Meanwhile in other news

While the Panama papers and examining the entrails of The Bachelor are getting headlines the government books are in a healthier state than forecast:

The $167 million operating balance before gains and losses (OBEGAL) surplus for the nine months to 31 March was $334 million better than forecast, Finance Minister Bill English says.

Core Crown revenue was $206 million higher than forecast, largely due to core Crown tax revenue being $702 million higher than forecast by the Treasury in December.

These aren’t big numbers in relation to the government’s total finances. But given the global financial position and the impact of low dairy prices, this is an achievement.

This was partially offset by core Crown interest and dividend revenue being $456 million lower than forecast.

Mr English says because of sustained, moderate growth in the economy, the Crown accounts are in good order ahead of the delivery of Budget 2016 later this month.

“We’ve been successful in turning an $18.4 billion deficit in 2011 to a surplus last year. In Budget 2016 our focus is shifting more to repaying debt.

“Budget 2016 will reflect this Government’s continued commitment to responsible fiscal management. At the same time it will build on the good progress we’ve made over the previous seven Budgets, with further investment in a growing economy and public services.

“We measure success by results, rather than the level of spending.”

It’s not what they’re spending but the impact that spending that matters.

One area that always takes a lot of spending is welfare.

The government is taking the investment approach which means spending more in the short term for longer term social and financial gain.

A report from Deloitte and NZIER says that the investment approach needs to become a mainstream way of working across more of the social sector.

State of the State New Zealand 2016: Social investment for our future advocates broadening the use of the social investment approach to manage New Zealand’s future fiscal challenges and support better outcomes for Kiwis.

NZIER Deputy Chief Executive John Ballingall says the State of the State takes a close look at government finances and the burdens New Zealanders could face in the future.

“A combination of our ageing population, low productivity and revenue growth, and the need to reduce government debt will impose huge fiscal pressures in coming decades – particularly in social spending. More importantly, too many people in New Zealand are experiencing poor life outcomes and too many of their children are at risk of following them,” says Mr Ballingall.

Deloitte partner and public sector leader Dave Farrelly says it’s the sum of these factors which drove us to focus the report on social investment, an approach to funding social services focusing on root causes to prevent the need for these services in the future.

“For example, with social investment the task is not to deliver the next 100 prison beds for the same cost as the previous 50. It’s to remove the need for those new prison beds altogether,” says Mr Farrelly.

“Today social investment is like a start-up – a small number of people are working incredibly hard to bring a big bold vision to life. Tomorrow, social investment needs to become a mainstream way of working,” he says.

In the six months of research for the report, Deloitte and NZIER spoke to some of the most senior and influential leaders in the public, non-government and private sectors – all of whom provided a unique perspective on social investment.

State of the State proposes a package of bold reforms to realise the aspiration for social investment in New Zealand. The recommendations are:

1. Release, every four years, a government-wide statement to define the outcomes and targets for at-risk New Zealanders
2. Establish a new agency to commission specialist social services for people at risk of poor life outcomes
3. Embed the social investment approach to funding quality and sustainability in the new agency’s operating model
4. Enable better access to government-held data and detailed evaluation reports

“We suggest a structural reconfiguration that some will find challenging, while acknowledging we don’t yet have all the answers,” says Mr Farrelly.

“But we must be bold in tackling these challenges today to maintain our way of life in the future,” he concludes.

Social investment is working and the reforms Social Development Minister Anne Tolley is promoting will do more.

Trans Tasman notes:

. . . The reform being pushed through by Tolley is perhaps the most far-reaching undertaken by the Govt and could stand as its greatest legacy if it achieves its goals. Already it has made some headway in improving the lives of Maori children who are more than twice as likely as Pakeha children to grow up in households experiencing hardship, and fare worse in most indicators. A report by the University of Otago-based Child and Youth Epidemiology Service shows increasing numbers of Maori pre schoolers are getting early childhood education. There’s also been a halving of school suspensions for Maori students, an increase in immunisation rates, fewer young Maori smoking,and falling hospitalisation rates for Maori children for injuries from assault, neglect or maltreatment. Tolley is understood to have secured an additional funding, probably of the order of $500m in this year’s budget for the reform. . . 

