Surplus challenges

May 16, 2016

The government is facing challenges, Finance Minister Bill English told the National Party’s Mainland conference at the weekend.

The prospect of economic growth is good but brings with it the challenge of dealing with ongoing surpluses.

The government books scraped into surplus last year but few would have been surprised if they slipped back into deficit given low dairy prices and the various problems facing many of our trading partners.

However, the government is now looking ahead to multi-billion dollar surpluses in the short to medium term which provides the challenge of how best to use that money.

The opposition and the usual other suspects who think the quantity of spending matters more than quality have been calling for increased spending in all sorts of areas. Over at Kiwiblog, David Farrar has calculated that meeting the demands would require a top tax rate of 100%.

But this government has a much better focus than the quantity of spending.As the Finance Minister saidWe measure spending by results rather than the level of spending.

Some issues do require more money now in order to reduce future costs and that is why the government has taken an investment approach to social spending with a whole-of-government approach.

At the conference, Justice Minister Amy Adams spoke about this and explained that getting better results in her portfolio didn’t require more money for it. What was needed was spending that addressed the drivers of crime – welfare dependency and poor education and health.

Few would argue with that, but increased surpluses don’t only give the government the ability to spend more, it also has room to take less.

Last week’s announcement that there won’t be tax cuts in this year’s budget disappointed some, but I think most people accept Prime Minister John Key’s view hat there are other priorities this year.

National had looked at around $1 billion for tax cuts in the Budget the year but it was discarded because it would have delivered $7 or $8 a week to many households, Key told Newstalk ZB.

He said the choice they were faced with in the short term was either a billion dollars worth of tax cuts which would deliver a small amount of money to New Zealanders, or spend the money on other things such as cancer drugs.

Labour was, rightly, pilloried for its chewing gum tax cut and this government wouldn’t get any thanks for offering something similar.

However, people won’t be so patient when there’s a prospect of on-going billion dollar surpluses which give the potential for meaningful cuts and the PM gives room for hope:

“Philosophically we believe in lower taxes and smaller government, and government’s definitely getting smaller,” he said.

“The point is if we’re going to have a tax programme – we’re not ruling that out in for 2017 or campaigning on it for a fourth term. But having probably a bigger one, to be blunt.”

When asked how much was needed for meaningful tax cut, Key responded: “$3 billion I reckon.”

He wouldn’t reveal the budget surplus forecast for next year, but it was nowhere near enough for that.

He said it was realistic to forecast the tax cuts without voters considering it a ploy to be re-elected. 

Tax thresholds would probably change because of the increase in wages, he explained.

“The average income is going up and we think in a few years time the average income will be say $68,000, well the top rate cuts in at $70,000. If you don’t adjust thresholds over time you get to a point where the average income earner is paying the top personal rate of tax. That can’t be right.” . . 

Bracket creep erodes the value of wage rises and needs to be addressed.

Tax cuts  also help retirees. Superannuation is linked to after-tax wages. When taxes drop, after-tax wages increase and so do superannuation payments.

A party conference mid-way through a government’s third term could have been subdued. Confidence that the government will rise to the challenges of growth, continue to focus on the quality of its spending and results helped contribute to a buoyant mood.

It’s far better to be dealing with the challenges of growth than those of recession facing many other countries.


Taking drops from the ocean

April 19, 2016

A new report by the Royal Society of New Zealand (RSNZ) says oceans could rise by a metre this century if we don’t stop emitting huge amounts of carbon and methane.

Around 95% of New Zealand’s rivers flow into the sea.

If we had a considerable increase in water storage and irrigation would that make a difference or would that be so insignificant that it would just be taking drops from the ocean?

While we’re on the topic of climate change, (via Kiwiblog),  fracking is good for the environment:

. . . As a nation, the United States reduced its carbon emissions by 2 percent from last year. Over the past 14 years, our carbon emissions are down more than 10 percent. On a per-unit-of-GDP basis, U.S. carbon emissions are down by closer to 20 percent.

Even more stunning: We’ve reduced our carbon emissions more than virtually any other nation in the world, including most of Europe.

How can this be? We never ratified the Kyoto Treaty. We never adopted a national cap-and-trade system, or a carbon tax, as so many of the sanctimonious Europeans have done.

The answer isn’t that the EPA has regulated CO2 out of the economy. With strict emission standards, the EPA surely has started to strangle our domestic industries, such as coal, and our electric utilities. But that’s not the big story here.

