KiwiBuild failed

September 5, 2019

The government’s KiwiBuild reset is an admission of how flawed the policy was in the first place.

The 10,000 houses it said it would build wasn’t a target, it was a figure plucked out of the air, completely distanced from reality.

Worse than the unrealistic number, was the money wasted on houses no-one wanted to buy and houses sold to people who should not have been beneficiaries of taxpayer assistance.

Now Housing MInister Megan Woods has announced another plan, with no targets, which includes selling the houses no-one wanted – almost certainly to be a win for the buyers and a lose for the public.

There’s also a government backed low equity scheme that sounds horribly like the Fannie Mae and Freddie Mac scheme in the USA that precipitated the Global FInancial Crisis.

The Taxpayers’ Union points to the potential  dangers that poses to taxpayers:

Replacing KiwiBuild with easy credit policies for first home buyers places significant risk on taxpayers, says the New Zealand Taxpayers’ Union. 

Taxpayers’ Union Economist Joe Ascroft says “The American housing crash and ensuing Global Financial Crisis was driven in part by the American Government’s decision to offer subsidized mortgages to low income households, who then failed to meet debt repayments when interest rates increased. Our Government’s decision to adopt a similar approach by offering taxpayer-backed mortgages to households who can only scrape together a 5 percent deposit is an uncomfortable echo to those easy credit policies which induced a housing crash overseas.”

“If households on ultra-low deposits ever failed to meet repayments due to rising unemployment or interest rates, either taxpayers or the banking system would be put under significant pressure.”

“Of course, the best approach to housing unaffordability isn’t to load on more debt and subsidies – which will inevitably push housing prices higher – but to enact meaningful supply-side reform. Allowing our cities to become more dense and removing the rural-urban boundary would be good places to start.”

The new policy, like many of this government’s lack details and the Minister’s repeated “we’ll build as many as we can as quickly as we can” is no substitute for a target tand a concrete plan to get there.

The root of the housing problem is simply one of supply not keeping up with demand, this hasn’t been helped by Prime Minister Jacinda Ardern’s calling a halt to development at Ihumātao.

The solution is more houses, faster which requires sorting out the infrastructure restraints, regulations that make the consent process so long and costly, and building here so much more expensive than in many other countries.

Anything which gives people more money without increasing the supply of houses will only make them more expensive.

KiwiBuild failed because it didn’t deal with the underlying causes of the problem and the so-called reset will do very little, if any, better.

We’d all benefit if the government set about addressing the constraints on supply rather than throwing more taxpayers’ money at policies that will benefit a relatively few people at considerable cost and risk to all of us.


Who’s fleecing us?

October 10, 2018

Jacinda Ardern reckons fuel companies are fleecing us.

The Motor Trade Association says that isn’t so:

. . . MTA Chief Executive Craig Pomare says the biggest influences on prices at the pump are the landed refined price of petrol and diesel, taxes and the value of the NZ dollar against the USA dollar.

“Competition also has a big effect in New Zealand. It is well recognised that the deregulation of the market and the emergence of Gull, and other smaller independents such as Challenge and G.A.S. have affected prices in the areas where they operate. So too has the widespread use of discounting.”

Mr Pomare says the independent fuel retailers have minimal control over their daily pump prices.

“Most of these small businesses have contracts with the oil companies which give them very little wriggle room when it comes to setting their pump price.

“We take issue with the Prime Minister for suggesting that service stations, or oil companies are ‘fleecing’ motorists. Last year’s review of pricing by MBIE found no evidence of this. Like others in the sector, and the public, we support a further detailed market study to give us all more information on pricing structures.”

He says if the Government is seriously concerned, there is plenty of precedent for reviewing fuel taxes and either lowering them, or holding off on further increases.

Michael Barnett, chair of the Auckland Business Chamber has no doubt where the blame lies:

The tipping point for fuel consumers has been the blunt and ineffective fuel taxes imposed by local and central government. The margins identified by media today are less than most retailers would seek and have not changed.

It is worth noting:

• The major fuel companies welcome the proposed investigation from the Commerce Commission

• Of the 1,500 service stations in New Zealand, over 1200 are mum and dad running their small businesses, employing people and trying to make a profit. They deserve a return on the risk

• There are 20% more fuel providers than 5 years ago – does this signal a lack of competition?

