Red Alert

Archive for January, 2010

Hands off willie – john

Posted by on January 31st, 2010

Great piece on editorial page of SST today from Steve Braunias. Can’t get a link but worth buying the paper just to read.

“My name wasn’t mentioned in the stories that went with the photo. It wasn’t as if the Taliban were about to put a price on my head and start planning Operation Apiata.

But then the prime minister held a press conference and told everyone,’If it’s Willie Apiata, it’s Willie Apiata.’

I don’t know why he had to say my name twice.”

Wonderful bit about rations cut when Key announced that they weren’t there to eat their lunch.

And fantastic lines about the media team designed to help the SAS win the hearts and minds – of the Americans – so we can get a free trade deal.

tino rangatiratanga flag irony

Posted by on January 30th, 2010

It’s pretty ironic that Ngapuhi won’t fly the tino rangatiratanga flag at Waitangi this year.

They don’t want to be told by anyone what flag they are to fly on their own patch.

That in itself is a great demonstration of tino rangatiratanga.

No pies round Taranaki

Posted by on January 30th, 2010

We did the round Taranaki today. Good race – well organised.

Very hot – no wind but got in a good bunch and did a bit of work from Opunake to Eltham.

Did about 4.10 which would knock about 35min off pb.

Get caught up in a few too many discussions when riding – doesn’t help lungs or concentration. But one interesting one about how the Maori Party and the Nats could move back to promoting pies as part of the school diet and cut the training for teachers in PE and at the same time promote stomach stapling. Amongst the cyclists the consensus was that they were nuts.

Update 4.09 – 3rd in old guys age group. Best time in all groups 3.52. The professionals who started later did 3.53.

Saturday Sport: A Day at the Races

Posted by on January 30th, 2010

Its Wellington Cup day today.  A chance for Wellingtonians to dress up in their finery, get on the train to Hipkins country, hide from the sun (its already pushing 20 degrees) and drink beer and wine from plastic cups. I will be there. I blame geography for my interest in the horses.  I grew up a stones throw from Forbury Park in Dunedin.  My father and I would sometimes go down  in the evening, filled with Presbyterian caution and put $1 each way on number 7 or number 9, his lucky numbers. Just after he passed away last year, I took my brother back there, and an evening of betting on 7 and 9 netted us a healthy return.

Later on I flatted with Terence who thought he had invented the perfect betting system.  This was before the days of home computers. The whole thing was on index cards, and took paintstaking effort to keep up. The system eventually fell away, but my interest stuck. I dont get to more than three or four meetings a year nowadays but I still love it.  For me it is the only form of gambling that I have any time for. There is some considerable skill and knowledge that you can apply, and there is the thrill of the race itself. Interestingly problem gambling is less associated with racing than other forms of gambling. Though that is not to under-estimate the dangers. I have not shaken the Presbyterian caution, but inflation has caught up!

Cup Day is a great day, one  of a number of well attending race meetings in the summer period. But I know the Wellington Racing Club and other clubs would love to see bigger crowds throughout the year. I share my colleagues concerns about the some time unhealthy relationship between the gaming trusts and racing clubs, but I also want to see the clubs survive. Any trip to a summer race meeting this year will have made clear to people that these are great events for bringing communities together.  Clubs have gone to great effort to make days family friendly as well.

Anyway time to get ready. If you are looking for a tip for the Wellington Cup (timed to go at  4.42) you can’t go past Red Ruler. With a name like that I have to support it really, but it is also the favourite. And as a bit of an outsider, take a look at Manonamission.  But keep that one to yourself 😉

Filed under: sport

Coleman’s call : $107k to find a minder

Posted by on January 29th, 2010

In June 2009, Minister of Immigration, Jonathan Coleman told the Transport & Industrial Relations Select Committee that he was going to employ an “external adviser” in the Immigration Service. Someone who was independent who would “operate in the same way that a management consultant would in a business situation, reporting to him”. If he felt like it, he would pass on any key messages to the Chief Executive, but would not guarantee that information would be shown to him. The report from the Select Committee to Parliament says :

“Some of us are concerned that the appointment of an external adviser, in a parallel reporting arrangement alongside the chief executive, may conflict with the requirements of the State Sector Act 1988, which makes departmental chief executives responsible for employees in their departments, and the Public Finance Act 1989, which makes them responsible for expenditure. The Minister, however, maintains that the State Services Commissioner is comfortable with the arrangement and would not have advised the Minister to proceed with the appointment if it breached the technical provisions of either piece of legislation.”

