Opportunity or outcome?

July 8, 2014

One of the big differences between National and the parties on the left is that National focuses on the quality of spending while Labour and its potential coalition partners focus on the quantity.

Another significant difference is National’s belief in equality of opportunity and Labour’s in equality of outcome.

. . .Parker stressed Labour’s commitment to a balanced economy and greater equality of outcomes.. .

If you focus on equality of opportunity you’ll get better outcomes by helping people to help themselves.

If your focus is equality of outcome you’ll end up spending a lot more without making a positive difference.

A focus on equality of opportunity recognises some people need more help and some need less because they’re not starting in the same place.

It fosters independence and shows faith in people’s ability to help themselves when given a chance.

Focussing on equality of outcome fosters dependence.

 

It would result in throwing money and other resources at people and problems without requiring them to help themselves.

Communism tried to achieve equality of outcome and failed.

It did so because it ignored human nature and the fact that we can be equally poor or unequally wealthy.

The only way to get equality of outcomes is to drag down the top because those who work harder and smarter will always do better than those who don’t, regardless of where they start and what help they get.

Equality of opportunity might require some tough love, equality of outcome is just indulgence.

Equality of opportunity, recognising that those with less will need more help, is fair, equality of outcome is not.


Labour’s numbers don’t add up

July 8, 2014

Labour has left lots of unanswered questions about the costs of its policies.

Two and a half months out from this year’s election and already Labour cannot answer basic questions about the details and fiscal costs of its expensive early promises, Associate Finance Minister Steven Joyce says.

“David Cunliffe, David Parker and Chris Hipkins had a ‘hey Clint’ moment on TV last night, when all three of them failed to answer a simple question about the total cost of their grab-bag of education announcements,” Mr Joyce says.

Labour has rejected having a Treasury analyst in its office, and it really is showing.”

Talking to media yesterday after announcing it would spend $403 million over four years to employ more teachers, neither David Cunliffe, nor David Parker nor Chris Hipkins could do the simple maths on how much their other promises would cost.

“That’s because their numbers don’t add up and their claims are misleading,” Mr Joyce says.

“For a start, the Government currently funds secondary schools for an average 20 students per classroom, well below Labour’s ‘new’ target of 23 students per classroom.

“When it comes to their costings, Labour’s figures include only the cost of the extra teachers’ salaries. They need to come clean on what the total costs would be including ACC, training, support superannuation, and all the other overheads involved in supporting more teachers.”

Mr Joyce says this is not the first time in recent days that Labour has undercooked its costings and exaggerated its promises to New Zealanders.

“Last week their press release clearly said they were going to end voluntary school donations – yet they put up only half the money needed to cover existing donations and none of the school activity fees parents pay.

And on Saturday they claimed they would provide every student between years five and 13 with a digital device worth $600 by providing a $100 subsidy and having parents pay $3.50 a week for 18 months. This will be news to Labour, but this adds up to only $373 per device.

“And just to top it all off, David Cunliffe yesterday confirmed he would look at buying back shares in mixed ownership model companies – even though he’s committed to spend all the money raised by the share offer programme and then some.

“After nearly six years in opposition, Labour has learned nothing about responsible economic and fiscal management. They really do need to start showing New Zealanders the money,” Mr Joyce says. “Labour 2014 is already starting to look a lot like the 2011 version, only trickier.”

If Labour’s policy was being marked it might get a pass for rhetoric but it would get a not-achieved for costings.

The party’s got the words but it hasn’t got the numbers to back them up.


Is inequality really the problem?

June 10, 2014

Forget inequality, it’s not the real problem. This is the view of Roger Partridge, chair of the New Zealand Initiative:

Since the publication of The Spirit Level in 2009, and its ‘devastating critique’, The Spirit Level Delusion, in 2010, debates in the media and among politicians have been gripped by wealth inequality fever. The latest instalment is French economist Thomas Piketty’s Capital in the Twenty-First Century – a book which is at the centre of its own maelstrom over the accuracy of its analysis.

But is inequality a worthy cause célèbre? All other things being equal, few people on either the left or right would disagree that less inequality is better than more. And any parent will know that equality will lead to a more civil, stable, state of affairs within the family – and this is no doubt also true for society as a whole. But the factors that drive inequality in economic outcomes in a free market economy also produce great benefits. China may now have greater extremes of wealth than it did before Deng Xiaoping’s reforms, but the Chinese live 25 years longer and are 50 times richer than they were 25 years ago. . .

This reinforces the view that we can be equally poor or unequally rich.

Focussing on inequality – and looking to redistributive policies to solve it – risks throwing the baby out with the bath water. We would not restrain our more talented child just to make her less successful, younger brother feel better, so why should we levy our most talented, productive citizens?

The easiest way to reduce inequality is to bring the top down but that won’t improve matters for anyone.

What is needed is a focus on the real problem: that not everyone in our society has the skills needed to take advantage of the opportunities that should be available to all. Among them are the 20 per cent of New Zealand’s school-leavers who, year after year, do not achieve NCEA level 2. It requires a suspension of belief to conclude they are failing because the rich are getter richer. The problem is more complex, but we will not solve it if we look in the wrong place.

If Piketty’s thesis is correct, and inequality in the West has increased in the last 50 years, then it has coincided with a great social experiment, the welfare state, which has seen an unprecedented rise in just the sort of redistributive policies Picketty believes are needed to solve the inequality problem. But as the Welfare Working Group reported in 2011, the welfare state in New Zealand has led to long-term welfare dependency, deprivation, financial stress, low living standards, and poor health and housing. It just might be that Piketty’s solution is the real problem.

In spite of what the opposition and their supporters think, inequality isn’t getting worse:

. . . Hon BILL ENGLISH (Minister of Finance) : The evidence shows that inequality in New Zealand has been flat or slightly declining since the mid-2000s. We also believe that a number of the measures the Government took through the recession certainly prevented inequality from worsening at a time when the Government was very short of revenue. But I welcome the member’s interest in the IMF’s view, because among its recent comments on New Zealand, the IMF emphasised the importance of ongoing fiscal discipline to a sustainable economic recovery. Nowhere in the statement does the IMF refer to inequality, and that is for a very good reason in respect of New Zealand—that inequality in New Zealand has not increased over the last 10 years. . . .

That inequality isn’t getting worse doesn’t mean it couldn’t – and shouldn’t – improve.

Education is one of the keys to improvement:

The interesting thing about the OECD work is that it shows that economic inequality in New Zealand has among the lowest levels of impact because of our education system. Part of the reason for having public education—in fact, the main reason—is to overcome the inequalities of birth and inequalities of opportunity. That is why this Government is so strongly focused on helping our system be more effective in overcoming economic inequality. Another reason there is high transience in those schools is that the State housing system does not meet the needs of those with serious housing need. That is why the Government is changing that policy next week.

Hon David Parker: Why can the Minister not see that rising inequality under National goes against the egalitarian values that New Zealanders hold dear, is making educational outcomes worse, and is holding back economic growth?

Hon BILL ENGLISH: There is a very simple reason we do not believe those things, despite the fact that the member does, and that is that the measures of inequality in New Zealand and the facts demonstrate that it has not got worse. That is not a political assertion or an ideological conviction; it is the facts as laid out in the annual report from the Ministry of Social Development, which was set in place by the previous Government. On “Planet Labour” I know facts have very little impact, but on Planet Earth and in New Zealand the facts matter. . .

