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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

Bank of England boss criticises banks.

Posted by Trevor Mallard on March 7th, 2011

Merv King the Governor of the Bank of England is a pretty extreme example of what I consider a crude monetarist. But in this interview with The Telegraph he points the finger at bankers. With good reason.

Now, the Governor is off on why all this has a moral dimension: “The more I’ve thought about how labour markets work, the more I’ve realised that there are hardly any jobs whose tasks you can describe exactly. Nowadays, most jobs have the property that employees can choose to do them well or badly, so employers need to think about the long-term welfare of the staff not just pay today.” It follows that moral attitude is vital. Industry often understands this well. Nissan in Sunderland asks all its workers for ideas to raise productivity, and, says Mr King, it benefits.

The Governor makes a point of visiting manufacturing and service industries all over the country. Such firms pay far lower rewards than financial services but have “an incredibly successful record. They care deeply about their workforce, about their customers and, above all, are proud of their products”. With the banks, it’s different: “There isn’t that sense of longer-term relationships [hence the demise of the local bank manager]. There’s a different attitude towards customers. Small and medium firms really notice this: they miss the people they know.”

He also thinks that there is “too much weight put on the importance and value of takeovers”. They make short-run profits but “it doesn’t make sense to destroy a company with a reputation”. Since the Big Bang in the late 1980s, Mr King goes on, too many in financial services have thought “if it’s possible to make money out of gullible or unsuspecting customers, particularly institutional customers, that is perfectly acceptable”. Good businesses “keep a clear vision of who their customers are, and are run by people who don’t think they should simply maximise profits next week”. But in the past 25 years, banks have increasingly “taken bets with other people’s money”.

That is bad enough, but it gets much worse “if the rules of the game are that they get bailed out if it all goes wrong”. In this weird atmosphere, banks eventually stopped trusting one another. “Financial services don’t like the word ‘casino’, but instruments were created and traded only within the financial community. It was a zero sum game. No one knew which ones were winners when the crisis hit. Everyone became a suspect. Hence, no one would provide liquidity to any of those institutions.”

So what that does that mean for us. Heads the overseas owners of banks win and our balance of payments suffers and tails New Zealand businesses, individuals and the taxpayer cover their losses. And our balance of payments suffer.

Hat tip Lloyd Morrison

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Filed under: Global financial crisis, bank, business, economy, finance, monetary policy
4 Comments

Isn’t it Strange…

Posted by Sue Moroney on January 27th, 2011

…How last year, John Key had the media believing National was doing a good job of pulling NZ out of recession and suddenly yesterday he has decided we are in the cart big time (he said we have the same debt profile as Portugal, Ireland, Greece and Spain)  and we need to sell off the family silver to survive. What happened over Xmas?

…That the mythical mum and dad investors are going to buy up the family silver so we are not gobbled up by foreigners. Now John, would they be the Mum and Dad investors who lost their lifesavings to financial institutions in 2008 or are they the ones who have  saved up a big nest egg over the past two years while wages have stagnated and prices keep going up? Surely, your not going to try and sell the line that it will be the KiwiSaver accounts that you gutted to make them as meaningless as possible?

…That National’s solutions to the nations problem now, look exactly the same as in the past – tax cuts that favour the wealthy, cuts to health and education and asset sales to privatise the nations wealth.

Play it again John. Didnt work then, wont work now.

Filed under: Budget, Investment, Tax, Uncategorized, debt, economy, finance, media, politics, public services
25 Comments

Key will quit at end of year, mixed incentives for the Double Dipper and questions about the system

Posted by Trevor Mallard on January 3rd, 2011

John Key’s announcement that he will quit politics at the end of the year when he is no longer PM is no surprise.  He has always given the impression of being a CV builder and someone who lives for the moment rather than the grind necessary to get real change. The same interview shows he has given up on catching Aussie wages.

His comments will be causing interesting debate around the English bbq. Talk about mixed incentives for a deputy.