Not so, it seemed. On 1 July, there was an advertisment in the Dominion for a Deputy Chief Executive, reporting to the Chief Executive of the Department of Labour (as Labour said he should) and not Jonathan Coleman. We think he got biffed by the State Services Commission and had to back down.

An announcement of the appointment was made on the 12 November, not by Minister Coleman, but by the Chief Executive of the Department of Labour, Christopher Blake.

And then, at the recent financial review of the Department of Labour, we got the whole story. It cost more than $107,000 to recruit Jonathan’s minder, who after all, isn’t a minder. They searched around the world and came up with Nigel Bickle, currently Deputy Chief Executive, Sector Capability with the Department of Building and Housing, who will take up the new role early this year.

The costs of filling the position of Deputy Chief Executive (Immigration) as given in response to Labour’s questions at the recent financial review were :

Advertising (in NZ and offshore) $23,559.24
Interview Costs $4,314.50
Testing Process (five candidates) $31,000.00
Executive Appointments Fee & Disbursements $48,401.20
Total $107,274.94

These are only the recruitment costs – I have no idea what the salary is.

Minister Coleman isn’t the first in the National Act government to try to politicise the public service.  But this one not only backfired, but has cost taxpayers a lot of money.

Exploding tax myths – Part 2

Posted by on January 29th, 2010

Myth 2. Cutting the top tax rate increases productivity and growth.

It is claimed that:“[a] related problem to our high taxation of business (in particular company) and personal income taxes is that, according to the Treasury, there is growing evidence these types of taxation are bad for productivity and the most negative for growth.”

“We consider that, from an efficiency and productivity growth perspective, the highest priority is to reduce [this disparity between tax rates] by first cutting to personal rates” (Treasury 2009)

In theory the issue seems simple; according to basic economic principles a tax can have a negative effect on behaviour by reducing the incentive to do whatever is taxed.  Impose a tax, and people may decide to work less. 

However, the evidence is surprisingly limited.  Over the last 30 years, economists have undertaken hundreds of studies to determine whether taxes hurt the economy.  A literature review of the topic in 1993 concluded that “the evidence that tax rates matter for growth is disturbingly fragile”.

The OECD comments that: “[o]ver the past decades, one of the most marked changes in taxation has been the large cut in the top rate of personal income tax of most OECD countries, which has been driven in part by concerns over the impact of high rates on entrepreneurship, as well as by tax evasion of highly-paid employees and self-employed professionals.  However, in principle, top marginal statutory rates on personal income can have conflicting effects on entrepreneurial activity.”

Relatively high rates provide for increased risk-sharing with the government if potential losses can be written off against other income, which may encourage entrepreneurial and productive activity.  An example of this in NZ is the use of LAQCs to write off company losses against personal income tax derived from another source. 

New OECD empirical analysis suggests that a reduction in the top marginal tax rate raises productivity in industries with potentially high rates of enterprise creation, so may enhance productivity in countries which have a relatively large share of such industries.  “However, it is likely that other policies and institutional settings, such as those that affect the cost of business start-ups and the competitive environment, have a more direct impact on entrepreneurship.” For example, the analysis shows that the positive impact of lowering top marginal tax rates on productivity is stronger in countries whose product market policies discourage business start-ups, entry of new firms and strong competition.  It is worth noting that the World Bank has ranked NZ in the top three countries for ease of starting a business.

Other research supports the finding that personal tax rates have little impact on growth.  For example Lee & Gordon (2005) found that while corporate tax rate is significantly negatively correlated with economic growth, other tax variables, including the average tax rate on labour income, were not significantly associated with economic growth.

In the book “Taxing Ourselves:  A Citizen’s Guide to the Debate Over Taxes” Slemrod and Rakija examine the relationship between the marginal income tax rate and productivity.  They found that from 1950 to 2002, periods of strong productivity growth actually occurred when the top tax rates were the highest, and on average, high-tax countries were the most affluent countries.

In a study looking at the effect of tax cuts in 2001, the Center on Budget and Policy Priorities noted that in 1993 the US increased the top marginal tax rate from 31% to 39.6%.  Rather than hurting growth, the economy experienced its longest economic expansion in history during the 1990s.  Real GDP grew by an average of 4% a year from 1993 though to 2000, almost 50% faster than the average from 1973 to 1993.  Since 1995, productivity growth has averaged 3% a year, roughly double its average of 1.4% per year between 1973 and 1993.  This study also noted that any effect of tax cuts on growth needs also to be weighed against any negative impact on national savings.  It is possible that a loss of savings could outweigh the modest increase in labour resulting from a tax cut, with the result that the total impact on economic output could actually be negative.

