Red Alert

Archive for the ‘economy’ Category

What did smile and wave say about aussie?

Posted by Trevor Mallard on March 12th, 2010

JP Morgan report today that the unemployment differential between NZ and Aussie is the worst since records have been kept.

Remember we had lower unemployment than Aussie when Key became PM. Still not 1k of the cycleway built as part of his recovery package nor 1 metre of fibre in the ground.

Press Release by JPMorgan Australia Limited  at  7:42 am, 12 Mar 2010
* The bullish case for AUD/NZD can be summarised in the very simple mantra that ‘NZ is not Australia in terms of the level of economic activity. In short, NZ had a much worse recession than Australia and is recovering much more fitfully. One specific illustration of this is the unprecedented divergence that has opened up between the unemployment rate in the two countries. We first highlighted this a few months ago and since then the divergence has become even more acute (Australia releases February unemployment data tonight, after the RBNZ policy meeting). As of December the NZ unemployment rate was 2% higher than in Australia, which is the widest gap since the NZ series was first reported in 1985 and 2.8% wider than the average differential over the past 25 years.

A big group that will be worse off following the tax cuts

Posted by Trevor Mallard on March 11th, 2010

397,000 kiwi families currently live in homes rented from private landlords.

There are 189,100  individual landlords who own rental properties. Obviously most own one but some own  many properties but it averages out to about two.

The total projected revenue from eliminating the depreciation write off is $1.3b.  That involves housing rentals, industrial and commercial. Depreciation on housing is pretty much a fiction. It is real  on most industrial and some but not all commercial buildings.

The average is  $3,274 per rental property. 

There is currently a tight housing rental market in New Zealand and especially in Auckland. The tightening up of the tax approach around property owners liability for tax on capital gains is already pushing some landlords out of the market and causing rents to go up. Both TV channels have reported on this recently.

Landlords are making it clear that it is their intention to recover their extra costs (write off forgone). Of course they won’t be able to do it overnight – but they will over time.

My calculation is that the average residential rental property will inolve a loss of about $45 to the landlord v current depreciation arrangements.

(Average house price 416k but I’ve used median 360k. 2% depreciation = $7,200. 33c tax rate = $2,400 say $45 per week)

Can John Key guarantee that all families that rent their houses and get this increase as well as that in their GST will not be worse off.

And what does Bill English say. His rent was paid by the taxpayer for years because  he declared Dipton as his primary residence when he lived in Wellington.

But most of all who thinks it is fair that rents go up to give tax cuts of hundreds of dollars a week to the highest income earners in the country.

Not me.

Update  Comments below have suggested that my estimate is high because I haven’t taken out land prices. Other emails have suggested that there are higher depreciation rates and that because a proportion of rented premises are apartments land is not quite the issue some suggest. I’m happy to use the property investors $34/week figure for the purpose of the discussion. The post goes to the principle.


US cutting earmarks

Posted by Trevor Mallard on March 11th, 2010

There is a long term US Congress approach where money for pet projects and donors’ companies is tied to spending bills. It is called earmarking. It is wrong.  And it looks like its days are numbered.

But it is at least a more transparent approach than our government as outlined in the Hollow Men.

And amongst others I have been guilty of focusing on Bill English’s role in leaking the emails and other documents rather than on the substance. After the housing scandal he is no longer relevant.  Time for a reread I think.


The Turning Point

Posted by David Cunliffe on March 10th, 2010

There is a quiet revolution underway in macroeconomics. 

The old orthodoxy – the “Washington consensus” – is being deserted by leading economists in response to the Global Financial Crisis. 

For me the turning point was last month when the IMF published a challenging article by its Chief Economist Olivier Blanchard and others, that calls time out on the old orthodoxy. 

Although much debated because of its suggestion around a higher baseline inflation target, it is much broader in its critique of the failed status quo and directions for change.

