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Economy Stuck in a Rut

Posted by David Cunliffe on March 24th, 2011

Near-zero gross domestic product (GDP) figures for the December 2010 quarter prove how badly the New Zealand economy is stuck in a rut.

Treasury and the Reserve Bank had both forecast zero growth for the quarter. I have taken the view that was about right and that minor variation either side would not change the story.

It doesn’t. Today’s 0.2% is within a shade of that, and is still subject to revision.

The big picture is that the economy is going nowhere because National has no plan.

A breakdown of the statistics is instructive – wholesale trade is down, retail is down, accommodation and restaurants are down, confirming the message that businesses in New Zealand towns and cities have been giving us — that for them 2010 was even worse than 2009.

Cost of living pressures were also clear.  Goods and services purchased by Kiwi households are almost flat even though prices rose 2.3 percent in the December quarter alone.  This shows Kiwi families are hard hit by the rising cost of living and are having to tighten their belts month by month.

There is no good news on the external side either. Imports rose faster than exports, and the fastest-rising export, raw logs, effectively represents exporting Kiwi processing jobs along with the timber.

Kiwi families and firms are borrowing more than ever before to stay afloat, and the Reserve Bank says this will continue until 2013.

Bill English is presiding over an old-fashioned slump, and clearly has no idea what to do about it.

Last week he wanted to put the whole cost of the earthquake on the country’s credit card, but Prime Minister John Key rolled him a few days later when announcing a zero budget this year.

Economics 101 says that savage budget cuts in the middle of a deep recession will only put more people out of work, undermine confidence, reduce demand and drive down tax flows.

 This isn’t a plan. It’s a recipe for continuing economic failure.

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Filed under: Tax, Uncategorized, business, debt, economic, economy, finance, wages
42 Comments

The Great Broadband Sell-off

Posted by David Cunliffe on March 18th, 2011

Yesterday’s FEC hearings on the Telco Amendment Bill were remarkable.

By the end of the day it was starkly obvious that the Bill hands a gold-plated license-to-kill to Telecom under the guise of ‘structural separation’.  No-one, not even Govt members, could deny that.

Don’t take my word for it: check out the Commerce Commission submission, or (bipartisan) Internet New Zealand’s, or Vector’s, or TelstraClear’s – all here.

The Bill seeks to lock in a “regulatory holiday” by preventing the Commerce Commission from exercising its current oversight for 10 YEARS.  NO other country in the world has done that, and it would be illegal in Europe. It may be in breach of NZ’s WTO obligations here.

Despite that Telecom had the gall to ask for longer! And to weaken the purpose clause of the Telco Act to boot! Have they lost their PR mind? Do they want to channel the ghost of abuses past?

Fair trading “equivalence of inputs” rules between the network owner (Telecom) and wholesale competitors would be watered down so much as to be unenforceable.  Arms-length trading rules currently in Telecom’s Operational Separation Undertakings become “optional”.

And so on.  It’s so patently obvious it is not even worth repeating all the examples.

No wonder Steven Joyce wanted the hearings over in indecent haste.

The result of this great leap backwards to the 1990’s will be much higher prices and less choice for consumers for a decade.  YOU will pay for this sleazy deal.

So WHY has the National Government done this?

Roger Douglas summed it up – it is a “legislative subsidy”: National is ‘selling the law”.

In plain speaking, National in the last election over-promised ultra-fast broadband to 75% of Kiwis for $1.5 billion.  But rather than being a clean subsidy there were massive strings attached, requiring a commercial return through the hopelessly conflicted Crown Fibre Holdings.    The numbers just did not add up.

Hence no rollout for 2½ years, and Steven Joyce is worried about his reputation.

But instead of fronting the problem honestly and getting the whole industry to be part of the solution while building a vibrant competitive market, National has done a side-deal with the incumbent telco that leaves everyone else worse off and the market beggared beyond belief.

That will set back innovation, chill investment and deliver less broadband at higher prices than necessary for a decade to come.

As if Kiwis aren’t facing enough price rises without paying too much for their broadband as well.

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Filed under: Cost of Living, Investment, Uncategorized, broadband, business, comms & IT, digital, economic, economy, finance, infrastructure, internet
12 Comments

On a more +ve note

Posted by Trevor Mallard on March 16th, 2011

Emirates Team New Zealand

Team New Zealand launched their new boat today. It will be used until 2013 when they will shift to a larger cat for the America’s Cup.

A number of these are being built in Auckland for various syndicates and it looks like most teams are going to use Auckland as their (northern) winter training base. Hopefully there will be some racing here too. At an average (conservative) of 100 per team, and then the bigger spenders at peak times it will be a great little boost to NZ.

Team NZ have announced that Emirates is to continue their commercial partnership.

I got a bit of flack when I announced (twice) government support but the subsequent reports showed the direct (paye and GST) return to the crown was the equivalent of that support – and of course there was tons of leverage which meant they were very good economic decisions. Anyone see that superyacht a couple of weeks ago?

