Word of the day

January 26, 2011

Refocillate – to restore, refresh, revive.


Lower spending, less debt, more growth

January 26, 2011

Building a brighter future or returning to the failed policies of the past – these are the clear choices voters have been offered.

In contrast to Phil Goff’s promises for increased spending and borrowing, John Key is offering lower spending, less borrowing and a faster return to surpluses.

This year is about building a brighter future for New Zealanders and their families.

That is only possible if we lift the country’s economic performance, and by doing so deliver the jobs, higher incomes and better living standards New Zealanders aspire to and deserve.

That means making responsible decisions now, as the economy picks up, to increase national savings and reduce the country’s debt.

He’s trusting us to understand the need for short term restraint to give long term gains.

. . regardless of what unfolds, it is important to look through the quarter-to-quarter economic figures and focus on the longer-term challenge.

That challenge is to build a lasting recovery based on savings, exports and productive investment.

New Zealand has been through a recession and a global financial crisis. We have a chance, now the economy is gathering steam again, to build a solid platform for future growth.

If we get this right the possibilities are exciting.

Our trade is rapidly shifting towards Asia, which is growing much faster than our traditional markets in Europe and the United States.

New Zealand is a food-producing country and world demand for food is rising. Global prices for dairy, forestry, meat and other commodities are high.

We have a genuine competitive advantage in agriculture and other primary sectors. We have world-class firms engaged in high-tech manufacturing, software, film and other industries.

These are great opportunities for New Zealand.

But as a country we have to reach out and grasp those opportunities or we risk missing the boat.

The way for New Zealand to get ahead is to sell more to the rest of the world.

That means making some changes.

And why do we need changes?

Growth over the last decade was built on all the wrong things – debt, consumption, and government spending.

People borrowed heavily to buy houses and farms, property prices soared and New Zealanders felt wealthier as a result. They spent a lot on consumer goods, which led to a bubble of economic activity.

The Labour Government thought this bubble, and the tax revenue it generated, would go on forever and spent up large on permanent new spending programmes. The Government’s spending increased by more than 50 per cent in just six years.

High government and private sector consumption generated inflationary pressures, pushing up interest rates and discouraging productive investment.

High interest rates in turn led to an over-valued exchange rate which smothered the internationally-competitive sectors of the economy, like agriculture, horticulture and manufacturing.

Our exporters found it hard to sell their products at competitive prices overseas because of the high value of the dollar.

The internationally-competitive sectors of the economy actually went into recession in 2004, and experienced a 10 per cent drop in output over the next five years.

In contrast, the domestically-focused side of the economy grew strongly. Since 2004, almost 60 per cent of new jobs have been in heavily government-dominated sectors.

As a country we imported far more than we exported, leaving a gaping balance of payments deficit that persisted for year after year.

All this could never be a solid basis for growth.

Those are the  failed polices of the noughties. They didn’t work when the global economy was booming, they definitely won’t work now it’s not.

By the time the National-led Government came into office at the end of 2008 the economy was deep in recession, and inflation was the highest it had been in 18 years.

The Government’s books had been left in a mess, with Treasury projecting no end to budget deficits and government debt spiralling out of control.

As an incoming government, we moved quickly to steady the ship, help the economy through the recession and set a credible path back to surplus.

Even so, when we tally up everything the Government is spending this year, we still need to borrow $300 million a week on average to pay the bills.

In the worst of the recession, running a budget deficit was the right thing to do, as it gave much-needed support to the economy.

Now, as the economy recovers, borrowing $300 million a week is unaffordable and is holding the economy back.

It is crowding out our internationally-competitive sectors of the economy, keeping the exchange rate high, and tying up resources that could be better used elsewhere in the economy.

And this borrowing will, of course, have to be repaid in future years, with interest.

Annual interest payments on our debt will, in four years time, cost more than spending on the Police, defence and early childhood education combined.

Rising government debt adds to New Zealand’s total indebtedness to the rest of the world.

