Building for future

25/02/2021

Housing price increases have been outpacing wages for 20 years:

If nothing significant changes now that will get worse:

If New Zealand politicians thought the housing crisis in 2020 was bad, the worst is yet to come, warns a new report by The New Zealand Initiative.

In The Need to Build: The demographic drivers of housing demand, Research Assistant Leonard Hong modelled 36 scenarios and found that New Zealand’s population gets older and larger by 2038.

Hong calculated that the number of additional dwellings needed would reach between 26,246 and 34,556 annually under the most plausible scenarios. This excludes the annual housing replacement and demolition rate, and the current 40,000 undersupply calculated by Informetrics. 

“Historical data tells us that only 21,445 new houses have been built in New Zealand annually since 1992. This is nowhere near enough to accommodate our growing population,” says Hong.

For the next 20 years, even with zero net migration, we still need to build close to 20,000 dwellings annually to keep up with population changes.

“Policymakers should stop blaming the housing crisis on land banking investment and speculation and find policy solutions to drastically expand housing supply to keep up with demographic changes.”

Demographic changes will also have adverse effects on our prospects for fiscal prudence. The report demonstrates that the number of those over 65 years will be up by at least 23% in 2060.

This means fewer future taxpayers and more pressure on working-age New Zealanders to fund public services such as health care and education.

“Our future is an older and larger New Zealand and we must start preparing for it,” says Leonard Hong.

“We need to make a growing and ageing New Zealand a liveable place for New Zealanders, and this starts by building more houses now. Otherwise, future generations will have to deal with terrible housing affordability prospects.”

“This report should be a wake-up call for the government,” concludes Leonard Hong.

The full report is here.

 

It is no use tinkering with policies that attempt to reduce demand. The shortfall in supply is too great for that to make any significant difference.

The only solution is to build a lot more houses and start doing that now.

The government is frightened of the fallout should house prices decrease. It won’t have the courage to say that building more houses is a much higher priority than safeguarding the equity of existing home owners with big mortgages.

But the demand for housing is such to mitigate a lot of that risk.

Even if it didn’t, the financial and social costs of not addressing the housing crisis are a much greater problem that needs urgent action to enable a lot more houses to be built much sooner than any existing policies will do.


Money supply fuelling house prices

16/11/2020

Friends on Waiheke Island took us to visit friends of theirs who were selling their house on a 900 square metre section.

The asking price was $500,000.

“How many stock units could you run on the lawn?” my farmer asked, knowing at the time we were buying a neighbour’s farm of about 120 hectares with a house and wool shed for less than that.

Town and country property prices have gone up a lot in the two decades since then. House prices increased nearly 20% in the last year.

The steep climb is largely a function of supply and demand. There are far fewer houses for sale than there are buyers in the market.

Immigration has plummeted so we can’t blame that.

We can point some of the blame at the national lockdown in March and the more recent Auckland one that put a dampener on new builds, adding to the delays and costs caused by the RMA and building regulations.

But David Law at the New Zealand initiative says loose monetary policy is the bigger culprit.

. . . The Reserve Bank is undertaking a $100 billon programme of quantitative easing. The Official Cash Rate (OCR) is also now at a record low, reduced from 1% to 0.25% in March. These two decisions alone will lift returns on investment in housing and increase pressure on house prices, particularly as supply is constrained.

If the Government cares about fixing housing affordability, it should start by being clear on the reasons for those high prices.

Former Finance Minister Steven Joyce is also concerned about housing for the haves and no relief for the have nots:

. . . People can afford the repayments on a bigger mortgage so they bid up the sticker price on the house, while others look for any sort of asset yield that’s bigger than the derisory amounts available from bank deposits.

There is now much more recognition that ultra-low interest rates are driving high asset prices including house prices, but so far much less will to do anything about it. . . 

The Prime Minister has shown concern and said prices can’t keep going up at the rate they have been but her concern hasn’t translated into any practical solution to the problem/

Covid-19 is the big driver of the current economic recession, but the government’s policy response isn’t helping.

By continuing to invoke lockdowns at the drop of a hat, mandating big minimum wage and public sector pay increases, pursuing the adoption of the so-called living wage, increasing holiday pay and pushing myriad other anti-employment measures, there is no doubt that the economy will respond with more sluggish employment growth than would otherwise be the case.

In turn monetary policy has more work to do to maintain progress towards the full employment goal. Say hello to even lower interest rates for longer; and ever more nonsensical asset prices, especially houses.

It is a big irony that government policies that often seek to boost the fortunes of the low paid end up helping to trap them in a hand to mouth existence, with no way to break the cycle and get on the home ownership ladder. . . 