Turning around benefit dependency and all the financial and social costs that go with it will not be neither easy nor cheap but the investment approach is working and it’s a much better story than many of the others which are getting attention at the moment.

 

Rural round-up

Industry-Leading Orchardists Win Supreme in 2015 Waikato Ballance Farm Environment Awards

Matamata horticulturists Frans and Tineke de Jong, their son Talbert de Jong and his partner Emily Meese are Supreme winners of the 2015 Waikato Ballance Farm Environment Awards (BFEA).

At a special BFEA ceremony on April 23, the de Jong’s family-run business, Southern Belle Orchard, also collected the Hill Laboratories Harvest Award, the Massey University Innovation Award, the WaterForce Integrated Management Award and the Ballance Agri-Nutrients Soil Management Award. . .

Disappearance of bees a mystery:

Bee scientists have been left baffled by the disappearance of thousands of honey bees from hives last spring, and say unless it happens again, it remains a mystery as to what caused it.

Plant and Food research bee scientist Mark Goodwin said last October a number of bee keepers from around the country began reporting strange symptoms occurring in their hives.

He said bees usually rebuilt their colonies in spring after winter, however, large numbers of bees were disappearing from hives in the Coromandel, Raglan and Wairarapa areas.

“So instead of having a queen and a lot of brood – that’s larvae and pupa – and about 30 or 40,000 bees, when the bee keeper came back a few weeks later … suddenly there were no bees there at all, there was a queen and about a hand full of bees and everybody else had gone. And we saw that in whole apiaries and between apiaries and then we were getting reports from beekeepers elsewhere in the North Island that were noticing very similar things.” . .

What Mondayising means on-farm – John Brosnan:

You’ve probably seen this advertised.

You might remember the law was changed in 2013 to allow Anzac day and Waitangi day to be moved to a Monday if they fall on a weekend.

This year’s Anzac day will be the first affected – but what does Mondayising really mean for you as a rural employer?

In reality for most farm staff – not much.

Why? Well here’s what the law states re this …

DairyNZ sessions help farmers assess cash flow – Sally Rae:

Another round of farmer events is under way nationally to give dairy farmers a ”wake-up call” to assess their cash-flow situation, given the low milk price forecasts.

DairyNZ, which is behind the Tactics for Tight Times campaign, has analysed what it is like for the average farmer in every dairying region and it is ”not looking pretty”, chief executive Tim Mackle says.

While 2015-16 would probably still end up being a break-even year for most farmers, he said cash flow would be a major issue that could result in some increased term debt in the sector and less spending in the regions. . .

New Zealand’s Best Eggs awarded last night:

Three of New Zealand’s most well known companies: Fonterra, Deloitte and The Warehouse were last night crowned “Good Business Eggs” in recognition of their work in the community sector. Whilst these companies might be better known for the scale of their business activities, they also demonstrate significant commitments to their various community initiatives.

The event hosted by CQ Hotels Wellington, one of last years winners was packed with business and community leaders anxious to see who had won the annual award. . .

Fonterra management appointments:

Fonterra Co-operative Group Limited today announced changes to the roles and responsibilities of two members of the Fonterra Management Team.

Jacqueline Chow, who is currently Managing Director Global Brands and Nutrition, is stepping into the newly created role of Chief Operating Officer Velocity, effective 1 June 2015 – where she will work alongside the management team to accelerate performance across the Co-operative.

Chief Executive Theo Spierings today said: “In her new role, Jacqueline will lead the next stage in Fonterra’s evolution, working across the entire Co-operative to push forward the Velocity part of our V3 strategy and deliver the best possible performance.” . .

Hooroo to Oz Made brand? – Andrew Miller and Laura Griffin:

ADOPTION of the ‘True Aussie’ brand for all agricultural produce would be “a little perplexing”, says Australian Made campaign marketing manager Ben Lazzaro.

