Last year the Treasury provided a report to its ministers headed Should we be concerned about profits going offshore?   It is a competent analysis and very relevant to the privatisation debate.

The report begins with some important factual observations which are not well understood.  One is that New Zealand’s current account deficit is dominated by investment income and transfers because goods and services have been largely in balance over the past decade.

Another is that:

The result of a long period of current account deficits is a very high net international investment position (NIIP), at about -90% of GDP. The overall position is predominantly made up of net debt rather than net equity. That is, New Zealand’s investment position with the rest of the world is better characterised as owing a lot rather than being owned.

The report then moves on to analytical issues.  It makes a point I have made repeatedly in this series:

There are two sides to the sale of an asset: a one-off payment to the seller and an expected stream of profits to the buyer. If the price is efficient, these two sides of the transaction should be equivalent: that is, the purchase price represents the net present value of the future stream of profits (i.e. the commercial value). In general, in respect of sales of government assets the value of the business to the purchaser should exceed the commercial value of the asset if retained in Crown ownership because of the greater efficiencies likely to be achieved in private ownership. A competitive sale process should ensure that the value of those expected efficiency gains are captured by the Crown in the sale price.

As regards the effect of ‘profits going offshore’ on the balance of payments, the report states:

The fundamental drivers of the current account deficit are national saving and domestic investment. Selling an asset to foreigners will only have a significant effect on the current account deficit if it affects these fundamental drivers.

A quibble here is that I would not I would not take an identity A ≡ B and C and argue that B and C are the drivers of A.  We could as easily write that B ≡ A-C and A and C are the drivers of B.  It follows that I (investment) and S (saving) are not the drivers of CAD (the current account deficit) just because CAD ≡ I – S. All three variables are endogenous outcomes, even in a model as simple as the closed economy IS/LM model.

The report then correctly points out that:

When an asset is sold to overseas investors, these overseas investors will be required to pay for their purchase of the New Zealand asset. The impact on the current account deficit will depend on how the seller of the asset uses these funds:

  • If the funds are used to increase [consumption] spending, national saving would fall and the overall current account deficit would increase.
  • If the funds are used to invest in overseas equity, there would be no change in national saving or domestic investment and therefore no effect on the current account deficit.
  • If the funds are used to repay overseas debt, there will be a deleveraging of New Zealanders’ balance sheets. The composition of New Zealand’s NIIP would change by reducing debt owed to foreigners and increasing equity owned by foreigners. Overall this would be expected to reduce New Zealand’s vulnerability, because the vulnerabilities associated with a high NIIP are somewhat greater for debt than equity

It is also important to explain that it is not New Zealand that owes the NIIP to foreigners.   New Zealand is a place, not a person. The place owes nothing.  Foreign entities operating in New Zealand can and do borrow offshore.  So do entities operating in New Zealand that are owned by New Zealanders. New Zealanders are only liable for debts they have incurred.  They are not liable for debts foreign-owned entities have incurred.     If this is not explained, lay people (and even too many economists) are led to assume that the NIIP is a liability of New Zealanders. They then start thinking that New Zealanders are ‘not saving enough’ if national savings (which is only savings by New Zealanders) is not equal to the sum of capital formation in New Zealand by New Zealanders and by foreign-owned entities.  It is then an easy step for them to then start worrying that if gross fixed capital formation is greater than national savings then ‘we’ must be spending more than ‘we’ are producing.   This does not automatically follow.

The Treasury report concludes:

In sum, we think focussing on ‘profits going offshore’ has a weak economic basis because it focuses on only part of the picture. So we do not think it makes sense to be concerned about ‘profits going offshore’ per se. The more important places to focus from a macroeconomic perspective are the overall saving and investment balance and New Zealand’s overall external vulnerability. 

In the final analysis, a concern about ‘profits going offshore’ applies to all foreign direct investment.  Particularly in an era of globalisation it is hard to make a general argument that foreign investment is bad for New Zealand.






Here is a graph from the latest OECD Economic Outlook.  It’s an illustration of how much more OECD governments are projected to be spending in the year ahead compared with average levels of spending in the period 1993-2012.  The government spending data are on the OECD basis which is standardised across OECD countries, and includes for New Zealand central and local government.

The chart shows that for the current year, government spending in New Zealand is at an all-time high.  It currently stands at 46.2% of GDP, over 2 percentage points of GDP higher than the 1993-2012 average.  Spending has gone up by more than the OECD average, and only by slightly less than Greeceand Portugal, which is food for thought. Sweden has done best to rein in government spending, albeit from a high long-term average.