Hope I’m still allowed to go sailing. Was a great thrill to spend some time at the top (100ft?) of one of the old boat’s masts.

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Filed under: Auckland, economic
10 Comments

Telco Hearings Set for Stoush

Posted by David Cunliffe on March 15th, 2011

Clare Curran did a great post on Steven Joyce’s abuse of the parliamentary process with the Telecommuniations Amendment Bill. 

The FEC is meeting Wednesday and potentially Thursday this week to try to ram through all the submissions in one week!  

Paul Brislen, CEO of the Telecommunications Users Assocaiation, was rigthly outraged.

Clare and I put out this release today.  We believe this Bill will take the telecommunications industry back to the bad old days of the 1990s, when market dominance was the norm and the consumer got screwed.

The government’s proposed 10-year regulatory holiday is a complete crock.  The Commerce Commission would be prevented from doing its job of ensuring fair access for competitors, while ensuring investment works in the long term interests of end users. 

Those gains were hard won in the last decade.  The industry does not need a leap backwards.

The design of the proposed structural separation of Telecom is uncertain and implies real risks.

The weak, vague and ill-defined form of “equivalence” in the Bill provides little reassurance to retail competitors and consumers.

Crown Fibre holdings is deeply conflicted as both market player and front line regulator.

Ironically, this could all chill investment in a market NZ desperately needs as it seeks to become a hig-value, knowledge economy.

That doesn’t mean Telecom should not be allowed to structurally separate.  Done properly, that could be a win-win.

But it does mean the legislative processs should be careful and thorough, as billions of dollars of taxpayers funds and private equity are at stake. 

Why is the government so determined to ram the Bill through and pto try to stifle legitimate parliamentary scrutiny?

Could it be that their $1.5 billion with a commercial rate of return is insufficient to stimulate the broadband rollout the government promised in its slogans – and that the only way to square the circle is for the poor, dumb consumer to pay too much for a decade to come?

Could it be that after dithering for two and a half years, Steven Joyce is just plain desperate to make something – anything happen, even at the cost of serious damage to the industry’s future?

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Filed under: Uncategorized, broadband, business, comms & IT, economic, economy, finance, infrastructure
6 Comments

The Debt Deception

Posted by David Cunliffe on March 8th, 2011

As this is my first blog post since the quake, can I preface my comments by acknowledging the devastating loss suffered by too many Cantabrians and their families, of ther lives and homes shattered, and our shared determination to everything necessary to support their rebuilding and renewal.

In this immediate post-quake period we are all exercising restraint – both in the quantity and tone of poitical comment.  But the debt question has in fact been brought into starker relief by the quake, so I am moved to observe the following.   

Before the quake, National would have you believe that New Zealand had a huge international debt problem, and that the solution to that was for the Government to compress spending and services to pay down this debt. 

It was always a half truth: 90% of that debt is private debt and only 10% of it is public (government) debt.

The second deception was that this high debt was “Labour’s fault”.   The facts are that in 2008 net debt (including NZ Super Fund assets) were in surplus to the tune of 4.7% of GDP.   Virtually no government in the western world saw the collapse coming in advance, but at the least the former Labour Government had the books in strong shape.

Post quake, we are all confronted by huge costs. Families have lost loved ones.  Homes and businesses destroyed will take time to rebuild and renew.  Infrastructure is hugely dislocated.  Much of the CBD will have to come down.  Hopefully there will be proper consultation and an eye to the heritage that makes Christchurch unique.

The financial costs are also huge – in Treasury’s February Indicators, around  $12 billion (later estimates put it around $15 billion),  of which some $5 will fall to the Crown because it is not covered by EQC, its reinsurers or private insurance.  Around a further $5 billion in lost Crown revenue will occur due to the reduced tax take from decimated business activity and personal earnings in Christchurch.  (I will blog further on the “growth gap” shortly).

So, to use the PM’s very round numbers – there is $10 billion for the public to find over the next four years or so. 

Some of that can legitimately be redirected from other investments – for example the “holiday highway” north of Auckland - to help fund Canterbury roading costs.

Mssrs Key and English believe the rest can be borrowed – that is, placed on the international debt pile – and say that is now acceptable becasue it is a “one off”.   They are so far dismissing suggestions of any additional support for Canterbury through the tax system.  (Raising the EQC Levy only restores its capacity to deal with future disasters, rather than this one).

Why then was the international debt pile so huge that reducing it by slashing Government spending and prolonging the recession was necessary a month ago, but borrowing the lot is no problem now?

Forgive me, but could it be that the answer is not economic but political?  Could it be that reducing government expenditure pre-quake was the price of Budget 2009 and 2010’s - largely upper income – tax cuts; and that even Canterbury’s needs have been trumped by the need to protect National’s traditional voter base from even a temporary reduction in these tax breaks?