As a final point – from an entrepreneurial perspective – a case study.  I spoke to a very good friend of mine who is one of NZ’s more successful entrepreneurs (net worth $100m give or take), and his comment is that tax rates don’t even come into the equation when he is considering a business venture.

Metiria – if you want to attack Labour do it on your own page

Posted by on January 29th, 2010

I’m pretty new to this social media stuff. Blogging on Red Alert for six or seven months and got into facebook in November while I couldn’t sleep in the UK. Can’t see the point of twitter for me yet.

My facebook friends are mainly local, mainly much younger than me, some sportspeople and followers and a relatively small number  interested in politics.  That group includes some Nats, some Act and some Greens but mainly Labour. Bit over 3k. I turn down a fair proportion of requests if they don’t meet my criteria and am pretty ruthless at dumping people mainly for using bad language, having links I don’t like or repeatedly putting game or quiz type things on my profile.

Last Wednesday night Metiria Turei used my status to attack Labour. Of all things it was on our record on the minimum wage – probably one of the best areas of progress the last government – but the subject doesn’t matter.

As I said above I’m new to facebook.  I regard my page like my home. I chose who is there. While there are lots of discussions initiated by constituents I decide whether they run or not. But the idea of politicians using the comments section of my status to attack me just doesn’t seem right.

Metiria has her page and her blog to attack me. She can comment on Red Alert all she wants to.

So I unfriended her. She is all hurt. She says she will ask to be my friend again. She hasn’t yet. I will say yes. But I will watch her manners carefully.

ps   I found Rod Donald and Sue Bradford good to work with (and Jeanette but only for a short time) – so its not a green allergy.

Filed under: blogs

What’s dumb?

Posted by on January 28th, 2010

John Key’s response to Phil Goff’s announcement today about capping CEO pay in the Public Service was to call the idea “dumb”.

He says that the problem is not that we have too many wealthy people in New Zealand, but too many people who earn very low levels of income.

He went on to say that a big focus of his Government had been to lift wages.

Now how’s that?

Is it through wage freezes and the loss of thousands of jobs?

Or is it increasing the minimum wage by a pathetic 25 cents?

Or is it by paying half a million bucks for a report by Don Brash that was in the rubbish bin before it was even made public?

Sorry, but these comments show how out of touch Key and his government are.

They’re happy for the party on the top floor to rage on while workers at the bottom get nothing.

I call that dumb.

Chief Executive Pay Cap

Posted by on January 28th, 2010

A raw nerve has been struck very quickly with David Farrar over the commitment in Phil Goff’s speech to cap Public Sector Chief Executive pay at the level of the Prime Minister. He describes the policy as “idiocy”.

I wonder how DPF’s friends in the UK Conservative Party would feel about him calling David Cameron an idiot. Because, as Phil Goff said in the speech today, this is something that the UK Tories are also talking about.

Phil Goff’s Speech: The Many Not the Few

Posted by on January 28th, 2010


I’m in Hamilton for Phil’s speech. A full house of about 200 people are currently listening to a passionate speech from Phil about the importance of spreading the benefits of the recovery to all New Zealanders. He has made a couple specific policy commitments to introduce the bill to increase the minimum wage to $15 per hour and to cap the salaries of public sector Chief Executives at the level of the PMs salary (around $400,000). Chief Executive salaries have grown at twice the rate of inflation since 1997, while rank and file workers have only just kept pace with inflation.

Lots more in the speech, well worth a read.

$26 Million “Charm Offensive” from Tolley is just Offensive

Posted by on January 28th, 2010

Waking up to the lead item in the Press that the Minister of Education has been allowed by John Key and his Cabinet to spend $26 million precious education dollars to “win over parents, teachers and schools on the standards” is the most galling announcement by this under-performing Minister since she announced that she would cut exactly half that amount to completely decimate Adult & Community Education.  I thought she had taken $13M out of ACE to contribute to the $35M in private schools – but it now looks like she has money to burn. 

And what about her out-of-touch decision to close Aorangi School 2 weeks before the end of the last term last year ostensibly because the government could not afford the rebuild in these tough times? 

I am incensed!

Even if the $26M includes training for teachers on implementing the standards and the material to support it, it just shows how costly an exercise an unproven methodology will be.    