The currency and additional Government taxes have created a price point consumers find unacceptable.

Consumers don’t only find the price unacceptable, Many also find it unaffordable.

The National Party has called for the tax increases to be dropped.

The Government should axe its fuel tax increases to provide immediate relief to motorists, Opposition Leader Simon Bridges says.

“Instead, the Prime Minister’s response to record high fuel prices is to announce yet another inquiry.

“She’s saying consumers are being ‘fleeced’ while her Government is driving up fuel prices and taking hundreds of dollars from Kiwi households through higher taxes on fuel.

“The inquiry will take months and any resulting changes could be years away. Meanwhile New Zealanders are paying record prices for petrol and the Government is collecting hundreds of millions of extra tax from them.

“Unlike petrol, talk is cheap. And the Government is a big part of the reason why petrol prices are so high.

“The importer margin, the profit petrol companies make on every litre of fuel sold and which the Prime Minister wants more information on, is 31 cents per litre and around the same as it was last year. The amount the Government makes is $1.25 – and that keeps increasing.

“The average New Zealand household is now paying $200 a year more in petrol taxes than this time last year, with Auckland families paying $324 extra as a result of higher petrol prices and this Government’s decision to hike fuel taxes. It’s pricing Kiwis out of their cars.

“There are a number of other reasons behind record petrol prices and National supports another look at the practices of fuel companies, something we also looked at in Government, but the Government should also be looking in the mirror.

“While the Government passes new legislation and waits for yet another report it should provide immediate relief to motorists by putting a stop to its relentless imposition of new taxes.”

The Taxpayers’ Union agrees:

Taxpayers’ Union Economicts Joe Ascroft says “When the Government was legislating for fuel tax hikes, we argued that these taxes punish hard-working families – especially those that live in the city-fringe and are forced to commute for work. The Government should back the call from the Opposition and provide much-needed relief to family motorists who are struggling.”

“Now that National has called for fuel tax repeal, it must meet that commitment if it goes back into Government in 2020, 2023, or later. It’s easy to argue for tax cuts in opposition, but walking-the-talk in Government is much harder. The Taxpayers’ Union will be watching closely
.”

Who is fleecing us?

The government that is taking nearly half the price of fuel in tax and worsening the pain by spending the increases not on roads but public transport and cycle ways most of us will never use.


Paying for poor policies

August 31, 2018

Business confidence has dropped to the lowest point for 10 years:

In the August ANZ Business Outlook Survey headline business confidence dropped a further 5 points to a net 50% of respondents reporting they expect general business conditions to deteriorate in the year ahead.

However, firms’ perceptions of their own prospects are a much better gauge of actual economic outcomes. This series stabilised at a net 4% expecting an improvement, well below the long-term average of +27%. By industry, manufacturers’ expectations dropped 11 points to become the least positive about their own activity (-4%), while retail and services improved somewhat.

Turning to the survey detail:

* A net 5% of firms are expecting to reduce investment, down 6 points. It is rare for this series to be negative.

* Employment intentions fell 8 points to -6%. No sectors are positive.

These two points are most concerning. Businesses reducing investment and with negative employment intentions will have a direct and negative impact on the economy.

* Profit expectations were flat at -17%. Retail and manufacturing are the weakest sectors at -27% (up 1%pt) and -28% (down 12%pts) respectively.

* Firms’ pricing intentions fell 2 points to +27%. They are strongest for construction but also lifted for retail. Inflation expectations were flat at 2.2%.

 * Residential construction intentions eased 3 points to +13%, while encouragingly, commercial construction intentions bounced 13 points to -4%. . . 

The economy is delicately placed. But it seems increasingly inevitable that wariness amongst firms will have real impacts, in the near term at least, as investment and employment decisions are deferred. . .

The outlook isn’t all bad.

But firms have real concerns about industrial relations policy, minimum wage hikes and costs more generally – and particularly about their ability to pass on higher costs and maintain profitability. Troubles in the construction sector appear to be starting to cause stresses in related firms. And exporting firms will be keeping a nervous eye on signs that global growth has peaked. . .