I feel unclean even thinking that.  But the question has to be asked: why not expect the whole community to share part of the cost through the revenue system?  Even the NZ Herald agrees with that.

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Filed under: Budget, Canterbury Earthquake, Global financial crisis, Investment, Tax, debt, economic, economy, finance, infrastructure, roads
38 Comments

The Financial Elite have Gambled away our Future

Posted by Lianne Dalziel on January 29th, 2011

Yesterday’s Press Editorial welcomed the PM’s announcement on the beginning of National’s privitisation programme for our country’s assets with the words “John Key was able to demonstrate…the value of his background in the financial industry”.  Excuse me?  Did the Press miss the Global Financial Crisis, where “the over-paid heroes of Wall Street and the City worshipped the gods of globalisation, financialisation and speculation”?   The quote is a teaser for the best of the five books I read over the summer break: “The Gods that Failed: How the Financial Elite Have Gambled Away our Futures” by Larry Elliott and Dan Atkinson.  The first edition of the book was subtitled: “How Blind Faith in Markets Has Cost us our Future”.  The second edition (published in 2009) has an extra chapter, which as one reviewer said could have been titled: We Told You So.  The authors of this book are economics editors, Elliott with the Guardian and Atkinson, the Mail on Sunday.

The metaphor that drives the narrative is inspired by the twelve gods of ancient Greece that lived on Mount Olympus.  Elliott & Atkinson have styled the super-financiers and the international organisations, (central banks, IMF, World Bank, WTO), the “New Olympians” and the twelve gods of the modern Mount Olympus: globalisation, communication, liberalisation, privatisation, competition, financialisation, speculation, recklessness, greed, arrogance, oligarchy & excess. 

“Greek mythology provides plenty of raw material for a book about the failings of modern financial markets.  There is the story of King Midas, who found the ability to turn all he touched into gold a curse. The tendency of markets to veer between the wild optimism of booms and the manic depression busts is akin to the life led by poor Persephone, condemned to live every six months of every year in Hades. But Pandora – a gift from the gods whose beauty belied her baleful influence on the lives of mortals – makes the best metaphor.”

As they said August 9 2007 was the moment the lid came off the modern version of Pandora’s box.  And the rest is history, which is why I believe this book must be read, because unless we learn the lessons of history, we condemn ourselves to repeating it.

This book is well-researched and easy to read.  It contains a chapter called ‘Last Tango on Wall Street” which has a very simple explanation of how the New Olympians (our Prime Minister’s background the Press values so highly) found ways to make money out of nothing – creating securitised financial products like “collateralised debt obligations” out of the subprime market and then hiding the risks behind AAA rated institutions.  The New Olympians made personal fortunes with bonuses they never had to repay when it all turned to custard.  And they were happy to see the taxpayers pick up the tab for their trillion dollar insanity. 

I conclude with this quote: ‘Speculators may do no harm as bubbles on a steady stream of enterprise.  But the position is serious when enterprise becomes the bubble on a whirlpool of speculation’.  That was John Maynard Keynes in 1936.  When will we ever learn?

Filed under: Book Reviews, Global financial crisis, Investment, asset sales, business, commerce, democracy, economic, economy, international, monetary policy, national, politics, privatisation
61 Comments

Philosophy & principles behind Labour’s tax policy announcements

Posted by Stuart Nash on January 25th, 2011

As we know, today Phil Goff announced a tax free threshold policy. Trevor outlined the bones of this revenue policy in a previous post.  Phil also announced other measures to improve the fairness of the tax system.  These mainly centred on closing down tax loopholes that are currently used by some to avoid paying their fair share and that inhibit investment in the productive economy.  I would like to briefly explain the philosophy and three guiding principles behind today’s announcement. 

Philosophy: Labour is a social democratic party that (by and large) adheres to the principles of Keynesian economic theory (as do most Western democracies).  Keynes believed that in times of recession the government should provide tax relief to the lower and middle socio-economic classes, as this group will spend any increase in disposable income, thereby stimulating demand in the economy.  He stated that giving tax relief to the wealthy is counterproductive, as they either save or retire debt; which is exactly what has happened in NZ.  Alan Bollard, Bill English and the Treasury have admitted that the latest tax cuts have had no stimulatory effect on the economy at all.  So in a time of the greatest recession since the 1930s depression, why spend $14billion on tax cuts that aren’t going to help economic recovery?  You don’t – or shouldn’t.  National’s tax switch was fiscally irresponsible, based on out-dated economic theory and poorly targeted.

Integrity: for any tax system to work efficiently it must have integrity; i.e. minimise the ability of taxpayers to engage in avoidance.  When the government-instigated Tax Working Group discovered that half of New Zealand’s wealthiest 100 citizens don’t pay the top tax rate, there were gasps of disbelief.  How could this be?  It could be because there are too many loopholes that allow a high level of legal tax avoidance.  The Tax Working Group noted that the $200billion invested in rental properties brings in no tax revenue; in fact it generates tax losses.  Hardly the type of investment that will drive sustainable economic growth or create export-driven industry, and yet the law currently allows it.  Labour will change this.  It is important for the integrity of the tax system that these loopholes are closed down and people pay their fair share. 