The opposition has leapt on the inequality band wagon but have fought every initiative National has introduced to move people from welfare to work.

Welfare dependency is the cause of a great deal of inequality and helping those who can work to do so is one of the most effective way to improve not only financial outcomes but social ones like health and education too.


Dairying cuts needed on light soils?

June 4, 2014

Dairy cow numbers might have to be cut on light soils, Federated Farmers president Bruce Wills says.

“We’re losing too much nitrogen. The massive shift to dairy has caught us, and the science hasn’t kept up.”

The “easy yards” of fencing waterways, modern effluent systems and fertiliser application advice had been done, but nitrogen was still leaching into streams, he said.

“It’s a hard conversation, but we have to have it.

“The guys leaching 70, 80, 90kg of nitrogen per hectare per year on the lighter soils will have to get that down to 30-40kg.

“If science won’t deliver the goods, we’re going to have to get these people to change their farming system.

“That’s not easy when a lot of them have borrowed many millions of dollars to get a system going and they’ve got a bit caught with interest payments.”

Regional councils are already imposing lower limits on sensitive soils, particularly those near waterways.

Many farmers had changed already, Wills said. “They’ve read the signals, backed off from four cows per hectare to 3-3.5 cows, and put in less inputs.”

This did not necessarily mean reduced profits, he said. “What we’re finding is that as well as a more relaxed, comfortable farming system, they’re actually making a higher net profit.”

While farmers were prepared to act more responsibly to protect the environment, their businesses had to remain economic, he said. “My worry is the pendulum is going to swing too far in favour of the environment.”

Farming, and dairying in particular is being blamed for problems which have multiple causes and have been building up over many years.

The remedy isn’t always as simples as reducing stock numbers.

Science-based solutions are helping but reversing damage which happened over a long period takes time.

It’s easy to sell the message that economic development shouldn’t come at the cost of the environment.

That shouldn’t be taken to the extreme where standards based on emotion rather than science lead to environmental concerns getting out of balance from the economic and social ones.

He said Labour finance spokesman David Parker was calling for the scrapping of the irrigation investment fund and for charges on water.

“If we had a change of government, we can kiss goodbye to any hope of meeting the ag double of increasing the export value.

 

Labour has made it quite clear it doesn’t understand farming and its importance to the economic and social fabric of the country.

That they’d be in coalition with the Green Party whose carbon tax, water charges and other anti-farming policies makes the prospect of them in government even more dangerous.

The silver lining to this red-green cloud is that persuading farmers to support National gets easier with every utterance from the opposition.


Push up food prices, put down farmers

May 7, 2014

Justified fears farmers have about the dangers of a LabourGreen government were confirmed by David Parker’s announcement of Labour’s environment policy:

Labour would axe the $400 million Crown Irrigation Fund to kick-start private irrigation schemes . . .

While honouring any contracts already in place, Labour would replace the Crown Irrigation Fund, established from the proceeds of state asset sales, with a freshwater pricing regime to encourage economically marginal irrigation schemes.

“With a new irrigation proposal where the economics are just breakeven, as they often are, then maybe the price of water for the first 30 years is next to nothing,” said Parker. . .

Irrigation NZ said the policy would push up food prices and cripple farmers.

Irrigation New Zealand (INZ) is not convinced that Labour has fully considered the implications of a tax, or resource rent, for irrigation. Particularly how such a mechanism would be practically implemented. 

Many water takes involve combinations of irrigation, hydropower and domestic supply such as the Opuha dam or the Rangitata Diversion Race – how will these complex takes be split apart to allow for irrigation related resource rents?

More importantly it is not equitable to do so given that private energy companies, Trustpower for example, and commercial business connected to domestic water supply systems also prosper from the use of water. A resource rent will mean increased cost for domestic water supply and electricity alongside food price increases – such a tax would therefore impact upon low income earners the most.

Yet another way in which a LabourGreen government would increase costs for households and producers.

Additionally, this increased cost to the farmer will impact production and importantly prevent farmer investment in improved environmental management to meet the water quality limits now in place in a number of regions. Ultimately it will see the demise of the traditional NZ family farm.

Despite Mr Parker’s statement that irrigation is funded by subsidies, this is not the case. The Crown Irrigation Investment Fund is an investment company receiving market returns – for example the recent $6.5million loan to Central Plains Water. New Zealand does however need to consider the benefits of subsidising modern irrigation scheme development, it would allow increased farmer investment in improved environmental management enabling them meet new standards more quickly.

Mr Parker’s comments that irrigation is a wealth transfer that only benefits rich land owners is disingenuous. Irrigation is well proven to benefit everyone – multiple independent socio-economic studies both in New Zealand and overseas demonstrate this. Because of the consensus view In New Zealand that our waterways are important and integral, all proposed irrigation schemes in New Zealand incorporate sustainability and environmental improvements.

Irrigation schemes provide infrastructure that allows opportunity for communities to grow. The reality is irrigation underpins thousands of jobs and entire communities in New Zealand, whilst also ensuring we have affordable food available on our tables. Blenheim, Ashburton, Timaru and Oamaru are all prime examples of this.

Parker spent a term as MP for Otago, which included Oamaru, and he ought to understand the benefits irrigation has brought to the whole district.

Sustainable solutions and environmental safeguards – many driven and agreed on by the 62-member Land and Water Forum – have begun in earnest: with compulsory water metering, stock exclusion from waterways and water quality limit setting. As a result in excess of $2billion ($5,000 per hectare) has and continues to be spent on converting flood and older spray irrigation systems to modern centre pivot irrigators.

These measures already in place will help ‘clean up’ dirty rivers and lakes over a generation; increases in intensity of land are already being controlled through nutrient allocation limits imposed on irrigators; and improvements to farm practice are already underway to offset environmental burdens caused by intensive farming.

INZ agrees with Mr Parker that New Zealanders can have their ‘cake and eat it’ – good water quality and a vibrant farming economy is achievable with a better defined environmental management framework for irrigators to operate within. Reducing uncertainty is key as it allows for investment. The future is about developing policy that enables irrigators to invest in the latest technology to improve water use efficiency and decrease their impacts on water quality.

Fairly funded and properly regulated irrigation is needed to achieve the next level of prosperity and sustainability in New Zealand.

Labour’s policy reinforces its ignorance of rural New Zealand, its needs and its issues.

It would impose extra costs and put more hurdles in the way of rural communities which are trying to drought-proof themselves.

We need more irrigation not less for the economic, environmental and social benefits it brings.

 


Front up on jack up

May 4, 2014

Labour’s David Parker needs to front up on how much he would squeeze wage and salary earners with his KiwiSaver jack up plan, Associate Finance Minister Steven Joyce says.

Mr Parker couldn’t answer a simple question today on how much KiwiSaver contributions would have to go up for wage and salary earners in order to stop a 1% rise in interest rates.

“Surely you must be able to answer that question. If you can’t, it’s not a policy, it’s not even an idea, it’s just a David Parker thought bubble.

“It’s simply not thought through,” Mr Joyce says.

Mr Joyce says a 1 per cent increase in KiwiSaver contributions is only likely to generate about $400 million of net new savings.

