Rural round-up

March 2, 2019

Proposed water tax a ‘burden’ on low-water  regions – Stuart Smith:

The proposed new water tax that was announced as part of a swathe of other new taxes potentially facing Kiwis will disproportionally impact on low-rainfall regions like Marlborough.

There are eight new taxes in Michael Cullen’s proposal: the Capital Gains Tax (CGT), tax on vacant residential land, agriculture tax, water tax, fertiliser tax, environmental footprint tax, natural capital tax and a waste tax.

Much has been said about the CGT but the suggested water tax, too, would impact all Kiwis negatively and in particular our farmers, horticulturalists and wine growers in low-rainfall areas. . . 

Partnerships between men and women are critical for farming success – Bonnie Flaws:

With many farms run by married couples, the role of women in farming is a critical one, a female dairy farmer says.

Jessie Chan-Dorman, a former dairy woman of the year, said male farmers could see everyday how women contribute to the business, and they respect that.

“I would say the percentage of women in farming is at least 50 per cent. Nearly every farming business has a partnership that has historically not been seen. But they’ve always been there.” . . 

Studies smoke out fire behaviour – Richard Rennie:

The risk of summer fires is a constant farmers and foresters learn to live with. But the Port Hills fire in 2017 and the Nelson fire last month have brought a human threat to wildfires many Kiwis thought was confined to Australia and North America. With wildfires now affecting rural and urban people Richard Rennie spoke to Scion rural fire researcher Dr Tara Strand about how we are getting smarter at understanding rural fires.

A TEAM of Scion researchers is part of a 27-year history of research into New Zealand’s rural fires, a quiet brigade of climate experts and fire analysts whose job is to help make rural firefighters’ jobs more effective and safer. . .

Grape yield under threat – Joanna Grigg:

Marlborough is experiencing a hydrological drought.

Lack of rain in the mountain catchment has left the Wairau River low, Marlborough District Council hydrologist Val Wadsdworth said.

And summer storage capacity on the plains has been found wanting as a result. January rain of 18mm was soon sucked up by 30C plus temperatures in February.  . .

Matamata to host FMG Young Farmer of the Year regional final :

A Waharoa dairy farmer is facing fierce competition in her quest to be named the FMG Young Farmer of the Year.

Sophia Clark will take on seven other contestants in the Waikato/Bay of Plenty regional final in Matamata next month.

It will be the 30-year-old’s fourth attempt at clinching a coveted spot in the national final. . .

Scott St John leaves Fonterra Fund manager’s board as units hit record  low – Paul McBeth:

(BusinessDesk) – Fonterra director and veteran capital markets executive Scott St John has left the board of the shareholder fund’s manager, the same day the units plunged to a new low.

A notice to the Companies Office last night noted St John ceased being a director of FSF Management Co, the manager of the dual-listed Fonterra Shareholders’ Fund, which gives investors exposure to the cooperative’s earnings stream. He is still a director of Fonterra. . .


Property speculators pay CGT

April 13, 2014

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.


Cavalier attitude to taxpayers’ money

November 6, 2013

The Press, which is very familiar with insurance issues in Christchurch was less than impressed with Labour’s plan to establish a state-owned insurance company.

. . . The proposal for a new state-owned insurance company – KiwiAssure – would, Cunliffe says, be an effort to address problems over the responsiveness of private companies in settling claims and of the price of insurance. But in a market as competitive as the New Zealand one is, the price of insurance is determined by risk and the cost of covering it on the overseas reinsurance market. That applies whether the entity is private or state-owned. A state-owned enterprise required to lower its prices or be more generous towards customers than competitors could only do so at the expense of taxpayers.

As for the implication that a state-owned enterprise might provide a better customer experience in general than a private company, that only shows how far Auckland is from Christchurch. There are many in Christchurch who have dealt with EQC who could put Cunliffe right on that point. . .

The Herald is equally unenthusiastic about the idea:

. . . Ironically, the frustrations experienced by home-owners in Christchurch have much to do with government insurance in the form of the Earthquake Commission. . .

Nothing in the policy announced by Mr Cunliffe at the weekend dealt with any of the real insurance policy issues arising from Christchurch. The announcement was little more than a replay of a commercial for KiwiBank which, like it or not, could be saddled with the insurance company. “KiwiAssure will work for all New Zealanders,” Mr Cunliffe declared. It would be “a service-focused, state-owned company that has their best interests at heart”. It would “keep profits from this crucial industry in New Zealand”.