The primary reason carbon emissions are falling is because of hydraulic fracturing — or fracking. . .

Yet those of a dark green persuasion are strongly opposed to fracking.

Fracking technology for shale oil and gas drilling is supposed to be evil. Some states have outlawed it. Hillary Clinton and Bernie Sanders have come out against it in recent weeks. Schoolchildren have been bombarded with green propaganda about all the catastrophic consequences of fracking.

They are mostly lies. Fracking is simply a new way to get at America’s vast storehouse of tens of trillions of dollars worth of shale oil and gas that lies beneath us, coast to coast — from California to upstate New York. Fracking produces massive amounts of natural gas, and, as a consequence, natural gas prices have fallen in the past decade from above $8 per million BTUs to closer to $2 this year — a 75 percent reduction — due to the spike in domestic supplies.

This free fall in prices means that America is using far more natural gas for heating and electricity and much less coal.

Here is how the International Energy Agency put it: “In the United States, (carbon) emissions declined by 2 percent, as a large switch from coal to natural gas use in electricity generation took place.” . . .

Science and technology have achieved far more than politics and emotion.


Basics beat side shows

April 11, 2016

National’s three-point rise to 50% in the latest One News Colmar Brunton poll has come as a surprise to some commentators.

Labour’s four-point fall to 28% was probably not.

It is only one poll and anything could happen between now and the election but Kiwiblog shows where the two parties were at the same time in the last election cycle:

In April 2013 National was at 43% and Labour 36% – a 7% gap.

In April 2016 National is at 50% and Labour 28% – a 22% gap.

He points out that Labour leader Andrew Little is on only 7%, three points behind Winston Peters.

This isn’t a strong position from which to launch a winning election campaign.

In another post, Kiwiblog looks at party favourability:

. . . National is viewed favourably by 58% of NZers. That helps explain why 47% voted for them.

Labour is viewed favourably by just 35% of NZers. . . 

National has the least unfavourable – only 28% of NZers dislike National. This will come as a surprise to hard left activists who live in a bubble where 100% of their friends dislike National. . . 

Labour is on 41% for unfavourability.

National at +30% is the only party to have net favourability:

PartyNetFav

National’s continual popularity confounds its critics and many commentators.

There are several reasons for it and one of the biggest is that the government focuses on the basics while Labour gets distracted by sideshows.

That doesn’t mean everything the government does works well. I am tribal National and there are some things the government does I don’t like and some it doesn’t do I’d like it to, but those things don’t matter as much as the basics – the economy, education, health, welfare, and security.

And of course, one big reason National is doing so well is that Labour isn’t.

National can’t rely on that if it wants to win a fourth term, a viable government needs to be there for better reasons than a hopeless opponent but Labour’s continuing focus on side-shows and showing its incompetence in opposition keeps demonstrating it is not a viable government-in-waiting.

 

 

 

 


Positivity beats petty and prevaricating

January 18, 2016

Summer holidays provide what many regard as a merciful break from day to day politics in the news.

That in turn provides an opportunity for an opposition leader who wants to get into the hearts and minds of voters to get noticed.

I came across a couple of news items in which Labour leader Andrew Little was quoted but neither was positive. In one he was petty and in the other he was prevaricating.

In the first he criticised Paula Rebstock’s New Year’s honour as political favouritism:

Ms Rebstock has been made a Dame Companion of the New Zealand Order of Merit for services to the state. . . 

 

He’s trying to make a political point and criticise the government and in doing so is making a slur on a woman who has years  of work in and for  the public service.

This was both petty and personal.

The second story repeated his assertion that Labour would defy the Trans pacific Partnership.

In the interview he is questioned about how he would do this and repeats what he’s said before about any government he leads picking and choosing which bits of the agreement it would keep.

That sounds definite but it is prevaricating because he knows that once an agreement is signed parties to it can’t decide which bits of it they will honour and which they won’t.

Kiwiblog’s poll of polls show National finished the year polling about 5% higher than it was three years ago and  Labour is about 5% lower.

One reason for this is that National’s leader John Key is usually positive which trumps  petty and prevaricating which is how Little often appears.

 

 

 

 


Quote of the day

October 8, 2015

FTAs aren’t solely about tariff elimination. They are also about the ability to trade with as few impediments as possible. In this respect, TPP looks comprehensive at first glance, with the promise to breakdown compliance and non-tariff barriers across the Pacific Rim. These benefits are significant, especially for smaller economies and companies. . . .