If you have’t read it, see it here: http://blog-imfdirect.imf.org/2010/02/12/imf-draws-lessons-from-the-crisis-reviews-macro-policy-framework/

 For further comment see:

http://macroblog.typepad.com/macroblog/2010/02/do-we-need-to-rethink-macroeconomic-policy.html

http://economistsview.typepad.com/economistsview/2010/02/do-we-need-to-rethink-macroeconomic-policy.html

http://www.economist.com/blogs/freeexchange/2010/02/monetary_policy_2 

I will be writing more about the IMF change of direction, the breakdown of the consensus and what it might mean for us. 

We live in exciting times.  The current government is now clearly living in the past.


Axing the Tax Pack – Top of the South

Posted by David Cunliffe on March 9th, 2010

Today Maryan Street, Damien O’Connor, Darien Fenton and our team took the big red Axe the Tax bus through Nelson, Motueka and Westport. 

In Nelson we held two open air public meetings, both well attended, and canvassed retail businesses around the town center.  Good moments included large numbers of shoppers stopping to listen to us by the Cathedral steps, and the very positive reaction we received from many small businesses- who HATE the idea that it will be up to them to make the higher GST work, and that they carry the risk and hassle. 

Off to “Mot” via Mapua and strong positive reactions at both.  Shopkeepers coming out of their shops to call us in and tell us why they opposed the tax.  We doorknocked the entire main street at Motueka and it would have been impossible to miss us.  Lunch meeting with community groups at the community center.  Grey Power got it that the amount being speant on high income tax cuts is roughly the same as what National has gutted out of NZ Super prefunding.

Longish drive to Westport with lots of road works made us a bit late.  Funniest moment was National MP Chris Auchinvole flagging us down on the road near a country pub where he announced he had just held a “hotel meeting”.  OK fair enough, Chris.

Westport Working Men’s Club turned on a good crowd and some fine speeches from colleagues, with plenty of questions following.  A local beer went down well after.

Tomorrow we blitz Westport mainstreet and cover Reeefton, Greymouth and Hoki before the trans-alpine trip adn Christchurch via Rangiora.   Wednesday the bus tours Christchurch, but I fly to Invercargill to speak on the tax issues to public meetings and local businesses in Southland. 

Great to be meeting a wide range of Kiwis in their own home towns and hearing directly from them of their concerns.  And in case any trolls are going to run the “taxpayer funded” line – this is absolutley a proper thing for MPs to be doing.


Time to plead guilty bill

Posted by Trevor Mallard on March 8th, 2010

Yet another inquiry into the Brash email leaks doesn’t find quite enough evidence to name the Deputy Prime Minister.


What a great stadium

Posted by Trevor Mallard on March 7th, 2010

Phoenix win 3 – 1 in extra time.  35,000 there. Cricket, rugby in last couple of weeks. Sports work together.

 Brilliant transport links. Massive aftermatches within 1k walk.

Major economic and social impact.

Tell me again why jafas didn’t want one. The main excuse at the time was that they needed space to park imported cars.


Improved Crown Accounts won’t justify savage Budget

Posted by David Cunliffe on March 5th, 2010

The latest Crown Accounts show that recovery is underway. Bill English should be frank with Kiwis that the books are improving, and ensure that he does not talk down recovery as cover for a tough Budget.

The government’s books are significantly improving and now the presure is on Bill English to ensure all Kiwis benefit from the recovery.

Kiwis who have battled through the recession need a credible long term for them to feel like they’re not struggling to pay the bills at the end of the week.

What they don’t need is for prices of groceries, power and services to rise to pay for John Key’s GST money-go-round.

A recurring theme in the Crown Accounts seems to be the investments in the New Zealand Super Fund and ACC both tracked above forecast, and NZSF is now worth $2.5b more than when the government decided to suspend contributions for a decade.

Does anyone now think National’s “decade of deferrals” of payments to the SuperFund at the last Budget was a clever idea

With these improved forecasts, Labour challenges John Key and Bill English to resume payments into the SuperFund.