There is however a serious issue raised. Should Key be running for Helensville ?

Geoff Palmer and the Royal Commission were always of the view that list positions should be used by senior MPs rather than (mainly) being an entry point.

In some countries there is a nominated list member as a deputy for electorate members, so there is an ability to shift to a list and not cause a by-election.  And voters know about it at election time. That way say PM Deputy Finance Foreign Affairs and Trade at least would not have day to day constituency responsibilities. And it can be a two way door – ie former Ministers resume electorates if they choose to. Might be something for a longer term debate.

But in the interim I wonder if we are up for a discussion on whether we should, in the medium term, develop a convention of leaders and deputies of major parties being list but not electorate candidates.

And no I never made the suggestion to Helen. And please don’t show this to Phil and Annette while they are having a break.

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Filed under: Foreign Affairs, Holidays, MMP, by-election, finance, national
50 Comments

Hickey gets it on Hanover

Posted by Trevor Mallard on December 26th, 2010

Bernard Hickey says what many Kiwis are thinking about the arrogance of Hotchin :-

Hanover spent large parts of 2005, 2006 and 2007 trying to stop reporters from publishing articles critical of the company. Their legal threats and bullying against media who tried to report their affairs was legendary. On the whole, those threats were effective.

More than 13,000 investors lent more than $465 million to Hanover, thanks to marketing and interest rates slightly higher than bank interest rates. Now those investors are ruined.

They have received back 6 cents in the dollar and will be lucky to get much more, now they have swapped their debentures for nearly worthless shares in Allied Farmers.

There are gut-wrenching tales behind the numbers. I have dozens of emails from devastated investors. I have spoken to many. This event has ruined the financial lives of thousands of people. It has torn families apart. It has destroyed retirement plans.

Parents who hoped to pass on the money to their children have been thwarted. Money for much-needed medical treatment is gone. Long-dreamed-of trips to spend time with grandchildren are gone.

No wonder people welcome embarrassment being visited on Hotchin by a reporter and a photographer. It is the least he should receive.

Most MPs have worked with constituents who have been ripped off by this company and its agents and while the court process might take time it is good to see that at least some of the cash is being saved from being spent in the extravagant ostentatious manner tens of millions have been already.

Filed under: finance
27 Comments

Government to push power prices up again ?

Posted by Trevor Mallard on December 19th, 2010

 

Interesting little press statement on Friday.

Genesis Power Limited, trading as Genesis Energy, is considering making an offer of up to $300 million unsecured, subordinated Capital Bonds to the New Zealand public.

The proceeds of the offer are intended to be used as part of the funding for the acquisition of the Tekapo power stations.

Whether it pushes prices up will depend on what happens to the cash that Meridian gets. If it is used to pay down their debt then it is all neutral and will make no difference to prices.

If Bill English is successful in his attempt to withdraw capital from Meridian then the overall indebtedness of the companies will increase and power prices will go up to cover the increase in interest costs.

We will be watching.

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Filed under: Energy, finance
44 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

Open Government – Not!

Posted by David Cunliffe on December 6th, 2010

An interesting piece on Radio New Zealand this morning:

The Government is refusing to release information about how individual departments and agencies are coping with continuing restrictions on their funding.

Radio New Zealand News asked all Government ministers for the advice they had received about how their agencies planned to meet the tougher spending restraints placed on them.

The requests were transferred to Finance Minister Bill English meaning the specific information requested had not been made available.

Chief Ombudsman Beverley Wakem says under the law she cannot require that the requests be referred back to individual ministers, but says the Law Commission recommended in its review of the Official Information Act that the anomaly be closed.

In other words, Ministers and departments transfer OIAs to English.  he uses a technicality to refuse to release normal budget documents.  Ombudsman says she cannot intervene.  Law Commission says it stinks.  Which it does.

Labour should support the Law Commisssion’s proposal to remove this anomoly. 

In the meantime it has to be asked – what is it that English and Co. don’t want the public to know?

