Devolution of economics

It’s a very long since I studied economics (and I only did so because the lectures were later than the other subjects I was contemplating) but I think I get this:

Word of the day

Euouae – a mnemonic which was used in medieval music to denote the sequence of tones in the “seculorum Amen” passage of the lesser doxology, Gloria Patri, which ends with the phrase In saecula saeculorum, Amen; a type of cadence in medieval music.

Property speculators pay CGT

Labour leader David Cunliffe says it’s ‘lunacy’ that property speculators get tax free capital gain.

But they don’t.

Buying and selling properties as a business, which is what speculators do, attracts a capital gains tax.

Hon BILL ENGLISH (Minister of Finance) : The Government already taxes capital gains on property speculation where property investment is for the purpose of trading. The member may not be aware of that. In addition to this, the Government’s 2010 tax changes on property disallowed deductions for building depreciation, and this raises around $700 million per year from property investors, a much larger number than any estimate we have seen for the foreseeable future for a further extension of the capital gains tax. Further extension of the current tax on capital gains is likely to have high compliance costs, and that is a conclusion that three tax inquiries and several Governments have come to over the last 20 years. If it excludes the family home, it will not raise much difference, it will not raise much revenue, and it becomes effectively a tax on successful businesses. In overseas jurisdictions, it has not improved housing affordability.

Hon David Parker: Why does he think the profits on the sale of investment property are of such critical importance to the economy that they should not be taxed but, instead, be cross-subsidised by every other taxpaying business and worker in New Zealand?

Hon BILL ENGLISH: I would point out two things, as I pointed out in the primary answer. First, where any property is bought for the purposes of selling, the gains on that are taxed at current income tax rates. It is called an income tax, but, actually, it is a capital gains tax on trading investment property. The member may have seen recent publicity about the scope of the Inland Revenue Department’s activities in ensuring that everyone who does trade in property pays full income tax rates, not the half-baked rate that he proposes in his proposition of 15c in the dollar. They are, actually, taxed at 33c currently. Secondly, the changes made in the 2010 tax package do collect $700 million per year from property investors, which is a much larger number than any revenue that he has posited as a result of his partial extension of the current capital gains tax.

Labour’s policy is built on the lie that we don’t have a CGT.

We do, at 33 cents in the dollar, more than twice the rate Labour is proposing – unless of course they’re going to tax it twice which is quite possible with them.

Jami-Lee Ross: In considering various tax options for New Zealand, what international evidence has the Minister seen on the effects of capital gains taxes on housing affordability?

Hon BILL ENGLISH: I have seen reports from Australia on the effects of a partial capital gains tax, limits on foreign investment, a so-called mansion tax, and compulsory savings. If these policies are meant to improve housing affordability, then they have not, because housing affordability is worse in Australia than in New Zealand. Just today there is a report being published showing that first-home buyers now make up the smallest proportion of the housing market ever in Australia. So the housing market in Australia now consists of fewer first-home buyers than ever, so we would be a bit careful about following that policy prescription.

Hon David Parker: What proportion of investment property sales pay tax as traders; is it closer to zero percent than 100 percent?

Hon BILL ENGLISH: I do not have that information to hand, but I can assure the member that the Inland Revenue Department is vigorously pursuing every investor who trades in property.

Jami-Lee Ross: What reports has the Minister received on the case for a new capital gains tax in New Zealand?

Hon BILL ENGLISH: I have received the report of a speech to the Wellington Property Investors Association in July 2005. It noted that the Government-appointed tax review in 2001 considered a new capital gains tax and concluded that the disadvantages of such a tax—its complexity and costs—outweighed the theoretical benefits, so it did not recommend such a tax. The speech also noted that the Government of the day agreed with that conclusion that the status quo was entirely adequate. The speech was delivered on behalf of the Minister of Finance Michael Cullen by his associate David Cunliffe. . . .

What’s changed since Cunliffe delivered that speech?

None of the facts, just the politics.

Rural round-up

Drought great time to show some compassion – James Houghton:

Another week and no drought declaration yet it is the second driest year on record in Waikato, and my has it revealed some peoples true colours! Default settings with graziers contracts are being ignored, and cooperatives are pretending there is no drought.

Farmers and graziers need to be working together through times like this. Not allowing for the affects of the drought to be considered and holding graziers to their contracts, can see them loosing money on a daily basis, trying to feed your stock. To expect a grazier to lose money to look after your stock shows no sense of community, which is what gets us through these adverse weather conditions, and could ostracise you in the long run. People do not forget unkindness. It goes both ways – if you are not showing flexibility on your grazing contracts, it could have a detrimental affect for you next time there is a drought, graziers could start charging you 10 to 50 percent more next time round.  It pays to compare that to the money you are saving in the short term, and whether it is really worth it. . .