“My estimate is it would take roughly $2.5 billion in extra savings to keep the OCR 1 per cent lower. Labour would need to take another 6 per cent of people’s pay packets off them and put it into KiwiSaver to avoid a 1 per cent increase in interest rates. Given they already want people to save 9 per cent, that would whack it through to 15 per cent,” Mr Joyce says.

“But it’s not my estimate that’s important on this one, it’s David Parker’s. Where are his numbers? What are his calculations? All he’s done so far is mumble about how complicated it is.

Mr Joyce says Parker’s KiwiSaver interest rate jack-up idea would simply force all KiwiSavers to spend a lot less of their own money just to avoid putting up interest rates for other borrowers.

“Housing is less than half of New Zealanders’ debt. The rest is companies, credit card holders, farmers, councils, government agencies and so on. Effectively he’d be telling businesses and councils to carry on borrowing and spending regardless because wage and salary earners will do all the belt-tightening for them,” Mr Joyce says.

Let’s not forget central government spending which put so much pressure on interest rates last time Labour was in government.

“The strength of using interest rates to control inflation is that it affects all borrowers equally and encourages all savers equally. Under the Parker Plan, wage and salary earners would be completely squeezed and everyone else would continue on regardless. The Reserve Bank Governor would end up putting interest rates up anyway.

“And that’s not all. Respected economists have this week said that if this idea does anything it would increase bank profits, increase house prices faster, and force people to buy overpriced shares with their savings.

“New Zealanders know the New Zealand economy is currently one of the best performing in the western world. And it’s National’s consistent and sensible economic policies that are helping achieve that.”

David Farrar has worked out how much people’s take home pay would drop if they were compelled to save more:

. . . So what does that means if you are on say $60,000 a year. It means your take home pay will drop by $3,600 a year or a massive $70 a week to stop interest rates rising by 1%.

A drop of $70 a week would put considerable strain on most people’s budgets.

Now you may not even have a mortgage. Most people do not. Everyone who does not currently have a mortgage will have their take home pay slashed.

But what if you do have a mortgage. Say you have $300,000 owing on it. Let’s say the VSR means your interest rate is at 6% instead of 7%. What difference does that make to your weekly repayments? At 7% a $300,000 20 year mortgage costs you $536 a week. At 6% it is $495 a week so that saves you just $41 a week.

If you’re very wealthy, you’ll benefit from this policy. If your mortgage is say $1 million you’ll save $136 a week and your KiwiSaver contributions won’t increase as you’re self-employed.

If this policy worked, and there’s strong doubts about that, it would help wealthy people with mortgages and other loans at the expense of those without them.

It would make budgeting difficult for middle income wage earners and harder still for the poor.

It’s hard enough dealing with cost increases, having to cope with income decreases at the same time would be the last straw for many.


Labour no longer champion of poor

April 30, 2014

Labour once claimed to be the champion of the poor.

The monetary policy announced by its Finance spokesman David Parker yesterday is further proof that it has strayed far from that because it would hit the  poor hardest.

Labour’s plan to use New Zealanders’ retirement savings as a monetary policy tool would hit low and middle-income New Zealanders hardest, and not achieve what Labour thinks it would, Finance Minister Bill English says.

“This idea mixes up people’s own retirement savings – which require certainty over a long period – with the Government’s monetary policy, which the Reserve Bank reviews and can change every six weeks. The two are completely different and should stay that way.

“Labour’s approach will force people to save at least 9 per cent of their wages, plus more when the Government decides to up the contribution rate. This cut in take-home pay would hit hardest those low and middle-income families who are unable to save much, or who are focusing on paying their mortgages.

“Our current monetary policy settings are considered world-best practice. In the last few years we’ve come through a domestic recession and a global financial crisis and now have sustained economic growth, increasing wages and jobs and interest rates are just coming off 50-year lows.

“Labour’s ‘tool’ is a confusing solution looking for a problem. This is wishful thinking and there is no evidence it would actually work. Even if it did it would  require Kiwi families to accept a higher cost of living and higher compulsory savings at the same time, which would be a double squeeze on them.

“Labour has a recent history of over-spending in government. It should commit to spending less itself, rather than forcing householders to do the hard work for it.

“Low and middle-income earners would be paying the price for Labour’s lack of discipline,” Mr English says.

Compulsory savings isn’t going to appeal to people who have little or no spare money to save.

Compulsory savings with a variable rate which means you could be forced to save even more of the money you don’t have to spare will have even less appeal.

The idea behind the proposal is to give the Reserve bank and alternative tool to interest rates for fighting inflation.

No-one with borrowed money welcomes interest rate rises but at least most people have some control over how much they borrow and how quickly they repay it.

When interest rates go up they could choose to reduce their debt.

With compulsory savings they would have no choice about how much they pay, and no choice about reducing the amount they had to pay.

Increases in compulsory savings rate will hit everyone but interest rate rises affect  a relatively small number of people directly: *

Only  26% of single families and 55% of couples have mortgages.

Then there’s the impact on wages.

Labour’s compulsory scheme would require greater contributions from employers over time.

When working out what they can afford to pay staff it’s the total cost not where the money goes that matters so a greater contribution to KiwiSaver accounts will leave employers with less for wage increases.

Rob Hosking explains why Labour’s big tool won’t work:

. . . The  entire policy rests on the assumption a lower interest rate will also lead to a lower exchange rate. This is by no means a given. . .

The second issue is more political.

Forcing people to save more is not a costless move for them. Someone on an average income who suddenly has another chunk of their cashflow taken out of their weekly income is going to feel the pinch. . .

Forcing people to give up something is going to be fraught with political difficulty.

When it to implementation you can expect a wave of applications for exemptions, and this can be expected to lead to an administrative catscradle  and a political tangle. . .

BusinessNZ  chief executive Phil Oreilly has concerns about the workability of the policy:

. . . The proposed policy would ‘mix the targets’, he said. Instead of a sole focus on inflation, the Reserve Bank would also have to focus on achieving a positive balance of payments, stable economic growth and stable employment. This raises the risk of not achieving some or all targets.

“New Zealand’s external balance is a result of a number of factors, including over-consumption, over-regulation and inefficient government spending. It’s hard to see how the Reserve Bank can be particularly influential in changing these.”

Mr O’Reilly said there was potential for uncertainty and confusion from having different levers over interest rates and KiwiSaver rates.

“While the Reserve Bank would apparently retain control over its existing interest rate lever, it would probably need to go to the Government for the power to use the KiwiSaver savings lever each time it sought to do so. This would not only slow down the Reserve Bank’s decision-making ability, but would undoubtedly introduce politics into the decision making process. All of this would potentially add a great deal of political uncertainty to New Zealand’s macroeconomic settings.

 “New Zealand’s current Reserve Bank system is scrupulously apolitical. That is why other countries have followed our lead in monetary policy.

“Labour’s policy brings the risk of a future government politicising what has until now been an apolitical process.

“Can you imagine a future Government agreeing to a Reserve Bank recommendation to raise KiwiSaver rates three months before an election? “ Mr O’Reilly asked.

He said restricting immigration numbers as a way to reduce house prices could have negative consequences, potentially leading to wage inflation and constraints on firms unable to gain the skills they need.