Through decades of under-saving, over-spending and over-borrowing, the public and private sectors have together built up a net foreign debt equivalent to 85 per cent of GDP.

That makes us heavily reliant on overseas lenders who can at any time decide that we are just too much of a risk. And if we can’t raise money overseas, or can only do so at a high price, we face the risk of a protracted recession, with a significant loss of jobs and a fall in the value of everyone’s homes, businesses and farms.

To put it in context, the only other developed countries with a foreign debt the size of ours are Greece, Portugal, Spain and Ireland.

That is very uneasy company indeed. And it is precisely the difficulties those countries are in that has led to Standard and Poor’s putting New Zealand on negative outlook.

So as the economy picks up, it is crucially important that our growth is not based, as it was in the 2000s, on debt, consumption and government spending but instead is built on the solid foundation of savings, exports and productive investment.

He then looks at what National has been achieved so far:

. . .  we undertook the biggest reforms of the tax system in 25 years to increase the incentives to work hard, save and invest; and to remove distortions and clamp down on loopholes. Importantly, we designed these tax changes so that they won’t result in extra government borrowing across the forecast period.

We hauled back new budget spending allowances and reduced the size of the bureaucracy.

We invested in much-needed infrastructure, to unblock the arteries of the economy.

We have progressed an ambitious free trade agenda.

And we introduced a number of regulatory changes to make it easier to do business.

But structural change in the economy does not happen overnight. It is a bit like turning a super-tanker around.

New Zealand’s economic imbalances have built up over several decades, so it will take more than a year or two to fix them.

It will take a number of years and considerable effort.

The 2009 Budget concentrated on getting through the recession as well as possible, last year’s concentrated on tax reforms and this year’s will focus on savings and investment.

Over the last year or so, New Zealand households, businesses and farms have begun to save more, spend less and borrow less as a proportion of their incomes.

This is an encouraging change of behaviour but needs to be cemented in for the long term. And government needs to stop pushing the other way.

It sounds oxymoronic but we’ll gain more from a government that spends less.

The Savings Working Group is due to present its report to the Government in a few weeks. We will consider this very carefully, including ideas around tax, KiwiSaver, and investment products.

The Government has already made tax changes that are pro-savings. We remain conscious, however, that effective tax rates on some forms of savings remain very high.

The Government is also interested in ideas that increase participation in KiwiSaver and raise national savings, but which don’t result in an ongoing and unaffordable fiscal cost, which again would have to be borrowed.

And in terms of investment opportunities, the Government is interested in the Working Group’s thoughts on how to expand the range of investment opportunities available to New Zealand savers.

It would be better for both investors and the economy as a whole if people had the confidence to save more and invest in a wider range of assets, not just in property.

These are all areas where the Government may be able to influence the level or allocation of private sector savings.

But a point which has been made to us very clearly, by the Savings Working Group and others, is that the government is itself a crucial part of the national savings equation.

The government simply has to get its finances in order if New Zealand is to achieve a long-term improvement in its economic prospects.

Therefore I am announcing today that the Government intends to borrow less in the future than is currently forecast.

That is going to involve action on two fronts – on the operating side and on the capital side of the Government’s spending.

This is very welcome news and will come from a tighter fiscal policy. Spending will increase but more slowly than forecast and the government books will return to surplus in 2014/15, a year earlier than predicted.

In particular, the Government is determined to reduce the costs of running its own business. That process has started, but the public sector is still a long way from being a lean and efficient organisation.

National will also look at longer term savings.

Crucially, this year there will be no room at all for extravagant election promises.

We are going to campaign on being responsible managers of the economy, who make the right decisions to build a platform for future growth.

Any party that wants to ramp up spending is being economically irresponsible.

The only way to spend more money is to borrow it or to raise taxes. Borrowing more would lift our debt to dangerous levels, while raising taxes would snuff out the recovery and send even more Kiwis overseas.

Which part of this does Labour not understand?

But if the government isn’t borrowing and taxing what can it do?

As a country we have to fund more of our own future.