Changing beef outlook – Allan Barber:

There have been some interesting beef market developments in recent days.

 Of immediate interest is the news of a forecast excess of US exports over production in the second half of the year as against a relatively small increase in production, reported in the USDA livestock supply and demand report which was released yesterday.

 This leads to a prediction of firmer prices for lean beef, although this will coincide with the seasonal downturn in New Zealand production. Australia is expected to be in a good position to take advantage of this situation.

 The other item of interest is the bi-lateral trade agreement between Japan and Australia which will reduce the tariff on frozen beef from 38.5% to 19.5% over 18 years and on fresh beef to 23.5% over 15 years. . .

Dairy Pawn – Milk Maid Marian:

These days, I feel a little like a chess piece; more pawn than queen.

The Australian federal government has rushed into a free trade agreement with Japan that does next-to-nothing to help Aussie dairy break through tariff barriers, even though Japan is hardly known for a growing dairy industry of its own that deserves protection. I don’t know why we were overlooked but a Sydney Morning Herald story quotes Warren Truss as citing “compromises”.

It’s been an interesting few days for dairy. Coincidentally, the ACCC forced supermarket superpower, Coles, to confess that it was lying when it claimed the $1 milk had not hurt dairy farmers. . .

Farmers back major Local Government NZ funding review:

Federated Farmers is fully behind a fundamental review by Local Government New Zealand (LGNZ) into the way local government and local roads are funded.

“LGNZ deserves praise for tackling a ticking time bomb made up of demographics and an ever narrowing funding base for council services and our local roads,” says Katie Milne, Federated Farmers Local Government spokesperson.

“This affects everyone but it is especially pronounced in our rural districts.

“Federated Farmers is very keen to participate in this review because for years, we have lobbied for alternative funding options over the antiquated narrow property value basis, we use for rating.

“LGNZ’s review is the biggest advance since the 2007 Local Government Rates Inquiry, which emerged from public unease over the rates burden. . .

Meat and fibre’s going green – Jeanette Maxwell :

I have been told by a staff member that a major retirement village operator has specified only nylon carpet for its villages. I don’t want to reveal the name just yet as we will be contacting them, let alone the Campaign for Wool, but it dumbfounds me. 

If it is what I suspect, a spurious concern over linting, then that’s a specification issue.  It seems very strange to deny people the choice of healthy natural fibres especially in a retirement village because natural wool is good for you.

A big benefit of wool is outstanding flame resistance.  Having a high moisture and protein content it tends to extinguish flames and does not melt or drip either like synthetics.  Wool also stabilises relative humidity by absorbing or releasing moisture during periods of high or low atmospheric humidity. That’s a benefit from evolution.

If wool is maintained then it will absorb and neutralise airborne particles and fumes such as formaldehyde, sulphur dioxide and nitrous oxides.  Wool is also resistant to static build up and being naturally curly, bounces back into shape after being crushed.   . . .

Awards spur on young dairy trainee  – Gerald Piddock:

Entering the Dairy Industry Awards has helped motivate Nathan Hubbard to focus on how he can improve his performance and progress his dairying career.

The 26-year-old, who was recently named Waikato Dairy Trainee of the Year for 2014 said he entered the competition to show future employers his dedication to the industry.

“I want to challenge my knowledge against others at the same level that are motivated and thriving to succeed like I am.”

It was the second time he had entered the awards. After not making the top six on the first occasion, Hubbard said he was determined to do better this year. . .

‘Expensive brand beats expensive land’ – Tim Cronsahw:

Dairy farmers need to demand that dairy giant Fonterra invests heavily in brand development if increasing costs are to be offset by high-priced milk products, says a food marketing expert.

Global food and drink industry international speaker Professor David Hughes said New Zealand’s dairy companies had to spend more on developing patented clever dairy brands as domestic milk growth could not continue at its same rate forever.

“If you want to see Fonterra and smaller companies have higher valued products, they have to spend more on branding and research and development, and to do that has to be through brave farmer leadership saying hold on to more [revenue] and invest it on our behalf for our longer term, and don’t send it back to the farm and there would lots of farmers who don’t agree with that,” said Hughes who spoke at the Zoetis Dairy Summit in Christchurch this week. . .