Equity: basically this deals with tax equity across investment classes.  Phil talked about using the tax system to drive investment towards the productive economy by closing down the tax advantages afforded to those who invest in property.  Under current law, investors have the ability to write off tax losses associated with investment property against personal income.  Often people negatively gear investment properties simply to maximise tax losses, and therefore avoid paying their fair share of income tax.  Labour will change the law around this and ensure that losses associated with investment properties are ring-fenced (as currently happens under company law). 

Equality: is it really fair that in last year’s October tax cuts, someone earning $1,000,000 pa received an extra $1,000 per week, whereas someone on the median income received pretty much nothing?  No it’s not.  I totally agree with rewarding those who do well, who are successful, take on responsibility and who put in the hours, the study and the time – but not at the expense of the great many.  The level of inequality in NZ is alarming and it needs to be addressed.  We pride ourselves on living in a country where all have the opportunity to achieve to our potential.  However, this ideal is sadly no longer reality.  The tax system is but one tool we can use to create a fairer, more equitable society.

Filed under: Tax, Tax Working Group, economic, economy
38 Comments

I love the Irish

Posted by Darien Fenton on December 9th, 2010

WARNING : this video contains bad language:  it’s the Irish man on the street’s analysis of the financial crisis.  If you can’t cope, don’t watch and don’t complain.  Sometimes people just say it how it is!

Filed under: Global financial crisis, economic, economy, finance
17 Comments

MartyG on PPPs

Posted by David Cunliffe on December 2nd, 2010

I guess it’s all in a day’s work, but MartyG on The Standard misintrepeted my position on PPPs in this recent post.

1.  His opposition to PPPs appears to be as blindly ideologically based as National’s blind ideological support for them.  Labour’s policy before and since the last election has been based on providing the best value for New Zealand taxpayers, regardless of ideology. 

2.  The vital point of difference between National and Labour on this issue is that National is committed to the private sector first and foremost, while Labour is committed to providing infrastructure in the way that works best for New Zealanders.

3.  That is why Annette King, when she was Transport Minister, set up a working group to look at the effectiveness of PPPs, particularly in relation to large projects like Waterview. 

4.  Labour has yet to be convinced of the value of PPPs for any particular project, but we are willing to weigh up the evidence. When considering the (de)merits of a potential PPP project we would take a range of critical factors into account.  I mentioned two in my recent speech:

“The project scale must be right and the PPP benefits must outweigh any increase in cost of capital”

5  Marty G and I should agree that this sets a high hurdle, because the Crown can always borrow at lower (sovereign) interest rates.  The offsetting benefits would have to be very clear, large enough in net terms (after deducting overheads like the cost of tolling), and not available by other means (e.g. non-PPP contracting) to clearly outweigh this cost of capital disadvantage.  

6.  It is also obviously necessary that whoever is evaluating a potential PPP for the state has to have the expertise and resources to really test the proposal and establish rigorous accountability.  I have not changed my view that setting a $25 million threshold for compulsory consideration of PPPs by all government departments, as Bill English has done, is ridiculous and bound to lead to bad decisions.

7.  Labour also has a longstanding policy that there needs to be a non-toll alternative before any toll-based transport projects could be approved.   That was reinforced recently in our tighter rules around foreign direct investment in monopoly strategic infrastructure.

8. Labour is not soft on privatisation. Our opposition to private prisons and SOE sales underlines that.  My recent speech explicitly ruled out any dilution of any Crown equity in any state asset or existing subsidiary.  That bright line test restates our strong “no sale’” policy that provides ongoing strong differentiation form National.

Labour is committed to an active and strong state sector.  It takes seriously its responsibility to adopt policies and projects that deliver sustainable value to Kiws.  Clear thinking and evidence-based policy are even more important when funds are tight, if we are going to get this economy going again.

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Filed under: Investment, blogs, economic, economy, finance, infrastructure, roads
150 Comments

S&P: National on negative watch (part II)

Posted by David Cunliffe on November 23rd, 2010

Part one of this post showed that S&P placed NZ on negative watch because of the savings gap, the huge (mainly private) net international debt and our under-diversified export profile (and consequent vulnerability).  It all adds up to lenders perceiving potentially greater risks and seeking compensation through higher interest rates.

How did the Government react to the news?  Did it front the issues and explain its “plan”?  Not in your life.

Alex Tarrant at interest.co.nz did a great job of covering John Key’s rather bizarre, meandering post-Cabinet press conference here.  Interest.co.nz’s coverage if the political debate is here.

Mr Key manages to contradict himself three ways in two paragraphs:

“Nothing has changed from our point of view, in fact if anything, our position looks stronger from our point of view (really?)…

We accept that we’ve had to take the earthquake on our balance sheet, accept tax revenues have been a bit weaker this year than we had anticipated…(corporate was 22.4% below 2010 forecasts, gst 15.8% below!)”

