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Hurricane in a Glass of WaterA few days back, a glorious new budget was introduced in New Zealand by the fearless leader Mr. John Key. Luckily enough, we don't reside in New Zealand so we are not forced to use his political title of "The Right Honorable" even more because we have no proof that he is either "right" or "honorable" (for all we know he may be "left" and "not-so-honorable", but will reserve judgment for now).


The introduction of a new budget in countries of the British Commonwealth , where the top politician is "appointed" by the Governor-General representing the Queen of England and serves for a term dictated by Her Majesty's pleasure (and parliamentary support… maybe), is always a fun affair to watch.

All the elements of a good novel are present.

We have the number jugglers claiming this percentage and those millions against that forecast in this period but then hiding this expenditure and that debt and the other calamity.

We also have the political stars, with their permanently glued-on smile and their shiny beady eyes, and let's not forget their wives, lovers, friends, relatives and the other plethora of photo-op candy.

Adorning the entry of the "grand saloon" where the "sacred document" will be distributed to those "who matter", there is the inevitable accumulation of plebes; the suckers who came to "make their voice heard" and "who believe that matter".

Between these two sets of characters, we always find a conglomerate of little bureaucrats, police officers, guards, secretaries and the rest of the large collection of useless people who perform no useful job, produce nothing and yet get paid exuberantly well from taxpayers' money and future earnings.

It's all a show.

Of course, it is a carefully rehearsed dance specifically designed to ensure that nothing of significance will ever change. This dance is as old as the Roman Empire: bread and circus.

And New Zealand is not the exception.


It is pointless

After all this is said and done, after the government's bean counters finish with their numerical firework, just a few key numbers remain.

No, we are not going to bother looking at how many measly millions will be saved because construction nails will no longer be taxed (no, it is not a joke). Nor will we be looking at the extra measly dollars that mothers will be able to deduct from taxes because of their children (assuming they have them and actually have the income from which deductions can be performed). None of this matters.

Does it matter if the budget is in surplus? No.

Does it matter if the debt is reduced or increased? No.

Nothing really matters in the long term.

Why is so?

Because eventually all governments spend. What this means is that even if this government manages to maintain its budget in black, the next one will dump it into red.

This is so for one simple reason: politicians must spend to buy votes.

It is pointless.

The numbers

But you are asking for numbers. OK. Let's go to the numbers. The few numbers that matter are simply the GDP, Debt, Expenditures and growth forecast. With them we can do a lot.

First off, let's collect the data from our three indices to take a look at how New Zealand fares. Here they are:

New Zealand Economic Indicators

The three key indicators (DI, DVI and ESSI) are part of our Projects initiative.

Let's take a look.

The DI is well below the magic 1600% mark that indicates a country is in the default region. Kudos to NZ.

The DVI indicates that NZ is still taking debt but it is a long way from the default point. Again, kudos to NZ.

The ESSI on the other hand, tells us a completely different story. It would seem that NZ has been cheating! Its level of socialism is being supported by debt instead of genuine resources and it is heading towards a catastrophe.

What a surprise…

So from these simple numbers we know that NZ's financial affairs are more or less stable, but it's politicians are buying votes through debt at a rate that it is not sustainable… hence the "conservative" budget.

In order to stay in power, politicians need to spend; but if they spend too much, socialism will collapse during their reign and this is not acceptable. Of course, what happens after their reign, that's an entire different matter since they will be enjoying a golden retirement courtesy of the suckers that pay taxes.

But there is one more key number that we have not yet utilized: the forecasted GDP.

The entire budget scheme (scheme as in "plot") revolves around the notion that NZ will grow 4% next year. Uhu… we are far less than impressed. Let's take a look:

New Zealand GDP

This graph tells a compelling story.

All these data were taken from the International Monetary Fund, which is supposed to be a reliable source.

If we do the math, we will realize that NZ was able to grow at or above 4% in only 27% of all the years and many of those years NZ was part of the world-wide "boom" phase, courtesy of the usual suspect Central Bankers. But OK, let's take this at face value.

If you look at the graph, even the hyper-optimistic IMF believes that NZ will be growing at 3% in 2015, not 4%.

In addition, we have the US economy that is not recovering. China is in troubles, Brazil is slowing down, Russia is having zero growth and the EU is going into QE (Quantitative Easing) with negative! bank interest rates for deposits (i.e. banks in EU will charge clients for the savings they may have in the bank).

In other words, the forecasts point down, the statistics are not favorable the world is being flushed down the drain for the foreseeable future, economically speaking.

But that's OK. NZ will grow 4% next year. The chief politician says so. OK…


Over here at F&P we forecast that NZ will most definitively not grow at 4% next year. We don't know what the growth will be, but we think that NZlanders should consider themselves lucky if they get more than 2%.

Meanwhile, with the economic slowdown, tax revenues will decay and with it tax pressure will increase.

But that's OK because next year nobody that actually matters will remember this budget and their forecasts. There will be yet another fireworks display with the usual suspects playing Master of Ceremonies at the bread and circus show.

But that's OK because by then the usual political suspects would have been re-elected.

And the voters?

Well, they don't count, except when it comes to count votes; isn't it how democracy works?


There are those in NZ that are praising the top politician for being "brave" and having concocted a "balanced" budget that will keep NZ on track to reduce their debt, even in an election year.

Bull shit!

All those people have just been misdirected.

The budget is an electoral year budget. Most people don't see it because they just see the numbers in comparison to last year's and there is little change. The problem is that what allows this to happen is that magical forecast of 4% GDP growth next year. If they would have actually forecasted something even remotely close to reality (between 0% and 2%), then a "balanced" budget would had to contain a large number of cuts… and this would piss-off a large number of voters. Not good.

Let us say this again. This is an electoral year budget, because there are insufficient cuts to make it a true "balanced" budget… which would not have mattered anyways.

Bread and circus, remember?


Are we picking on NZ? Not at all. According with our data, NZ is actually doing quite well, comparatively speaking. We selected NZ to show that if a country in a relatively acceptable state of finances plays the same silly budgetary games as everybody else, what chances has a country that is indebted to their eyebrows and borrowing like a drunken sailor?


The point here is that no matter which county you look at, they are all in the same boat with the same politicians, playing the same silly games.

Budgets are there to keep the press and the voters "engaged" and willing to continue voting. They are not there to make any difference and they are most certainly not there to help you or your loved ones.

Believe it. Don't believe it; they will spend it anyways.

Note: please see the Glossary if you are unfamiliar with certain words.


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