2014 Budget Statement
Tuesday 13 May
2014 Budget Statement
Successive governments have had an inability, under current economic parameters, to fund investment in infrastructure and in business, environmental protection and clean-up, an efficient health system, and good education, with our own resources.
Likewise the current National government, who are undertaking massive borrowing, selling off prime land and important strategic assets, promoting the overseas takeover of New Zealand businesses, inviting exploitation of our natural resources at the cost of our native flora and fauna, and putting out the welcome mat to any wealthy overseas individual willing to bring money into the country.
Labour’s economic platform shows no signs that it would be any better.
The has led to the country’s economic management being akin to the ambulance at the bottom of the cliff with a narrow focus of the on fears of inflation, an Auckland housing bubble, and hocking off the country to the highest bidder.
Most economists agree, as we do, that some government spending over and above taxation revenue is necessary to keep an economy healthy.
Currently the government goes into debt by borrowing from private banks in order to fund that additional spending.
That is because governments only create three percent or less of their nation’s money supply, mostly in the form of notes and coins. The remaining 97 percent is computer-generated figures, created by private commercial banks.
“Therefore around three percent of
M3 is created by the Reserve Bank (currency and primary
liquidity), with the remainder being created by commercial
(Reserve Bank letter 1 September 1994).
“One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them.”
“…..rather than banks lending out deposits that are placed with them, the act of lending creates deposits. Commercial banks create money.”
“Of the two types of broad money, bank deposits make up the vast majority - 97% of the amount currently in circulation. And in the modern economy, those bank deposits are mostly created by commercial banks themselves.”
(Bank of England Quarterly Bulletin Q1 2014)
Therefore the commercial banks have a monopoly to create nearly all of a nation's money, a fact that most people are completely unaware of.
There is nothing wrong with banks creating money within sensible limits. But governments must be able to finance their own operations without going into debt, by issuing just enough themselves to produce a healthy balanced economy without inflation or depression.
Presently the Reserve Bank tries to control the money supply by manipulating the Overnight Cash Rate. Since this applies mainly to balancing reserves between banks each day, and since they often borrow from each other at lower rates, it affects only a very small proportion of a bank's daily business and therefore is quite ineffective.
However, a rise in rates signals to the banks that they can raise their rates, and (in this country with some of the highest rates in the world) conditions the public to pay even more for our own money.
The measures below would be a first step in reforms necessary to get the economy back onto a sound footing.
1. Reduce Taxes
Most of our rising prices are caused by rising costs such as oil prices; the cost of finance for production; and taxes on industry. High taxes and increased interest rates directly feed inflation.
We would therefore immediately institute a 5% cut in income tax for all incomes under $50,000 and cut GST to 12.5 percent. This will significantly reduce prices, take inflationary pressures off the economy, and is a first step towards reducing the growing gap between rich and poor highlighted in the April OECD report showing increasing income disparity.
While the tax cuts would drop the tax take by about $2.4 billion (GST) and $4.0 billion (Personal Tax) this would be substantially offset by the additional tax take from the introduction of a Transaction Tax on a raft of previously untaxed financial transactions such as credit default swaps, debt securities, convertible and exchangeable bonds, currency trading, derivatives etc.
The tax cuts and the reduction in GST would put more money in the hands of lower paid New Zealanders and contribute to a reduction in child poverty. It would also assist commerce due to higher levels of disposable income for many Kiwis.
2. Reduce Interest
We would direct the Reserve Bank to seriously consider reducing the OCR back to 2.5% initially with a view to further reductions in the near future. This will take the pressure off small businesses and low income families struggling with increased interest payments, assist exporters by bringing the dollar down, and lead to lower inflation.
The lower OCR would reduce the interest burden
on all businesses tackling one cause of rising prices. It
would also deter overseas investors from forcing up the
value of our dollar through speculation. This would assist
Kiwis relying on income from interest would lose as interest rates on deposits went down, but would benefit from the tax cuts above, and from lower prices. We would encourage them to strengthen our economy by investing in production to a greater extent.