Gross debt was $2.9 billion lower than forecast, and continues Labour’s legacy of low debt, with gross Crown debt the third lowest in the OECD.

Crucially the operating deficit was $1.4b lower than forecast, now only $630 million. While still significant, this closes the operating gap by about 70% and shows drastic reductions in services are not justified in the 2010 Budget.

New Zealanders have gone without during the recession. The improvement in the Crown accounts should provide comfort that there are better times ahead.

It is essential that all Kiwis share in the recovery and that the government not talk the recovery down as pretext for a tax-cut driven Budget in 2010.


Tax and the Budget Policy Statement

Posted by David Cunliffe on March 4th, 2010

Parliament’s Finance and Expenditure Select Committee has just released its report on the half-yearly Budget Policy Statement.  This  politely worded document contains some useful nuggets of information that arose from Bill English’s testimony to the committee, and summarises FEC members’ views of what they heard.  Some of it was reported at the time, but it is worth reiterating in the context of the broader tax reform debate.

  1. English reiterated that the tax pacakge will be fiscally neutral.
  2. Raising GST to 15% is the government’s intention.
  3. This was not presented as a “revenue raiser on its own” but was needed to help pay for cuts to tax rates.
  4. The main rate change would be at the top end, with likely alignment with the Trust rate at 33%.
  5. Although there was talk that middle and lower income earners would be “no worse off”, committee members pointed out the huge inequity of top rate reductions for the few, versus standstill at best for the many.  There is no disguising the relative shift of the tax burden.

FEC members pushed on how the government would achieve fiscal neutrality given its stated intentions to compensate for GST – the numbers did not appear to add up.    Mr English first disputed the Tax Working Group’s estimates (funny how when he agrees he quotes them) that show full compensation costs almost all the extra revenue increased GST raises; then said rate cuts woul be largely funded from taxes on property.

Having excluded a comprehensive CGT, Land Tax and RFRM, the amount able to be raised from changing building depreciation rules is insufficient (only $0.3 to $1 bn compared to a revenue requirement of $1.2-$1.5bn ).  So if the government cuts the top rate as much as they’d like, it doesn’t leave a lot left over for the great majority of taxpayers.

Mr English then wriggled around on what a partial CGT might look like – discussing a bright line test to change the “intent” rules around property speculation.  English has also proposed “ring fencing”, a measure that he has ridiculed in the past as a ‘disastrous’ proposal.(http://www.hansard.parliament.govt.nz/Documents/20070621.htm )

It is very debateable whether that would fix the tax inequity between investment classes.  It is even more dubious to suggest that the additional property taxes would all be borne by top tax rate individuals – what about retirees and middle income earners with one or two investment proprties who may need to sell up? It looks like the intervention into the property market will really be a revenue gathering exercise to pay for tax cuts to the top rate, rather than a principled approach to addressing distortions as English claims.

And nowhere in the MOF’s presentation was there any talk about closing down the other tax planning rorts.  Funny that.

More broadly, the government cannot escape the contradiction that:

  1. It says it has enough revenue to deliver big top rate tax reductions for the few (but not the many).
  2. But it will drastically reduce new spending to $1.1 bn in Budget 2010 and onwards - inevitably resulting in real front line service cuts to Health and Education.
  3. There was no discussion of restoring superannuation pre-funding, Kiwisaver incentives,  restoring contributions to the SuperFund, or R and D tax credits, even though Treasury has previously advised all are prudent and necessary.

My impression of Bill English’s presentation was that no matter how it is dressed up, the government’s intentions are stark and predictable: raise taxes for the many and cut them for the few, and cut services for the many to pay for it.


AXING THE TAX PACK

Posted by David Cunliffe on March 1st, 2010

Labour is taking the fight to the government on its unfair tax plan.  The “Axe the Tax” bus tour is covering the country.

