Scoop Election 08: edited by Gordon Campbell

Gordon Campbell on Paula Bennett’s latest welfare plans and Labour’s exchange rate cynicism

September 12th, 2012

Paula Bennett’s refusal to front up on National Radio this morning and discuss her latest spasm of beneficiary policy is symptomatic of her overall performance as Minister. The Social Development Minister is happy to announce any number of ‘get tough’ measures for those on benefits, but is unwilling to fulfil her own – or her government’s – responsibilities to meet their side of the social bargain. The policy announced yesterday will require beneficiaries to comply with certain health and early childhood obligations by July 1st next year – but without the government taking any responsibility for ensuring that the services involved (a) exist or (b) or are priced at a rate that beneficiaries can afford.

Oh, and in a variant of the ‘three strikes’ policy, if beneficiaries fail to comply they face the prospect of having their benefits cut by up to 50%. All for the sake of the children of course. And what will happen then to those families and their children, given that such a policy would tip them out onto the street? Do we all really think it’s a good idea to punish children in this fashion to the extent of denying them adequate food and shelter, because of the sins of their parents? Wouldn’t a 50% cut in benefits for whatever reason, put New Zealand in breach of the UN Convention on the Rights of the Child?

Who knows, because Bennett was too chickenshit to front up to RNZ and be questioned on the subject. As the Green Party Co-Leader Metiria Turei has also pointed out, why is this policy of mandatory health checks and compulsory early childhood education being directed only at beneficiaries and not, say, at the children of the working poor who also receive state support – in their case via Working For Families?

Is this discrimination being fostered because the Minister already knows the policies are inherently impractical even for beneficiary families, unless there is to be a massive infusion of matching state funds before July 1st, 2013, in order to expand the services in question and/or to lower the price barriers that currently deter people from accessing the medical care that they and their families need? Or does the beneficiary vs. WFF distinction exist because the government is too afraid of the political backlash from the working poor if it similarly threatened to cut 50% of the supplementary income that they receive from Working for Families? Certainly, it is hard to see where the welfare of children at risk is being treated as the priority in this grubby little exercise. If it were, Bennett wouldn’t be being quite so gunshy about fronting up to defend the policy.

Quite a week though, on child poverty. As things stand, this government wants to make it mandatory for beneficiary kids to have early education and systematic health care in their pre-school years. Good. Yet once those kids reach the ripe old age of five, the same government strongly opposes making sure that they have had breakfast, and can concentrate on their lessons. Go figure the logic.

Exchange rate follies

One of the grand advantages of being in opposition is that you don’t have to take the political consequences of enacting what you advocate. Thus, Labour’s David Parker can call for action to bring down the exchange rate and he (presumably) hopes to win friends for Labour among exporters via such advocacy – but without having much in the way of visible regard for the consequences on poor and medium income workers and their families, who stand to bear the brunt of the sharp rise in food and petrol prices that would result.

In other words, what Parker is advocating is naïve at best, and deeply cynical at worst. Parker is clearly trying to snooker the government. In practice, it cannot help exporters on this point without removing the shield that a higher exchange rate provides for everyone else, against higher import costs. Much as the Key government may like to help its mates, it cannot afford the political backlash.

There are other factors to be considered. Yes, lowering the exchange rate would give the export sector a comfier ride. There is no guarantee this would benefit Labour’s core constituency. Moreover, such action would penalise the capable exporters who have successfully adapted to the current settings, and would reward the lazy, inefficient players still in the export game who – for some reason – cannot make ends meet with the existing 20% margin against the US dollar and the existing margin against the Australian dollar. How much of an exchange rate handout does Parker think these people need?

And what does he think will happen to the poor and medium income families he is supposed to represent, as a result of what he is advocating? Yes, it would be nice if exporters used their extra earnings to create more jobs. The more likely outcome is that would (a) pocket the money or (b) invest in technology that would further reduce the demand for labour. Parker is asking people to take a lot on faith. Meanwhile, ordinary people would almost certainly be paying through the roof for food and petrol. Yesterday, Economic Development Minister Steven Joyce was absolutely right in the House to be pointing out these downsides. Not only is there no free lunch on lowering the exchange rate, lunch would quickly become more expensive.