Wisely, he did not quite claim it would offer cheaper premiums than existing companies. Christchurch had an insurance company that did that. AMI had come to dominate the local market by undercutting competitors and the earthquake exposed its inability to meet all of its liabilities.

The AMI experience is salutary for national taxpayers, too, when they hear Labour’s assurance that its company would not carry a government guarantee. The present Government quickly came to the relief of AMI’s policy holders, taking over the worst liabilities and selling AMI as a going concern to the multinational IAG. It is hard to imagine a Labour Government acting any differently if a state-owned insurer fell into the same trouble.

Insurance is almost the last business that should be nationalised. Its purpose is to share risk internationally. Labour’s company, like KiwiBank, might appeal to those who dislike profit-seeking private enterprise and prefer to deal with a state agency, but they will be under-written by a global insurance network of private enterprise. The profits of insurance provide security for all its subscribers.

The illusion of a “home-grown alternative”, as Mr Cunliffe calls it, has a powerful commercial appeal.

Members of the Insurance Council do not relish competing with a new state company for that reason. Taxpayers should be wary too. When a political party goes into business for no reason better than ideological satisfaction, it is likely to create a commercial lemon requiring ever more capital to survive. Let us hope this is one we will never see.

The ODT raises concerns:

. . . The suggestion KiwiAssure will be run by Kiwibank is not sensible.

The success of Kiwibank will be put at risk by tacking on an insurance company with a domestic focus.

Voters only have to look at the downfall of AMI, a Christchurch-based insurance company which substantially undervalued its reinsurance obligations and ended up with the Government – and taxpayers – having to step in to bail it out.

Of course, a government bail-out is exactly what will happen to KiwiAssure if it does not spread its reassurance risks widely.

Reinsurance for a totally-owned government-controlled insurance company will be expensive.

There can be no discounted policies on offer; it does not make sense.

Residents of Christchurch, and other cities and towns, should be asked how they feel about the state-run EQC, or the many people waiting for some help from ACC, to get some indication of whether they feel comfortable with a state-owned insurance company looking after their interests.

Overseas-owned insurance companies, although receiving much criticism for the slowness of their reviews and delays in payments, at least have a global reach of funds on which to draw. . .

Labour’s insurer will be completely exposed to events in New Zealand, a country at major risk of incurring heavy losses from natural disasters. . .

The Auditor General’s report on EQC said its response in Christchurch had been mixed.

There is nothing in the report to give any confidence in a new sate owned insurance company.

Labour leader David Cunliffe  tried to get some traction for the idea in Question time yesterday but gave Prime Minister John Key an opportunity to remind everyone of the risks instead:

. . . According to the public register, believe it or not, a total of 96 insurance firms have a full licence from the Reserve Bank’s carry-on insurance business in New Zealand. I have heard of a group proposing to set up a 97th insurer. The only point of difference is that that insurance business would put hundreds of millions of dollars of taxpayers’ money at risk by entering a market in which that group has no expertise and for which it cannot offer any competitive advantage. That cavalier attitude to taxpayers’ money comes from who else but the Labour Party. . . 

Hon David Cunliffe: Is it not true that the Prime Minister called Kiwibank a “failing institution” after almost a million Kiwis signed up as customers; therefore, why could not KiwiAssure also provide a locally owned, competitive, and high-quality option in the insurance market?

Rt Hon JOHN KEY: It is great that it has taken to supplementary question No. 4, but we will get to the heart of it. These are the reasons. For a start off, let us just take Kiwibank. Yes, it is a good little business. I might point out, though, that it has taken $860 million of taxpayers’ money and it has never paid a dividend in over 10 years. Secondly, the insurance market is hardly a free ride, because insurance companies happen to be in the process of paying $20 billion out in Christchurch. So if we had KiwiAssure, which the member wants to talk about, then New Zealand taxpayers would be paying a fortune into Christchurch. Thirdly, it is a competitive market at the moment. So if one assumes that they are just going to lay off their risk, they will be laying it off with the same reinsurers. Fourthly—     

. . .  Rt Hon JOHN KEY: To my fourth point as to why an insurance company would be a bad idea—name another major bank that operates in New Zealand that has an insurance company. It would not make sense to lend money [Interruption]—no, lend money—and actually have the insurance on the same property they are renting. They do not do that. . .