So… nothing has changed, we are stronger, but we are weaker.  Classic.   He must have been eyeballing three different journos and guessing they wanted three different answers, so why not try to please all of them at once?

The coup de grace is his attempt to pass it all off as Ireland’s fault.  True, the Irish are in a bit of a bog, but lets assume S & P can tell the difference between the land of the long white cloud and the emerald isle. 

Back in the real world, one thing is for sure, S&P won’t be amused if Messrs Key and English try to talk their way out rather than addressing the fundamental issues: how about trying to grow savings, diversify and lift exports, and reduce private international debt?  Who knows, they could even turn it into a plan?

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Filed under: Investment, Tax, Uncategorized, bank, business, economic, economy, international, monetary policy
37 Comments

S&P: National on negative watch (part I)

Posted by David Cunliffe on November 23rd, 2010

National’s counter-spin on yesterday’s placement by Standard and Poor’s of New Zealand’s sovereign credit rating on negative watch shows increasing desperation, the latest of a torrent of bad economic news.  I comment in two parts: the announcement and the counter-spin.

First the announcement’s overview:

  • “We perceive New Zealand’s projected widening external imbalances and the country’s weakened fiscal flexibility as increasing risk to the sovereign.
  • New Zealand’s vulnerability to external shocks, stemming from its open and relatively undiversified economy, also raises risks to the country’s economic recovery and credit quality.”

The S&P Report’s rationale makes the drivers even clearer:

  • widening external imbalances
  • weakened fiscal position
  • under-diversified economy
  • high external liabilities
  • a return to high current account deficits averaging 5.9% of GDP over the next three years.
  • and crucially, that “net external liabilities … predominantly reflect dependance by households on foreign capital to fund consumption and property investments”

In other words: New Zealand does not save enough, it has too much private debt, and that debt was used to fund the wrong things (property speculation not real business investment).  New Zealand’s exports are under-diversified and New Zealand will continue structural bleeding on our external accounts after the immediate recession.

The logical repsonse to these problems should be;

  • strong action to close the savings deficit (if possible by building good household saving behaviour)
  • diversify and increase exports (presumably moving beyond a narrow range of bulk commodities)
  • managing the fiscal position to encourage sustainable growth, employment and healthy tax revenues without blowing the fiscal deficit.
  • ensuring monetary policy supports the direction of reform rather than acting against it.

It obviously should NOT include:

  • borrowing more for tax cuts to upper income earners that neither create powerful stimulus nor correct the underlying imbalances
  • reinforcing exisitng bulk commodity exports while reducing investment in innovation and R&D to divesify and add value to the export base
  • cutting back Kiwisaver; cancelling prefunding for the NZ Super Fund; and taking two years to set up a Savings Working Group (and even then proscribing a range of strong policy options)
  • pretending monetary settings are ideal when exporters face extreme currency volatility

Bill English and John Key declared S&P lifting their previous negative outlook as a” verdict’ on Budget 2009.

They should be straight-up enough to accept that S&P has now reversed its verdict.

After 18 months of National Government policies National can have only itself to blame.

In part II of this post we’ll check whther their rhetoric matches this reality.

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Filed under: Budget, IRD, Investment, Tax, bank, business, debt, economic, economy, finance, international, monetary policy
15 Comments

London Calling #4 Bailing out the Irish

Posted by Grant Robertson on November 22nd, 2010

Last week I went to Brussels as part of my programme. Charming place. Easy to get around, nice people. About now though, some of those people (and my goodness there are a lot involved in the EU bureaucracy) are very worried indeed. As at tonight the Irish government have asked for, and the EU Finance Ministers (and IMF) have agreed to a massive bailout package for the Irish economy.

It had to happen of course. There was no way that the EU would allow the Irish economy to collapse. The effect on the rest of Europe would be huge. But questions are being asked around Europe about how much more the taxpayers of Germany, Italy, UK and others can continue to stump up. Greece, Ireland, the question seems to be who is next?

When we were in Brussels views varied, but there is pressure on the EU. No budget has been agreed for the coming year, there is concern about the long sterm stability of the Euro, and there is limited progress in trade talks. Financial pressure in individual countries, including here in the UK are causing people to ask serious questions about the EU.

Except the serious questions dont seem to extend to questioning some of the economic decisions that got countries like Ireland into trouble in the first place. There seems to be a stark lack of debate around enhanced regulation in the finance sector for instance.

There is certainly benefit for EU member countries of the relationship they have forged. But the financial stresses of recent times and those that are still to come, may cause a re-think on how that relationship looks in the years to come. A smaller, leaner EU may yet be the result.

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Filed under: Foreign Affairs, economic
14 Comments

Currency Wars: Seismic Shift Approaching?