“The policy announced today makes little mention of the key role played by other government policies in reducing house prices and making our economy more competitive. We note for example the recent Productivity Commission report on housing affordability which pointed to the key role played by land supply constriction in increasing house prices. ”

There would also be more uncertainty about incomes as a result of the proposed policy, he said.

“Income earners would be uncertain as to whether or not their KiwiSaver or their mortgage rates might rise, or both. This would have impact on private sector wage setting. . . “

So the policy won’t necessarily achieve it’s aim which is to reduce the exchange rate.

It would threaten the political neutrality of the Reserve Bank.

It would also leave people with less money to spend and it would leave them with no certainty over how much they would have.

Even the best budgeters are used to unexpected expenses but in the normal course of events we can all expect certainty over income.

With Labour’s proposed Variable Savings Rates, we won’t have any certainty.

It would be like being subject to possible changes in tax rates every six weeks and it’s the poorer people whom Labour used to champion who will be hurt most by that.

* Hat tip Lindsay Mitchell

 


Lies or politics

April 28, 2014

Labour has been tricky about another of its policy releases.

Last week it announced its veteran’s policy which would extend the Veteran’s pension to all veterans, whether or not they were impaired.

That sounds very generous but Matthew Beveridge covers an exchange on Twitter between Labour MP Clare Curran and Graeme Edgeler which shows that yet again Labour hasn’t given the full story.

The veteran’s pension is the same as national superannuation so week to week war veterans will be no better off with Labour’s policy.

Some would call that tricky, some would call it lying by omission.

Either way it’s just like the bumbled announcement of the baby bribe which omitted to let people know that it would kick in only after paid parental leave finished.

Then there’s getting facts wrong which is at best a very poor reflection on politics:

The Labour Party’s attempts to talk down New Zealand’s economic performance have hit a new low this weekend with David Parker making at least nine factually incorrect statements in one short interview, Associate Finance Minister Steven Joyce says.

In the interview, with TV3′s The Nation programme, Parker made assertions about low export prices, a poor balance of trade, job losses in the export sector, New Zealand’s current account deficit,  high interest rates, a lack of business investment, 40 per cent house price increases, no tax on housing speculators, and low levels of house building.

Mr Joyce says all of Mr Parker’s assertions in relation to these nine things are incorrect.

“This is an appalling number of errors for someone who would seek to run New Zealand’s economy. This number of errors surely can’t have been made by accident,” Mr Joyce says.

“Mr Parker’s attempts to describe the New Zealand economy sound much more like the situation this government inherited from Labour in 2008 than anything we are seeing in 2014.

“He must have been thinking of 2008 when he talked of ridiculously high interest rates, a poor balance of trade, and the poor performance of the export sector. All were pretty sick back then and all are in much better shape today as a result of this government’s careful stewardship of the economy.”

Mr Joyce says there are two possible conclusions. “Either Labour is deliberately fudging the facts to fabricate the need for their radical economic policy prescription, or they have truly woken up in 2014 for the election without observing anything that has happened in the last five years. The latter would at least fit their regular denials of the impacts of the GFC and the Canterbury earthquakes.

“New Zealanders know that this country today is doing better than most other developed countries, and in 2008 we were doing worse than most, in fact entering our own recession before the Global Financial Crisis,” Mr Joyce says.

“It might be an idea for Labour to look at the steady improvements that are occurring in the New Zealand economy before they start trying to write up their policy ideas.”

Schedule of inaccuracies in David Parker interview on The Nation – April 26 2014

1. “Export prices are going down”

Export prices in fact rose 13.8 per cent in the year to December 2013 (Statistics New Zealand).

The ANZ NZD Commodity Price Index rose 11.6 per cent in the year to March 2014 and is just 6 per cent below its all-time March 2011 peak.

2.  “We are not covering the cost of our imports (and interest)”

Statistics New Zealand reported a merchandise trade surplus for New Zealand in the year to February 2014 of $649 million (1.3 per cent of exports).

January and February’s merchandise trade surpluses were the highest ever for their respective months.

3.  “We are losing jobs in the export sector”

The number of people employed in the agriculture, forestry, fisheries, mining and manufacturing sectors has increased by 16,100 in the last twelve months. 

Total New Zealand employment increased by 66,000 in the last year or 3.0 per cent in one year. This is the fastest employment growth since December 2006. (Statistics New Zealand Household Labour Force Survey December 2013).

4. “This challenge of getting New Zealand’s current account deficit under control”

New Zealand’s balance of payments deficit is currently 3.4 per cent and has averaged only 3.1 per cent over the last four years.

Under Labour the Balance of Payments peaked at 7.9 per cent in December quarter 2008 and averaged 7 per cent over their last four years.

New Zealand’s Net International Investment Position is currently down to 67 per cent of GDP after peaking at 85.9 per cent in March 2009.

5. “Ridiculously high interest rates”

Interest rates have just edged up above 50-year lows.

Floating mortgage interest rates are currently between 6 and 6.25 per cent. They peaked at 10.9 per cent between May and August 2008.

6. “Exporters…. Aren’t willing to invest in plant”

Investment in plant, machinery and equipment by New Zealand companies was up 7.5 per cent in the December quarter and 3 per cent for the year. Investment in plant, machinery and equipment is now at its highest level ever (Statistics New Zealand – December quarter 2013 GDP release).

Just yesterday, long term New Zealand forestry processor Oji Limited announced a $1 billion investment to purchase Carter Holt Harvey Processing assets.

7. “House prices are up 40 per cent under them”

House prices under this government have increased at around 5.7 per cent per annum, compared to 10.7 per cent per annum under Labour, according to REINZ figures. Total house price increases over the period is 30 per cent, not the 40 per cent Mr Parker claims. That compares with a 96 per cent increase in house prices under Labour.

8.  “You need to tax the speculators. They are not taxing speculators”

Taxpayers who buy and sell houses for income are currently taxed at their personal income tax rate on their capital income.

9.  “They are not building any more houses”

The actual trend for the number of new dwellings, including apartments, is up 95 per cent from the series minimum in March 2011.

The trend is at its highest level since October 2007 (Statistics New Zealand February 2014 Building Consents Release).

Getting these facts wrong by accident is incompetence.

Getting them wrong deliberately is worse.

Either way, Labour is trying to talk down the economy which is doing well in spite of the GFC and the earthquakes and because of good management by the National-led government.

That the economy is growing doesn’t mean everyone is doing well.

But the chances of improvement for everyone are far greater under this government than they would have been had Labour been in power and continued with the tax and spend policies which put the country into recession before the GFC hit the rest of the world.

The chances of improvement will be far greater with another National-led government than with the alternative prescription a Labour Green government would impose on us.

 


It’s not that simple

April 27, 2014

Labour finance spokesman David Parker on the  lowering the value of the New Zealand dollar:

. . . But let’s say the New Zealand dollar was overvalued by 15 percent that means that our exporters at the moment are losing 9 billion dollars per annum. . . .

If only it was that simple!

But it isn’t.

Lowering the value of the dollar doesn’t just increase the value of export earnings it puts up the price of all imports and reduces the value of savings and income.

Among the imports which would be more expensive is fuel which would increase household expenses directly and indirectly.

If fuel costs more so does transport and therefore everything that is transported.

