instead to year-by-year appropriation. Another National Party disservice.