Scoop Election 08: edited by Gordon Campbell

Budget to push the “P” button?

May 26th, 2009

The tone of the Budget is almost as important as its content, and while everyone – for good reason – is expecting a grim Budget on Thursday, there are political reasons why there also has to light at the end of the tunnel, a vision of triumph over adversity etc etc. So, amidst the budgetary gloom, there is one word that can convey a rosy sense of we’re all-in-this-togetherness. That buzzword is ‘productivity’. If we can only find how to lift our productivity from where we dropped it last, we can virtuously work our way out of this current fix. So, expect to hear Finance Minister Bill English talking quite a lot about productivity in the Budget on Thursday.

Why, it might even be a good idea for English to appoint a task force on the subject. Since no-one knows quite how to measure productivity properly, the field is wide open for political massaging. Lets all find ways to lift our productivity – to work harder, to work smarter. If English were to set up a productivity commission, it might even be able to find out – just in time for the next election – that our productivity levels have risen. Think how good we’ll all feel about that !

By and large, the gains in productivity that we live with every day, don’t ever seem to make into the measurements. Hat tip to Victoria Uni senior economics lecturer Geoff Bertram for this example. As Bertram says, when people have a long black and panini in a café these days, the relative price for the café experience is virtually unchanged from what it was nearly 30 years ago. Yet the coffee, the service, the cooking, the décor have all improved out of sight. Similarly, so has the normal tourism experience for visitors to this country. In both cases, we’ve lifted our productivity markedly, and yet that kind of improvement doesn’t seem to register in the official readings on productivity. Arguably then, productivity levels are not an attitudinal problem so much as a measurement problem.

Therefore, if and when English bangs on about productivity on Thursday, we should probably regard it as the same old schtick – a call to work harder and longer, for less. And if we don’t do so willingly, the threat of unemployment offers a bracing incentive. In reality though, any quantum leaps in workforce productivity tend to result from corporate investment in new technology – and the companies who have been happy to extract near-monopoly or cartel rents over the last two decades have usually been more interested in extracting profit from their captive customers via price hikes, than in investing in the technology that really would lift our productivity ratings. I doubt that English will have words of criticism for employers though, when it comes to any productivity pep talk on Thursday. Conclusion : when politicians bang on about the need to lift productivity, the relevant ‘P’word is ‘phooey!’
The Other P word

Of course there is another “P” word. It has to do with garrulous people with short tempers who over react to imagined slights – and who can readily turn violent if unintentionally provoked. I’m talking of course, about pensioners. If I had to pick a draconian move in the Budget to show the rating agencies that we really mean business, it would be to announce on Thursday a plan to lift the pension age to 67.

Australia has done so, with a plan to gradually raise the retirement age from 65 in 2017 to 67 by 2013. The IMF – who get told these things by the Reserve Bank and Treasury – also came out eight days ago with a stern recommendation that New Zealand must do something about its health costs and pension costs.

Arguably, if the Key government plans on hiking the age of retirement at some point ( as it inevitably will ) then now is as good a time as any for a popular government to dole this medecine out to the public, in the name of national necessity. There is even some justice in it. The boomers, who have enjoyed such a long ride on the gravy train – free public services, tax cuts etc – could fairly be asked to contribute taxes for a bit longer to their own mounting health costs.

Otherwise… as every man jack in the media has already noted, the Budget is sure to announce that the next rounds of tax cuts are deferred, and so are government inputs to the Cullen Fund, for the foreseeable. The run-up to the Budget has also offered the unedifying sight of Federated Farmers calling for restraints on spending. This is rich, coming from an agriculture sector that is up to its greedy eyeballs in the debt exposure from dairy conversions – even the IMF again, are worried about the extent – and which is now calling for government to tighten the belts on everyone else.

And what is still left open to chance ? Well, in the fine print of the Budget papers, it will be interesting to see what value Treasury has put on the wholesale guarantee scheme – you know, this is the banks’ own pension scheme that we are now liable to pay for them, should their debts ever fall due. Treasury will be wanting that liability to look as small as possible. It could even be zero-rated, to try and suggest how unlikely it is that taxpayers will ever have to stump up for it.

If it is zero-rated, the Auditor-General might care to have a look into it. Because this is a genuine liability, and Treasury should be required to put a realistic value on the back-up now being extended by taxpayers to the banking sector, during its time of need.


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    1. 11 Responses to “Budget to push the “P” button?”