No OECD country has achieved sustained rapid GDP growth (4% per capita or more) with government spending at New Zealand’s current level of over 40% of GDP.


Three separate welfare stories caught my eye this week, all on benefit fraud.  The Bay of Plenty Times reported that more than $1 million of benefit fraud was committed by 41 Western Bay people prosecuted in the 18 months to the end of last year.  According to a lawyer for the Ministry of Social Development, benefit fraud is on the rise.

Benefit fraud cost New Zealand taxpayers nearly $16 million last year, and fraud detected by the Ministry has almost doubled from $8.1 million five years ago. That figure includes fraud committed by 10 social welfare staff, who were sacked for ripping off the system.

 MSD chief executive Peter Hughes says:

I do not tolerate benefit fraud and whenever a client has [been] deliberately involved in planned and premeditated benefit fraud they are prosecuted.

And yet I read in Tuesday’s New Zealand Herald about 5000 people who had moved off the dole, but who it seems should not have been on it anyway. This was, according to Minister Paula Bennett,

… because of the new requirement to reapply after a year, either because they did not reapply, had found jobs or were no longer eligible.

“It was an interesting exercise that tells you 5,000 people who were on an Unemployment Benefit didn’t actually need it and probably shouldn’t have had it.”

What is that if not benefit fraud? 

A conventional view is that you can’t get immediate savings from welfare reform – you have to first invest up front to get people into work. Cases like this cast doubt on that view.  And I suspect there would be a lot more low-hanging fruit. 

Here’s another example from the same Herald story. Until recently only 37 percent of beneficiaries were work-tested, but changes already brought in by this government are making a difference, such as part-time work requirements for DPB recipients with children over the age of six:

The number of those coming off the DPB since part-time work requirements were introduced had increased by 22 per cent over the past year – to more than 3,500 people.

Then on Tuesday in Rotorua’s Daily Post  I read about two Rotorua households being investigated by MSD:

Figures released to The Daily Post show two homes in the city, each occupied by six adults and one child, receive weekly benefits totalling $1749.60 and $1590.74.

That’s $173,000 being collected by these two households annually. The article also reported that:

… one Mangere home has 18 occupants, including 11 children, collecting weekly benefits of more than $2400.

Rotorua beneficiaries advocate Paul Blair has slammed the investigation as “benefit bashing” but Ms Bennett told The Daily Post it was about accountability to taxpayers and ensuring fairness.

Ms Bennett said some of the worst cases of child abuse in New Zealand occurred in situations where multiple people were living and collecting benefits.

Good on her. Too few people in the welfare sector have the courage to speak out about the link between child poverty, child abuse and benefit-dependent households.

‘Beneficiary bashing’ is also the tired old term a number of so-called beneficiary advocates have used to attack the Welfare Working Group’s report on reducing benefit dependency. ut you’d be hard pressed to find anything in the report that sounds remotely like that.  Indeed there is much in the report that proposes improving the lot of beneficiaries, not just through helping those with work capacity to get jobs, but also, and importantly, improving support for the truly needy with significant sickness and rehabilitation needs or disability issues that prevent them from participating in society.  The report’s emphasis on the need for much improved core health services, such as mental health services, disability support and rehabilitation for people recovering from sickness and for those with drug and alcohol dependency problems, should be welcomed by people working in these sectors.

Meanwhile it is good to see MSD getting tough on benefit fraud and abuse.  Relationship fraud is reportedly one of the most prevalent forms of abuse, and measures are needed to remove the difference between payments made to single individuals and those living with a partner. Among the working group’s recommendations in this area is a publicity campaign to reduce public tolerance of benefit fraud and abuse and promote use of a hotline to report it.   Sounds like a smart idea. After all, as Minister Bennett said: 

“Hard-working New Zealanders are doing it tough and would love to have an extra $1000 a week coming into their homes.”


The OECD has recently come out with this survey of well-being indicators in OECD countries.

We all know that GDP/head isn’t everything.  But it’s amusing to see governments in countries that are economic losers wanting to focus on other elements of well-being. Sarkozy in France with his happiness trope, aided and abetted by Joseph Stiglitz, is a case in point. Unfortunately for people like Sarkozy, the happiness literature suggests that happiness seems to correlate quite closely with income and wealth!

