The facts:
NZ is the third fattest country in the OECD (astounding). The productivity and health costs associated with this are huge – and growing.
Auckland University and Otago University medical schools undertook a joint research project into ways to influence consumer behaviour around the purchase healthy foods. Three groups were set up; 1) control group, 2) a group given very targeted information and education about the outcomes of healthy purchases, and 3) a group that were given information and a 12.5% price discount. The result: no change from control group (expected), no change from the group given a high level of education and information only (surprising), however, a 11% increase in the purchase of healthy food by those who received a 12.5% discount.

After consultation with a lead member of this research team, we decided that one of the best ways to influence buyer behaviour and promote healthy choices was provide a price incentive. This works. Six months after the study had finished and prices returned to normal for the third group, the researchers found the majority in this group were still making healthy purchase decisions.

So, education alone will not work in changing the eating habits / purchase decisions of the vast majority of NZers. A price incentive does. If anyone has a more effective way to directly target the obesity problem then I am very interested in hearing, because while it is a problem now, it is set to become an epidemic within a short space of time.

As an aside, we did briefly consider a ‘fat tax’ on unhealthy foods, however, ‘unhealthy’ is very difficult to define (under many definitions, milk and cheese are ‘unhealthy’) and so we decided that in this case, it is easier to remove a tax than add one.

An interesting contribution to that debate in New Zealand is coming from Gareth Morgan and Susan Guthrie. Their latest piece appeared in the NZ Herald on-line today.

Morgan and Guthrie highlight the obsession with property speculation, the reliance on commodity prices to keep us afloat, a narrowly based economy and monetary policy and a tax system that fuels the worst of speculative behaviour. These are not new messages from Gareth, but there is more reasonance as we look at a global and national economy defiantly not recovering and staggering (or is that muddling) through the year. He puts it this way

There is a naive single dimension to our economic policy – we either raise or reduce the budget deficit or we raise or reduce interest rates. That’s the sum total of the intellectual capital being applied to managing our economy. That it could be so bereft for so long has led to the persistence of our “structural imbalance”. There is a chronic need for policy enlightenment and a sweeping aside of a simplistic policy orthodoxy that has been rigidly paid homage to for 30 years now.

Now, of course I don’t agree with all of their prescription, but the idea that we have to change the way we think about our economy is the core message, and it is one that Labour has heard and taken on board. We are offering a different way of doing things both from where the current government is, and where we have been.

Monetary Policy. Labour has already announced that we need to change monetary policy to address the structural issues in the economy, including the volatility of the dollar that makes life difficult for exporters and high interest rates that discourage investment in productive parts of the economy. While curbing inflation remains important, having that as the single focus is not working for us. Our policy is to broaden the objectives of the Reserve Bank beyond just controlling inflation to look other issues, such as employment and to support more aggressive interventions to deal with currency speculation.

Fairer Tax System. As noted we are going to introduce a Capital Gains Tax to ensure we tax income in all its forms and start to move toward investment in our productive economy. We also are going to return the top tax rate to 39c over $150,000, the first $5000 tax free and taking the GST of fresh fruit and vegetables

Procurement/Overseas Investment. Labour is going to make important changes to focus to support our own economy. This means new rules on government procurement, that will be compliant with our international ageements, but will require a process that gives Kiwi firms a fair go and will look at a wider set of criteria for awarding contracts including the impact on the domestic economy. We want overseas investment but as announced in 2010 we will put stricter controls on purchases of farm land, monopoly infrastructure, so that we keep control of our assets (and of course there will be no asset sales!).

And there is more to come in terms of innovation and economic development, to build on the R and D Tax Credits, Youth Employment. And more to come in Savings, where we really can build a basis for creating the pool of resources to invest in our own companies, just as Kiwisaver funds have done with Scott Technology.

This post is too long already, so I will come back to some of the social policy issues Morgan and Guthrie raise, but for now I am confident that Labour has a different vision on offer this year. Some of it is policy we have done before, but a lot of it is thinking differently, because as they say a definition of madness is doing the same thing over and over and expecting a different result.

I have written an op-ed for the Herald on why the “Ratings Ref” yellow carded NZ.  Standard and Poors and Fitch agree on what is fundamentally wrong.  They say:

• First “very high external imbalances, accompanied by high household and agriculture sector debt” (S&P). These are mainly house and farm mortgages borrowed through the banks from foreign lenders to fuel our property obsession.
  • That’s not a new problem and it has levelled off a bit with the recession. But it is at historically high levels and makes New Zealand “an outlier among peers” according to Fitch.
• Second, “dependence on commodity income” says S&P.  Despite record milk prices we are still not paying our way in the world.  The current account deficit is a long term issue. But it will worsen to 6.9% of GDP while the Net International Investment Deficit (NIID) will grow from 78% to 85% over the next five years.
• Third “emerging fiscal pressures associated with (our) aging population” (S&P), including health and superannuation.  Suspending the NZ Super Fund pre funding hasn’t helped.