So we need to look at where we can change the mix of assets we own – identifying where new assets are most needed and where we have more money invested than we absolutely need to.

The greatest scope to change the mix of assets lies with the government’s portfolio of commercial assets.

In particular, the sort of mixed-ownership model under which Air New Zealand operates – where the government owns most of the company but there is a minority of outside equity – gives the best of both worlds.

Under this model, the government has a controlling stake in what is a crucial piece of transport infrastructure and guarantees that it will be majority New Zealand owned. But by not owning 100 percent of the airline, the government also has capital free to invest in other assets.

This model could be extended to more of the government’s commercial assets.

As well as freeing up capital, there are three other potential benefits of a mixed ownership model.

The first is that it broadens the pool of investments for New Zealand savers, either directly themselves, or through investment funds such as KiwiSaver.

New, quality listings on the stock exchange would give “mum and dad” investors the option of putting their savings into large and proven companies, rather than relying, as is so often the case, on property investments.

The second is that the company reaps the benefits of sharper commercial disciplines, more transparency and greater external oversight.

Under the mixed ownership model Air New Zealand has been a creative and innovative company and a model corporate citizen. It has also offered some very competitive prices for air travel.

I am convinced that Air New Zealand would not be run as well, nor provide as good a service to customers, if it was owned 100 percent by the government.

And the third potential benefit is the opportunity for the companies involved to obtain more capital to grow further, without depending entirely on a cash-strapped government to support them.

For all these reasons, the Government has asked Treasury for advice on the merits and viability of extending the mixed ownership model to four other state-owned companies – Mighty River Power, Meridian, Genesis and Solid Energy.

In each case, the government would retain majority ownership and control, and the freed-up capital would be used to purchase other public assets, thereby reducing the government’s need to borrow.

The Government has also asked Treasury for advice on the merits and viability of reducing the government’s shareholding in Air New Zealand, again while retaining a majority stake.

The left will paint this as a radical wholesale sell off of state assets but it is a very moderate policy:

Only the companies I have just mentioned will be considered for a mixed ownership model. But the Government will continue to look for commercial arrangements in other areas where private involvement can help drive performance, in the way we have been doing with public-private partnerships, for example.

I can see a strong appetite from New Zealand investors for participation in a mixed ownership model. Between KiwiSaver, other managed funds, iwi, mum and dad investors and the government’s own investment arms – including the Super Fund – there is a very substantial capacity to invest in quality New Zealand assets.

We would envisage these groups being at the front of the queue in any offering, and taking the majority of any stake that was offered.

A lack of domestic investment opportunities is one of the weaknesses of our economy which will be addressed by this policy.

Ownership by New Zealand investors would of course be on top of the government’s majority stake, which is held on behalf of all New Zealanders. That majority stake would always ensure New Zealand control for the benefit of New Zealanders.

As far as possible, without compromising commercial sensitivities, the Government will publicly release the advice we receive from Treasury.

We have always been clear that if there was to be any change to our policy on state-owned assets in any way, we would seek the support of New Zealanders at an election, and that is exactly what we will do.

Our final policy will be decided prior to this year’s election, and we will seek a mandate from the electorate before proceeding with any change.

National was careful to say before the election it would not sell any assets in its first term and if that policy changed it would form part of the next election manifesto.

 It kept the promise about not selling assets and is now clearly offering voters the opportunity to accept, or reject, partial sales in the next term.

But let me be clear – we will only proceed with a mixed ownership model if it meets the following tests:

  • the Government would have to maintain a majority controlling stake by owning more than 50 per cent of the company;
  • New Zealand investors would have to be at the front of the queue for shareholdings, and we would have to be confident of widespread and substantial New Zealand share ownership;
  • the companies involved would have to present good opportunities for investors;
  • the capital freed up would have to be used on behalf of taxpayers to fund new public assets and thereby reduce the pressure on the Government to borrow; and
  • the Government would have to be satisfied that industry-specific regulations adequately protected New Zealand consumers.