Increase the Reserve Bank Proportion of the Money
We would implement major features of the “Chicago Plan” as recommended in the International Monetary Fund paper of August 2012. The Reserve Bank would produce a larger proportion of the economy’s money supply, and the trading banks less. This debt free money would fund infrastructure development, increasing New Zealand’s competitiveness, provide a major boost to employment, and itself reduce inflationary pressures in the economy.
International Monetary Fund paper states:-
“Allowing the Government to issue money directly at zero interest, rather than borrowing that same money from banks at interest, would lead to a reduction in the interest burden on government finances and to a dramatic reduction of (net) government debt, given that irredeemable government-issued money represents equity in the common wealth rather than debt.”
“One additional advantage is large steady state output gains due to the removal or reduction of multiple distortions, including interest rate risk spreads, distortionary taxes, and costly monitoring of macro-economically unnecessary credit risks.”
“Another advantage is the ability to drive steady state ination to zero in an environment where liquidity traps do not exist, and where monetarism becomes feasible and desirable because the government does in fact control broad monetary aggregates.”
The Reserve Bank would fund infrastructure at both a central and local body level, without, as the IMF paper says, borrowing or incurring interest charges.
Taxation currently wasted on interest payments on government debt would be freed up for investment in health and education.
Christchurch would receive the funding necessary to rebuild its infrastructure without the need to raise rates, sell assets, or delay necessary projects. Projects would be completed faster taking the stress off battle weary residents.
Existing commercial bank loans to local bodies
(and hospital boards) would be replaced by no interest
Reserve Bank loans. Costs to ratepayers would go down,
allowing for significant rate reductions as currently 10
percent of rates (approx $500 million) annually goes to pay
interest on council debt of $4.9 billion.
Improved infrastructure would assist with making business more competitive, bring costs down, improve our environment (sewage treatment, water quality), and provide a big boost to employment.
4. Stop the Sale of New Zealand
into Overseas Ownership
New Zealand will no longer be hocked off to the highest bidder.
The criteria under which the Overseas Investment Commission operates will be urgently revised and funding for New Zealand businesses will become available internally so that the need for overseas sources reduces.
We will prevent the sale of agricultural land into overseas ownership and will gradually repatriate land already sold.
Immigration criteria will be
revised so that immigration becomes based on skill needs
rather than money.
Sale of strategic assets will be stopped.
The terms of the Trans Pacific Partnership Agreement (and other international agreements) will be reviewed to ensure we retain authority over our own sovereignty and our ability to make our own decisions. Any such agreements will be fully disclosed in parliament and debated publicly.
The following excerpts from our tenets are what drive our economic initiatives:-
What is physically possible and desirable for the happiness of humanity can always be financially possible.
Systems should be made for people, not people for systems; any that fail to serve people should be reformed or discarded.
The individual is more important than the state. Communism, fascism, and political authoritarianism in any form should be opposed.
Individual and co-operative enterprise should be the basis of economic organisation.
Where state-owned enterprises are necessary or desirable, they should conform to the same conditions and rules as privately owned concerns.
The implementation of the initiatives set out in this document is not a complete answer for the reform of the country’s economy.
They are a start down the road of regaining control of New Zealand’s money system, our decision making ability, and our options for the future.
These initiatives, along with others not included in this document, will provide better health and education, increased job opportunities, reduced stress on families, an improved standard of living – especially for those on the bottom of the ladder, tackle poverty and inequality, improve our environment and signal a return of the country to first world status.
NZ Reserve Bank Letter - 1 September 1994 Reserve_Bank_Letter.pdf
Bank of England Bulletin Q1 2014 Bank_of_England_Money_Creation.pdf
International Monetary Fund Report “The Chicago Plan Revisited” August 2012 IMF_Paper_Conclusions.doc