Farmers would get more for what they sell but they’d also pay more for big ticket items they buy like fertiliser and machinery.

Other imports include medical supplies, food and a lot of other essentials so a lower dollar would push up costs for households.

If imports cost more inflation would rise which would put pressure on interest rates too.

A lower dollar would make it more expensive to repay foreign debt, public and private.

It would make property cheaper for foreigners too which might encourage more overseas buyers, something the left wants to discourage.

A 15% fall in the value of the dollar might bring in $9 billion more per annum gross but it’s the net figure when increased costs are taken into account that matters.

That won’t be anywhere near $9 billion and it could even result in a greater loss than gain.


To be seen or not to be seen

April 16, 2014

Campbell Live wanted to do a series on party leaders at home.

It is the sort of publicity politicians can’t buy and an opportunity to show voters the people behind the politics.

John Key was first up last week.

Peter Dunne and Winston Peters declined to take part.

David Cunliffe was scheduled for Monday evening this week  but he pulled out.

. . . Mr Cunliffe has also cancelled an invitation for a second time to have television cameras in his home for an election year leaders series. Mr Parker says Mr Cunliffe has a young family and a right to privacy. . .

His family does have a right to privacy but if last week’s session at home with the Keys was anything to go by, there would have been no need for the family to be involved.

It is much more likely he doesn’t want people to see he doesn’t live in a modest house, in a modest suburb.

The family was a silly excuse and his decision an error of judgement similar to turning down the invitation for a weekly interview on the Farming Show.

It has been compounded by his not turning up in parliament at Question Time, choosing to address some business leaders instead.

We’re not hearing him on the Farming Show, we’re not see him on TV and we’re not seeing him in the House yet only last week he was complaining because he wasn’t going to be seen enough with the Royals.

Does he want to be seen and heard or doesn’t he?


Leaders lead but do followers follow?

April 11, 2014

David Cunliffe declared that a pre-election coalition between Labour and the Green Party was not going to be an option.

But was that the decision of his caucus or just his own?

The second tweet has a recording of David Parker saying that the decision was that of the leadership group but when asked to clarify that he suggests it was Cunliffe’s because “leaders lead”.

Leaders do lead but followers don’t always follow.

A caucus with a majority which didn’t consider Cunliffe their first choice as leader is quite likely to give less than its wholehearted support to any initiatives he takes.

Whether or not they do it’s yet another story which shows Labour hasn’t got its own act together and is, therefore, still not ready for government.


The right recipe for better times

April 10, 2014

Getting through the recession required careful management and disciplined spending.

Both those are needed when we get back into surplus:

Paul Goldsmith: Why will it remain important for the Government to maintain fiscal discipline, even after the Crown’s accounts return to surplus?

Hon BILL ENGLISH: The first reason is that we should not, of course, be wasting taxpayers’ money, and, given that this Government has developed much more thoughtful ways of spending Government money, we should stick to that. Secondly, we want to make sure we do not put extra pressure on interest rates. The Reserve Bank has already started to raise interest rates from 50-year lows towards more neutral levels. Keeping Government spending under control means that over the course of the interest rate cycle, interest rates will be lower than they would otherwise be. The Government wants to avoid the mistakes of the previous cycle, when a 50 percent jump in

Government spending under the previous Labour Government led to first mortgage rates of close to 11 percent. Households and businesses simply could not carry that burden this time.

Paul Goldsmith: What will be the Government’s approach to allocating new spending in the Budget next month and in future years?

Hon BILL ENGLISH: The Government’s approach is to examine critically each of its interventions and to ensure that any new spending shows a clear pay-off. A good example would be the fairly significant commitment to increasing the quality of teaching, with a view that we will gain a clear pay-off of more children reaching national standards and higher levels of achievement in our secondary schools. We have found that if we take that robust approach, many propositions that people have simply do not add up to a good use of taxpayers’ money.

Hon David Parker: Did he say in 2008 “This is the rainy day that Government has been saving up for.”, after Labour ran nine Budget surpluses and reduced net Government debt to zero, and can he confirm his Government has since borrowed over $50 billion?

Hon BILL ENGLISH: Yes, I did say that. What the member left out of his little story is that in the last Labour Budget of 2008 they forecast a surplus of $1.3 billion. What actually happened was a deficit of over $3 billion, plus forecasts of a decade of deficits and a blowout in Government debt. We are very pleased this Government has been able to get that financial wreckage under control.

Paul Goldsmith: As part of its wider economic programme, what progress has the Government made in reducing previous increases in Government spending?

Hon BILL ENGLISH: If I could use just one measure of progress, following the previous Government’s final Budget in 2008, since that seems to be where Labour members prefer to fight their political battles, core Crown expenses jumped $7 billion, just in that Budget—just in that Budget. This left a deficit of $3.9 billion in Labour’s last year. Since then, under the discipline of the current National-led Government, spending has increased by only 13 percent over five Budgets, compared with a 12 percent increase in just the one Budget in 2008. We are very pleased to be off that track.

The country faced a decade of deficits because Labour squandered the good times, doing far more taxing and spending than was good the economy and implementing too few policies that promote growth.

National rejected the temptation to slash and burn, protecting the most vulnerable through the recession.

It had to borrow to do that.

Now surpluses are in sight, we need a government that continues careful management and discipline to reduce debt and keep the economy growing sustainably.

Labour’s failed policies of the past combined with new tax and spend measures won’t do that.

 


Compulsory or universal

April 9, 2014

Australia’s compulsory superannuation scheme is often held up as an example we should follow.

However, this exchange during Question Time yesterday threw up a little-known fact:

Hon David Parker: Does he accept that Australia’s successful universal workplace savings scheme, introduced a decade after National axed ours, is why Australia owns its banks and ours, and why Australians have higher wages?

Hon BILL ENGLISH: No, but I do know that two of the effects of it in Australia are that Australians have less money invested in businesses than New Zealanders—

Grant Robertson: Rubbish.

Hon BILL ENGLISH: —no, it is true—and its rise in household debt directly parallels its rise in nominal household savings. But if the member believes he wants the Australian system, he should be open with the New Zealand public that he is going to strictly means test national superannuation. There is nowhere in the world that has compulsory superannuation and universal national superannuation.

How many people who urge compulsory superannuation know that nowhere that has it also has a universal scheme?

If superannuation savings can be either compulsory or universal how popular would compulsion be?

Hon David Parker: Will the Minister now admit that National was wrong to vote against KiwiSaver, which it now supports, and to call the Cullen fund, which it now supports, a dog?

Hon BILL ENGLISH: No, but if the member is going to advocate what he calls universal but is actually compulsory superannuation, he needs to explain what impact that will have on New Zealand superannuation. I think those who have been in this Parliament for a while will recognise that we have spent—what—20 years in vigorous discussion over the nature of national superannuation. It ended up universal because that is what the public wanted, and Labour is now advocating the Australian scheme, which involves strict income testing of national superannuation. I invite the member to announce that at the next Grey Power meeting he goes to.

. . . Hon David Parker: Is the Minister able to table any document that he has received that proves the assertion he made in his last answer, which was that the Labour Party is moving to a meansbased superannuation when that, in fact, is not our policy?

Mr SPEAKER: Order! It is quite a different question, but carry on.