I’m somewhat underwhelmed by the OECD’s metrics.   The criteria touch on the importance of individual liberty, but only somewhat tangentially.   Consultation is regarded as more important than consent or compensation in matters of taxation and regulatory takings. Induced state dependency is apparently OK if the dependents feel happy and secure in their dependency. (This notion comes through again in the ‘Work-life balance’ section where too much work is more likely to be a bad thing than too much leisure in terms of OECD norms.)

No distinction seems to be drawn between satisfaction through achievement and satisfaction from stupor-inducing drugs, dissolute living, or armchair-TV sloth. There is a ‘feel good’ aspect to the OECD’s approach.

Australia comes out on top on governance – because it has such a high voter turnout.  Is this convincing when voting is compulsory in Australia?

I doubt that public policy making can be improved by the new measures. The imperative for political parties is to get re-elected. Providing them with a richer set of measures than GDP is not going to alter this imperative. They are still going to be in the game of using other people’s money to buy votes from their target constituencies.

I would prefer to use market measures rather than surveys to assess the relative attractiveness of countries. For example, indicators of actual and suppressed demand for residency, country by country, should provide useful information. The United States is the No 1 country in the world for immigrants.  The net migration flow is from New Zealand to Australia. Not everyone finds the United States or Australia attractive but migration patterns tell us something about the preferences of people at large. 

Others have poked holes in the OECD’s analysis. A comment on the Marginal Revolution blog reads as follows:

I did a Principal Component Analysis on the OECD’s model. Maybe unsurprisingly in the SWPL-based weights in this model, the United States only comes out on top if I prefer:

–   high income
–   no community
–   bad education
–   bad environment
–   high governance
–   poor health
–   no life satisfaction
–   poor safety
–   poor work life balance

However, after having lived in and worked for many years in four other OECD countries, on three different continents, my experience has been exactly the opposite.  So I decided to come and live in the fifth country, the United States.

The amount of hidden bias in these international organisations like OECD, WHO and UN is truly astounding.

Australian economist (and author of several Business Roundtable studies) Winton Bates has also blogged on the OECD’s well-being indicators here.

I am not sure the OECD’s better life index is meant to be fun. But I have had some fun playing with it. The index is interactive. The fun comes from giving different weight to 11 different criteria (or topics as they are described by the OECD) and then observing how this affects rankings of well-being of OECD countries.

Bates plays this game and concludes that New Zealand comes out quite well on all rankings, although consistently after Australia.  Then he concludes:

Having had some fun, the more serious question that comes to mind is whether a focus on the OECD’s well-being indicators (and other similar constructions) is likely to distract political attention away from much-needed economic reforms to improve the economic strength of some economies. For example, if well-being indicators suggest that people in some lovely country (New Zealand comes to mind) tend to enjoy living standards substantially higher than other countries with comparable per capita GDP levels, there may be a tendency for the government of that country to become complacent about establishing conditions more favourable to further improvement of living standards.

How true! As one expatriate wrote to me recently about New Zealand:

Things are just too easy, too comfortable; we are too isolated and too willing to leave important things to the government, even when their lack of competence is well understood.

It seems to be a combination of laziness and an unpreparedness to think things through (even when they’re not working). Being first class is not the Kiwi way (we prefer to muddle through and complain).

We’re not on our own. The big government disaster that is California is losing businesses and people to more dynamic, low-tax states such as Texas. But hey!, life’s a beach in California and dynamic industries like those in Silicon Valley survive against the odds.  A crisis may not happen soon. As Adam Smith famously put it, “There’s a lot of ruin in a nation.”

The Treasury has been playing a similar game.  I will blog on that soon.




New Zealand Herald political commentator John Armstrong was dispensing advice to the Labour Party on privatisation issues in his column last Saturday (June 11).

First, he wrote:

Labour needs to make merry hell with the foreign ownership bogie – perhaps to a point bordering on xenophobia.

What sort of responsible economic journalism is that?  I dealt with the foreign ownership ‘bogie’ in TAP # 7.  First, selling shares in SOEs to foreigners does not increase net claims on the New Zealand economy.  Second, for a given current account balance, restricting foreign ownership of SOEs is likely to mean higher foreign ownership of other companies.  Does that make any sense?  Third, FDI in SOEs may bring the same benefits as FDI generally: why, on economic grounds, would you want to apply different rules to SOEs?

Mr Armstrong goes on to write:

Labour knows it must also win the pivotal argument surrounding the permanent loss to the Crown of dividends from a one-off sale of up to 49 percent of the shares in each state-owned enterprise.

Labour cannot win that argument because it is false.  I discussed it in TAP # 11.