In particular, I want to stress that the Government is interested in what works, not in following any particular ideology.

What works rather than ideology, that’s another refreshing contrast to the Opposition.

I want to finish by emphasising the importance of getting the New Zealand economy back on a solid and durable growth path.

We got off that path in the mid-2000s, and doing so has proven very harmful.

Getting back on the growth path again means playing to our true strengths – allowing our export industries to start expanding again, and not tying up resources in less-efficient, domestically-focused government sectors.

Increasing national savings is key to supporting this shift.

That is why the theme of this year’s Budget is going to be savings and investment.

We recognise that New Zealand’s high level of foreign debt is our biggest vulnerability.

We have asked the Savings Working Group to consider policy options to increase national savings.

But the Government is already committed to playing its part. We have to increase our own savings and reduce public sector debt.

That is why the Government is going to reduce growth in its spending, get back to surplus faster than previously indicated and look to better allocate its assets across competing uses.

This is leading by example.

Many National supporters were disappointed by the constraints the party put on what it could do this term because of promises made before the last election.

But it was important to show the electorate it could be trusted and it’s done that.

Now it’s time to ask voters to trust it again and in doing so is trusting voters to recognise there is no money for extravagant promises.

A Q&A on the asset sale policy follows this media release.


Teaching self control better than imposing restrictions

January 26, 2011

Principals want restrictions on junk food sold near schools.

This is would be a desperate step which wouldn’t work.

Removing some temptation teaches the children nothing, what they need is to learn how to resist it.

That is backed up by a University of Otago study that shows self-controlled children become healthier, wealthier adults.

Young children’s self-control skills – such as conscientiousness, self-discipline and perseverance – predict their health, wealth and criminal history in later life regardless of social background or IQ, the Multidisciplinary Study shows.

The study led by Professors Avshalom Caspi, Terrie Moffitt and Richie Poulton is published in the US-based journal the Proceedings of the National Academy of Science, and offers evidence that even small improvements in self-control for children can yield reductions in costs of healthcare, welfare dependency and crime to a nation.

Professor Moffitt says the research indicates that low self-control makes children vulnerable to ‘snares’ that could have life-long impacts.

Poor diet and lack of exercise aren’t going to be solved by imposing restrictions on dairies and fast-food outlets when most of the responsibility for what children eat and do lies at home.

What do they eat for breakfast, what are they given to eat at school, what do they have when they get home , how active are they and where do they get the money to spend on junk food?

Children who have a reasonable diet and enough exercise most of the time won’t get fat on the occasional treat.

Learning to eat properly and make healthy choices is one aspect of self control and the study shows that has many benefits:

The results suggest all children – even those who already have above average self-control – could reap later rewards from universal interventions design to improve such skills.

“This is a highly uplifting message,” Ms Moffitt says. “Not only could the most vulnerable children have a better chance at a happy and healthy life; there is the potential for across-the-board benefits in personal, social and economic well-being.”

Ms Moffitt says the challenge now is to develop interventions specifically focuses on improving self-control skills that can be offered on a universal basis to young people.

I have sympathy for principals who have to deal with the behavioural and health problems in pupils who don’t eat balanced diets.

But this study shows the solution is in teaching self-control to individuals rather than imposing restrictions on businesses and their customers. 

A large part of the solution to the problem of childhood obesity isn’t restrictions on what’s sold but self-restraint over what’s eaten.

P.S.

Jim Mora interviewed Professor Richie Poulton on the self-control study and he was also interviewed on Close Up.


Another Green retiring

January 26, 2011

Green Party MP Keith Locke has announced he’ll be retiring from parliament at the election.

Two of the party’s MPs – Jeanette Fitzsimons and Sue Bradford  already stepped down during this term and Sue Sue Kedgely has also announced she won’t be standing again.

That’s a lot of renewal for a wee party.


Goff fails talkback test

January 26, 2011

When the Leader of the Opposition makes a speech outlining a major policy initiative in election year you’d expect it to generate discussion on talkback radio.