    2. By brian marshall on May 26, 2009 | Reply

      “Therefore, if and when English bangs on about productivity on Thursday, we should probably regard it as the same old schtick – a call to work harder and longer, for less. ”

      Not for less, but produce more for the same. Same amount of input wether it is money, power, time etc.
      Productivity is measured many different ways Gordon, but I’m still trying to figure out what you are trying to say in this opinion.

    3. By VCD on May 26, 2009 | Reply

      If say P=the interest payments for NZ foriegn debt. I think we are all being told we need to up the “production”.
      And do this with less.

      No promised tax cuts( unless you are a foreign energy corporation pillaging resorces)…

      There is no accurate way to measure productivity when it completly lacks any definition.

      Smoke and mirrors.

    4. By K on May 26, 2009 | Reply

      Isn’t productivity about hi-tech companies, rather than selling raw logs and milk to the rest of the world? The problem with Bill is that I just can’t see him doing the necessary to make that happen – not with those Southland farmers breathing down his neck.

      Isn’t it funny how Mr. Key is briefing Standard & Poors before he tells us what the gist is on Thursday. Am I wrong in getting the impression that our Prime Minister is a puppet of international finance?

    5. By Bryan on May 26, 2009 | Reply

      Counter-intuitively, English’s beloved deregulation, especially of the labour market, has reduced productivity. Scale is (almost) everything in most industries. Fragmentation of previously unified industries and companies into outsourced, small-scale contractors, consultants and micro-companies (‘every worker his or her own boss’) usually means duplication of overheads and working longer to achieve the same or less.

      Conversely, the (relatively) heavily regulated and unionised Australian economy has made large productivity gains relative to NZ.

    6. By stuart munro on May 26, 2009 | Reply

      A real look at productivity would necessarily look at CEO bonuses, cost of living and indirect taxation – all of which have burgeoned in the last two decades. Somehow I doubt Key has the strength of character to address these issues, so his policy will come down to whipping the galley slaves rather than upgrading the boat.

    7. By brian marshall on May 26, 2009 | Reply

      K, you said “Isn’t productivity about hi-tech companies, rather than selling raw logs and milk to the rest of the world? The problem with Bill is that I just can’t see him doing the necessary to make that happen – not with those Southland farmers breathing down his neck.”

      No. Productivity is what you do to produce more goods or services, be it raw logs, milk or software.
      Introduction of improved grasses on pasture to get higher milk solids or Pinus radiata instead of native trees to produce greater wood volumes, has had greater economic benefits to New Zealand than just about any other “productiviy gains” in the high tech sector.

      New Zealand has under invested in machinery and over invested in labour in the past. We hirer another worker, rather than purchase a capital asset that help the existing employees do more.
      In fact the New Zealand dairy sector are world leaders in productivity gains, is because we use capital assets (milking sheds) that are cutting edge tech, and improved inputs such as top genetics and fore mentioned pasture.

      This isn’t new, it’s something that we have been told is needed for New Zealand for the last 15 years, and I still find it hard what Gordon is trying to say.

    8. By brian marshall on May 26, 2009 | Reply

      Oh Forgot K, if we get our credit rating down graded, it’s likely to cost us another $600 million in higher interest charges according to National Radio.
      I’d rather see that spent on something useful.

    9. By VCD on May 27, 2009 | Reply

      I would not severely place limits the definition of productivity.
      The finance sector has been extremely “productive”(creatively destructive).

      Finance was focused on, resulting in the ‘upping of debt production’ at the expense of ‘production’.
      What we are now being told to up production to fund the credit debt and AAA(BB) bond bailouts is;
      UP Harvesting,transport infrastructure,manufacturing (and military spending).

      An economy based on supporting the greed of the few did not work for the masses.
      Work harder for us!! We sure as hell don’t work for you.

    10. By Glenn on May 27, 2009 | Reply

      “Australia has done so, with a plan to gradually raise the retirement age from 65 in 2017 to 67 by 2013.”

      Wrong! 65 in 2017 to 67 by 2023 is what the Aussies are doing…You almost made me wet myself in panic.
      As Fonterra has done to the farmers today.

    11. By VCD on May 28, 2009 | Reply

      Glen you should be wetting yourself.

      The latest public media release/anal skrunchie from Key taken in context will do just that.
      It is both frightening and terribly funny at the same time.

    12. By stuart munro on May 29, 2009 | Reply

      Well it’s easily stopped. Get a petition running that MPs receive no retirement benefits till 67 & they’ll back off lickety split.

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