Worse, higher house prices lead to higher rents which makes it harder for low income renters to make ends meet and for higher income renters to save for a deposit to buy a home.

The simple fact is that under current policy settings, micro-economic policies that attempt to artificially boost incomes beyond what businesses and the economy can afford will simply end up driving a bigger wedge between the haves and the have nots in terms of asset prices and wealth, through the mechanism of ever lower interest rates. We are chasing our tails.

Anything which increases the supply of money and lowers the cost of borrowing without increasing the supply of houses will drive up prices.

The Reserve Bank is trying to stimulate the economy by encouraging businesses to invest and expand but government-mandated increase in wages and sick leave have the opposite affect.

And any positive impact from the lower OCR is more than outweighed by the inflationary pressure low interest rates are putting on house prices.

The house we looked at on Waiheke Island would be selling for far more than $500,000 now. The farm we bought has increased in value too but it’s a productive asset supporting jobs and earning export income.

A house provides a home but it produces nothing and the rampant price increases of owning one is producing misery.


Rural round-up

20/06/2020

ETS will see more farmland lost – David Anderson:

Beef + Lamb New Zealand (B+LNZ) believes the Emissions Trading Scheme (ETS) will see huge swathes of productive farming land converted into trees for carbon farming.

It says there is no disincentive in the updated climate change policy to stop significant land use change away from productive and sustainable pastoral agriculture to exotic plantation forestry for the purpose of carbon farming.

The red meat lobby claims this failure will take the focus away from actually reducing fossil fuel emissions.

B+LNZ chief executive Sam McIvor says his organisation is concerned by the lack of government action to limit the amount of carbon farming available through the ETS to offset fossil fuel emissions.  . . 

Blocking MFAT advice on forestry bill ‘concerning’ says Initiative:

The Government’s refusal to let its skilled public servants advise a Select Committee about new legislation is “deeply concerning,” said The New Zealand Initiative.

Today, the Environment Select Committee published its final report on Minister Shane Jones’ Forests (Regulation of Log Traders and Forestry Advisers) Bill. Despite the Bill’s many flaws – and an unprecedented chorus of disapproval – it has emerged from the Select Committee largely unsubdued.

The Bill’s purported purpose is to create an occupational licensing regime for log traders and forestry advisers. It deems all forest owners to be “log traders,” thereby subjecting them to the registration and regulatory requirements of the new accreditation scheme. . . 

The ongoing search for new markets – India and beyond – Keith Woodford:

Finding new markets for NZ exports is challenging. Here, Keith Woodford looks at the Southern Asian countries of India, Bangladesh and Pakistan, and further west to Iran

In recent weeks I have been exploring opportunities for market diversification, given increasing concerns that New Zealand has become too dependant on China. I started by looking at China itself , with the key finding being that growth of two-way trade between New Zealand and China is a consequence of natural alignment for each other’s products, also facilitated by the 2008 Free Trade Agreement between the countries.

Next, I focused on other North-East Asian markets and specifically on Japan, South Korea and Taiwan. The challenges with all of those include that their populations are either declining or about to decline. Also, their economic growth had either stalled or nearly stalled even before COVID-19 came along. That means that new trade requires elbowing out existing products rather than meeting new economic demand from consumers. . .

Deer cull will help families in need :

Venison is on the menu for New Zealand families in need — an annual deer cull in Fiordland will provide meat for foodbanks.

The deer cull in Fiordland National Park will this year provide 18,000kg of venison to New Zealand foodbanks and families in need.

Fiordland Wapiti Foundation typically would remove up to 1000 animals during the cull, and this year partnered with Game Animal Council and the Department of Conservation (Doc) for the initiative.

Fiordland Wapiti Foundation president Roy Sloan said that, weather permitting, by the end of July 600 deer from Fiordland National Park would be removed for processing into 18,000 1kg wild venison mince packets. . .

Rural focus welcome in health review but urgent action needed:

The NZ Rural General Practice Network today welcomed the Health and Disability System Review’s focus on addressing inequity in access to health care for rural communities, but said action was now needed with real urgency.

The new Chief Executive for the NZRGPN, Grant Davidson, said he would take time to digest the report and discuss it with its members, but welcomed the acknowledgement of the pressing need to address rural health.

“The first report noted that access to healthcare for rural communities was ‘unacceptable’ and the extent to which rural communities and their inequitable access to healthcare is a focus in this report is welcomed,” Grant Davidson . . 

Farmers helps save Pacific economies as COvid-19 brings economies to a halt – Mereia Volavola:

The Pacific Islands have been spared some of the deadliest health consequences of the coronavirus pandemic.