We are campaigning against is whole tax package, which includes all of:

  • GST going up from 12.5% to 15%, even though National said before the election they would NOT;
  • The unfairness of the massive cut to the top tax rate, dressed up as “alignment”, which delivers windfall gains to the top few percent.

The government’s GST tax switch is really just cover for the massive shift towards top end tax reduction.

Politics is, at least partly, about who gets what – and guess who stands to benefit most from National’s plans?

Not the vast bulk of Kiwis, who are on middle and lower incomes and who have toughed out the recession.

Labour will release its tax policy before the next election.  Labour’s tax plan will be fair to all Kiwis, not one aimed at delivering big cuts only to a few.


Another key promise broken – wage gap with aussie to blow out

Posted by Trevor Mallard on March 1st, 2010

A Grant Thornton survey of employers in NZ and Australia reported in the Herald, has resulted in their prediction that the wage gap is set to increase.

They are predicting the brain drain to turn into a full flowing torrent.

Not really surprising. From unemployment being 4.2% in both countries in 2008 we now have 7.3% and going up and they have 5.3% and going down.

And what was the difference. The Aussie government took positive counter measures which minimised the employment flow on from the recession while John Key sat on his hands, ran a talk fest, and in fact made the situation worse with cuts.

I’m not sure whether Key knows what he is doing and is deeply cycnical, or doesn’t know what he is doing.


Why did I buy a new mountain bike?

Posted by Trevor Mallard on February 28th, 2010

Because I thought we would have a cycleway. But according to the Herald not a metre has been built since John Key announced it a year ago.

And btw how much fibre has gone in as a result of Joyce’s work?


Leaders reply strikes a chord

Posted by Raymond Huo on February 26th, 2010

Phil Goff’s response to Prime Minister John Key’s statement on February 9 has resonated strongly within Chinese and Ethnic communities.

The speech has been “heavily” quoted in the Chinese-language media in NZ and been at the heart of many political debates in the community.

Last Friday Phil Goff gave a comprehensive interview with Auckland-based WTV on various issues including GST, R&D, how to grow economy and “catch up with Australia”.

Common sense would tell that if the Government is serious about catching up with Australia we need to look after the bottom 50 percent of wage earners not the top 5.

In New Zealand, the total income earned by the bottom 50 percent of taxpayers is about 17 percent proportionally, and the total tax they pay is 12 percent. While in Australia the bottom 50 percent of taxpayers pay the same proportion of tax of 12 percent, but the total income they earned is 25 percent.

To put it in lay-terms, Australia’s bottom 50 percent of taxpayers have a bigger share of the total income, which means income is more equally distributed in Australia before tax is taken into account.

If National are really keen on closing the gap with Australia, the focus must be on the bottom 50, not the top 5.

Feel free to use this translated version of Phil Goff’s speech.

And to the National supporters that read this, if you read Phil’s speech with no prejudice, you will see why Phil has been so warmly welcomed by Kiwi-Asians.

During the huge Chinese New Year Celebration on Saturday 13 February attended by over 65,000 people, I was proud to learn that Phil Goff had more photos taken from the crowd than the Prime Minister himself!

(more…)


Lies, Damned Lies and Statistics

Posted by David Cunliffe on February 25th, 2010

Bill English has been “trying it on” in his use of statistics, no doubt to try to get off the defensive around inequitable tax policy, his lack of a plan for growth and an embarrassingly strong performance by NZSF and ACC in the recent Crown Accounts.

Mr English alleged in a release last week that revisions to GDP data issued late last year showed the economy grew by “less than 1% a year”.

The Government Accounts  had been released the day before. Labour had attacked the government for having suspended superannuation prefunding and cutting ACC, when the investment performance of both had risen strongly.

Based on the Statistics NZ revised data, the average GDP growth for those three years was actually 1.74%.

The more relevant GDP growth benchmark, averaged over Labour’s last term in office, was 3.2% GDP growth per annum.

That was significantly higher than during National’s previous term in office of around 2.6%.