The National Farmers’ Federation (NFF) and Meat and Livestock Australia (MLA) plan to build standards for MLA’s True Aussie brand – developed last year for red meat – which can then be applied to all Australian agricultural products in domestic and global markets.

While the existing government-backed Australian Made label covers a broad range of products including electronics, furniture and clothing as well as food, True Aussie would be “all about agriculture”, an NFF spokeswoman said. . .

Bureaucracy gone mad "@theweeklytimes Farmer could be charged with "publishing pornographic images" for hay bale art http://t.co/fhsZEp5BqO"

— Tully Smith (@TullySmith) April 23, 2015

 

 

 

DCC fraud failure

The ODT says the investigation into fraud at the DCC offers a salutary lesson:

Deloitte’s report into fraud at the Dunedin City Council has proved as damning as suspected.

Not only did it involve the pocketing of money from the sale of 152 vehicles, but it appears former team leader Brent Bachop was at the ”centre of” other potential issues.

The debacle is an indictment on the council and a serious warning to others.

Supposedly, the council had systems and checks, but they failed spectacularly.

It is almost beyond belief that suspect dealings worth at least $1.59 million, and possible considerably much more, took place.

What makes it worse is the way several ”red flags” were ignored or investigated insufficiently.

These included Mr Bachop’s excessive lifestyle as well as questions over the years, including from Cr Lee Vandervis.

While these flags were flying, down the road at the then Otago District Health Board, Michael Swann’s place in a $16.9 million fraud was being uncovered and receiving extensive publicity.

His case should have acted as a sharp warning to other large organisations.

Clearly, in the council’s case, it did not.

In a city renowned for its Presbyterian roots and canny business people it is hard to understand how two cases like this went undetected for so long.

The council, including Mr Bachop’s managers, generally has had good and competent staff.

But something went wrong.

Were they too slack, too trusting, too complacent?

All of the above?

A classic instance concerns the finding Mr Bachop spent $102,908 on a council card – which was also used for vehicle serving and maintenance – on miscellaneous items, including soft drinks, chips, milk, chocolate biscuits, bread and fuel for personal vehicles.

Mr Bachop’s manager regularly signed off those expenses. Giving the benefit of the doubt, it would appear the manager simply did not check the details.

Mr Bachop himself, and the council says no-one else in the council was found to be directly dishonest, was well liked and capable.

That just goes to show that other councils, institutions and organisations have to be on guard.

They not only need appropriate systems, but must follow them. . . .

Complaints about compliance costs – in both financial and time terms –  are rife in an age where it too often looks like exercises box ticking ant butt covering.

But no organisation can be too careful about checking expenses and expenditure, especially when the money at stake is the public’s.

This sorry sage reflects very poorly on the council and its systems and does as the ODT says, provide a salutary lesson not just for the council but everyone with the responsibility for anyone else’s money.

Labour’s numbers don’t add up

The NBR has interviewed tax experts who say that Labour’s expert panel couldn’t sort out the complexities of the CGT in time to prevent a revenue hole.

The print edition has fuller coverage by Rob Hosking which says that wishful thinking and invention play too large a part of Labour’s fiscal policies.

. . .  The questions do not just involve the much discussed capital gains tax  – although this certainly features prominently.

Also under question are assumptions about an unspecified tax crack-down which is supposed to net $200 million ain extra tax revenue a year.

But more critical is the framework of all this – something highlighted by Labour leader David Cunliffe’s floundering response to a challenge by Prime Minsiter John Key in this week’s leaders’ debate in in Christchurch  . . .

One over-riding problem with the plan is the need for the panel to resolve technical issues and tax changes ready for the next financial year.

“I just can’t see them being able to do that,” says Ernst & Young tax partner Aaron Quintal. . . .

Deloitte technical director of tax Robyn Walkers . . . also warns the capital gains tax could be higher than Labour is promising. . .

Labour’s policy is for 15% CGT but the Green and Internet Mana parties want it to be levied at the individual’s marginal tax rate which will mostly be the top one.

The other question that could affect that narrow surplus target is promises for even bigger tax crack-downs that Inland revenue has been running in recent years.