Finance Minister Bill English got a further opportunity to reinforce the risks in the proposal:

David Parker—Labour) to the Minister of Finance: Does he agree with IAG’s submission to the Commerce Commission that “there is real potential for major banks to begin underwriting their own general insurance products, and to compete directly with the incumbent insurance companies at the underwriting level as they already do at a retail level of the insurance market”?

Hon BILL ENGLISH (Minister of Finance): I have no responsibility for the opinion of IAG New Zealand but I can give the member the benefit of the experience of watching and working closely with the Reserve Bank to reduce the risks of our banking system to the New Zealand taxpayer. There have been 3 or 4 years where capital requirements have been increased, the core funding ratio has been increased, and we have put in place an open bank resolution system. The idea of a bank taking on more insurance risk is about the dumbest proposal that could possibly be made in the light on the events following the global financial crisis. The member should think very carefully before putting forward a policy that heads in exactly the opposite direction to where every other country in the world is heading.

Hon David Parker: Am I correct, then, to infer that he does not support the creation of a Kiwibank-style insurer to serve New Zealand consumers, which would reduce the dominance of overseas-owned insurers, keep profits in New Zealand, and bring added competition, added flexibility, and choice to New Zealanders?

Hon BILL ENGLISH: That is exactly the misleading pitch around this proposition. If there is one thing every taxpayer in the developed world now understands but the Labour Party does not, it is that the risk would be on taxpayers—taxpayers in Ireland, Spain, the US, and the UK. A billiondollar impost on New Zealand taxpayers arises exactly from financial institutions taking too much risk and loading it on to the Government. That is why his proposition is stupid. . .

Hon BILL ENGLISH:  . . . Secondly, what is surprising here is that when we have had the biggest manifestation of risk, it going wrong, and its impact on taxpayers in 100 years, the Labour Party still does not get it.

Hon David Parker: Why should anyone accept what the Minister of Finance says about KiwiAssure when 10 years ago he was pouring scorn on Kiwibank, saying it was “a small bank that has got no long-term viability.”?

Hon BILL ENGLISH: It is a small bank and it has never paid a dividend. It is great that it meets the needs of New Zealanders but it is certainly not an argument for creating a parallel insurance company. It is absolutely clear from our experience with the Earthquake Commission, AMI Insurance, and South Canterbury Finance that when the taxpayer has to underwrite this kind of risk, it can go wrong and taxpayers can be up for billions of dollars. Having low-income people working in the rain, paying their PAYE, and underwriting financial risk is as dumb an idea as you can have in the 2020s.

Rt Hon Winston Peters: Why would any sane New Zealander believe that last diatribe given that just 10 years ago, when the Cullen fund was announced, he said the very same thing about that, then went down just last week to its 10-year celebration and humbly had to admit what a fool he was?

Hon BILL ENGLISH: Well, as the member will know, because he was there, I did not say that. I did praise Dr Cullen for finding a way of stopping the Labour caucus spending billions of dollars in surpluses. If Dr Cullen had been there, he would have said that that was why he set up the Superannuation Fund—to protect New Zealand from the Labour caucus.

The one thing that is saving us from Labour’s cavalier attitude to taxpayers’ money is the proviso on the policy that a business case stacks up.

It is very unlikely a business case will so this isn’t so much policy or a promise as an attempt to get votes in the Christchurch by-election the outcome of which will be settled well before the business case is found to be faulty.

The business case for #gigatownoamaru stacks up well.


PREFU will show choice is clear

October 25, 2011

If you’ve been on the Herald or Stuff websites you might have noticed National’s ads showing the choice is clear.

On the left is a bloke in a red hat with a stop sign, on the right is a bloke in a blue hat with a go sign.

Arrows point left to stop and right to go forward.

The clarity of the choice will be confirmed when Finance Minister Bill English delivers the PREFU – Pre-election fiscal update – this afternoon.

When Labour Finance Minister Michael Cullen delivered the 2008 PREFU it forecast 10 years of deficits. Under their stewardship, New Zealand was already in recession and Labour didn’t have a workable plan to change that.

In spite of the financial and natural disasters which have beset us since then, National is forecasting a return to surplus earlier than that with policies which rebalance the economy away from  taxing and spending towards savings, investment and export-led growth.

That is a significant achievement and a reminder that the choice is clear – going backwards under Labour or forwards with National.

P.S.

We have Ruth Richardson to thank for the opening of the books. Until National, at her urging, changed the law which requires governments to open  the books before the election, opposition parties had no idea about the state of the national accounts until after the election.

 


Govt still commited to surplus by 2014/15

October 12, 2011

The government remains committed to a return to surpluses by 2014/15 in spite of the impact Canterbury’s earthquakes have had on the deficit.