Let’s first look at the factual situation.  The Crown would lose the future dividend stream and up to 49 percent of the SOE’s retained earnings if a minority interest in an SOE were sold.  Retained earnings of SOEs that are attributable to the Crown and dividends paid to the Crown are included in the Total Crown operating balance. 

On this basis it is easy to demonstrate that Mr Armstrong’s argument is false because there is no net financial loss from a sale.  For a given fiscal deficit or surplus, the proceeds from selling one asset must be used to reduce debt or to invest elsewhere.  That is an accounting identity.  If all transactions are at market values and the buyer can effect no improvement in the SOE’s earnings, the value of the reduced interest payments on debt or on the increased dividends from the replacement investments will fully compensate taxpayers for the sale of the SOEs.  Expected cash flows to the Crown will rise or fall depending on whether the replacement investments are more or less risky than the SOE investment, but risk-adjusted they will be the same.  In other words, the Crown can’t lose from selling an asset at its market value.  Such a sale does not change the market value of Crown net worth.  Nor does it alter the net income stream that can be generated from that net worth.

A similar conclusion is evident from examining the way in which shares and bonds are valued in simple models.   Essentially what I was saying on TAP #11 was that if an SOE distributed its entire net cash flow each year, the present value of the future dividends would, assuming the distribution policy had no adverse effect on the efficiency of the firm’s operations and given the appropriate discount rate, equal the value of the enterprise.  On this static assumption, and assuming away different assessments about risk and uncertainty, a rational investor would be indifferent between selling the asset for its net present value now and retaining it and receiving the future dividend stream because they are of equal value. There is no loss if the share is sold for its market value.

In fact an alternative owner and a different incentive structure arising from a change in ownership may improve efficiency.  In this dynamic situation, the value of the enterprise on its sale may be more than the present value of future cash flows under the existing incentive structure.  Given a competitive sale process, the Crown is likely to end up better off from a financial perspective because bidders would tend to pay what the enterpise is worth to them, taking account of the scope to increase efficiency. This is a key economic and financial argument for privatisation.

Let’s come at the issue from another angle and consider the analogy of a bond.  Suppose I had a risk-free bond of $100 yielding 5%.  The risk free rate of interest is thus 5%.  The present value of the interest stream to infinity (assuming a constant risk-free discount rate) is $5/i=$5/0.05=$100.  In this case the entire interest is paid to the bond holder.  The net present value of the interest stream is equal to the value of the bond.  As a bond holder I am indifferent as to whether to hold or sell the bond.  If the government were the bond holder, no one could sensibly object to a decision to sell it.

The situation is the same with a holder of equity.  Suppose I have a $100 share in a firm that is fully equity-financed and, for argument’s sake, is regarded as risk-free, and it pays out 100% of its profits at a dividend rate of 5%.  I am in the same position as I would be as a bond holder:  I am indifferent as to whether I receive the future cash flows as dividends or take them out up front by selling the share.  Thus if the government were the holder of equity (say, in an SOE) no one could sensibly argue that it would lose financially from a sale.

Of course, dividend rates may be higher but only because of greater risk.  Adjusting for risk and other factors like liquidity, investors should again be indifferent between the two cash flows. Moreover, as noted above, if a share is sold at market value while holding the government’s deficit or surplus constant, taxpayers will be fully compensated for the dividend stream and retained earnings forgone.

The bottom line is that taxpayers are unlikely to be worse off financially from SOE sales and are likely to be better off because of the efficiency gains from a competitive commercial environment. 

Having said all this, the fiscal effects of privatisation are a second-level issue.  The more important efficiency gains from privatisation could also be achieved if the government simply gave away shares to citizens.  It is community welfare, not the Crown’s financial position, that counts and that is where the debate should be focused.  Debate over fiscal effects doesn’t go to the heart of the matter.

Labour would be unwise to follow Mr Armstrong’s advice.





 Don Boudreaux masterfully continues the Julian Simon tradition in his WSJ article “More Weather Deaths? Wanna Bet?”, according to Mark Perry in his blog Carpe Diem:

Writing recently in the Washington Post, environmental guru Bill McKibben asserted that the number and severity of recent weather events, such as the tornado in Joplin,Mo., are too great not to be the result of fossil-fuel induced climate change. He suggested that governments’ failure to reduce emissions of greenhouse gases will result in more violent weather and weather-related deaths in the future. And pointing to the tragedy in Joplin, Mr McKibben summarily dismissed the idea that, if climate change really is occurring, human beings can successfully adapt to it.