Hon BILL ENGLISH: If I could find a coherent, rational, sensible Labour Party document on this matter, I would table it. But I cannot, so I will table the results of the 1975 and 2008 elections, where these issues were litigated.

What we do know is that Labour plans to increase the age of eligibility for superannuation.

It also plans to tax more and spend more which will aggravate inflation which will erode the real value of wages making it more difficult to save and erode the real value of any savings, be they voluntary or compulsory.

 


No room to splash cash

March 12, 2014

Parties on the left like to think the government is the answer to most problems.

By contrast, National recognises the importance of individuals, households and businesses, and careful management of government resources.

Hon KATE WILKINSON (National—Waimakariri) to the Minister of Finance: What will be the focus of the Government’s economic programme going into the election on 20 September?

Hon BILL ENGLISH (Minister of Finance): The Government will focus on building on the recovery that is now under way to support New Zealand households and businesses, to create more jobs, and to earn higher incomes. Now that we have been able to manage through a very significant recession and the impact of the earthquake, and clean up some of the damage done by the last Labour Government, we will look forward to helping New Zealanders organise the capital and the skills required to take advantage of the very substantial opportunities offered by a growing Asia- Pacific region.

Hon Kate Wilkinson: What progress is the Government making with its economic programme and how is this helping households and businesses?

Hon BILL ENGLISH: First of all, the recovery in the economy is principally the work of New Zealand’s households and businesses, supported by Government. Government policy that has helped to support that has been to get the Government finances under control and get back to surplus; and to focus on all those areas across the economy that support growth, such as better infrastructure investment, a tidier, more effective, and more efficient system for giving young New Zealanders skills, reducing welfare dependency, re-regulating the use of our natural resources so that we can be a prosperous economy as well as a clean, green economy, and, of course, there are many other ways we have been supporting New Zealand households and businesses.

Reducing the burden of government is one of the bests ways to help people and businesses.

Hon David Parker: Why is he claiming that everything is going swimmingly when the $1 billion deficit to 31 January in his Government’s accounts is $637 million worse than he forecast in just December?

Hon BILL ENGLISH: As I have pointed out regularly in this House, we can control expenditure to a significant extent but revenue can fluctuate. In this case—

Hon Members: Ha, ha!

Hon BILL ENGLISH: Well, bear in mind that in the previous financial year we finished about $3 billion ahead of budget. On the most recent figures in this year tax revenue is about $800 million

behind budget. The people who should take the most notice of that are the Opposition parties, because it makes it pretty clear there is not room to splash cash everywhere in election year.

Hon Kate Wilkinson: What are some of the ongoing economic challenges the economy faces, and how will the Government work to overcome them?

Hon BILL ENGLISH: Probably the main economic challenge is to manage our way through the next growth cycle, avoiding the excessive damage created during the last growth cycle under the last Labour Government. For instance, it is inevitable that interest rates will rise some time this year, according to decisions of the Reserve Bank. We want to make sure that interest rates are not driven to 10.5 to 11 percent by bad Government policy and excessive Government spending. That is probably one of the best things we can do to support New Zealand households.

Government spending has a significant influence on interest rates.

Labour’s profligacy was a major cause of high interest rates, National’s Presbyterian approach to other people’s money has helped to keep them low.

Hon David Parker: Is it correct that having inherited close to zero net Government debt he is soon to clock over $60 billion of borrowings; and is this more than any other Minister of Finance in New Zealand’s history in nominal terms and the worst in real terms since Muldoon?

Hon BILL ENGLISH: No, but it is another symptom of “Planet Labour”, a place where the global financial crisis and the Christchurch earthquakes never happened. Voters will increasingly see a party marooned on “Planet Labour”—1970s Fabianism at its worst.

Hon Kate Wilkinson: Going into the election on 20 September, what economic policies will this Government reject because they would impose costs on households and cost jobs?

Hon BILL ENGLISH: It is pretty clear from lessons learnt from the last cycle through the early 2000s up to 2008 what policies to avoid. One of those is a sharp increase in Government spending, because that will push interest rates up much faster than they need to go. The second one would be imposing a costly emissions trading system, which is guaranteed to put power bills up by around $500 per year and, in combination with a single-buyer electricity authority, would make household electricity bills significantly more expensive, not cheaper, as the Opposition claims.

Labour and Greens both plan to tax us more, directly and indirectly, and then splash the cash around.

Not only will that leave us with less of our own money, it will fuel interest rates and inflation.


Pushed will have nothing to lose

February 5, 2014

A party working towards a third term in government often looks stale and in need of refreshment.

National doesn’t have that problem.

It gained new MPs in both 2008 and 2011 and with resignations and retirements can expect a good number of new members after this year’s election.

Labour by contrast is in opposition and looking stale.

Only one of their MPs, Ross Robertson, has announced his retirement. Since no-one else is jumping they’re going to get a push:

. . . Mr Cunliffe also said he and deputy leader David Parker will meet with each of the MPs individually over the next fortnight and were already in discussions with some about their political futures within Labour. “There are one or two conversations with one or two colleagues that go to their long-term planning, but that is a private matter between them and the leadership team.” He would not say if they had approached him or he had shoulder tapped them. “We’ve got processes in place where we are setting goals for all our colleagues.” . . .

One reason for National’s renewal is that its MPs have other options and plenty of other things to do with their lives.

Many sacrificed income to go into parliament and can expect to earn more out of it.

The reluctance of Labour MPs to go graciously suggests they don’t have those options.

The caucus is already unstable, having to work under a leader a majority of them didn’t regard as their first choice.

Disgruntled MPs who feel they’re being pushed out will have nothing to lose if they let their disloyalty get in the way of caucus unity and their party’s best interests.


Equality of opportunity or outcomes?

January 23, 2014

While Labour leader David Cunliffe is talking hard left politics to mollify his supporters, the party’s spokesman is being touted as more moderate so as not to scare the horses in the centre.

But is this the view of an economic moderate?

“Not just equality of opportunity,” he says. “I believe in equality of outcome.That doesn’t mean communism,” he adds, pre-empting my question. I ask it anyway. Doesn’t it? “No, no, no. I personally wish I had made more money for myself. I’m not a pauper but neither am I a super-wealthy person. I believe that people should be rewarded for their efforts.”

That is muddled and contradictory but it’s not moderate.

Equality of opportunity doesn’t mean treating everyone equally. Those who start at a disadvantage would require more help.

But policies which provide equality of opportunity generally allow those who make the effort to get the rewards.

If you aim for equality of outcomes, it encourages people to sit back and get rewards without troubling themselves with the effort.

Equality of opportunity is reasonable and desirable. Equality of outcome is radical left.


Labour will meddle in power market

January 17, 2014

Labour is planning to follow through on its policy to meddle in the power market if it is in government:

. . . Labour and the Greens unveiled plans to overhaul New Zealand’s electricity market on the eve of the government’s MightyRiverPower selldown last year. The operator of nine hydro stations on the Waikato River has traded below its $2.50 IPO price since just after the sale last May.  Meridian Energy, sold in October, is hovering around its listing price.

The opposition parties want to create a single, state-owned power buyer and a restructured pricing model, to eliminate excessive power company profits and pass savings onto consumers through cheaper electricity prices.

