Superb and elegant explanation of the factually incorrect propaganda being peddled, spun up, and promoted by the incumbent coalition and its Finance Minister. Keep it coming Susan. Thank you.
Always interesting to see that those who shriek most about bringing down Government debt, strike ne as being the same group as those who encourage ordinary folk to borrow to the hilt to keep the housing market "strong".
Perhaps they think that the less the gov't borrows for national investment, the more headroom there is for private borrowing to boost real estate values.
Thanks, Susan – really appreciate you cutting through Nicola Willis’ spin and the tired household finances rhetoric with such clear, evidence-based analysis. What Willis and the Coalition of Cruelty are serving up used to be called ‘fiddling the books’ or ‘pulling the wool over our eyes’. Maybe it’s time we coined a local term for this kind of public misdirection – something like ‘pulling a Willis’? Though to be fair, ‘pulling a swifty’ still does the trick – especially when the trick’s on all of us.
Hi Susan: I have read your various posts closely to try to answer a question which has several times come to mind as I followed your discussions about what constitutes ‘net’ debt. Your work is important and valuable, but I have felt I might be uncomfortable quoting your work at times when you mention car loans, for example, as being “offsettable” in some way against the asset - a car - financed thereby. I trust you mean only to offset truly “financial” assets against gross debt, but (to me) you do not always make that explicitly clear.
Can you also comment on the assets in the Superannuation Fund? We are, as I understand it, trying to build a fund to move from a pay-as-we-go pension system to one which is more ( if not fully) pre-funded. With an ageing, but longer-living, population, pensions do threaten to become a massive burden, with health costs increasing in tandem. Maybe education costs might fall a bit in partial compensation!
Are the obligations on future governments to fund ‘super’ any different from obligations to fund health, education or defence? If they are, it’s a tricky question to decide how the Superannuation Fund should be accounted for. If not, then the value of that fund really is a financial asset which should be offset against nominal debt.
Thanks for the comment and you are right there is a difference between financial and real assets. The analogy of the person holds though. If I have $500,000 of debt and no house or car or business, it is quite different, to how my debt looks in the context of say a $3m house and an upmarket car. I do appreciate the car argument is a bit dodgy for many people whose cars are worth very little...
In the context of my substack, the first graph shows the concept of government's net worth. Net worth is debt minus all assets. Some public sector economists prefer that attention is paid to this measure over the other more conventional debt measures.
I will write more about the NZ Super fund-- but some quick comments. It was set up to partially prefund NZS without any judgement about the future shape of super. The purpose is smooth the taxes needed. It is important to note it does not change the economic cost by one dollar.
Nor does it guarantee any aspect of NZ Super. It has involved about $27billion of taxpayer contribution over the years, at the expense of foregone other expenditure. Imagine if we had invested that sum over the years in the health system. We now have a large fund and a trickle comes out from mid-century but has that helped us really prepare for the ageing of the population? The health system on its knees, very badly prepared for the future demands. Our future workforce is poorly prepared with rampant poverty and accumulated debt. Currently the legislation says the NZ Super Fund can only be used for NZ Super, But that could be changed. If we didn't have a ring around it on the balance sheet, the financial assets would be automatically offset against gross debt. We might see we have choices. Ill try to write more coherently about this soon but thanks for thoughtful comment.
Good questions Keith. I have another; if you go into debt to buy a car, yes, in the end you will have an asset. However while you are paying off this debt, the asset is often depreciating in value. So is this particular instance a good example of ‘debt’?
Thank you for this very clear explanation. The manufactured “fiscal crisis “ needs clear evidence to support an opposing view and your article provides this.
Superb and elegant explanation of the factually incorrect propaganda being peddled, spun up, and promoted by the incumbent coalition and its Finance Minister. Keep it coming Susan. Thank you.
Thanks Susan. Completely agree. The graphs do, however, say to me that we need to tax more.
Not more. Different .