The Crown’s accounts for the year to 30 June 2011 show net expenses of $9.1  billion for the Canterbury earthquake last year made up almost half of the  Government’s $18.4 billion operating deficit before gains and losses.

“This is an unusually large deficit, but it includes the significant costs of  the Canterbury Earthquake Recovery Fund and the updated assessment of Earthquake  Commission costs,” Mr English says.

“Setting aside the earthquakes, we’ve made good progress compared to  estimates five months ago in the Budget. A combination of higher than forecast  revenue and lower than forecast spending has reduced the underlying deficit by  about $2.8 billion.

“However, this was more than overshadowed by the higher earthquake  costs.”

The deficit is concerning. But given the country was in recession before the rest of the world; that growth from about 2004 was the result of debt-fuelled spending; and that this government has faced an unprecedented series of natural and financial disasters, it could have been a lot worse.

Despite the Canterbury earthquakes, Treasury notes economic growth was better  than expected in the first half of 2011, driven by a recovery in domestic demand  and higher export prices.

“This flowed through to tax revenue, which rose for the first time in three  years due to higher income, private consumption and business profits,” Mr  English says. “And despite the earthquakes, management of public sector finances  continues to improve.

That is a significant achievement given the continuing difficulties in Canterbury which accounts for about 10% of the economy and we need more of this government’s economic medicine.

“In the current uncertain global environment, it’s important the Government  remains focused on its plan to return to surplus faster and building a  competitive economy so we can sell more to the world. This is certainly not a  time to be promising to borrow more, spend more and tax more.”

In spite of all the set backs it’s faced, National has stuck to its plan to reduce government spending and deliver on its promise of polices which promote savings, investment and export-led growth.

Normally a deficit this size so close to an election would be good news for the opposition. But when Labour squandered the good years and its Finance Minister Michael Cullen boasted about spending the lot after his last Budget few outside its core supporters, believe they should be trusted back in government.


Did the Greens make them do it?

July 8, 2011

Trans Tasman explains Labour’s decision to introduce a capital gains tax:

. . . a CGT would almost certainly be one of the Green Party’s coalition requirements. John Key was quick to damn the new policy, saying a CGT would “crush everyday NZers.” But the real criticism lies in the actual mechanics of the tax, which as papers prepared for the Tax Working Group showed could raise if applied across-the-board at 30% to all property, shares, and farms around $3.8bn a year, but only after about 15 years.

Any suggestion the introduction of a 15% CGT, applied only to investment property, would immediately yield $4.5bn a year, roughly the revenue gap to be filled will be laughed off the hustings. While left-wing commentators have hailed the prospect of a CGT as “bold,” and a “circuit-breaker,” others are asking why politicians as astute as Helen Clark and Michael Cullen always kicked the idea of a CGT deep into touch.

Keeping Stock pointed out it’s not just former Labour MPs who didn’t support a CGT.

Did the Greens make them do it? Not directly.

But perhaps Labour is attempting to front-foot the issue rather than risk being seen to give the Greens such a major concession during coalition negotiations should they be in a position to form a government after the election.


No longer if but when and who

March 26, 2011

The leadership of a political party which has been scorned by voters after nine years in government is a poisoned chalice.

The public usually gives a new Prime Minister and administration a period of grace before it starts looking for alternatives, especially when the obvious one isn’t markedly different from the one they turfed out at the previous election.

Helen Clark announced her resignation on election night which meant any publicity Phil Goff might have got as Labour’s new leader was overshadowed by the establishment of the new National-led government.

Michael Cullen resigned soon after which gave Goff the opportunity to appoint a new finance spokesman but there weren’t enough other changes in the front bench to convince voters they could offer a fresh approach.

Since then the few faltering steps forward have been countered by mistakes and misjudgements by Goff or his MPs. But until now there hasn’t been any serious suggestions of a coup against him.

Why would anyone want to lead the party to almost certain defeat when he or she could wait until after the election and make a fresh start? The only reason would be the thought that a new leader might be able to reduce the damage which is likely to be inflicted at the polls if the current one stays.

The odds were always on Goff  going after the election they are now increasing on the chances  he might go sooner. It is no longer a matter of if he will go but when and who will replace him. Scoop suggests the answer to when? could be next week and who? will be David Parker. The link to the NBR in the last post yesterday makes a similar prediction.

Kiwiblog reckons the coup could happen even sooner.


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