But by taking away the tourists, the virus has dealt a huge blow to economies and jobs largely dependent on foreign visitors’ spending to stay afloat.

As of May, every destination on earth had put in place some form of travel restriction, according to the U.N.’s World Travel Organization, and all tourism in the Pacific has stopped as a consequence, depriving many communities of income. In Vanuatu, 70 percent of tourism jobs are estimated to have disappeared already.

In the midst of this crisis, small-scale farming has provided the region with crucial resilience . .

Allflex tech’s powering up Litchfields’ dairy op – Matt Sherrington:

The Litchfield family’s investment in technology from Allflex Livestock Intelligence is paying dividends within their southern NSW-based dairy farming operation.

Ian and Karen Litchfield purchased the 182-hectare Kariana, situated near Mayrung in the Riverina, in 2000, and over the years they’ve purchased three other blocks, which including Kariana cover 760ha of which 600ha consists of flat flood irrigation country.

Together with their daughter Amy and son-in-law Jack, the Litchfields milk 800 Holstein cows each year out of a total milking herd of 950 head with their flat milk supply sold into the year-round milk markets. . .


Social Market Economy explained

02/05/2020

The New Zealand Initiative’s Executive Director Oliver Hartwich presented to the Epidemic Response Committee on 23 April 2020, where he outlined his vision for New Zealand’s social, political and economic future.

Oliver recommended economist Ludwig Erhard’s principles-based approach to New Zealand, which Erhard called the “Social Market Economy.”

But what is a Social Market Economy? Our Research Intern Luke Redward explains all the details in this video.

Oliver Hartwich’s full speech to the Epidemic Response Committee is available here:


Missed opportunity

11/11/2019

The New Zealand Initiative says the Zero Carbon Bill fails the climate:

 . . .the Bill is so seriously flawed that it could raise emissions.

The report, Real action, not empty words says New Zealand can reduce global emissions by far more than we contribute by working with whoever can do the most to reduce emissions, wherever they are.

“The Zero Carbon Bill will prevent New Zealanders from accessing the world’s most effective ways to reduce emissions by insisting all emissions are reduced domestically, as far as possible,” says the report’s author Matt Burgess, a Research Fellow at The New Zealand Initiative.

While there are exciting ways to cut emissions within New Zealand, offshore opportunities appear extraordinary,” says Mr Burgess.

Research commissioned by the Ministry for the Environment suggests forcing emissions to be reduced domestically could add $300 billion to the cost of reducing emissions to net zero, lift carbon prices to $2,000/tonne, and lower national income in 2050 by 6%.

“These huge costs reflect the scale of opportunities offshore. We should be extremely reluctant to close the door given what is possible.”

If climate change is a global problem it is sensible to look globally for solutions.

The Government has said its goal is to reduce emissions by transforming the economy.

 “Transformation is a very expensive way to reduce emissions, and as advice from officials makes clear it is totally unnecessary,” says Mr Burgess.

“The Ministry for the Environment advised the Government could cut far more emissions, at much less cost, and reach net zero earlier than 2050 if it allowed emissions reduction through the most effective channels, including offshore.”

“The Government’s decision to pursue transformation is not only unnecessary, it is contrary to a goal of lower emissions and all-but guarantees failure to achieve our emissions targets.”

The report’s other main concern with the Zero Carbon Bill is the use of central planning to reduce emissions.

Sections 5ZD and 5ZF of the Bill say the Minister for Climate Change must plan how and where emissions are reduced. Plans can cover all parts of the economy, at whatever level of detail the Minister decides, and can be changed any time.

“We have serious concerns with the Bill’s rules around planning, which are so poorly drafted that almost anything could go into the Minister’s plan. History tells us poor legislation can lead to unintended outcomes, in this case higher emissions.”

The New Zealand Initiative recommends three simple changes to fix the Zero Carbon Bill:

  1. Require effective action on emissions by introducing an overarching objective for both the Minister and the Commission that requires exercising their powers for “effective and efficient” emissions reductions and removals.
  2. Remove section 5W to eliminate the domestic preference, allowing emissions reduction through the most effective combination of domestic and offshore mitigation.
  3. Remove sections 5ZD–5ZF to eliminate the requirement that the Minister for Climate Change plan emissions reduction. The Minister will be free to prepare plans, and give effect to them by way of Acts of Parliament, the appropriate level of scrutiny for such far-reaching powers. . .

Federated Farmers says the government missed the opportunity to make the Bill work:

The government failed to take on board common sense suggestions for the improvement of the Zero Carbon Bill yesterday.