Posted by David Cunliffe on November 18th, 2010

There is a very interesting article carried by today’s Dom post from Edmund Conway at the Telegraph: “Lurching between extremes at epoch’s end”

Conway argues that the failure of the recent G20 meeting to resolve the current impasse on currency imbalances might be seen as an important marker point of the century -a moment when the global financial system tipped from order to instability.

Underlying this are several crucial factors:

  • US and Chinese inability to see a middle path on quantitative easing (”QEII” -driving down the value of the dollar to rebalance the US economy away from its yawning trade deficit) vs Chinese determination to hold the value of the yuan down to maintain export competitiveness (and the resulting buildup of surpluses available for reinvestment in Western assets).
  • The increasing strain faced by the largely (but not entirely) free floating exchange rate system as more countries explore altrernatives.  Conway likens this to the end of the Bretton Woods system – a once-in-50-year-shift.
  • The underlying shift in economic power from West to East, from the US toChina.
  • The increasing polarisation in US politics as it tries to cope with adjustment – notably the anti-free trade positioning of the Republican Right “Tea Party”.

He predicts two possible endgames;

  • another financial crisis leading global leaders to forge a new economic concensus (a ‘coherent international monetary system”).
  • or a period of chaos as “hegemonic stability”underpinned by the US breaks down.  That would indeed make the GFC look like a tea party.

If Conway is right, and there is a non-zero chance that he is, then New Zelanders must ask the question “what is our plan B” on international finance?  What if the assumptions of normality no longer hold?

Labour has already proposed a moderate but definitive programme of monetary reform, including a rewrite of the Reserve Bank Act, complementary monetary policy tools and more tactical exchange rate intervention (a “dirty float”).  This is predicated on continuity of something like current international conditions.

If chaos breaks out and the tradeability of our dollar is in jeopardy, or if there were huge capital flows into NZ (as a safe haven or a punt outside the USD), or of capital flight as risk averse traders retreat to the greenback or gold, what forward planning has been done to anticipate this?  I would guess, none in the Beehive and not much at the RB.  At the very least some transparency would be helpful.

Once again it looks like it is left to Labour to ask the tough questions and come up with some answers.

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Filed under: Budget, commerce, economic, economy, finance, international
12 Comments

Currency intervention: Two clips

Posted by David Cunliffe on November 11th, 2010

As the Kiwi dollar rises past 80c US and  70c TWI to unsustainable levels, the debate about currency intervention will become white hot.  Our manufacturing exporters are being killed out there.   Here is John Walley (MEA CEO) from TV1 Breakfast this morning.

Labour is calling for the Govt to get off its butt and use its armies of bureaucrats to get thinking about options.  It is not OK to cry “TINA” – ‘there is no alternative’.  There has to be, or manufacturing is finished in New Zealand and farmers are in for a rude shock when the commodity price spike ends.  

In this interview on TV1 Business (at the bleary hour of 6.10 this morning!) I advocate for tactical currency intervention by the Reserve Bank to knock the top off the spike, and monetary reform to help chart a manageable adjustment path.  That must be done alongside a clear stratagy for domestic industry adjustment – investment in the jobs of tomorrow and transitional assistance for displaced workers.   I wouldn’t usually post one of my own clips, but as no-one watched it and at that hour and as TV1 called it a stinging attack, RA viewers might find it interesting…

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Filed under: Uncategorized, bank, economic, economy, finance, international, trade
50 Comments

The politics of social media

Posted by Clare Curran on November 6th, 2010

I think about this quite a lot. The rise of social media such as facebook, twitter and blogs and what it means to have  more people  communicating with each and building new online communities. Mostly it’s a good thing.

Many politicians, such as myself, are increasingly using social media to communicate, test ideas and have conversations with people across a broad range of backgrounds, interests and political attitudes.

I find it interesting, exciting, thought provoking and a bit of an outlet for my own views, but also as a way of just building new friendships and adding to my knowledge.

But it can also be dangerous. And it’s this that I want to explore your views on.

What happens when, in the cut and thrust of election campaigning, all the stops get pulled out and the political trolls use anything that a politician (or aspiring politican) has said on social media (potentially) taken out of context to discredit them.

The US mid term elections has again put this issue in the spotlight. I came across this piece today via Twitter:

…today’s generation of future leaders has grown up in an era when letting one’s guard down for one’s Facebook friends to see is an afterthought.

Ms. Ball, a Democrat, was stunned when she found out that six-year-old party pictures were circulating online. In them, she was wearing a Santa cap and provocative lacy hosiery while holding and putting her mouth around a sex toy. The story went viral, getting attention from news media outlets as varied as Gawker and National Public Radio.

“I think I was the No. 3 most-Googled term in the whole world over some stupid gag I played when I was 22 years old,” Ms. Ball said in a phone interview on Wednesday, the day after she lost her election.

While her opponent already had a comfortable advantage in the Republican-leaning district by the time the pictures came out, Ms. Ball’s experience raises the question of whether American culture will ever evolve to the point where voters tolerate pictures of future leaders in various states of inebriation and undress.