How deep are those cuts that they say they will inflict on the country?  How are the tradeoffs being managed?

Enough of deliberate secrecy, of government in the shadows.  This is not democracy as it should be.

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Filed under: #OpenLabourNZ, Budget, censorship, democracy, economy, finance
21 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 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

Well done Chris Liddell

Posted by Trevor Mallard on November 20th, 2010

There are some Kiwis that do offshore jobs that are massive.

Chris Liddell is one of those – he went offshore a few years ago, comes home every now and again, and helps NZ in many ways.

This week he raised over $20b US in a GM IPO.

Hat tip Lloyd Morrison.

Filed under: economy, finance
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

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

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

Really early election?

Posted by Trevor Mallard on October 15th, 2010

I’ve worked on nine budgets – some pretty big surpluses and actuals were just about always bigger.

Been looking at fiscals over the last three months and they are just awful.

There are massive out year cuts built into this years budget that we are yet to see the detail on. They will bite hard. There will be no public appetite for more.

English is probably the most conservative Finance Minister NZ has had since the 1960s.  Except for his own approach to where he lives where he has an impossibly liberal interpretation of living in Dipton. He has never been one for radical change of any sort.  And Key won’t want radical cuts in an election year. Or a u turn on tax or economic policy.

I’ve always thought the government couldn’t try and campaign during a Rugby World Cup – I’m sure we would have had an August 2011 election if it had been our call. Key being booed at the football in South Africa will be a warning to him. Sports crowds hate campaigning politicians.

Last time a Finance Minister couldn’t put a budget together was 1984 and Muldoon called a snap election instead.

I’m picking March/April 2011.

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Filed under: economy, finance, rugby world cup, sport
33 Comments

Systemic Market Failure?

Posted by David Cunliffe on September 22nd, 2010

When this country is in recession and Kiwi families are doing it bloody tough, I cannot bear to stand by and see rich and powerful private interests – whom I will not name at this point and this post is not about SCF – rorting the rules and using their clubs and networks to finesse processes.

It makes Godzone look like “the coldest banana republic in the world”.

For goodness sake interests associated with the Natural Dairy Crafar farms bid (potentially with Nat links) reportedly gave $200,000 to the National Party while the Natural Dairy application was still before the OIO and while National has a ministerial policy review underway. 

National should IMMEDIATELY reject that bid – otherwise what is left to separate this from complete corruption?  Brown envelopes?  Is David Garrett really the only sick or crooked puppy on the Govt benches? 

Was it OK for the OIO-overseeing Minister of Finance to lease his (trust’s) house to the govt for a staggering ministerial rent, or accept hours of free TV for his “Plain English” ads?  Isn’t it time we Kiwis stood up and demanded that the tories do sweat the small stuff like the rest of us?  Isn’t it time John key held SOMEONE to account for SOMETHING rather than smile, wave and make excuses?

The Fendalton and Queen St methods are different from the Crafar one but they are even more dangerous and subversive: very polite circles of influence in the clubs and boardrooms - with massive flows of funds through anonymous trusts that violate the intent of the Electoral Finance Act.  Prestigious law firms and lobbyists.  This is up with the worst sort of influence peddling  I saw in Washington D.C. -  One dollar one vote:  permanent plutocracy unless we fight back.

Beyond political donations, look at the ability of the rich and powerful to get their way while the poor and middle struggle: $2 billion a year of tax avoidance through LAQCs and trusts that National in government has refused to touch.  Half the top 100 welathiest NZers are still not on the top tax rate!

This post is not about SCF, but researching that issue has opened my eyes to the complexity of the company and accounting structures in daily use around the markets.   One prominent international investment broker told me he tells his clients never to invest in NZ other than through an ASIC-regulated (Australian) vehicle, because our market is a wild west.

Well what is the point of getting our savings rate up (and asking hard working families to go without consumtion) if the investment vehicles we need to get the money to our struggling firms are being milked and siphoned by fees and sweet deals to the cronies in the markets?  Why would any sane Kiwi sweat 80 hours a week to build a real business here?  Where will our kids choose to live?