Millar, Clark lead charge for dog trialling glory – Tim Cronshaw:

Every dog has its day, but only a select few will make the final cut at the Tux New Zealand and South Island Sheep Dog Trial Championship trials at Waihi Station near Geraldine next month.

As many as 300 competitors and their canine partners will line up for each of the four main national events in the main feature of the dog trialling calendar. The heading events are the long head and short head and yard and the huntaway events are the zigzag hunt and the straight hunt.

In good form is Stu Millar from Peak Hill Station who, with dog Rose, is the defending champion of the national short head and yard event in Taupo last year.

Canterbury Sheep Dog Trial Association promotions officer Sally Mallinson said the club trials had yet to be completed, but several Canterbury competitors and their dogs were standing out as possible contenders at the South Island and national events. . .

 

Beautiful Things

Once, there was a girl & a boy who wanted to change the world & at first, they thought it’d be easy, because if everyone could see how beautiful it’d be, it’d take about a minute, but all the people they talked to were too busy to stop & listen. So, they went off & did beautiful things all on their own & pretty soon people were stopping & asking if they could come along & do that, too & that’s how they figured out how worlds change.

©2014 Brian Andreas at Story People – published with permission

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Purpose of schools is education

Phillipstown School took the government to court and won.

The lengthy process over whether or not it was to merge with neighbouring Woolston School had to be gone through again and the same concussion was reached.

It was in the best interests of the schools, and the taxpayers who fund them, to merge.

The principal hasn’t accepted that:

. . . Phillipstown School principal Tony Simpson said the school would be consulting lawyers over next steps.

The process had been flawed and stressful leaving him feeling “at times bullied”.

He said he not had a satisfactory response from the Ministry as to why the school was the one to close and looked forward to the release of an Ombudsman report into the schools’ reshuffle.

“The public of New Zealand have not been presented with all the facts.” .

The public have their own lives and concerns. If they have any about this it will be that what is in the best outcome for the children and the best use of public money.

With that in mind and without the emotion of those closely involved, the Ministry’s decision is right.

People closer to the action share that view.

The grapevine tells me that other schools in Christchurch have lost patience with Phillipstown and resent the money and energy the Ministry has to expend on this fight when it could be directed more positively elsewhere.

However, Simpson said his main priority was the children. “We’ve got to make sure the children are catered for.” . .

That won’t be achieved by more legal action and delaying tactics.

Board chairwoman Alicia Ward said the school was “not dead yet” and would fight to the death.

Without the school the community risked “fizzing and dying” she said. . .

Schools do form a hub for communities but that isn’t their purpose. It’s to educate children.

That will happen at the Woolston site where $11.8 million is to be spent on development and the community can be involved in that.

Schools leaders have wasted far too much money and time fighting the inevitable already, it’s time for them to stop the emoting and, as Tahu Potiki writes,  start leading:

Dear Phillipstown School, please get a grip. Fight to the death? Really?

I can understand that a decision such as a school closing is an emotional one and pushes buttons at a number of levels but, as an outsider, I have to say that the appearance of the key players advocating for the school is petulant, irrational and pointless.

We have kids that attend a local school and it does play an important part in our community but we are predicting changes some time in the near future. There are three schools between here and Dunedin and only about 300 pupils with the spread being far from even. We have always expected that the ministry will eventually step in and make a call. When it does I certainly hope our communities will act with a little more balance and perspective than we have seen from Phillipstown.

The Minister of Education does not have a bottomless pit of money to simply let schools with diminishing rolls and depreciating assets carry on existing regardless. There are serious responsibilities to take in to consideration as post-earthquake Christchurch reconstructs and reconfigures and all the social institutions and community infrastructure clearly need to reposition themselves.

There are a few things that flabbergast me about this reasonably minor storm in a teacup.

Firstly the fact that Mai Chen has been engaged again for further court action. I have worked with Mai before and she is certainly a force to be reckoned with and I rate her highly but she does not come without a cost. . .

The second thing is that the ministry is proposing that the new school the Phillipstown children would be relocated to would benefit from an $11.3 million investment. This is a glorious opportunity and I would have expected community leaders to be working furiously to have some influence over how that investment might work in the best interests of the newly configured school. I would not have expected a complete denial that an investment of this magnitude is a huge opportunity. . .

Thirdly it has been very disappointing to see the Labour Party playing politics and attempting to manipulate emotions. If they really have said that they would keep the school open then they have dropped pretty low in my estimation.

David Cunliffe is already looking like a desperate character after his comments on the royal tour but this is, quite frankly, adding to the embarrassment. It has the appearance of vote buying without any of the analysis and objective assessment of the community’s situation. They may as well be promising a $100 increase in the dole for all the unemployed that vote for Labour. Ultimately it cannot be delivered.