“A wise investor will be aware if the pricing model changes, in this case to stop the profiteering of public rivers, that will change the companies’ profits,” Parker, who would be finance minister in a Labour government, told BusinessDesk.

“Investors are already discounting those stocks because of what might happen if we win,” he said. “It’s actually a good example of how the market works.” . . .

If they can reduce the value of companies and the wealth of investors this much when they’re in opposition, they will do much worse in government.

Investors have already assessed the threat. The New Zealand stock exchange energy group index, which includes all listed power companies along with Z Energy and NZ Refining, has dropped 9.6 percent in the past 12 months, while the NZX 50 Index has rallied about 17 percent.

“Some people just won’t touch them because they are scared of a Labour-Greens government,” said Mark Lister, head of private wealth research at Craigs Investment Partners. “Others say because they’re dirt cheap people are pessimistic. If National got re-elected they’d go up again.”

A potential change of government may pose risks to other sectors as well, he said.

“Regulatory risk is weighing on those sectors which could be in for attention from a Labour government,” Lister said. “The market is aware of the sectors susceptible to regulation – SkyCity, the electricity sector and Chorus have a cloud hanging over them, which will continue to the election.” . . .

If there’s a Labour/Green/New Zealand Firs/Mana and whichever else party after the election that cloud will darken.


This isn’t a recipe for growth

January 16, 2014

Colin Espiner interviews Labour’s finance spokesman David Parker and finds that:

If Parker is holding the country’s purse strings after this year’s general election, there’s plenty he wants to change. The top tax rate would be 39% on income over $150,000, although the company rate would be unchanged at 28% (and no, he doesn’t think that would encourage tax evasion). He’d introduce research and development tax credits, a living wage of $18.40 an hour for state-sector workers, a higher retirement age and a 15% capital gains tax.

This isn’t a recipe for growth.

Increasing the top tax rate is merely pandering to the sock-the-rich politics of envy. Those on the top tax rate already pay far more than their fair share of tax and adding the burden will increase tax avoidance as it always has in the past.

Treasury and Brian Scott have shown the flaws in the living wage concept.

Only a small proportion of those who get less than that now are single-income families and they get top-ups through Working for Families. Anything they gain through an increase in pay they’d lose through losing WWF. there’s not even any gain for the taxpayer, they’d be paying less in WFF but more in wages.

I’m not opposed to a capital gains tax in theory but if it is to do any good it must be universal and replace other taxes. Labour’s will exempt the family home and will be on top of other taxes.

The underlying theme to all this – and what really seems to drive him – is recapturing the egalitarian spirit he believes we inherited but are slowly squandering. “Not just equality of opportunity,” he says. “I believe in equality of outcome. That doesn’t mean communism,” he adds, pre-empting my question. I ask it anyway. Doesn’t it? “No, no, no. I personally wish I had made more money for myself. I’m not a pauper but neither am I a super-wealthy person. I believe that people should be rewarded for their efforts.”

Redistribution won’t recapture the egalitarian spirit and equality of outcome is impossible without the state playing a far greater role in the economy and society than is desirable and that is communism which has failed.

The best ways to improve life is to have sustainable economic growth.

We won’t get that with more of the higher tax, higher spending policies which Labour promoted  through the noughties and which put New Zealand into recession well before the global financial crisis.


Silly question, sensible answer

December 12, 2013

It’s a political maxim that you should never ask a question to which you don’t know the answer.

David Parker was silly enough to do that during question time yesterday and got a very sensible answer in response:

Hon DAVID PARKER (Deputy Leader—Labour) to the Minister of Finance: Which, if any, is his greatest failing in 2013 as Minister of Finance?

Hon BILL ENGLISH (Minister of Finance): This question does test one’s humility. Without doubt, though, my greatest failing as a Minister of Finance was, as it has been for each of the past 5 years, underestimating the damage done to this economy by the previous Labour Government, and overestimating the ability of Labour members to understand that and apologise for it.

The initial question provided the opportunity for another:

Tim Macindoe: What further progress has the Government made in 2013 in improving the range of negative economic indicators it inherited 5 years ago?

Hon BILL ENGLISH: In the first place, I would say the credit for progress goes to the households and businesses of New Zealand, which have dealt with difficult circumstances with remarkable resilience and fortitude, and they are achieving results. The economy is growing 2.5 to 3 percent—one of the fastest growth rates in the OECD. We are on track to surplus by 2014-15—one of a handful of countries that will achieve surplus by that time. Back in 2008 the current account deficit was over 8 percent of GDP and it currently sits at less than 4 percent of GDP. Five years ago inflation was running at 5 percent. It is now running at just over 1 percent. Five years ago mortgage interest rates averaged almost 11 percent. Floating rates are now less than 6 percent, although forecast to rise somewhat next year. The tradable sector, which went into recession in 2007, is now succeeding, and we are particularly gratified that the manufacturing sector is expanding and even more gratified that the regions are expanding, many of them at a faster rate than in Auckland.

Labour squandered the good times and left office forecasting a decade of deficits, before the global financial crisis.

National has turned that around, in spite of financial and natural disasters and is now on track back to surplus.

This is an achievement of which the government, and the businesses and households which also weathered the storms, can be proud.

Our economic growth is the envy of many other countries but it would be at great risk should Labour manage to cobble together enough support to form a government after next year’s election.

It’s policies show it hasn’t learned from its high-spending, high taxing mistakes and is determined to repeat them.


Cavalier attitude to taxpayers’ money

November 6, 2013

The Press, which is very familiar with insurance issues in Christchurch was less than impressed with Labour’s plan to establish a state-owned insurance company.

. . . The proposal for a new state-owned insurance company – KiwiAssure – would, Cunliffe says, be an effort to address problems over the responsiveness of private companies in settling claims and of the price of insurance. But in a market as competitive as the New Zealand one is, the price of insurance is determined by risk and the cost of covering it on the overseas reinsurance market. That applies whether the entity is private or state-owned. A state-owned enterprise required to lower its prices or be more generous towards customers than competitors could only do so at the expense of taxpayers.

As for the implication that a state-owned enterprise might provide a better customer experience in general than a private company, that only shows how far Auckland is from Christchurch. There are many in Christchurch who have dealt with EQC who could put Cunliffe right on that point. . .

The Herald is equally unenthusiastic about the idea:

. . . Ironically, the frustrations experienced by home-owners in Christchurch have much to do with government insurance in the form of the Earthquake Commission. . .

Nothing in the policy announced by Mr Cunliffe at the weekend dealt with any of the real insurance policy issues arising from Christchurch. The announcement was little more than a replay of a commercial for KiwiBank which, like it or not, could be saddled with the insurance company. “KiwiAssure will work for all New Zealanders,” Mr Cunliffe declared. It would be “a service-focused, state-owned company that has their best interests at heart”. It would “keep profits from this crucial industry in New Zealand”.

Wisely, he did not quite claim it would offer cheaper premiums than existing companies. Christchurch had an insurance company that did that. AMI had come to dominate the local market by undercutting competitors and the earthquake exposed its inability to meet all of its liabilities.

The AMI experience is salutary for national taxpayers, too, when they hear Labour’s assurance that its company would not carry a government guarantee. The present Government quickly came to the relief of AMI’s policy holders, taking over the worst liabilities and selling AMI as a going concern to the multinational IAG. It is hard to imagine a Labour Government acting any differently if a state-owned insurer fell into the same trouble.