We need to tax capital and wealth, not just income
Always interesting to see that those who shriek most about bringing down Government debt, strike ne as being the same group as those who encourage ordinary folk to borrow to the hilt to keep the housing market "strong".
Perhaps they think that the less the gov't borrows for national investment, the more headroom there is for private borrowing to boost real estate values.
Mindblowing clarity - thank you.
Thanks, Susan – really appreciate you cutting through Nicola Willis’ spin and the tired household finances rhetoric with such clear, evidence-based analysis. What Willis and the Coalition of Cruelty are serving up used to be called ‘fiddling the books’ or ‘pulling the wool over our eyes’. Maybe it’s time we coined a local term for this kind of public misdirection – something like ‘pulling a Willis’? Though to be fair, ‘pulling a swifty’ still does the trick – especially when the trick’s on all of us.
Thank you Susan, very clear explanations even I can follow. NW seems to be out of her depth but probably being frugal with the facts.
Agree David NW is out of her depth. She does not understand she is elected to SERVE all citizens of NZ. Very dodgy.
Excellent piece Susan and great to point out the dodgy apples with oranges comparison with debt.
Excellent explanation.
So the question is, does Nicolla Willis
1. Not understanding this or
2. Lying
Hi Susan: I have read your various posts closely to try to answer a question which has several times come to mind as I followed your discussions about what constitutes ‘net’ debt. Your work is important and valuable, but I have felt I might be uncomfortable quoting your work at times when you mention car loans, for example, as being “offsettable” in some way against the asset - a car - financed thereby. I trust you mean only to offset truly “financial” assets against gross debt, but (to me) you do not always make that explicitly clear.
Can you also comment on the assets in the Superannuation Fund? We are, as I understand it, trying to build a fund to move from a pay-as-we-go pension system to one which is more ( if not fully) pre-funded. With an ageing, but longer-living, population, pensions do threaten to become a massive burden, with health costs increasing in tandem. Maybe education costs might fall a bit in partial compensation!
Are the obligations on future governments to fund ‘super’ any different from obligations to fund health, education or defence? If they are, it’s a tricky question to decide how the Superannuation Fund should be accounted for. If not, then the value of that fund really is a financial asset which should be offset against nominal debt.
Please comment!
Hi Keith
Thanks for the comment and you are right there is a difference between financial and real assets. The analogy of the person holds though. If I have $500,000 of debt and no house or car or business, it is quite different, to how my debt looks in the context of say a $3m house and an upmarket car. I do appreciate the car argument is a bit dodgy for many people whose cars are worth very little...
In the context of my substack, the first graph shows the concept of government's net worth. Net worth is debt minus all assets. Some public sector economists prefer that attention is paid to this measure over the other more conventional debt measures.
I will write more about the NZ Super fund-- but some quick comments. It was set up to partially prefund NZS without any judgement about the future shape of super. The purpose is smooth the taxes needed. It is important to note it does not change the economic cost by one dollar.
Nor does it guarantee any aspect of NZ Super. It has involved about $27billion of taxpayer contribution over the years, at the expense of foregone other expenditure. Imagine if we had invested that sum over the years in the health system. We now have a large fund and a trickle comes out from mid-century but has that helped us really prepare for the ageing of the population? The health system on its knees, very badly prepared for the future demands. Our future workforce is poorly prepared with rampant poverty and accumulated debt. Currently the legislation says the NZ Super Fund can only be used for NZ Super, But that could be changed. If we didn't have a ring around it on the balance sheet, the financial assets would be automatically offset against gross debt. We might see we have choices. Ill try to write more coherently about this soon but thanks for thoughtful comment.
Good questions Keith. I have another; if you go into debt to buy a car, yes, in the end you will have an asset. However while you are paying off this debt, the asset is often depreciating in value. So is this particular instance a good example of ‘debt’?
Thank you for this very clear explanation. The manufactured “fiscal crisis “ needs clear evidence to support an opposing view and your article provides this.
Brilliant
PatrickMedlicotg