It was higher, year on year, for the three year period Mr English quoted, than the UK (2.6%), US (2.5%) or OECD average (2.3%)

This strong and sustained economic expansion was achieved alongside:

  • a massive reduction in Crown debt (net debt cut from 24.8%  of GDP to zero);
  • unemployment of 3.4%, the lowest in 21 years (less than half of today’s 7.3%)

This was achieved precisely because Labour did not follow Mr English’s advice in 2005 and 2006 to give early tax cuts. In short, not taking Bill English’s advice in 2005/06 meant NZ could afford a Budget in 2008 designed to support Kiwi jobs through the recession.

So if that was the real big picture, how did Mr English come up with his odd numbers?

  1. First, using highly variable quarterly GDP statistics, not the more aggregated and reliable annual numbers
  2. Second, choosing a short period impacted by the global recession to   bring the average down.
  3. Finally, by taking advantage of retrospective statistical revision  called chain linking whereby when recent data falls sharply (for example due to the recession) previous years are “smoothed” down to fit the trend.

The bottom line is National would give its right arm to have economic performance numbers today that matched the average under the last Labour government.

We have a Minister of Finance who has shown himself not above skewing data for political ends.

Lesson for Bill English: “when in a hole, stop digging”.


Why don’t Nats want question time ?

Posted by Trevor Mallard on February 24th, 2010

It is not good form to go into details of discussions that happen “behind the speakers chair” between leaders of the house and their shadow or between whips.

But what is very obvious is that the Nats are very very scared of having a question time today. We are under urgency debating ACC legislation. We know that in the end we will lose and all we can do in debate and delay.  But that has its limits and what normally happens is that a deal is done – questions in and a limit to the length of the debate.

There was a fair deal on the table for the Nats but they have run away from it.

So what are they scared of.  Key or English on the differing views on GST. The housing question to credit card Heatley which goes to his priorities for government expenditure. Or Anne Tolley showing her ignorance of her own standards policy again.

But whatever it is they make chickens look courageous.


Steven Joyce used the “r” word today

Posted by Clare Curran on February 23rd, 2010

Finally, Steven Joyce seems to have woken up to the fact that he’s a Minister, and there’s a crisis happening in one of his many portfolios. And when there’s a crisis, the public like to think that the government takes charge.

He’s waited way too long to make a move. And that will cost him. I don’t think he’s behaving like a strong Minister, and I think it’s interesting that despite the persona, the Telecom crisis saw him standing back wringing his hands, saying while it was “concerned, the government couldn’t really do anything”.

Suddenly, this afternoon, that changed. He decided the government did have a role after all. I wonder whether it was because John Key told him to say something and he finally asked for some advice.

For a Minister who has seemed almost unnaturally averse to the concept of regulation, it was a surprise to hear Steven Joyce say today that the government may have to regulate. Out of character.

This is some of what he said: 

… ensuring 111 calls made from mobile telephone networks get through is vital.

“The recent spate of outages on the XT network has exposed some shortcomings in this area and officials have been working urgently with Telecom since last evening to address these issues.”

Currently, Telecom is obliged under the Telecommunications Services Obligation (TSO) to provide emergency calling on its fixed network. However, mobile phones are not covered by the TSO.

Mr Joyce says that the government may need to regulate to ensure that operators prioritise 111 calls in situations where networks become unstable.

Well, it’s taken days for him to come to that view and I believe he’s been negligent in not getting involved earlier.

It’s ironic that he’s talking about regulation, the day after it appeared he would lean towards not regulating the termination rates on mobile calls, after two of the main players, Vodafone and Telecom offered to further phase in a reduction of rates.

Maybe he’s realising that customers need to come first. It’s a reality that there must be a charge for terminating a call or text, but it needs to be fair. For the consumer and also for the third player in the marketplace. But he’s acted too late and and he’s shown himself not to be strong and decisive. 