The reaction from Bill English on Q & A yesterday was uttlerly inadequate.  He maintains the government will keep on doing what it is doing.  As if that has done any good so far  – $37 billion extra debt, 47,000 more unemployed and 3.6% lower GDP now than when they were elected.

Here is the Government’s spin, and some perspective on it:

• “We have worked hard to control government spending and succeeded”.  The problem is that some $37 billion of debt has been added since the National Government took office – some $18 billion in this year alone.  While nobody blames any government for earthquakes – and the ratings agencies recognise that both sides of the political spectrum are exercising fiscal restraint, this is not enough to avoid a downgrade.   The agencies’ arenot swayed by the prospect of liquidating $5 billion of SOE assets.
• “We are better placed than some other countries”.   Being “better placed” than Iceland, Greece or Portugal is cold comfort.  Nor is it sufficient, in the face of paralysis in the US and chaos in Europe, to take refuge in Chinese and Australian expansion.  The risks of a slowdown in both economies are significant, and s the ratings agencies demand New Zealand  takes responsibility for its own future.
• “We are still on track for surplus in 2014-15.  So she’ll be right”.   As if.  The precise timing of short term fiscal balance is not the issue that has worried the ratings agencies.  The long term deterioration driven by poor savings performance, weak exports and the mountain of real estate debt is.  Clutching at such irrelevant straws only highlights the absence of better ideas. 

Proof of the bankruptcy of National’s ideas is in this sobering fact:  only one quarter of OECD countries have been downgraded by Fitch in the last three years.  The last time this happened to NZ was in 1998.  It is nonsense to say we are riding the waves better than most.  To the contrary New Zealand is highly exposed, and saddled with a government that has no plan.

Labour has the policies and the political courage to make a difference and to do what is needed: capital gains tax, strong saving policy, monetary reform and strategic economic development.  It is vital that we implement them before it is too late.

Be in no doubt: what happened on Friday is a very serious development that will have repercussions for many years.  I will write further on what this means for the average Kiwi family.

Aside from the obvious contradiction there (‘not trying to please people… but about creating a system that people feel is fundamentally fair’: in my experience, people are pleased with a fair system, and not with one that isn’t), I don’t think anyone would disagree with the sentiment. As Revenue spokesman, I get many e-mails from people who believe they are being ‘ripped off’ by a discriminatory child support regime.

Three points I would make however:
1. Two and a half years ago Dunne said he would complete a review of the system in 6 months. What took him so long?
2. Dunne’s IRD is undertaking a round of redundancies (16 front line staff in Napier alone) and yet they are about to restructure the child support system… Does that mean ‘more with less’? Give me a break.!
3. Most importantly, Dunne has said that the changes to the system will be in legislation introduced to Parliament in the next few months. There are only four sitting weeks left this term. This is incredibly important legislation because over 200,000 NZ children rely on child support payments. I hope like hell this isn’t something that Dunne and the Nats are planning to introduce under urgency.

I am not saying there doesn’t need to be changes to the child support system, because there quite obviously does (of the approximately $2b in child support debt, under $200m is actually principle). But any legislation reforming the child support system needs to go through the proper parliamentary process; e.g. public select committee where all NZers can have their say.

The real shame of all this: if Dunne had done what he said he would do, then we would have had this whole system reformed months ago. Wonder why he hasn’t…

“While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places……….

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.”

It reminds me of Sam Morgan who said last year

“The amount of tax people pay in different areas is not fair. The people that pay the most tax are working people.”

Back in the US of A Manhatten Millionaire Lawrence Benenson has joined the call saying :

“How much money do you really need? Give it back to the government, pave some roads.”

Scores of New York’s millionaires have signed on to campaigns encouraging “tax equality,”such as the group Responsible Wealth, that includes Edith Everett, a retired Wall Street stockbroker who says :

“People who are just scrimping and saving to pay their rent, they shouldn’t pay one penny more.  Rich people make their money on the backs of the workers.”

This is refreshing.  May we hear more like it in New Zealand.

No problem with people doing well.  Big problem with not paying fair share.

First, among developed countries we stand with only Switzerland and Turkey in not having a capital gains tax. That’s it. Australia’s got one, so has Canada, Norway, Germany, you name it. A lot of people don’t realise that this is not some radical tax dreamed up on the left of politics in New Zealand, it is part of taxation regimes around the world, because it is fair and reasonable.

The other question is around exemptions. As far as I know (and David C will correct me if I am wrong) that Japan is the only developed country who include the family home in the CGT. Exemptions are part of the CGT picture around the world. Tax accountants look at every tax and try to find ways through them. But that is not a reason to avoid putting them in place. We believe that CGT, along with the other initiatives Clare highlighted earlier today are the basis of a plan to bring some fairness and long term sustainable growth into our economy.