Closer connectivity with the major players on the trade and investment scene adds another string to our bow. The likes of the United States, Japan and Canada have some of the highest incomes and thus purchasing power of all countries. New Zealand isn’t the lowest cost producer in many sectors anymore and needs access better market access to wealthy consumers to capture margin, and to deliver on the “value-add” strategies that many sectors are pursuing. . . 

There is a raft of empirical evidence suggests trade liberalisation benefits overall welfare and lifts nationwide GDP, particularly for open trade dependent economies like New Zealand. Studies by the Peterson Institute suggested that the gains to New Zealand from TPP would cumulate to around 2% of GDP by 2025. Some of the numbers being bandied around by Government officials look a little on the high side, but considering the surge in two-way trade between New Zealand and China following the signing of the FTA less than a decade ago it leaves little doubt as to benefits on overall trade (and GDP) from increasing trade liberalisation. . . ANZ

Hat tip: Kiwiblog


Rural round-up

August 3, 2015

Ballance delivers cash to shareholders up front:

. . . Farm nutrient co-operative Ballance Agri-Nutrients has fast-tracked its 2014/15 rebate and dividend payment to get much-needed cash to farmers early.

On 31 July, the co-operative will begin its distribution of an average $60 per tonne, seven weeks ahead of its normal payment schedule. The rebate, averaging $55.83 a tonne along with a 10 cent dividend per share will see a total distribution to shareholders of $76 million – equating to 94 percent of its $81 million gross trading result.

Chairman David Peacocke said today that the co-operative’s solid performance meant it could support its shareholders and move quickly to do so. . .

Mixing style, substance and ambition – Sally Rae:

Chanelle Purser is possibly the most stylish calf rearer in Crookston.

Her fur jacket might usually remain in the wardrobe while she is in the calf shed, but brightly painted fingers dispense milk to hungry charges.

Mrs Purser (42) is somewhat of a dynamo, farming with her husband Phil in West Otago and running a successful retail business in Gore, but she takes it all in her well-manicured stride. . .

Strong demand for good farm dogs – Diane Bishop:

A shortage of good working dogs pushed prices up at the Gore dog sale.

PGG Wrightson Gore livestock manager Mark Cuttance said the top heading dogs fetched $5500 to $5700 while the top huntaways made about $5600 at the sale on Wednesday July 29.

Cuttance wasn’t surprised.

“We expect that sort of money for the top end dogs,” he said.

Cuttance said there was a shortage of good working dogs, because of less shepherds on the land, and vendors saw the Gore dog sale as the perfect opportunity to achieve market value for their dogs in a competitive environment. . . .

Mid Canterbury farmland sold to foreign-owned Craigmore Farming – Jack Montgomerie:

A company associated with a South Canterbury rich-lister has bought more Canterbury farmland.

An Overseas Investment Office decision released on Friday stated the 95 per cent foreign-owned Craigmore Farming NZ Limited Partnership had received approval to buy 83 hectares of land.

Craigmore planned to incorporate the cropping land on New Park Rd, located about 15 kilometres southwest of Ashburton, into its Wairepo dairy farm operation. . .

End the squabbling over free range – David Leyonhjelm:

TO scramble the metaphors, various thin-shelled types are running around like headless chooks over free-range eggs, proclaiming the sky will fall if the law doesn’t tell us all what the term means.

Facts and evidence are as scarce as hen’s teeth, while market forces are disappearing faster than a randy rooster.

The cause is the fact that consumers are increasingly choosing free-range eggs over cage eggs. There are no health, welfare, nutritional or environmental advantages to this. Cage and free-range eggs are no different, although free-range eggs are more likely to be contaminated by chook poo. . .

 Pretty Woman protecting soils:

JULIA Roberts is getting dirty with the aim of helping agriculture.

The Academy Award winner and star of such films as Pretty Woman and Mystic Pizza, has become the latest in a line of international VIPs to call for action to protect soils.

The Hollywood actress has become the newest face of the Save Our Soils initiative, following in the footsteps of several dedicated environmentalists including the Dalai Lama, Bishop Desmond Tutu, activist Vandana Shiva and conservationist Douglas Tompkins. . .

Green dilemma – a GE rice that reduces greenhouse gas emissions – Kiwiblog:

This will pose a dilemma for the Greens. Scientists have developed a genetically engineered rice crop that has significantly reduced methane (the most powerful greenhouse gas) emissions over normal rice.

