NZ Super needs to be cut now
KEY FACTS
The good news is that no one in New Zealand politics – not even the Greens or Te Pāti Māori – is quite as grossly fiscally irresponsible as the US Republican Party.
Just three Republican senators had the integrity to vote against Donald Trump's 'One Big Beautiful Bill',
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NZ Herald
4 hours ago
- NZ Herald
Trump's US fiscal policies threaten global economy with soaring debt levels
Few commentaries acknowledged that if Trump's Budget had been defeated, the increase in US debt over the next decade would have been US$3 trillion (almost $5t). Covid spending and the Democrats' agenda were reckless. Trump's Budget takes the debt increase to US$4t. These are mind-boggling sums. It is better to think of the debt as a percentage of the economy that must service the debt. The Republicans, once the party of fiscal conservatism, have become the party of big spending. Just two Republican Congressmen and one Republican Senator voted against the Budget on the grounds it would increase debt. Other Republican no-votes were in protest over cuts in spending! Don't expect a Democratic victory to bring fiscal sanity. Democrats opposed the spending cuts and promised to restore them. This week, Trump is again seeking to increase tariffs, which will add to the global economic storm. As a variation on Murphy's Law puts it: 'When you think things can't get worse, it's just a failure of imagination.' All my life, and probably yours, the US dollar has been the world's reserve currency. It's the currency of trade, of international contracts, of central banks' reserves. It was once impossible to imagine a world without sterling as the global reserve currency. Our lack of imagining a world without the US dollar being the reserve currency will not prevent a loss of status. Today, America has a huge advantage. The US is the only country that borrows in its own currency. Governments like New Zealand and our banks must borrow in other countries' currencies. Foreign lenders, such as China and Japan, buy US treasuries because they trust them to be safe. Ironically, if Trump's tariff policies succeed, it will break the mechanism that finances US borrowing. Today, the US Federal Reserve prints dollars that US importers use to buy goods from China and other exporters. China and other exporters then use these US dollars to buy US treasuries, funding America's deficit spending. If tariffs do curb America's trade deficit, then countries like China will not have the US dollars to buy America's debt. Under Trump, the US trade deficit has grown. Tariffs have increased by 15.8%, with more to come. Trump has succeeded in passing his Budget. He has passed a Budget that accelerates borrowing and the dollar is falling. Since his election, the US dollar has dropped 10% in value. Foreign lenders holding US treasuries have seen their investment fall by that same 10%. Lenders will demand higher interest rates. The interest rate on 10-year US Treasuries has surged from around 1.5% before the pandemic to over 4.3% today. That signals a fundamental shift in global borrowing costs. Applied to a US$36t debt, the interest bill is now bigger than the US defence budget. First comes higher interest. Then, when markets lose faith that Congress will ever balance the Budget, the buyers disappear. A failed US treasury bond auction would trigger an economic crisis. There are three rules to remember: 1. Stein's Law: 'If something is unsustainable, it will stop.' 2. Dornbusch's Law: 'In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could.' 3. Markets have confidence – until they do not. The trigger could be anything. No one predicted that subprime mortgages could cause a global meltdown. The real cause is deeper: America's ageing population. Around 50% of the US Budget already goes to healthcare and social welfare – and that share is growing. What does this mean for New Zealand? As a small trading nation, we are very vulnerable to overseas economic shocks. When global interest rates rise, so will ours. Our Reserve Bank will be powerless to prevent higher interest rates damaging the economy. Demographic change is already having an impact. On present settings, Treasury predicts continuing, increasing deficits by 2030 – just over four years away. Already, the coalition is running bigger deficits and increased borrowing. Taxes are not the answer. Total government spending, as calculated by the IMF, is 41% of GDP. It is likely that any increase in the rate of tax would so damage the economy that it would not result in any increase in revenue. New Zealand appears to be no more willing to accept spending cuts than America. The laws of economics haven't been repealed. The day of reckoning will come.