The Taxpayers’ Union says the drop in confidence shows the urgent need for tax reform:

. . .Taxpayers’ Union Economist Joe Ascroft says, “Businesses need more than a working group. They need real changes in policy direction, including tax reform. Business breakfasts with CEOs and Cabinet Ministers simply won’t cut it for the average small business.”

“Company tax rate cuts – accompanied by full capital expensing – would put a rocket under business investment and put an end to the doldrums. If focused at measures to boost productivity, the evidence shows that tax relief would flow through to workers in the form of higher wages.” . .

Tax reform would help and not just for businesses.

The lower dollar helps export returns but increases the cost of imports, including fuel, the price of which is also being boosted by extra taxes:

The Government’s obsession with fuel taxes shows it doesn’t care about the cost of living for ordinary Kiwis, National’s Transport spokesperson Jami-Lee Ross says.

“Now is the time for solutions to the cost of living, not new taxes. National is taking the initiative with a bill lodged today to repeal regional fuel taxes within three months.

“Fuel prices are sitting at record levels across the country and are set to rise further because the Government is proposing three additional rounds of national fuel tax increases totalling an extra 12 cents a litre of fuel in new taxes.

“In addition, there is an 11.5 cents a litre regional fuel tax in place in Auckland that will be rolled to other regions in a few short years. It adds to this Government’s sorry record of driving up costs for households and businesses and choking economic growth. . .

 

But tax is only part of the problem. The Government has several other poor policies that we’re all paying for:

The message from economists is loud and clear: the Government’s bad economic policies mean New Zealanders will be thousands of dollars a year worse off, says National Party Leader Simon Bridges.

“In the last three months alone NZIER has revised down their GDP growth forecasts which means every man, woman and child will be $1600 a year worse off on average by 2022. That is $6400 for a family of four.

“NZIER are clear that the decline in the economic outlook isn’t just sentiment. Profitability has deteriorated and businesses’ own activity, a measure closely correlated with GDP growth, has weakened. There are real implications for businesses, workers and New Zealanders trying to get ahead.

“The reason GDP growth is now faltering is because this Government has imposed a wide range of policies that are bad for growth. They have imposed more taxes, shut off foreign investment, significantly increased labour and compliance costs, banned oil and gas exploration and wasted billions on low-quality spending.

“And what was the Prime Minister’s solution this morning: another working group. The Government needs to understand that lower growth has real consequences for New Zealand families. Working groups do not drive economic growth, good policies and hardworking New Zealanders do.

“So the goal is simple. We must grow the economy if we want New Zealanders to be better off. A growing economy means more jobs, higher incomes and more revenue to pay for the things we need.

“We need to be pro-growth as that is the only way we can improve our standard of living. National wants New Zealanders to keep more of what they earn. Higher taxes, more regulation, compliance costs and a rising cost of living do nothing to help families get ahead.

 

Added costs and uncertainty are a poisoning business confidence and this week’s announcement of a business council is no antidote.


Mixed Ownership Model works well

August 23, 2018

National’s partial sale of a few state assets has been vindicated by a report released by TDB Advisory:

An independent report released today by TDB Advisory shows that the Mixed Ownership Model introduced under the previous National Government has been an overwhelming success, National’s Finance spokesperson Amy Adams says.

“The Mixed Ownership process successfully generated $4.7 billion for public infrastructure such as schools, hospitals and broadband and TDB’s findings highlight the wider issue with the Government’s ideological opposition to private sector involvement in funding new assets.

“The partial sell-down of Genesis, Meridian and Mercury began in 2013 and had three simple objectives: to lower Government debt; to increase investment opportunities for ‘mum and dad’ investors; and to improve the financial performance of each company.

“TDB’s study shows all of these objectives have been achieved.

“The most striking finding is that despite electricity prices being flat-to-falling over the period of the Mixed Ownership Model, shareholder returns have increased by 69 percent and the Government has received higher dividends despite owning a lower share of each company.

“The report also shows that opposition to the Mixed Ownership Model was misplaced. It didn’t lead to higher electricity prices. And it didn’t result in a drop-off in renewable energy generation, which has increased over the period.