How much more? Here’s one recent calculation of what an exchange rate devaluation might do to the price of petrol:

The high NZD is a major irritant for the export sector, but it is also shielding us from higher adverse cost shocks. USDD oil prices have risen by close to 25% since late June, and while domestic oil prices have climbed more than 23 cents a litre since early July, the level of oil prices (all else being equal) would be significantly higher with a lower NZD. We estimate prices for unleaded 91 would bee at the $2.65 a litre mark if the NZD/USD [ratio] was 60 cents, and $3 a litre with a 50 cent NZD.

Food prices would rise on the back of those numbers. I think Labour and the Greens are both wrong on this. Labour is trying to win business friends, and higher fuel costs would assist the Greens’ campaign against further major motorway construction. In the meantime, ordinary New Zealanders would suffer, and would take out their pain on the government. No doubt, Parker would say he doesn’t intend to drive the NZD down to a 58-60 cents rate against the USD, but that assumes a de facto devaluation can be a Goldilocks one that is neither too big nor too small, but just right. Again, that’s either a disingenuous position, or a deeply cynical one.


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    1. 12 Responses to “Gordon Campbell on Paula Bennett’s latest welfare plans and Labour’s exchange rate cynicism”

    2. By lyndon on Sep 12, 2012 | Reply

      Peter Dunne on Facebook seems to suggest obligations are all very well, but what if it inconveniences non-beneficiaries?

    3. By Paul on Sep 12, 2012 | Reply

      The exchange rate debate is a good one, I have worked in both Paper Mills in Kawerau, when the exchange rate with USD was under 50 cents we could export paper reels to China and make a marginal profit. I understand that a lower exchange rate will increase the costs of imported goods (Im now an importer), but it would have to be good for local industry and consequently (hopefully) the job market.

    4. By Giovanni Tiso on Sep 12, 2012 | Reply

      Great post, as usual, however I’m really compelled to ask:

      “the existing 20% margin against the US dollar”

      The what now? Please don’t tell me that you think that an exchange rate of 80 cents US to 1 New Zealand dollar means that we have a 20% margin against the US dollar.

    5. By clairbear on Sep 13, 2012 | Reply

      Well reading your article one thing is clear – there are few practical ideas in parliament what every flavour of politician. There are pros and cons for every idea.

      Which comes back to the idea that we cannot look to government to solve our problems – we have to look at ourselves, our friends, families, colleagues and communities – much the same as the early humans had to do before Governments were invented.

    6. By John Monro on Sep 13, 2012 | Reply

      I don’t accept your criticism of the call for a reduced exchange rate. An overvalued currency is a major dampener on all kinds of economic activity in the country. Japan and Switzerland have suffered major increases in currency, not related to the normal economic pushes and pulls of relative competitiveness or inflation, but because they are seen as a safe haven for investors looking for somewhere to put their hot money. Such overvaluation is certainly not helping either country to boost their domestic economies. Indeed you could say the whole Eurozone crisis has its origins in the failure of national currencies to reflect the true state of their economies. The German Euro is grossly undervalued, and the Euros of Greece, Italy, Spain and Ireland are grossly overvalued. The PIGS countries’ exchange rate inertias are a major cause of high rates of unemployment and likely social unrest that will ensue.

      Things are not as bad in NZ, but the principle is the same. Look at what happened with the Kiwirail wagon saga. We were told that the quote from the local manufacturers was about 25% higher than the Chinese, but look, the Chinese currency is at least 20% undervalued, deliberately, by the Chinese government’s action, and our currency about 20% overvalued, and you expect our manufacturing sector to compete in this pathological distorted currency situation? With the world-wide economic crisis, countries are now engaging in a very destructive competitive devaluation causing even further international currency distortions

      You say that a devaluation will bring about a “comfier ride” for the export sector, but it is the export sector that keeps this country afloat, they desperately need a comfier ride, what they shouldn’t have to face is an distorting artificial constraint on their terms of trade just because the government and the governor of the Reserve Bank can’t get their act together.

      There is an approximate “natural value” for the NZ dollar as compared with other countries at any time, it will vary around a mean, of course, but this country has suffered immeasurably by the wild swings of currency value since the reforms of the 1980’s and the absurd pretence that you can protect our best interests by separating government from financial control and concentrating so entirely on inflation as the be all and end all of financial concerns. Every month we see endless discussion from the pundits about what Dr Bollard’s going to do next with the only lever he has, it’s all as helpful and logical as all those ancient seers arguing about how many angels could dance on the head of a pin.