In spite of efforts by host Kerre Woodham to get responses to the speech Phil Goff delivered yesterday there were few takers on Newstalk ZB last night.

Between 8 and 10pm most callers talked about the suggestion junk food sales near school should be limited and almost all of the few who did discuss Goff’s speech weren’t impressed by his policies.


Tax-free income threshold too costly for little benefit

January 26, 2011

Who said a tax-free threshold on income “. . .  would have only a minimal benefit for a very small number of low income earners.”?

None other than then-Finance Minister Michael Cullen before delivering his 2008 Budget:

His initial preference had been for a tax-free income threshold.

“This would have seen, for example, the first $9500 of income not attract income tax,” Dr Cullen said.

On the surface this had appeared to be an appealing idea.

“However, it became clear that it would have only a minimal benefit for a very small number of low income earners.”

Up to 90 per cent of those earning below $18,000 were on temporary low income – students and youths – or supported by benefits or superannuation.

Dr Cullen said it would deliver less assistance to low income workers than the $3.7 billion cost in the third year warranted, and he “would be unable to provide meaningful relief for those further up the income scale”.

If the costs outweighed the benefits of a tax-free threshold of $9,500 in 2008 how can the benefits of the lower threshold proposed by Labour leader Phil Goff justify the costs now?

Dr Cullen also rejected calls for removing GST on food and petrol saying it would make the tax system inefficient and any gains would be quickly wiped out.

Goff was a senior member of the same Cabinet in which Cullen served.

Even if his duties as Trade Minister took him overseas when Budgets were being set, Goff must have known about options and justifications for choices.

If removing GST on all food and petrol wasn’t a good idea in the last Labour government, tinkering at the edges of that policy by taking GST off fresh fruit and vegetables wouldn’t achieve enough to jsutify the costs in the next one.


January 26 in history

January 26, 2011

On January 26:

340  King Edward III of England was declared King of France.

1500  Vicente Yáñez Pinzón became the first European to set foot on Brazil.

1531  Lisbon was hit by an earthquake–thousands died.

1564 The Council of Trent issued its conclusions in the Tridentinum, establishing a distinction between Roman Catholicism and Protestantism.

1565 Battle of Talikota, between the Vijayanagara Empire and the Islamic sultanates of the Deccan, led to the subjugation, and eventual destruction of the last Hindu kingdom in India, and the consolidation of Islamic rule over much of the Indian subcontinent.

1589  Job was elected as Patriarch of Moscow and All Russia.

1699  Treaty of Carlowitz was signed.

 Poland after the Treaty of Karlowitz
1700 A magnitude 9 Cascadia Earthquake took place off the west coast of the North America.

1714 Jean-Baptiste Pigalle, French sculptor, was born (d. 1785).

1722 Alexander Carlyle, Scottish church leader, was born  (d. 1805).

1736 Stanislaus I of Poland abdicated his throne.

1788 The British First Fleet, led by Arthur Phillip, sailed into Port Jackson (Sydney Harbour) to establish Sydney, the first permanent European settlement on the continent.

ArthurPhilip.jpg

1808 Rum Rebellion, the only successful (albeit short-lived) armed takeover of the government in Australia.

The arrest of Bligh propaganda cartoon from around 1810.jpgA contemporary propaganda cartoon of Bligh’s arrest produced to show Bligh as being a coward[1]

1813 Juan Pablo Duarte, Dominican Republic’s founding father, was born  (d. 1876).

1838 Tennessee enacted the first prohibition law in the United States.

1841 The United Kingdom formally occupied Hong Kong.

1844 Governor Fitzroy arrived to investigate the Wairau incident

Governor FitzRoy arrives to investigate Wairau incident
 

1855 Point No Point Treaty was signed in Washington Territory.

1857 Trinley Gyatso, Tibetan, The 12th Dalai Lama, was born .

12thDalai Lama.jpg

1880 Douglas MacArthur, American general, was born (d. 1964).

MacArthur Manila.jpg

1885 Troops loyal to The Mahdi conquered Khartoum.

1892 Bessie Coleman, American pioneer aviator, was born  (d. 1926).

1904  Seán MacBride, Irish statesman, Nobel Prize Laureate, was born  (d. 1988).

1905 The Cullinan Diamond was found at the Premier Mine near Pretoria.

 Glass copies of the nine diamonds cut from the Cullinan

1905 Maria von Trapp, Austrian-born singer, was born  (d. 1987).

1907 The Short Magazine Lee-Enfield Mk III was officially introduced into British Military Service, and remains the oldest military rifle still in official use.