“They had a golden opportunity to pass a Bill that was fit for purpose, and could have taken a bipartisan approach to climate change, and could have taken farmers along as well,” Federated Farmers vice president Andrew Hoggard says.

Just last Friday the primary sector put a proposal to government which would have achieved the Zero Carbon Bill’s aims and built on the good faith established by the industry-government climate change commitment, He Waka Eke Noa.

“This was a sad day for common sense as our coalition government not only walked away from an important part of our commitment to the 2015 Paris Agreement, which requires all its signatories not to forsake food production for climate goals, but also relinquished the opportunity to be true leaders and adopt targets for methane which truly reflect its actual warming impact.”

Federated Farmers was deeply worried by a comment made during the debate on Wednesday by Labour MP and former head of the Environment Select Committee, Deborah Russell, who questioned the usefulness of New Zealand’s ability to produce food.

She said:

“I’m not sure that we have a responsibility to feed as many people as possible. We certainly want to ensure that we produce food – it’s one of the things that we export – but it’s not clear to me that we need to continue producing food at that level.”

If we don’t continue producing food at the current level, what will replace it that can make the same important contribution to New Zealand’s economic and social wellbeing?

The Paris Agreement specifically recognises the “fundamental priority of safeguarding food security” and says policies to address climate change should “not threaten food production”.

How many times do we have to say that if food isn’t produced here it will be produced elsewhere by farmers who don’t do it nearly as efficiently as we do? That would come at a huge economic cost to New Zealand and increase global emissions.

A major focus of the United Nations is its Sustainable Development Goals, and whilst climate change is one of those, so too is zero hunger.

“Cutting food production in New Zealand does not stop people eating, it merely hands production and jobs to international competitors, such as the heavily subsidised European Union’s farmers, who will produce the same amount of product, only less efficiently and with higher greenhouse gas emissions,” Andrew says.

The unfit-for-purpose biogenic methane reduction targets outlined in the Bill remain unchanged.

“The 2050 24-47% reduction target for biogenic methane remains eye-wateringly hard for farmers to achieve and correspondingly dire for our economy to withstand,” Andrew says.

With the current tools in the farmer’s tool box, the only way to meet the top end of the target (47%) is to halve the size of our livestock sector. Even if some of those tools become available they are not universally going to fit into all farming systems.

This sector contributes $28 billion in export earnings to our economy.

“New Zealand farmers are proud to be the most carbon efficient farmers in the world. Forcing them to reduce production is not only going to make New Zealand poorer, but will likely increase global emissions, so we will effectively be shooting ourselves in both feet.”

National proposed several amendments that would have made the legislation much better but they were opposed by New Zealand First. That party’s claims to be on the side of rural New Zealand fell victim to petty politicking.

However, National has committed to making several improvements to the legislation should it be in government next year:

“National proposed a series of changes that would have ensured the Bill is in line with National’s climate change principles of taking a pragmatic and science-based approach, but unfortunately the coalition Government voted down all of our amendments.

The changes we proposed were:

    1. That the target for biological methane reduction be recommended by the independent Climate Change Commission.
    2. That the Bill makes clear the stated aim of the Paris Agreement is for greenhouse gas reduction to occur in a manner that does not threaten food production.
    3. To strengthen provisions that consider the level of action being taken by other countries and allow targets to be adjusted to ensure we remain in step with the international community.
    4. To strengthen provisions for the Commission to consider economic impacts when providing advice on targets and emissions reductions.
    5. That the Bill ensures the Commission considers the appropriate use of forestry offsets, and has regard for the carbon sink represented by crops, riparian planting, and other farm biomass.
    6. That emissions budgets be split between biogenic methane and carbon dioxide as recommended by the Parliamentary Commissioner for the Environment.
    7. That the Bill includes a greater commitment to investment in innovation and research and development to find new solutions for reducing emissions.

Investment and innovation are the best ways to make a positive difference to the environment without the high social and economic costs other measures would impose on the country.

“We have taken a bipartisan approach to climate change but we will continue to fight for the changes we think will make the law better.

“Should National earn the right to govern in 2020 we will make these changes in our first 100 days in office. We will ensure the Bill drives the right long-term changes and factors in the wider impacts on New Zealand’s economy, jobs and incomes.”

Economic and social wellbeing must be balanced with environmental gains.

The current legislation is stronger on intention than impact. If National leads the next government it will make much-needed improvements and those should include the ones suggested by the NZ Initiative.


Rural round-up

10/05/2019

Trade water NZ Initiative says – Neal Wallace:

A trading scheme for water, similar to that for emissions, will improve water quality, the New Zealand Initiative says.