One final thought. Labour was rightly asked for detailed policy on the economy. We have provided that. What is National’s policy? Serious question. Can we expect something different? Or Is it just a continuation of the drifting and short term thinking of the last three years? It would be good to know. As the ad says, now’s good.

English, Adams and Bennett are all farmers (2 South Island drystock and 1 Waikato dairy), hence the irony of being lectured on debt and tax considering the farming sector has around $40b worth of debt, or a quarter of NZs total debt (most held by overseas-owned banks), and many in the farming community are masters at ‘optimising’ their own tax obligations.

Obviously all three would be subject to a capital gains tax when they sold their farms (I know Adams and Bennett have more than one farm, but unsure about English). So I was left wondering who these three cockies are representing – the NZers they claim to speak for, or their own back pockets..? Call me cynical, but I suspect its the latter.

Some things, it appears, never change: the National party is, once again, the party of the landed gentry working to feather their own nests and buggar the rest. Another irony is that the four Labour speakers (Cunliffe, Parker, Jones and yours truly) all come from a business background. Hmmm. The farmers lecturing the businessmen on debt, taxes and the economy. Go figure…

It’s not often that I agree with Deborah Coddington, but I do today.

…muggins like me who stick our savings in the bank have to pay resident withholding tax and can’t escape it. That’s why, in principle, a capital gains tax, as sold to me this week by Labour’s revenue spokesman Stuart Nash, is hard to argue against. If you earn a buck, you pay tax on it. Taxation should be fair…

While Coddington doesn’t agree with a progressive taxation system (ie. the more you earn, the more you contribute), she does take aim at those who have become excessively rich at the expense of others:

The more I see the fiercely wealthy, the more I dislike them. Are they born unpleasant or do riches change them because they’re accustomed to sycophants hanging on every whim? … they’re terrified of losing their money, and becoming grasping and predatory. They fear everyone is out to take it away so they must increase their pile … Rich isn’t a dirty word, but these guys’ refusal to accept they’ve done wrong gives everyone in business a bad name.

I admire people who have worked hard and made a good life for themselves and their families. But I’ve got no respect for those who make huge piles of cash by ripping innocent people off, then stash it away in family trusts and try to pretend they can’t even afford lawyers to defend themselves. They’re rip-off artists, plain and simple. Ambition and hard-work should be rewarded, greed should not.

John Armstrong’s column in the NZ Herald notes that Labour’s policy is driven by a desire to do the right thing and get the economy moving again, unlike National’s approach of trying not to scare the horses by doing nothing:

National concedes that Labour’s promotion of the tax was always going to get the tick of approval from some economists, think tanks and academics. National did not count on that endorsement being so strong. The endorsement has come from across the political spectrum, thereby making Goff’s push for the tax look less political and motivated more by what might be in the national interest.

Over on Stuff, Andrea Vance argues that Labour has taken the lead:

…Labour has seized the moment. There comes a tide in the affairs of politics and this time Goff, Cunliffe et al have caught it…pitched against an asset selloff, a CGT looks to many like the lesser of two evils…

On TV3’s The Nation Colin James says that Key and National have “miscued”:

They’ve attacked things that aren’t in it, and attacked things that are in it that they said aren’t in it, and John Key talked about it being a ‘dagger through the heart of the economy’ and I thought Russell Norman in Parliament was able to skewer him on that, he quoted the OECD, he quoted the Treasury, he quoted Australia, and I think National just miscued, it didn’t handle it nearly as well…

Earlier in the week, Rob Salmond posted an interesting piece on Pundit correcting some of Key’s mythical claims:

If John Key is determined to measure a person’s welcome in New Zealand only through tax rates, then the conclusion is clear. High income earners are more “welcome” here than in any of the country Mr Key aspires us to be like… The CGT discussion so far has been a bit surreal. Labour starts a debate about tax policy, traditionally a strong area for National and ACT. In response, National becomes a fact-free zone and ACT retreats into an internecine war over the appropriate degree of their race-baiting.

Blogger Idiot/Savant at No Right Turn, often critical of Labour for not being bold enough, nails it:

The numbers stack up. This is not a spendthrift plan to just keep on borrowing. Instead, its a cautious, sensible, fiscally conservative plan to balance the government’s books by closing a serious tax loophole. And we don’t have to sell anything to do it. Labour is now presenting a clear alternative to the government’s policies: either we can sell the family silver and see the profits go offshore, while trying to cut our way out of recession – or we can pay off our debts and support our government services by making the wealthy pay their fair share. Put like that, its really a no-brainer.

Meanwhile Fran O’Sullivan questions whether John Key has the gravitas to deal with the challenges we face:

All New Zealanders know Key has fulfilled his childhood dream by becoming Prime Minister of our small nation. But does he really have serious aspirations for his prime ministership? Or even New Zealand?

One gets the feeling that Key and his Ministers quite like their ministerial BMWs and have forgotten why they’re allowed to ride around in them. We certainly don’t hear them talking about being “ambitious for New Zealand” very much these days.