Maybe he’s finally realised that where a significant public interest is at stake, the government does have a role. Watch this space, because the PM has a political nose and he’ll get involved. And if he does, then Steven will be damaged.

This isn’t just about the XT network. It’s about NZ Inc.


The people smile and wave is relying on

Posted by Trevor Mallard on February 22nd, 2010

The government has two very big issues running at the moment. GST (in the context of the budget) and National’s standards in primary education.

But the Ministers leading these areas are the two most damaged Ministers in the government.

Since his housing rorts have been exposed English has had very little credibility when is comes to fiscal prudence. His problem has been both actual and more importantly perception. Even natural allies are asking whether the change will come in the short term (Power) or later (Joyce).

And while those who work closely with her are mainly being polite the degree of exasperation with Anne Tolley is growing by the week. In this case it is pretty simply a Minister who can’t cope with the job. While that was most obvious in the tertiary area where she was removed following approaches to Key from within the sector it is increasingly clear that she can’t get her head around her own flagship standards policy. Tolley might have made a good junior Minister but she just doesn’t have the grunt to cope with the front bench and the education portfolio.

So should Labour be calling for their resignation. Probably not. Ministers who are seen to be performing poorly are like rust – it sometimes takes a long time to surface but eventually will wreck the whole machine.

I say leave them in place – for now.


High tech sector a driver for the NZ economy

Posted by David Shearer on February 21st, 2010

Last week the TIN100 came out. It’s a magazine that follows the NZ high tech sector. It’s findings were once again remarkable. This sector is now a $6.6 billion industry. Its offshore revenue is larger than meat, wood or wool – 77% of that is generated from offshore. It continued to grow through the recession.

Its potential is obvious, not only as an exporter, but as a generator of smart knowledged based jobs. It harnesses Kiwi innovation, ideas and gets them out there, despite our geography. Remarkable stuff.

But it challenges the idea of many that NZ should stick to its knitting and continue to pour the bulk of our science investment in the primary produce / agricultural sector.

We need both.

The high tech sector has the potential to grow (without food miles), but it’s not going to happen over night. It needs further investment in science, support with capital and exporting. Most importantly it needs a realisation of the importance of backing innovators and what they are doing.

Australia recently gave a 45% tax break to its innovation companies for R and D. Don’t expect this government to come out with anything as forward looking.

Unlike our farmers, the people who run these high tech businesses can pick up and work anywhere in the world. We need them here for NZ.


The Bullshit factor #2

Posted by Clare Curran on February 21st, 2010

Economics. It’s a paradigm. It’s all about money. Not people. Maybe John Key could do a local version.


Should this be the way forward for NZ?

Posted by Clare Curran on February 21st, 2010

Whirlpool plans to start closing its refrigerator plant in Evansville, Indiana, on 26 March eliminating 1,100 local jobs. It has decided to shift its operation to Mexico. Why? Lower labour costs.

As the world’s largest home appliance maker, Whirlpool makes a healthy profit.

The AFL CIO (our CTU equivalent) reports Whirlpool has has received a $19 million economic matching grant that should be creating jobs  in America. They’ve started a petition to Keep it made in America

Sound familiar?

In April 2008 Fisher and Paykel announced about 1,000 jobs, or 28 percent of the total work force, would be lost in New Zealand, Australia and the northern United States as plants were relocated to Mexico, Thailand and Italy, where a similar number of new jobs would be created.

Fisher and Paykel said at the time that labour costs in Mexico were about a sixth of those in New Zealand.

Sooo… what happens next time there’s a plan to outsource, offshore, a lot of NZ jobs?

Or, next time there’s the potential to create and provide certainty for a bunch of jobs in New Zealand through investment in local infrastructure, such as the electrification of Auckland rail.

Are cheaper labour costs (in China, Mexico) the bottom line? Or should our economic development rest upon a wider set of values? Maintaining and building skills. Encouraging local innovation. Building our own export base. Keeping kiwi jobs kiwi.

And what should the role of government be?