Labour’s budget plan involves an assumption this crackdown will bring in $200 million a year in tax revenue.

“That is just a made-up figure says Deloitte tax specialist Alex Mitchell. . .

The other ‘revenue hole’ comes back to the capital gains tax and this is to do with the gap between rhetoric and the reality of such a tax.

The political and emotional attraction of a CGT is that it will combat inequality but it doesn’t gather enough to do that.

“Capital gains taxes do not raise much revenue,” Mr Quintal says. “In the UK it is around 1% of the tax take: in Australia it is half of 1%. . .

” . . . In New Zealand realistically we are only looking at something around $500 million a year probably.

“That is not going to do what they say it is going to do.”

The $200 million in extra revenue isn’t the only thing that’s been made up, so is the assertion that IRD have been consulted on the CGT.

Duncan Garner asked David Cunliffe if he’d consulted the IRD on Labour’s capital gains tax.

Cunliffe said he hadn’t personally but the party had.

Garner asked IRD and got a response saying they’d had no discussions on it:

Cunliffe said to me he had run CGT past IRD to see if they could cope with it. IRD told me today NO discussions have occured.@RadioLIVENZ

— Duncan Garner (@DuncanGarnerNZ) September 5, 2014

Labour’s big spending promises are based on more and higher taxes based on rhetoric which won’t be matched in reality.

That would be bad enough if the party was able to govern alone. The higher spending and tax policies of the mis-matched group of parties it would need to from a government make the outlook under a labour-led government even more dire.

If the numbers don’t stack up nor will any of the other policies which depend on them.

John Armstrong says Labour is the living dead after its tax fiasco.

It’s suffering from a variety of self-inflicted wounds, not least of which is that its numbers don’t stack up.

Partial asset sales ideal

Quote of the week:

“The market is flush with cash and there is a thirst out there for new equity issues. Funds like KiwiSaver have to find a home for their money and the Government’s partial asset sales would have been ideal.”

It comes from Deloitte Dunedin managing partner Steve Thompson in response to Prime Minister John Key saying that partial sales of state assets might be delayed by a few months if market conditions were unsuitable.

This is one major difference between what National is proposing and the sale of assets in the late 80s and early 90s.

Then assets were sold in total in fire sales. The new plan is for a mixed ownership model. The government will retain a majority share and sell the minority stake in an orderly manner, holding back if the time isn’t right.

Mr Thompson’s comments show that New Zealand super funds and other institutions like ACC will be lining up to buy.

Mainland betters NZX-50

We call it the Mainland with our tongues in our cheeks but now we have the numbers to prove we’re weathering economic tough times better than the north.

The Deloitte South Island Index measures the market capitalisation of 33 companies with head offices or the majority of their business in the South Island and puts them into an index relative to their size.

For the first six months of this year, the index was down by 8.5 per cent, beating New Zealand’s benchmark NZX-50 index which fell 21 per cent. Over the last quarter (April to June) it has risen into positive territory, growing 3 per cent versus the NZX-50’s drop of 8 per cent.

However, doing better isn’t the same as doing well as Deloitte partner Paul Munro points out:

At a headline level it shows South Island companies are doing better than the rest of the country, but we need to balance that out with the fact that of the 33 companies measured 61 per cent saw a drop in their market capitalisation.”

Munro said the strong performance over the last quarter had been boosted by larger companies like PGG Wrightson and NZ Farming Systems Uruguay.

PGG Wrightson, the second largest company on the index, grew its market cap by $127 million, boosted by a higher share price and $5 million in bonus shares being issued, while NZ Farming Systems Uruguay saw its market cap increase by $83 million on the back of a rising share price driven by predicted increased earnings. Munro said their strength followed the boom in the dairy sector with record milk solid payouts.

He said this sector was having a positive impact on other businesses and because a greater proportion of business in the South Island was linked to dairying it was helping to hold up the economy.

It’s not all down to dairying, but the record payout from Fonterra and the continuation of conversions from sheep to dairy farms are pouring money into rural communities. That in turn is insulating the provinces from the worst effects of the recession.