This is cynical and unprincipled vote buying in one small area that will lose far more in others who know there are far better ways to spend scarce public money.

Fourthly it is highly questionable in terms of role modelling. Trotting your kids out to cry in front of the cameras to make your point makes me wince. A group of parents that weren’t moaning about dumb people making dumb decisions may well have aided their transition in a much more positive fashion. Instead the children have been drawn in to dramatics and will experience a degree of trauma that could probably have been avoided.

Children take their lead from adults. they have been let down by those who should be showing leadership.

Finally, community is much more than a school. If there is a collective view that the community will die because the school has been merged with a boost of $11m then there are some seriously confused people in that community. Real community will be looking for opportunity and growth. Instead the blinkers are on and one has to question the sincerity of those in key roles and their agenda. I do wonder if the principal lives in Phillipstown or if his personal residence is in some other suburb. . .

It’s time for the adults to act like grown-ups, take some deep breaths and do what’s best for the children.

That’s accept the decision and work to ensure the transition to the new school is as seamless as possible.

 

 

 

Sense not cents

Bill English on sense rather than dollars and cents:

. . . the focus of it [the Budget] is certainly to get us to surplus so we can start repaying debt but more importantly looking ahead, it’s about quality government spending. We’ve got some real issues out in the community, kids who don’t achieve enough at school, people who want to feel safer in their community and what we’re learning from a period of restraint is that more thoughtful approach to spending the money and high quality to get results. That it’s not really about the dollars – solving, having a safer community, better educational achievement is about getting alongside people and supporting them in a way that gets results and it’s not just about the headline dollars. . . .

He shows he understand what’s up to people themselves, not governments:

. . . we’re a government who believes that households are capable of making their own decisions without a whole lot of advice from politicians and actually over the last four or five years they’ve made good decisions. They’ve been careful with their spending, they’ve been a bit careful with their debt. In fact even now it’s surprising in an economy growing at 3 percent, retail spending has been relatively flat. And I think from what I hear, people are going to be careful about increasing their debt. . .

He reinforces that solutions aren’t always about the amount of money spent:

. . . cash hand-outs just aren’t possible on a large scale and they’re probably not a good idea if you’ve got other underlying problems like over-priced housing. . .

He also reinforces there’s no money for lolly scrambles:

In this Budget we will have a paper-thin surplus , I mean we’ll just have a surplus but that’s the beginning of a series of surpluses and that means we have choices. And there’s a lot of choices. We’ve got the New Zealand Super Fund to resume contributions, an auto-enrolment for KiwiSaver, paying off debt more quickly, something for households to help them along. Those are choices that New Zealand fortunately will have if we have a growing economy and we stick to being pretty careful about our spending. . .

And he explains what matters:

Yes we’ll get to surplus but it’s ah you know it’ll be good to get that in the bag so we can move on because in a way focusing on that artificial number gives the impression that’s what really matters. Actually what really matters is whether Government is solving problems in our communities so we’ve got better communities and strengthening the economy so that we can get higher wages and more jobs. . .

Whether you’re an individual, a household, a business, other organisation or government, surpluses give you choices.

Sensible choices are to repay debt, address problems and keep on with policies which ensure spending is sustainable and surpluses maintained.

Sensible choices aren’t to increase taxes and spending or any other of the policies which put New Zealand into recession before the global financial crisis hit.

New Zealanders, in their households and their businesses, have adapted very well to what were quite difficult circumstances and the Government’s been there to support them doing it. The real issue is now whether we can sustain that growth so that people can see consistent wage increases year after year for instance  which they haven’t had for the last five or six years. So you know, we’ll be campaigning as much on delivering a sustainable economy in the future as on a record, which I think most people agree is reasonably good. The opposition doesn’t but this is, you know, we’re looking ahead on the basis of a record that is pretty good. . .

The opposition has fought every policy which has contributed to better financial management and their policies show they’re prepared to undo what’s working for purely ideological reasons.

The debt arises from the fact we had a recession and a major earthquake and we’ve said for the last three or four years the key issue here is to start paying it down when times get better and that’s pretty logical, people understand that and with interest rates, look, interest rates going up from the lowest in 50 years was inevitable. It’s our job to make sure they don’t go up any further than they need to. . .

High government spending was one of the pressures which gave us interest rates of around 11% by 2008.

Continued restraint is necessary to ensure any increases from the historic low stay below those double figures.