Ms. Ball, a certified public accountant, has used the experience as an opportunity to warn of a potential chilling effect on tomorrow’s leaders. Candidates, she argued, should not be shamed out of a race because of mistakes made in their youth. “I had a whole lot of people who were older than me saying they were feeling grateful that Facebook and digital cameras weren’t around when they were growing up,” she said. “I am not the only person with stupid photos out there, and I would hate to have some young man or young woman think, ‘I can’t run for office because I did something stupid at a party however long ago.’

This may not be the best example. The description of her behaviour didn’t sound that sensible. Let alone having her photo taken. But people do silly things in context. And is it our business? Social media makes those events more visible. And when the media spotlight comes on there can be a shock horror reaction by the public.

We’ve certainly seen that in the US. Will we see it here?

Because politicians are held accountable to a different set of behaviours? Or because the mere fact you are a politician, or standing to become one makes your behaviour suspect? I’m interested in your views.

And as a postscript: This movie has recently been released in the States and NZ. The Social Network is  the story of facebook. I had a bit of a look tonight but I’m not sure you can legally purchase it online yet. You’d think you’d be able to! Maybe someone can help me with that. If you can’t then I think it’s a travesty and it’s the movie studio’s own fault if they’re not across what people are doing in the real world.

Here’s a taste:

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Filed under: Social media, comms & IT, copyright, digital, economic, politics
52 Comments

Let them eat cake

Posted by David Parker on November 4th, 2010

The proposal to abandon gift duty is effectively another tax cut for some of NZs wealthiest families. It is yet another step to an unequal society where wealth is accumulating in fewer hands. Why does this offend me? Because a tax system should be fair, and neither aid in tax avoidance by those who can and should pay a fair share of taxes, nor aid in the undue concentration of wealth (and home ownership) based on accident of birth.

The government only collects $2m pa in gift duty and yet estimates NZers currently spend $70m pa on compliance costs. Ask yourself why they fork out that $70m pa? They don’t have to. They don’t think they are throwing that money away. So what benefits do they get by doing so?

There are a number. Some do it to protect assets. Politicians at risk of being sued for defamation often put their family house in a separate legal entity so that if they get sued their family does not end up on the street.  Entrepreneurs do similar in case they get cleaned out in their risky ventures. In both instances this is legal and proper, and can be done effectively under current rules, which allow a couple to gift 27k each = 54k pa free of any gift duty.

But how the wealthiest benefit is via no control on transfers of wealth between the different members of their family, and to other legal entities which they control which may have tax losses they can utilise. In such cases it is not about protecting assets but about avoiding taxation.

Instead of tax being paid at the rate of 33 cents, they transfer assets to spouses and children who pay tax on the income from those assets at the rate of 10.5 cents and 17 cents in the dollar.

So without a limit on gifts free of gift duty, you will see more income tax avoidance.

The justification that gift duty should be dropped because those using current rules, up to the current limit of 54k pa, incur compliance costs is ludicrous. It is not forced upon them, and they choose to do so because of the various advantages they perceive.

I find it stupid logic to reward those already using current rules to their advantage by dropping those rules completely so they can do it more.

Having rejected income splitting for tax purposes because it is unfair, National is effectively allowing an increase in income splitting for those who are wealthiest. You still can’t do it if you are a wage worker on the minimum wage, but you will be able to split your income by transferring valuable income producing assets if you are wealthy.

Once again, National show their true colours. The rich get richer and the rest struggle to make ends meet. We have a government who, having just increased the after tax income gap between high and low paid workers, is now aiding asset inequality to grow further.

No wonder younger voters are increasingly frustrated. They see that NZ is increasingly being run in the interests of the few. As the few achieve ever larger shares of income and wealth, home ownership rates continue to drop. Many people can no longer afford to own their own home, but those lucky to be born into already wealthy families get yet another lift up from this government.

Any pretence by National that they are aspirational for all New Zealanders should be seen as just that.

Tax policy should strive to achieve fair outcomes for all New Zealanders. Once again, National’s tax policy fails this test.

Filed under: Tax, Uncategorized, economic, housing, inequality
55 Comments

Bill English & tax cuts – the truth according to Bill

Posted by Stuart Nash on November 1st, 2010

Bill English admitted a couple of very interesting things at last Wednesday’s Finance & Expenditure select committee meeting re the $14b worth of tax cuts.