We are talking the need for a full scale root and branch reform.  For example, is the Trustee model not a fiction?  Issuers want tame trustees; trustees want clients.  How do you prevent a race to the bottom?  I will wager now the FMA Bill will not do the job.  We have BIG problems here folks. 

It might have been cool to point the finger at Labour when the champers was flowing during the bubble hype days; but corporate influence peddling is about as attractive as a bucket of sick in the middle of a recession.

There is a real risk of systemic market failure in the NZ financial markets.     They remind me of telecommunications markets in the 1990s – time for a big cleanup.

It is not right and not fair on the silent majority who play by the rules and who are getting absolutely screwed. 

It will only get worse until we have a Govt with the guts to stand up to it.   The smiling millionaire from Bankers Trust is hardly likely to do that!

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Filed under: Tax, Tax Working Group, Uncategorized, bank, business, civil liberties, democracy, economy, finance, inequality, journalism, national, perks, politics, privatisation
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Mr Botherway Must Step Aside

Posted by David Cunliffe on September 21st, 2010

The Chair of the Financial Markets Authority Eastablishment Board, Simon Botherway, now has no choice but to step aside pending the outcome of the Ombudsman’s inquiry into the mangament of his potential conflicts of interest in placing Allan and Jean Hubbard into statutory managment.

The public cannot understand how the Securities Commission took this step reportedly on the basis of a single anonymous complaint, timed shortly after Mr Hubbard transferred the bulk of his remaing assets into SCF to protect investors.  

Further, the Ombudsman must widen the terms of its inquiry to include questions around any potential or perceived conflicts of interest around Mr Botherway’s long standing business relationships with Mr George Kerr, Director of Torchlight Fund, one of the primary beneficiaries of the taxpayer funded bailout of South Canterbury Finance depositors.

These associations are reportedly of long standing and reportedly included at Spicers Portfolio Management and at Brook Asset Management, as well as in relation to several other funds.  Mr Kerr is also a Director of Pyne Gould Corporation, which has announced that it is seeking to set up a “heartland bank” centered on rural South Island lending. 

It must be totally transparent that neither Mr Botherway nor any of his interests have any ongoing relationship whatsoever with this proposed new bank.      

In short it is imperative that if wide ranging financial markets regulatory powers are to be concentrated in the hands of a single regulator, the holder of that office must be beyond reproach, with an impeccable record, and no possible or perceived conflicts of interest with former, current or potential business associates.

Mr Simon Botherway, who was John Key’s former Deputy at Bankers Trust, must now step aside from from the FMA Establishment Board Chair pending the outcome of a broadened Ombudsman’s inquiry.

Furrther, the Key Government cannot now clear the air on SCF withut a full and independant judical inquiry into the circumstances leading to its recievership and New Zealand’s largest investor bailout.

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Filed under: Uncategorized, business, commerce, economic, finance, south canterbury finance
33 Comments

Jo Goodhew blocks tabling of South Canterbury Finance Docs

Posted by Trevor Mallard on September 8th, 2010

There is a lot of debate around South Canterbury Finance, especially the role of the government which some see as positive and others negative.

One thing that is clear is that there is from some quarters more opinion than facts. In order to add a little to Parliament’s information I obtained and attempted to table the four Crown Deeds of Guarantee between the Minister of Finance (signed for him by the Treasury Secretary) and South Canterbury Finance Ltd.

I was very surprised when the local member Jo Goodhew objected to them being tabled. These are not secret documents but have not been widely circulated. I have no idea what she is trying to hide or whether she thinks she can protect the Minister of Finance. Because any member can object I couldn’t table them. Jo Goodhew was the only person who did object.

So for those who want to have a look here is the original deed form Nov 2008, the second deed from December 2009, the third deed from April 2010, and the supplemental deed from June 2010.

Some things should be secret but I can think of no good reason to hide these.

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Filed under: finance
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