“The current Government has an irrational opposition to the private sector. Labour’s ideological resistance to Private-Public Partnerships to build public assets means a number of important projects are failing to get off the ground.

“The Government shouldn’t shut itself off from ideas such as Private-Public Partnerships or Mixed Ownership purely on ideological grounds. Evidence, not ideology, should drive good policy.

So the fear of prices soaring was misplaced; the government is earning a similar amount in dividends from a small shareholding; and pausing less interest; and the people who invested in the shares are getting dividends too.

This report  ought to encourage the government to consider more sales.

. . .Taxpayers’ Union Economist Joe Ascroft says, “This report demonstrates what most analysts already knew: private-sector discipline can transform bloated, inefficient Government-owned companies into efficient market-disciplined businesses. It’s a win-win-win for taxpayers, investors, and consumers.”

“With the Government struggling to meet its self-imposed budgetary restrictions, it’s actually the perfect time for an expansion of the Mixed Ownership Model. Raising capital and increasing dividend payments would give Grant Robertson the room to invest in infrastructure without seriously damaging the country’s books.”

The three parties now in government were vehemently opposed to the MOM.

The report proves them wrong and shows their opposition wasn’t based on fact.

The state still owns too many businesses which could easily be sold, partially or fully, to the benefit of the public finances, taxpayers and the businesses.

If the government would let evidence not ideology guide its decisions, it would sell at least some of them but it is very, very unlikely to do so.

The report is here.

 


Our money not theirs

May 18, 2018

Taxpayers’ Union chair Barrie Saunders calls it a classic Labour Budget:

Robertson’s first budget was written in extraordinarily benign circumstances. The economy is growing at a sustainable rate of around 3%, tax revenues for the June 2018 year will exceed Budget 2017 estimates, unemployment is down to 4.5%, employment levels are very high at 73.1%, and public debt at 21.7% of GDP is low and trending downwards. 

The economy is in vastly better shape than any new Government has inherited since 1972. That year Labour leader Norman Kirk won with a thumping majority and an inexperienced team. Labour lost to National’s Rob Muldoon, with a similar majority in 1975, and no more clues as to how to manage structural problems with the economy, which led to the economic crisis of 1984 and the Lange/Douglas reforms. 

Prime Ministers Bolger, Clark and Key would have been over the moon if they could have assumed office with today’s economic fundamentals.

The TU notes two wins for taxpayers.

  1. Fiscal responsibility

It is very encouraging that the Government is remaining within the pre-election ‘Budgetary Responsibility Rules’.  We think Steven Joyce’s allegations that Labour had an $11.7 billion hole (which Labour vehemently denied) had also been helpful in keeping the Government restrained in the face of criticism from some on the left who say they should borrow more. 

  1. Independent election policy costing office

Budget 2018 announced that “public consultation will be launched in August on establishing an independent body to better inform public debate in our democracy.”   This is something the Taxpayers’ Union has been pushing for since 2014 – for transparency and accountability of what political party policies will cost taxpayers.

For decades political parties during election campaigns have made allegations about expenditure policies of others.  That’s why we worked so hard last year with our election “Bribe-O-Meter”.  . .

National left the economy in very good shape and the government has at least budgeted to retain surpluses.

But let’s not forget it’s our money not theirs and that a surplus means it’s taking more in tax than it needs.

Had National still been in power all of us would have been able to keep a little more of what we earn.

This red-green-black government couldn’t even increase tax thresholds to address bracket creep which Treasury predicts will put average taxpayers into the top tax category by 2022.

. . .Taxpayers’ Union Economist Joe Ascroft says “This is the eighth successive Budget that has not delivered income tax relief. While most New Zealanders expect only the most well off should pay the top rate of tax, if the current trend continues, even the average taxpayer will be paying the top rate.”

“In fact, much of the wage growth over the last eight years has actually just been keeping up with inflation, so while many families don’t feel much better off, they are paying more in tax than ever before. Inflation will similarly push families into the top tax bracket over the next four years.” . .

The only tax cuts in this business were for hot horses.

In terms of tax relief, unless you breed horses you are out of luck. Winston Peters has announced $4.8 million in tax reductions for ‘high quality’ horses (defined in the media release as being based on bloodlines, looks, and racing potential!).

 


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