      Dr Bollard on his leaving for APEC says his one major regret was not dealing effectively with the housing bubble. But he’s fooling himself, he wasn’t interested then, his monetary dogma would never see him interfering in what was a private debt problem, because under monetarist dogma, private indebtedness doesn’t matter. So much for that theory.

      So petrol will go up in price? Gordon, the ice is melting, the winds are blowing, the sun is searing, and our oil reserves are depleting. If we are going to make sense of existence on this planet we are going to have to face the reality of what we are doing. A higher price for petrol, whilst uncomfortable, is the best thing that could happen to us. It should, but probably won’t, wake up this National administration and the citizens of this country as to the reality of these things – and that spending $11 billion and more on yet more roads is delusional, indeed no less so than the canal builders of the early 1800s in the UK who also thought the world would continue in the same way as it did a few years earlier. Sorry, that doesn’t happen in real life, history is a progressive force that has its own implacable logic. In regard to food, do we not produce enough here? There’s no need for high international food prices to be reflected in New Zealand’s domestic food prices. They do so only because the monetarist system demands it. A rational government would ensure affordable food for all its citizens by whatever mechanisms were required to achieve this. What immutable law requires this population, or indeed any other, to be such unwilling hostages to such a grotesque and destructive economic system?

      Gordon, as much as I generally like this column, and agree with you about many things, in this instance I would, respectfully, suggest it is you that’s being just a little naive?

    7. By Phil Stevens on Sep 14, 2012 | Reply

      One simple and absolutely compelling reason why we can’t continue to have an overvalued currency: the current account and our vanishing hope of ever climbing out of the sovereign debt chasm. All other considerations are secondary at best.

    8. By Suzanne McNamara on Sep 14, 2012 | Reply

      I agree with John in the comment above. Doing the same thing and expecting a different result is not going to work for us. We need to get our manufacturing and our export sector competitive, it employs more people and this is what this country desperately needs. It is certainly working for China, so why not us. So what petrol is a bit more expensive, it might force a few more into public transport and we should be eating NZ food anyway. Eat local and in season just like our grandparents did. We’ve just become so accustomed to having every type of food all year around.

      I completely agree with Gordon’s comments about Bennett, it sickens me the govt pays $1mill for a report from the Australians to do more beneficiary bashing. They should be spending that money creating jobs – but they have no plan for job creation. Sadly

    9. By Don on Sep 15, 2012 | Reply

      Well said, John.
      There is a lot of arable land in New Zealand that could produce more food and people would get jobs doing that.
      So we would have to eat more potatoes and other temperate climates vegetables and less out of season imported fruit. We could get over that.

    10. By John Magnate on Sep 15, 2012 | Reply

      The solution to the overvalued exchange rate is simple.
      Instead of borrowing overseas,the government, via the reserve bank issues bonds for the money they need then buys them back. It’s often called printing money and in the present climate would cause little inflation but it would immediately cause the dollar to fall, in fact, just the mention of it would.

    11. By Joe Blow on Sep 16, 2012 | Reply

      This is good journalism Gordon! Keep it up!

      The problem isn’t that the NZ dollar is too high, it’s that the US dollar and Euro are too low as a result of the financial crisis.

      If Labour and the Greens were talking about mechanisms to soften exchange rate fluctuations rather than manipulating them for exporters they might be getting some where…

      The last thing we need right now is a shit load of imported inflation.

      Your article on the realities of the likely benefits from the TPP was also spot on! The US and Japanese agricultural lobbies mean that any agreement is likely to change nothing for our exporters…

      The question is where does that leave NZ with what it can do to better our lot in the world?

    12. By Draco T Bastard (@DracoTBastard) on Sep 16, 2012 | Reply

      ” There’s no need for high international food prices to be reflected in New Zealand’s domestic food prices. They do so only because the monetarist system demands it. A rational government would ensure affordable food for all its citizens by whatever mechanisms were required to achieve this.”

      And the best way to do that would be to have Landcorp buy up a lot of farms and have them supply the local market at cost – in other words, far below the international price.

    13. By just a mother on Sep 22, 2012 | Reply

      Paula Bennett quote: …..measuring poverty is “too difficult because people move in and out of poverty on a daily and weekly basis”.
      Also, all children will now be put at 100% risk, due to a new bill for name suppression of sexual offenders. Offenders will have free reign to work for volunteer organisations, school holiday programmes, schools, cadets, child care centres…., because applicants records will remain private, even through the police.

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