Goofy-nomics? Visanomics? Either way Goff is a Fiscal Fool

Matthew Hooton has written what is perhaps his best column ever, perhaps he has finally dried out. Once again I had to trot off to the local Howick Stationers to get a copy of NBR. Why Barry Coleman doesn’t organise me a freebie i’ll never know.

Anyway Hooton takes my Visanomics notion and extends it even further by looking at the menacious arguments of Labour and Phil Goff around superannuation. He labels Phil Goff’s wrong-headed economics prescription as “Goofy-nomics”. On the Superannuation myth;

New Zealanders have been convinced we face an economic crisis of biblical proportions when those aged 44 or below retire.

This irrational fear caused the Lange government to commit suicide with its surtax. The Bolger government tried to follow and the Shipley government succeeded.

In fact, superannuation costs, with no changes in entitlements, are forecast to rise from 3.6% of GDP today to just 5.5% in 2030 and perhaps 6.5% in 2050.

With forecasts out to 2050 scarcely being reliable, the issue is about an increase in costs of less than 2% of GDP by 2030.

To provide contrast, Labour promises to spend a third of this on foreign aid alone, and it is far less than the increase in health spending Michael Cullen happily presided over. It’s material, but it hardly justifies the blind panic that afflicts some politicians.

That kind of puts it into perspective. The surtax that labour applied almost cost Bolger the election in 1993 and lead directly to his brain fart deciding to put it to the people about MMP.

What about Labour’s contention and Cullen supercilious letter he wrote the other day suggesting that Bill English has destroyed his much vaunted “Fund”.

Dr Cullen launched his fund when permanent surpluses were forecast. With zero gross debt being on the medium-term horizon, it made sense to establish a sovereign wealth fund.

Connecting it with superannuation, though, was entirely political. Even Dr Cullen made clear there was no link to future entitlements and future taxpayers were always going to have to meet 89% of costs.

Bill English’s decision not to borrow for the fund will increase that by just 3%.

Moreover, in national-income terms, Mr English’s decision relates to just 0.2% of GDP from 2030.

It is ridiculous to worry about such a number. The smallest economic shock over the next two decades – positive or negative – could double or eliminate it, as could small productivity changes.

Failing that, maintaining current entitlements would simply require reducing our surplus or increasing our deficit by 0.2% of GDP, 20 years hence. That hardly justifies the preposterous notion that we should borrow more now to invest in stocks.

Sounds like much ado about nothing. So why all the fuss and what about Labour’s solution?

In reply, Mr Goff says governments can’t lose. He bases this on the banal observation in a Treasury paper that long-term returns from a diversified portfolio are likely to match the market average which, most probably, will exceed the risk-free rate over time.

Armed with these Corporate Finance 101 assumptions – and apparently with certain knowledge that sharemarkets are about to bounce back – Mr Goff demands that Mr English borrow another $20 billion over the next decade, and calculates it will deliver a net return of $8 billion sometime in the future.

No other politician in the developed world would contemplate such lunacy. Take Mr Goff’s argument to its logical conclusion and why stop at $20 billion?

Why not $200 billion to get $80 billion profit, dead cert?

Make it $2 trillion or more and perhaps tax could be abolished altogether with all government services being funded through the sharemarket.

This isn’t Goffonomics. It’s Goofynomics.

Mr Goff should ask why no other political leader in the history of the world has proposed this before.

Perhaps it’s because they understand it’s not government’s role to borrow from taxpayers yet to be born to risk on Wall Street with the promise of free money in the future.

Even dopier, by legitimising the false notion that future cuts to superannuation are now inevitable, Mr Goff is making them more likely – not a good legacy for a Labour leader.

 

Hell why don’t we just chuck it all on lotto and be done with it? Or perhaps the nag in race 4 at Riccarton. Goofy-nomics, Visanomics, it is simply just plain dumb. The thing is Goff and Cunliffe, the Dumb and Dumber of Labour both think this is credible. Perhaps Cunliffe should lay of the crack.

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