RNZ News
15 hours ago
- RNZ News
Wellington mayoral candidate says cap on rates would reduce accountability
Andrew Little at his mayoral campaign launch in Wellington on 17 May. Photo: RNZ / Samuel Rillstone A former Labour leader running for Wellington mayor says a cap on rates would only reduce accountability and undermine the relationship between councillors and residents. In an interview with RNZ this week , Finance Minister Nicola Willis reconfirmed the government was looking into "capping" - putting a hard limit on - council rates increases, saying it would get pushback from councils "because when you take candy away from kids in a candy store, they don't really like it". Labour's leader Chris Hipkins and councils' representative group LGNZ both pushed back , saying rates capping would in fact worsen the situation. Hipkins also argued the big rates increases seen in recent years was a result of the government scrapping Labour's three waters reforms, later labelled the "affordable water reform". Local Government Minister Simon Watts told RNZ the rates cap policy review was yet to be presented to Cabinet, but confirmed there would be announcements about it later in the year. "We're taking our time to make sure that the policy design of that mechanism is fit for purpose, importantly as I've said before taking on board also the learnings particularly in Australia where this has been implemented to make sure that we've learning from that experience." Former Labour leader Andrew Little has thrown his hat in the ring for the Wellington mayoral race this year, and said while rates did need to be better controlled a hard cap would reduce accountability. "A lot of people are really concerned about the level of rates rises. I mean, here in Wellington, we've seen rates rises of 30 percent over a two year period, which is unreasonable and is wrong," he said. "But at the end of the day, mayors and councillors are responsible for making the financial decisions." A cap would reduce accountability and responsibility, he said, and undermine the democratic relationship between mayor and councillors and their residents. "Mayors and councillors, every election, they are accountable to their people for the decisions they've made and if they've made bad decisions they're going to be responsible for that - that gets dealt with at the ballot box. If you take away ultimate responsibility for those decisions, then where do residents - as electors of mayors and councillors - go?" "Coming over the top with a central government mandated sort of decision isn't an answer to that requirement, and the problem that goes with councillors and mayors who get out of control and spend wrongly and irresponsibly." Pointing to Wellington's Town Hall upgrade, he said councils sometimes did need to say no to projects, "and I think in Wellington they haven't been, and it's making cities like Wellington unaffordable ... councils, particularly Wellington City Council, has to show much greater control over its financial decisions". He had a different stance from Hipkins on three waters, saying that while historical under-investment in water systems would end up costing, but "just scrapping three waters alone I don't think can be held responsible". "There's partly catch up on water stuff. The real impact of the current water reforms is yet to be seen." Minister Watts said rates capping was one mechanism the government was considering to "ensure that the money that is being collected through rates is spent appropriately," but not the only one. "We're also going to be releasing and publishing transparency reporting around councils' financials and also introducing legislation in regards to changes around what councils focus on. So it's a suite in a package of interventions that will get us to a more sustainable local government." Sign up for Ngā Pitopito Kōrero , a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
RNZ News
19 hours ago
- RNZ News
Christchurch Mayor backs proposal for government-capped rates rises
Phil Mauger envisages a rates cap of around 5 percent. Photo: RNZ / Nate McKinnon Christchurch Mayor Phil Mauger is backing calls for the government to cap rates rises . Cabinet will consider options to control rate rises, including capping, later this year. Finance Minister Nicola Willis has complained of councils' wasteful spending, comparing local politicians to kids in a candy store. "Councils don't always do a great job of spending your money like you would spend it. There are wasteful projects - there is evidence of that," Willis told Morning Report on Monday. "We want councils focusing on the things people expect them to do, which is the rubbish, the roads, the pipes, the basics - and not all the fanciful projects." Mauger told RNZ he could not agree more. "Everyone campaigns 'ohh, we gotta stick to basics', right? And then the first thing some of us do is go away and not stick to basics," he said. "We need to be stronger around the council table to say what's basics. Now ... someone's basic might be someone else's must have ... but it's good to have rates caps. I feel it's good. I really do." Earlier this year, the Taxpayers' Union launched a campaign calling for rates to be capped at inflation levels. Mauger imagined a cap closer to 5 percent and said his council was "very close to what I'd call the rates cap". He conceded it would not be possible to cap rates at inflation. "If it's low as that we would struggle with that," Mauger said. "I think to get down to 2 percent, if the government put a rates cap at 2 percent on it, I think there's a lot of problems." Christchurch City Council had approved average rates increases of 6.4 percent, 9.9 percent and 6.6 percent this term, as a result average rates bills had climbed almost 25 percent in the city this triennium, while inflation had only risen about 8 percent during that time. Willis told Morning Report she expected push back from councils "because when you take candy away from kids in a candy store, they don't really like it. But at the same time, we are on the side of ratepayers". Asked if he was acting like a kid in a candy store, Mauger told RNZ: "No - when it's my own money, it is. But when you're spending other people's money, [rates caps] are good". "If we had money running out of our ears, you'd spend it on other stuff. We haven't got that at the moment," he said. He agreed with Willis that councils had engaged in wasteful spending, and when asked for an example he pointed to cycleway spending. "We've wasted money on how we have designed and built cycleways. Now I'm not against cycleways but we can build them one hell of a lot cheaper - a lot, lot cheaper," Mauger said. The council had budgeted $210.4 million for new cycleways, improvements, and cycleway and footpath renewals over the next decade in its long-term plan. However, that only accounted for 3.2 percent of its budgeted $6.5 billion in capital spending. With major projects, such as Christchurch's new stadium and new sports complex, almost complete, rates pressure would ease in the future. But Mauger said the council still needed to find other ways to cut its cloth. "What we've got to look at is our levels of service now," he said. "Everyone expects when they walk out the door, they expect the footpath to be half-good, they expect the gutter to be falling the right way, they expect the water to be not leaking out of the ground, the grass mowed and rubbish picked up - that's what they expect. "If we backed off and didn't mow the grass as often or didn't pick up the rubbish as often, that's how we could save some money. I can't say that's how you would, but that's how we can do it quicker and easier." Rates caps had been panned by Labour leader Chris Hipkins - who said it would make the problem worse not better - and Local Government New Zealand president and Selwyn District mayor Sam Broughton - who said capping rates could be "disastrous for communities". Sign up for Ngā Pitopito Kōrero , a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