“There’s one problem with this global-warming chicken little-ism”, Perry writes.  “It has little to do with reality. National Weather Service data on weather-related fatalities since 1940 show that the risks of Americans being killed by violent weather have fallen significantly over the past 70 years.”

Perry notes that:

The annual number of deaths caused by tornadoes, floods and hurricanes, naturally, varies. For example, the number of persons killed by these weather events in 1972 was 703 while the number killed in 1988 was 72. But amid this variance is a clear trend: the number of weather-related fatalities, especially since 1980, has dropped dramatically.

For the 30-year span of 1980-2009, the average annual number of Americans killed by tornadoes, floods and hurricanes was 194 – fully one-third fewer deaths each year than during the 1940-1979 period. The average annual number of deaths for the years 1980-2009 falls even further, to 160 from 194, if we exclude the deaths attributed to Hurricane Katrina, most of which were caused by a levee that breached on the day after the storm struck land

This decline in the absolute number of deaths caused by tornadoes, floods and hurricanes is even more impressive considering that the population of the United States more than doubled over these years – to 308 million in 2010 from 132 million in 1940.


 This is Don Boudreaux’s bet:

“So confident am I that the number of deaths from violent storms will continue to decline that I challenge Mr. McKibben – or Al Gore, Paul Krugman, or any other climate-change doomsayer – to put his wealth where his words are. I’ll bet $10,000 that the average annual number of Americans killed by tornadoes, floods and hurricanes will fall over the next 20 years. Specifically, I’ll bet that the average annual number of Americans killed by these violent weather events from 2011 through 2030 will be lower than it was from 1991 through 2010.

“If environmentalists really are convinced that climate change inevitably makes life on Earth more lethal, this bet for them is a no-brainer. They can position themselves to earn a cool 10 grand while demonstrating to a still-skeptical American public the seriousness of their convictions. But if no one accepts my bet, what would that fact say about how seriously Americans should treat climate-change doomsaying? Do I have any takers?”




Remember the days of Fortress New Zealand when tight import licensing and high tariffs allowed domestic producers to sell goods at far above the price of competing foreign goods?

TVs, motor vehicles, whiteware and many other goods were often available only at twice or more the price which producers sold them for in other countries (and were often shoddy into the bargain).

One of the popular arguments for import protection was that it created or saved jobs in the protected firms.

However, such jobs came at the expense of jobs elsewhere in the economy, especially in internationally competing industries that faced higher costs (including wages that were bid up by the protected firms).  Policy makers finally came to understand that there was no free lunch in import protection and barriers were lowered.

Yet pockets of protectionist sentiment still exist.

Yesterday I read this letter in the New Zealand Herald.

At a time when the country needs a boost in morale and employment, why is the Government so reluctant to intervene and stop the building of KiwiRail locomotives and rolling stock going overseas, with the loss of 70 jobs.  Its intervention would preserve and possibly create jobs at both Hillside and Wellington.

And also this one:

Money spent in New Zealand to manufacture our railcars circulated in our economy.  Wages become purchases, savings, taxes and investments.  There is a multiplier effect, both economic and social.

Money spent importing Chinese railcars simply leaves our economy, increasing our debt and increasing our balance of payments deficit.  Importing, rather than building, railcars will have a negative multiplier effect, including increased foreign debt, lack of local venture capital, unemployment and related social costs.  

Even if it were to cost twice as much, though no one has said it would, to build the cars here we would be far better off.  What game is our merchant banker Government up to?  Where is it sense of national identity?  Perhaps they should change their party name to the Nationless Party.     

Here we are seeing the same old protectionist fallacy.  Assuming KiwiRail has got its numbers right, building rolling stock here at higher cost would mean its customers would face higher prices across the board.  They would grow less and create fewer jobs.

Many of the customers would be in the export sector.  The badly needed rebalancing of the economy would be hampered.  And of course KiwiRail would be an even bigger drain on taxpayers.

The lessons of economics have to be learned anew in every generation.


Many commentators doubt the feasibility of the government’s goal of catching up to Australia’s income levels by 2025.  The 2025 Taskforce in its last report stated:

To close the gap by 2025 New Zealand’s GDP will need to grow two percent faster on average than Australian GDP every year, that is, at around four percent per annum.

That is certainly a challenging goal, but in my view it is feasible given outstanding economic management. I prefer to put the question the other way round:  If New Zealand adopted the kind of economic framework of Hong Kong and Singapore (fully open economies, high levels of economic freedom, low taxes etc) why wouldn’t we achieve the goal?