So if the Greens truly believe their rhetoric that greenhouse gas emissions are the biggest threat to Earth today, surely this means they will drop their opposition to genetically engineered crops and welcome this GE rice?

Nature Magazine reports:

Atmospheric methane is the second most important greenhouse gas after carbon dioxide, and is responsible for about 20% of the global warming effect since pre-industrial times1, 2. Rice paddies are the largest anthropogenic methane source and produce 7–17% of atmospheric methane2, 3. Warm waterlogged soil and exuded nutrients from rice roots provide ideal conditions for methanogenesis in paddies with annual methane emissions of 25–100-million tonnes3, 4. This scenario will be exacerbated by an expansion in rice cultivation needed to meet the escalating demand for food in the coming decades4.  . .

Apropos of which with a hat tip to Utopia:


Racism risks trade backlash

July 16, 2015

BNZ economist Tony Alexander joins the discussion on Auckland housing and the part played by foreign buyers:

. . . So we remain in the dark about the extent to which Auckland’s housing market is truly being driven by offshore buying. But as emphasised previously, there are three key points which I shall keep repeating regarding Auckland housing and house price pressures.

1. The fundamental cause of rising prices in Auckland is a shortage of supply and until that gets addressed prices will stay highly elevated and perhaps keep rising out to late-2017 this cycle.

No matter what tinkering is done to reduce demand by restricting foreign buyers won’t change the fact that there is a shortage of supply.

2. Whatever the true magnitude of Chinese buying has been these past few years it will get much greater. Chinese families are growing wealthier, so naturally they will seek offshore assets. Chinese people wish to get assets off the mainland and this week’s massive intervention in sharemarkets by the Beijing authorities illustrates why people have high distrust of the environment on the mainland in which they would hold assets. And Chinese authorities have yet to relax hefty restrictions on people getting their funds offshore. When they do, well then you will see something entirely new hit the world’s residential property markets.

3. We should as soon as possible adopt Australia’s rules restricting foreign buying of anything other than new housing unless resident for 12 months.

But here is the fourth point which to date I have not emphasised but now will do. Adopting Australia’s rules as they stand won’t be the panacea many are hoping for. In Australia’s case people have been able to get around the restrictions quite easily. The regime is now being enforced more rigorously, but that does not necessarily alter what is being seen as a huge problem – something which people in Hong Kong have been seeing more and more of in recent years.

Many Chinese who buy properties never, or rarely, occupy them. They sit empty. This applies even to newly built apartments sold to Chinese buyers. Chinese simply want an asset away from any control by the CCP. There was an article on this in The Australian newspaper this weekend, page 6.

What this means is the following. As Auckland very slowly goes vertical in areas like New Lynn, developers will find they can very easily get offshore financing for their projects and hefty sales off the plan to Chinese investors (we Kiwis prefer to touch and feel before buying). These investors may never occupy or even rent out their investment. Thus while on the face of it the Aussie rule that a foreigner may only buy a newly built house or apartment sounds like a grand idea, it could leave the housing supply situation unchanged from a no-rule regime.

Thus, were we to adopt the Aussie regime we would need to add in an extra clause along the lines of apartments having to be made available for rent, actually rented, or something like that.

When might we see the adoption of some form of restriction on foreign home buying in New Zealand? Maybe within two or three years. About three years ago I recommended that we adopt the Australian regime. That was/is not because I feel Chinese buying is currently the big buying force people believe it is, but because the buying will grow and the eventual popular backlash against such buying and introduction of legislation in that heated environment would risk a backlash. The Chinese leadership may feel we were targeting them and getting above our station. Trade retaliation would be likely.

That is still the position I hold and the earlier we adopt Australia’s rules with the extra twist noted above, the better for everyone, including exporters to China wanting good access for many years who may feel nothing needs to be done on foreign home buying. You are the ones most at risk should this situation turn bad in 5, 10, 15, or 20 years time.

If there needs to be restrictions on foreign non-resident buyers they must apply to all foreign non-resident buyers.

Over at Kiwiblog, David Farrar points out that Labour’s policy of treating Australians more favourably than Chinese would contravene the free trade deal which that party signed when it was last in government.

Even if it didn’t, putting higher hurdles in the way of those from one or more countries while applying less restrictive rules to others is discriminatory and could lead to tit for tat repercussions which would endanger trade.

That would impact on the whole country when the housing problem is essentially Auckland’s and the solution to it lies not in restricting demand but increasing the supply.

 

 


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