I think we're mixing up how the system works with what the real limits are.
Taxes.
Taxes still matter. They help manage spending in the economy and create demand for NZ dollars.
But for a country that issues its own currency, they don't operate like we view income in the "household" sense, as revenue that must be collected before spending.
As I've repeatedly pointed out, Govt payments are settled through the RBNZ via new money creation. Taxes remove money from circulation. That is the sequence the RBNZ and other central banks outline.
I don't think we apply taxation in the right places, the current system is a reflection of orthodox understanding. But that is another discussion.
Bonds and inflation.
Issuing bonds doesn't create new spending. It swaps cash in the banking reserves system for government bonds. When bonds mature, the reverse happens. Reserves replace the bond. No new money enters the economy.
Inflation happens when total spending pushes beyond what the economy and it's supply chains can actually produce. COVID inflation was largely about supply shocks and bottlenecks. The recession came from raising interest rates to smash demand.
We could have used other tools to target demand, but the Govt chose not to. This is in part due to advice the Govt receives from boffins within Treasury, who adhere to a different framework from the reality.
Lol, I'm not sure if you believe power bills are influenced by Govt daily expenditure. Your power bills are driven by our dire wholesale market and fluctuating supply constraints. Capacity!
Govt's decisions to not invest can certainly be blamed, but not current "debt" position.
MMT, Lebanon and Japan.
MMT describes the mechanics, it's not a framework to change to. It's describing the framework we operate in now. Our Govt operates under a spend, then tax and issue bonds ("debt") system, but we have been told we have a tax, borrow, spend system.
Lebanon has become a currency user. It's pegged itself to USD, borrowing heavily in a foreign currency and ceded control of its sovereign monetary system. NZ issues bonds ("debt") in NZ dollars and settles in NZ dollars. Not a worthy comparison at all.
Japan has had high public debt for decades without collapse. Recent bond activity reflects interest rate shifts, not insolvency.
My key understanding is that the real constraint for Govt is not tax revenue or debt ceilings. It is our productive capacity.
If we do not invest enough in energy supply, grid resilience, transport, housing, skills and infrastructure, the economy stays tight. Then every recovery runs into bottlenecks and turns into higher prices instead of higher output.
That system wide capacity does not get built at the scale required without public investment. Markets alone do not consistently deliver them.
If we underinvest in our productive base, inflation becomes more frequent and living standards wither. Managing inflation is not just about cutting demand.
It is about building enough economic capacity, targeting those bottlenecks so growth does not keep running into the same limits.
That's the framework I'm using.
Have a read of the paper from UCL, it outlines this from the UK perspective. We run similar expenditure systems, only ours is even simpler.
the industry gets privatized but doesn't invest in the infrastructure so we can't generate enough power so the private companies (albeit the govt owns half of some of them) puts out their hands for taxpayers to pay so they can generate more power to sell to us. That's an interesting model.
mises.org