Support for this position comes from this blog by John Taylor, a highly respected US economist with impeccable credentials.  Now at Stanford University, he was a former high-ranking official in the US Treasury and a member of the Council of Economic Advisers.  He is known for the ‘Taylor rule’ which central banks (including our Reserve Bank) use in setting monetary policy.

In the blog Professor Taylor responds to sceptics of the 5% economic growth target put forward by Republican presidential candidate Tim Pawlenty.  He writes that, as stated by Pawlenty:

“5% growth is not some pie-in-the-sky number.” One way to see why is by dissecting the number into its two parts using basic economics. As we teach in Economics 1, economic growth equals employment growth plus productivity growth.

Then he says:

First, look at employment growth. Given the dismal jobs situation, that’s the highest priority. Currently the percentage of the working-age population (age 16 and over) that is actually working is very low at 58.4 percent. In the year 2000 it reached 64.7 percent, so that is at least a feasible number. Raising the employment-to-population ratio to 64.7 means an employment increase of 10.8 percent (64.7-58.4/58.4 = .108) or about 1 percent per year over 10 years, even without any growth of the population. Adding in about 1 percent for population growth (from Census projections), gives employment growth of 2 percent per year.

New Zealand labour force participation rates are relatively high but there is ample scope to increase them, for example by reducing welfare rolls, altering employment laws (eg minimum youth rates) and facilitating the ongoing employment of older workers.

On productivity, Taylor writes:

Since the productivity resurgence began around 1996, productivity growth in the United States has averaged 2.7 percent according to the Bureau of Labor Statistics. So numbers in that range are not pie in the sky. As Harvard economist Dale  Jorgenson and his colleagues have shown, the IT revolution is part of the explanation for the productivity growth, and, if not stifled, is likely to continue, as is pretty clear to me as I sit a few hundred yards from Facebook and other high-tech firms.

In New Zealand, labour productivity growth rates for the measured sector of the economy in the 1992-2000 period were in the 2.5 – 3% range.

And the upshot:

Now if we add the 2.7 percent productivity growth to the 2 percent employment growth, we get 4.7 percent economic growth, which is within reaching distance of – or simply rounds up to – the 5 percent target set by Governor Pawlenty.

Taylor concludes by sketching the policies needed to achieve the goal:

You can see how the types of pro-growth policies in the Pawlenty plan would work toward the goal by reducing spending growth enough to balance the budget without tax increases and thereby remove threats of a debt crisis; by lowering marginal tax rates to spur hiring and job growth; by scaling back unnecessary new regulations which impede private investment and higher productivity, and by restoring sound monetary policy to remove uncertainty about inflation or another financial crisis.

This is consistent with the thrust of the 2025 Taskforce’s recommendations.


Here is the latest on employment trends in the United States.

As the accompanying narrative states, the chart above shows monthly private sector jobs since January 2005 calculated by the Bureau of Labor Studies from two different methods: a) the household survey, which is larger and includes self-employed workers, and b) the establishment survey, based on company payroll records.  Over time they move very closely, although monthly variations are common – for May the household survey showed a gain of 373,000 private sector jobs, compared to a gain of only 83,000 private payroll jobs.  But since the cyclical bottom in December 2009, both surveys are showing gains of more than 2.1 million private sector jobs, which is a healthy increase of 132,000 private sector jobs per month on average.  In the first five months of 2011 through May, private sector job growth has accelerated to an average of 200,000 new jobs per month, according to the household survey.  

For some related commentary, see Scott Grannis’ post ‘The Employment Situation Continues to Improve,’ with this conclusion: “The economy may have hit a mild soft patch, but it is not sinking and is likely to continue to grow. Optimists will once again be rewarded for their patience.”  Scott also comments on the positive effects of the decline in public sector jobs:

We are now seeing evidence that a significant shrinkage in the bloated public sector workforce doesn’t necessarily lead to a painful result for the economy as a whole. In fact, cutting back government spending can free up resources that can be put to better use by the private sector, making the economy stronger over time.

This is (part of) what ‘rebalancing the economy’ inNew Zealand has to mean.




The following chart uses Treasury–Statistics New Zealand long-term time series to show that the increase in real tax revenues per capita during the Clark-Cullen period rivalled the increased taxation to fund World War II and the first Labour Government’s big spending programmes. Quite a remarkable ‘achievement’, in peacetime.  (The dollars are June quarter 2006 dollars).  A grand opportunity for tax cuts during a period of strong economic growth was sadly missed.