The Press also has an article in its Good Living supplement, which I cannot seem to link to, but it essentially praises the new curriculum and highlights the complication around its introduction as a result of the government’s desire “to shoehorn national standards in literacy and numeracy into the mix”. 

This reminds me of a CTV Newsmakers special that I appeared on in November last year along with Nicky Wagner from the National Party and Denise Torrey from the Canterbury Primary Principals Association – Part 1, Part 2, Part 3.

Both Denise and I raised concerns about National Standards not measuring the “value add”, recognising that not all students start from the same point, and we were pleased that Nicky said that she had discussed it with the Minister that morning and she too was really interested in schools reporting progress and how they report value add.  Has it happened? No.  Denise reflected on the benefits that were going to come from the most sophisticated, modern, future-focused curriculum in the world. She said that’s where the gains in standards were going to come from.  So where is the evidence to support this “shoehorning” of these untested standards into this curriculum.

Finally when we discussed a new programme to address serious behavioural  problems, Nicky Wagner made it clear that such programmes must be proven, rolled out carefully and evaluated.  Given that the Prime Minister has appointed an eminent scientist to push the evidence-based message, why is Tolley exempt from these standards?

Filed under: education

Why do we favour foreign ownership in our tax system?

Posted by on January 28th, 2010

Before reading this, read the box to the top right of this blog. And then note that I accept that Labour made it worse. And I was Associate Minister of Finance. Then take a deep breath and read on.

For most Kiwis, the imputation system means that the tax their companies (or the companies they own shares in) pay is part and advance payment of their personal tax.  It is a matter of timing but unless they are involved in avoidance or rorts they end up paying a bit more at some stage.

Most countries don’t have imputation systems. Companies pay tax and then individuals pay tax on the dividends from the companies. They don’t get a credit for what the company has paid.

However, for overseas owners of NZ companies, the company tax rate is their final tax. And even then there is real doubt in some cases, for example banks, as to whether they properly declare their profits.

So my fairly simple proposition is; that because their final tax on NZ assets is less than a NZ owner of the same assets, and their net return is higher, they can afford to pay more than Kiwi-owned companies for a specific asset piece of land or whatever and get the same return.

What is the answer? Eliminate the margin between company and top personal rates. You can do this one of three ways:

First, reduce top tax rates down to meet company rates. Second, increase company tax to the top personal rate. Or third (my preference) be fiscally neutral about it and get them to meet at about 36c and while you are at it put the trust rate at that level too.

That means Kiwis can foot it on equal terms buying our assets – it also means we have a tax effect neutral system for choosing the form a business takes – and that is a good thing.

Exploding tax myths – Part 1

Posted by on January 27th, 2010

There is a lot of misinformation and misconception out there about NZ’s tax system, our rates, global competitiveness, competitive advantage etc.

What I will do is post a series of blogs outlining the myth and then give the reality.  If people think this is worthwhile, or if you have ideas about other ‘myths’ you would like debunked or explained, please let me know.

Myth 1. New Zealand taxes corporate taxable income at a relatively high rate.

Reality. NZ’s company tax rate is 30%.  This is lower than in the US, Japan, Germany, France,  Canada, Korea, Italy, Spain, Belgium and Luxembourg.   Not small backwater economies.! Its the same as Australia and the UK, and just fractionally above the EU average of 29.4%. 

Also remember, we don’t have a capital gains tax, a payroll tax, stamp duty or a transactional tax, like a lot of OECD countries do.

Quite simply, our company tax rate is very competitive and uncomplicated.

Facts source OECD.

Tags: ,
Filed under: Tax

Tunnel Backflip

Posted by on January 27th, 2010

Brian Rudman’s piece in Monday’s NZ Herald “Long Twisted road to tunnel backflip” for the Waterview SH20 extension accurately sums up what has been a complete debacle over the past year.

Steven Joyce believes he can come up with a better scheme than the experts at NZ Transport Agency. His micro-managing has meant NZTA having to flip-flop to satisfy Joyce’s latest whim and political needs.

A longer tunnel is better of course, it has less social and environmental impact. It also comes closer to what the Labour government proposed originally. But think of the 200 families who for the past six months have needlessly lived through the hell of thinking their homes would be taken, only now to discover now that they may not. Think too of the people who live alongside Alan Wood park who will still lose their green space.

And don’t think for a moment that this issue is done and dusted. Expect major financial blowouts when there is the realisation that the new tunnel will go over budget, expect more backflips, more excuses and more press releases issued over the holiday period when the Government hopes they won’t be noticed. They certainly will because we deserve better.