Insurance is almost the last business that should be nationalised. Its purpose is to share risk internationally. Labour’s company, like KiwiBank, might appeal to those who dislike profit-seeking private enterprise and prefer to deal with a state agency, but they will be under-written by a global insurance network of private enterprise. The profits of insurance provide security for all its subscribers.

The illusion of a “home-grown alternative”, as Mr Cunliffe calls it, has a powerful commercial appeal.

Members of the Insurance Council do not relish competing with a new state company for that reason. Taxpayers should be wary too. When a political party goes into business for no reason better than ideological satisfaction, it is likely to create a commercial lemon requiring ever more capital to survive. Let us hope this is one we will never see.

The ODT raises concerns:

. . . The suggestion KiwiAssure will be run by Kiwibank is not sensible.

The success of Kiwibank will be put at risk by tacking on an insurance company with a domestic focus.

Voters only have to look at the downfall of AMI, a Christchurch-based insurance company which substantially undervalued its reinsurance obligations and ended up with the Government – and taxpayers – having to step in to bail it out.

Of course, a government bail-out is exactly what will happen to KiwiAssure if it does not spread its reassurance risks widely.

Reinsurance for a totally-owned government-controlled insurance company will be expensive.

There can be no discounted policies on offer; it does not make sense.

Residents of Christchurch, and other cities and towns, should be asked how they feel about the state-run EQC, or the many people waiting for some help from ACC, to get some indication of whether they feel comfortable with a state-owned insurance company looking after their interests.

Overseas-owned insurance companies, although receiving much criticism for the slowness of their reviews and delays in payments, at least have a global reach of funds on which to draw. . .

Labour’s insurer will be completely exposed to events in New Zealand, a country at major risk of incurring heavy losses from natural disasters. . .

The Auditor General’s report on EQC said its response in Christchurch had been mixed.

There is nothing in the report to give any confidence in a new sate owned insurance company.

Labour leader David Cunliffe  tried to get some traction for the idea in Question time yesterday but gave Prime Minister John Key an opportunity to remind everyone of the risks instead:

. . . According to the public register, believe it or not, a total of 96 insurance firms have a full licence from the Reserve Bank’s carry-on insurance business in New Zealand. I have heard of a group proposing to set up a 97th insurer. The only point of difference is that that insurance business would put hundreds of millions of dollars of taxpayers’ money at risk by entering a market in which that group has no expertise and for which it cannot offer any competitive advantage. That cavalier attitude to taxpayers’ money comes from who else but the Labour Party. . . 

Hon David Cunliffe: Is it not true that the Prime Minister called Kiwibank a “failing institution” after almost a million Kiwis signed up as customers; therefore, why could not KiwiAssure also provide a locally owned, competitive, and high-quality option in the insurance market?

Rt Hon JOHN KEY: It is great that it has taken to supplementary question No. 4, but we will get to the heart of it. These are the reasons. For a start off, let us just take Kiwibank. Yes, it is a good little business. I might point out, though, that it has taken $860 million of taxpayers’ money and it has never paid a dividend in over 10 years. Secondly, the insurance market is hardly a free ride, because insurance companies happen to be in the process of paying $20 billion out in Christchurch. So if we had KiwiAssure, which the member wants to talk about, then New Zealand taxpayers would be paying a fortune into Christchurch. Thirdly, it is a competitive market at the moment. So if one assumes that they are just going to lay off their risk, they will be laying it off with the same reinsurers. Fourthly—     

. . .  Rt Hon JOHN KEY: To my fourth point as to why an insurance company would be a bad idea—name another major bank that operates in New Zealand that has an insurance company. It would not make sense to lend money [Interruption]—no, lend money—and actually have the insurance on the same property they are renting. They do not do that. . .

Finance Minister Bill English got a further opportunity to reinforce the risks in the proposal:

David Parker—Labour) to the Minister of Finance: Does he agree with IAG’s submission to the Commerce Commission that “there is real potential for major banks to begin underwriting their own general insurance products, and to compete directly with the incumbent insurance companies at the underwriting level as they already do at a retail level of the insurance market”?

Hon BILL ENGLISH (Minister of Finance): I have no responsibility for the opinion of IAG New Zealand but I can give the member the benefit of the experience of watching and working closely with the Reserve Bank to reduce the risks of our banking system to the New Zealand taxpayer. There have been 3 or 4 years where capital requirements have been increased, the core funding ratio has been increased, and we have put in place an open bank resolution system. The idea of a bank taking on more insurance risk is about the dumbest proposal that could possibly be made in the light on the events following the global financial crisis. The member should think very carefully before putting forward a policy that heads in exactly the opposite direction to where every other country in the world is heading.

Hon David Parker: Am I correct, then, to infer that he does not support the creation of a Kiwibank-style insurer to serve New Zealand consumers, which would reduce the dominance of overseas-owned insurers, keep profits in New Zealand, and bring added competition, added flexibility, and choice to New Zealanders?

Hon BILL ENGLISH: That is exactly the misleading pitch around this proposition. If there is one thing every taxpayer in the developed world now understands but the Labour Party does not, it is that the risk would be on taxpayers—taxpayers in Ireland, Spain, the US, and the UK. A billiondollar impost on New Zealand taxpayers arises exactly from financial institutions taking too much risk and loading it on to the Government. That is why his proposition is stupid. . .

Hon BILL ENGLISH:  . . . Secondly, what is surprising here is that when we have had the biggest manifestation of risk, it going wrong, and its impact on taxpayers in 100 years, the Labour Party still does not get it.

Hon David Parker: Why should anyone accept what the Minister of Finance says about KiwiAssure when 10 years ago he was pouring scorn on Kiwibank, saying it was “a small bank that has got no long-term viability.”?

Hon BILL ENGLISH: It is a small bank and it has never paid a dividend. It is great that it meets the needs of New Zealanders but it is certainly not an argument for creating a parallel insurance company. It is absolutely clear from our experience with the Earthquake Commission, AMI Insurance, and South Canterbury Finance that when the taxpayer has to underwrite this kind of risk, it can go wrong and taxpayers can be up for billions of dollars. Having low-income people working in the rain, paying their PAYE, and underwriting financial risk is as dumb an idea as you can have in the 2020s.

Rt Hon Winston Peters: Why would any sane New Zealander believe that last diatribe given that just 10 years ago, when the Cullen fund was announced, he said the very same thing about that, then went down just last week to its 10-year celebration and humbly had to admit what a fool he was?

Hon BILL ENGLISH: Well, as the member will know, because he was there, I did not say that. I did praise Dr Cullen for finding a way of stopping the Labour caucus spending billions of dollars in surpluses. If Dr Cullen had been there, he would have said that that was why he set up the Superannuation Fund—to protect New Zealand from the Labour caucus.

The one thing that is saving us from Labour’s cavalier attitude to taxpayers’ money is the proviso on the policy that a business case stacks up.

It is very unlikely a business case will so this isn’t so much policy or a promise as an attempt to get votes in the Christchurch by-election the outcome of which will be settled well before the business case is found to be faulty.

The business case for #gigatownoamaru stacks up well.


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