SMLE Mk III.jpg

1908  Stéphane Grappelli, French jazz violinist, was born  (d. 1997).

1911 Glenn H. Curtiss flew the first successful American seaplane.

1911 – Richard Strauss‘s opera Der Rosenkavalier debuted at the Dresden State Opera.

1913 Jimmy Van Heusen, American songwriter, was born  (d. 1990).

1918 Nicolae Ceauşescu, Romanian dictator, was born (d. 1989).

1920 Former Ford Motor Company executive Henry Leland launchedthe Lincoln Motor Company which he later sold to his former employer.

1922 Michael Bentine, British comedian and founding member of The Goons, was born  (d. 1996).

1924 St.Petersburg was renamed Leningrad.

1925  Paul Newman, American actor, philanthropist, race car driver and race team owner, was born  (d. 2008).

1930 The Indian National Congress declared 26 January as Independence Day or as the day for Poorna Swaraj (Complete Independence) which occurred 20 years later.

1934 The Apollo Theater reopened in Harlem.

1934 – German-Polish Non-Aggression Pact was signed.

1939 Spanish Civil War: Troops loyal to nationalist General Francisco Franco and aided by Italy took Barcelona.

The El Campesino directing Republican soldiers at Villanueva de la Canada.jpg

1942 World War II: The first United States forces arrived in Europe landing in Northern Ireland.

1945  Jacqueline du Pré, English cellist, was born  (d. 1987).

1950 The Constitution of India came into force, forming a republic. Rajendra Prasad was sworn in as its first President. 

1952  Black Saturday in Egypt: rioters burnt Cairo’s central business district, targeting British and upper-class Egyptian businesses.

1955  Eddie Van Halen, Dutch musician (Van Halen), was born.

1957 Bubble wrap was invented by Alfred Fielding and Marc Chavannes.

Bubble Wrap Logo

1958 Japanese  ferry Nankai Maru capsised off southern Awaji Island, 167 killed.

1958 Ellen DeGeneres, American actress and comedian, was born.

Ellen DeGeneres (2004).jpg

1961 Janet G. Travell  becamethe first woman to be appointed physician to the president (Kennedy).

1962  Ranger 3 was launched to study the moon.

Ranger 3

1965  Hindi became the official language of India.

1978  The Great Blizzard of 1978, a rare severe blizzard with the lowest non-tropical atmospheric pressure ever recorded in the US, struck the Ohio – Great Lakes region with heavy snow and winds up to 100 mph (161 km/h).

1980 – Israel and Egypt established diplomatic relations.

1984 Floods devestated Southland.

Floods devastate Southland
 

1988  Andrew Lloyd Webber‘s The Phantom of the Opera had its first performance on Broadway at the Majestic Theatre.

1991  Mohamed Siad Barre was removed from power in Somalia, ending centralized government, and was succeeded by Ali Mahdi.

1992  Boris Yeltsin announced that Russia would stop targeting United States cities with nuclear weapons.

1998 Lewinsky scandal: On American television, U.S. President Bill Clinton denied having had “sexual relations” with former White House intern Monica Lewinsky.

2001 An earthquake in Gujarat, India, killed more than 20,000.

2004 President Hamid Karzai signed the new constitution of Afghanistan.

2004 – A decomposing  whale exploded in Tainan, Taiwan.

2005 – Glendale train crash: Two trains derailled killing 11 and injuring 200 in Glendale, California.

DC200501261006439933.jpg
 

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