You know, the tax cuts that gave the wealthy substantial coin back ($1m = $1,000/wk extra in the hand), but those on the median wage minimal; and certainly not enough to cover the cost of increases bought on by rises in GST, petrol etc.  Those admissions were:

  1. ‘That the tax cuts aren’t stimulatory’.  Hold on a second: what was that Bill?? We are in the middle of a recession, and the govt spends around $14b on a measure that isn’t stimulatory!  Help me out here, because I don’t understand this one.  If this ‘switch’ was just about ‘rebalancing’ and not about economic stimulation and recession busting, then why not at least wait until the economy is firing again, and in the meantime, spend some of the $14b on getting the economy up and running!!!
  2. ‘That New Zealand is the only country in the world undertaking tax cuts like these’.  Yep.  Wonder why?  Perhaps because trickle down / supply side economic theory that these tax cuts are based on (and confirmed by Treasury Sec Whitehead) died with the dawning of the 21st C.  Perhaps because such theories have been disproven.  Perhaps because Bill English really is mismanaging the economy in the most expensive, worst, diabolical possible way.  Perhaps all of the above…!
  3. That he didn’t think people would start saving and paying down debt so soon’.  Groan.  There are about 1,000 books on JM Keynes, his theories, his philosophies, his thoughts, the implementation of his theories, philosophies and thoughts etc etc.  Know what – they all say that during a recession a govt shouldn’t give tax cuts to the wealthy because… the wealthy save and retire debt and it does nothing to stimulate the economy.  Just like has happened.  It’s not rocket science.  It’s always been out there – and it appears that every finance minister / treasurer in the western world read at least one or two of these books on Keynes; well, all except one Bill English.

Damn!!

Filed under: GST, Tax, Uncategorized, economic, economy, finance
12 Comments

Who’s Next?

Posted by Sue Moroney on October 29th, 2010

I’m a Matamata girl, well I was born and raised in Walton to be precise, about 10 kms north of Matamata.

The whole Hobbit thing has been great for my home town and I too am an advocate of it continuing to be filmed there. But there are other small people who are endangered in Matamata and I expect they will be asking for tax-payer hand-out to keep their multi-million industry and its associated jobs going.

I’m talking about the racing industry ( although it is of course true that those who work in the industry are not all small).

Thanks to this Government’s economic mismanagement, the racing industry is really struggling. And to make matters worse, the additional funding put in by Labour when Winston Peters was Minister of Racing was stripped away by National this racing season because the country couldn’t afford it.

What a slap in the face to that industry to see that suddenly, the country could afford it when Warner Bros rolled into town.

How come an American corporate entity deserves tax-payer subsidy, but a home-grown industry employing thousands year after year doesn’t?

And are there more deserving cases who could have done with the $33m without selling our independance as a country down the tubes, demanding changes to domestic law without seeking the opinions of New Zealanders via a select committee process?

Filed under: Tax, Uncategorized, democracy, economic, jobs, waikato, workers rights
56 Comments

More bad economic news

Posted by David Cunliffe on October 21st, 2010

No amount of National trying to reinvent the historical record can detract from the ongoing evidence that the “recovery’ is in trouble and that they have no plan for growth and jobs.  Here’s the latest data:

“Consumer confidence has fallen in the latest ANZ-Roy Morgan Consumer Confidence survey and a nosedive in confidence has been recorded in responses to a question regarding whether it is a good time to buy a major household appliance.

The survey’s main confidence measure eased three points to 113.6 and its current conditions index dropped 11 points to 92.3.

The current conditions index has dropped below the 100 mark for the first time since December 2009 and is at its lowest point since August 2009….”

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Filed under: commerce, economic, economy, finance
28 Comments

Judicial Inquiry into SCF now urgent – NZ Herald

Posted by David Cunliffe on October 20th, 2010

Fran O’Sullivan has written a very strong opinion piece on SCF in the  NZH here.

“The credibility problem that Feeley faces is that after four months investigating Hubbard’s smaller entities, he has still to make a decision on whether to file fraud charges against the SFO founder on that score.

When Feeley announced his initial Hubbard probe he went in with all guns blazing. But after several weeks of saying the SFO was close to making a decision, nothing has materialised.

Hubbard has major beefs with the process.

He has also taken issue with the way the statutory managers who have control of his own affairs as well as Aorangi Securities and other small entities are managing affairs. “It is like the way the Nazis treated the Jews; they grabbed all their assets under trumped-up charges. You have to wonder who the National Government will pick on next.”

There are too many layers of regulators, too may issues around the statutory management process, too many issues about the role of the Securities Commission, and frankly too great a contrast between the government’s handling of SCF and the plethora of other finance company failures, many with much more obvious concerns apparent to all.

One commentator to Fran’s piece says as follows:

“Just as intriguing. Why isn’t Feeley taking the same approach to Hanover, BridgeCorp, Hanover, Blue Chip, Hanover, Strategic, Capital & Merchant, and . Hanover? These are all prima-facie, far more obvious instances of self interested activity and related party dealings. Keep up the good work Fran.”

Or  is there something else going on?   Selective leaks from inside sources to settle old scores?  A sad attempt to bury a frail old man while he is still alive?

Of course we cannot know everything about SCF.  No-one does. 

Only a full, independant judicial inquiry can answer these questions.

Tags: , , ,
Filed under: Uncategorized, business, commerce, economic, economy, south canterbury finance
28 Comments

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