Announcements coming today

Posted by on January 27th, 2010

Two on the minimum wage – the National Party on their April fools day increase (I pick $13.00) and Labour on a bill to take it to $15.

Another thoughtful contribution

Posted by on January 27th, 2010

Last week Jordan Carter made a contribution on the future direction of the Labour Party which I shared on Red Alert.

Kaine Thompson has put his Grassroots post onto facebook so it is out there for debate. Worth a look.

Laws didn’t know – yeah right

Posted by on January 27th, 2010

Good detective work from Fairfax tracking comments praising Michael Laws back to Michael Laws’ email address.

One of the reasons us non techie older blokes shouldn’t ever try and disguise ourselves on-line.  We get caught.

If it was a staffer using the email without the bosses consent we would have heard from Michael about the sacking already.

Ministerial downgrade a necessary thing

Posted by on January 26th, 2010

I see Anne Tolley’s Ministerial role has been downgraded so that she can focus on the implementation of National Standards. It had to happen.

With the naughty principals up north threatening to defy her, with no research to prove National Standards have merit, with the country’s top academics refusing to back her, with all her teacher bashing, with her claims that National Standards are the biggest thing to hit NZ education in twenty years, with $32 million sunk into her gamble – she has to focus on making the standards work.

You’d think though that if they are as good as she claims, they’d work anyway.


Posted by on January 26th, 2010

The announcement that farmers have taken up about 1/3 of their entitlement to additional shares in their cooperative company is a good result given the circumstances. The levels of debt driven by hyped expectations of milk prices and banks throwing money at dairy farmers means many were never in a position to take up the 20% allocation. Some could say it has been planned this way so that the inevitable call for further outside capital will lead to the listing of Fonterra on the NZX. For investors and naive money traders this may seem like progress but for farmers it will lead to less money for milk and more for share dividends. This is all basic commercial opportunism and the board of Fonterra should be made to answer some hard questions before they are handed a mandate to move further forward on any capital restructure of New Zealand’s only fully owned multinational company.

We need greater transparency and freedom

Posted by on January 26th, 2010

Transparency in trade negotiations and internet freedom have taken centre stage internationally which I believe has important implications for NZ.

The New Zealand negotiators for ACTA, the Anti-Counterfeiting Trade Agreement, have now said publicly that “New Zealand is calling for greater transparency in negotiations”. In December, MED held two briefings on ACTA, these slides have been made available.

ACTA is currently being negotiated in secrecy. New Zealand is participating in the discussions along with Australia, Canada, the European Union, Japan, South Korea, Mexico, Morocco, Singapore, Switzerland and the United States. Red Alert posted on this before Xmas.

The NZ Herald reported in November that while the US government claims ACTA is about counterfeiting rather than major changes to copyright law, and shouldn’t be subject to public scrutiny, leaked versions of ACTA discussion papers seemed to indicate that copyright lobby organisations may have in fact turned treaty negotiations to suit their own agenda.

At the moment it seems like many of the countries are saying they’re calling for more transparency but they have to get the others to agree. The big question is, is this a tactic, to make it look as though they take it seriously, or is it real?

 The next round of ACTA negotiations kick off today in Guadalajara, Mexico today.  Transparency is on the agenda in Mexico, but it remains to be seen whether it will eventuate. It remains to be seen whether our negotiators from MED and MFAT mean it.

In the meantime, ‘Internet Freedom’ has now become a playing card in US foreign policy, in particular with regards to China and other oppressive regimes.

This has immediate implications for New Zealand, with regards to termination of people’s internet connections for copyright infringement which is included in the revised version of Section 92A of the Copyright Act and is considered by some to be included in ACTA drafts.

In her recent and significant speech on Internet Freedom, US Secretary of State Hillary Clinton said:

“the freedom to connect – the idea that governments should not prevent people from connecting to the internet, to websites, or to each other. The freedom to connect is like the freedom of assembly in cyber space.”

I’ve been writing quite a bit about this and thinking about the wider issue of the right of our citizens to equitably access the internet (which implies that they shouldn’t be cut off from access)

Hillary Clinton also said:

“The private sector has a shared responsibility to help safeguard free expression. And when their business dealings threaten to undermine this freedom, they need to consider what’s right, not simply the prospect of quick profits.”

 The full text of Hilary Clinton’s speech is here.

I’ll be watching how the ACTA negotiations play out.