Its chief economist Eric Crampton’s report, Refreshing Water: valuing the priceless, advocates a cap and trade market system backed by hard-wired environmental constraints to manage and sustain freshwater resources.

A well-functioning system can ensure all users follow best practice but cannot choose between the merits of competing water and land uses. . .

Bid to assess ‘M. bovis’ scheme surge – Sally Rae:

An independent report has been commissioned into the cause and effects of the current surge in the Mycoplasma bovis eradication programme and to identify additional immediate improvements.

Last month, the Ministry for Primary Industries announced the programme was increasing activity before autumn and winter stock movements.

About 300 farmers would be contacted as a priority and it was expected 250 of those would have notice-of-direction movement controls placed on them immediately and, following testing, that 10% to 12% might become confirmed properties. . . 

 

Dairy can protect water gain – Tim Fulton:

Water carried Graeme Sutton’s forebears to a life of freedom in New Zealand and it keeps doing the same for them on land. Tim Fulton reports.

Five generations ago, in 1842 Graeme Sutton’s English family landed in Nelson. 

It was the start of a family partnership that has endured and expanded into several irrigated dairy ventures.

“The reason they came out, I understand, is that New Zealand gave them an opportunity for land ownership. They never had that in England. They just worked for a Lord,” Graeme says. . .

Giant new painting reflects Tauranga’s rich horticulture history :

New Zealand’s largest rural art collection that tells the stories of provincial communities has a giant new painting.

Award-winning artist Erika Pearce completed her striking mural on the side of Tauranga’s Farmlands store on Taurikura Drive off State Highway 36.

Pearce started work on April 28 and managed to finish by her May 4 deadline, despite the project being rained off earlier in the week.

The finished product is an impressive 23 metres long. . .

Southland TeenAg member puts love of tractors to work

Southland student Hamish Goatley is using his love of tractors and machinery to make hay while the sun shines.

The 18-year-old spent six weeks over the summer school holidays driving for an agricultural contractor.

“It was an amazing learning experience. I really enjoyed it. It was my first season operating a round baler,” said Goatley.

Goatley is the vice-chair of Gore High School’s thriving TeenAg club. . .

The erosion of trust in society’s food regulators – Scott McPherson:

In a twist of remarkable irony, the very agencies that were put in place to protect each nation’s food supply, health, and environment are now often viewed with suspicion. This follows an overall trend in where, in general, trust in the expertise of society’s authorities appears to be at an all-time low.

What psychology repeatedly tests as the most fearful, anxious, and worried generations in history did not happen by accident. World War II had developed in the previous generations a genuine sense that citizens were united in making society happen. The natural deterioration of that sense happened over time, to everyone except farmers. They still needed their neighbors.

By the 1980s, cities were getting so disconnected that impressionable parents were teaching their children the concept of stranger danger. Considering the fact that modern parents were taught as children that strangers were potentially lethal, today’s lack of trust makes more sense. . .


CGT would hit middle hardest

22/02/2019

It there’s such a thing as a fair tax, it’s not one based on misplaced envy as the Tax Working Group’s capital gains tax appears to be.

No photo description available.
Fairness is desirable but not at any cost and  it’s best achieved by helping the poor up not pulling the better-off down, especially when those who will be hit hardest are those with modest investments, not the really wealthy, and worse still, they’d be hit by one of the most penal CGTs in the world:

The Tax Working Group’s report released today proposes a broad-based top rate of 33% capital gains tax (CGT).

The New Zealand Initiative argues in a new policy note, The Pitfalls of CGT, that headline rate would immediately push New Zealand to the top of the international CGT rankings among industrialised economies, just behind Denmark and Finland.

“The proposal is conspicuous by a lack of exemptions and concessions around business investment, so a full rate would arguably qualify New Zealand’s CGT regime as one of the harshest in the world,” said Dr Patrick Carvalho, Research Fellow and author of the note.

“Worse, given New Zealand’s recognisably low-income tax thresholds by international standards, a new CGT would disproportionately hit middle-income earners already struggling to invest for retirement.”

“New Zealand should be cautious about siren calls for a top-ranking CGT. Trying to punch above our weight can sometimes place us in the wrong fight category,” concludes Dr Carvalho.

A good tax would foster investment that would help businesses grow, produce more and employ more.

A good tax would encourage and reward thrift and delayed gratification.

A good tax would improve productivity and promote growth.

The CTG as proposed would do the opposite.

New Zealand needs foreign investment because we don’t have enough of our own capital. The CGT would aggravate that by making investing overseas more attractive than investing domestically:

The Tax Working Group (TWG) proposals released this morning would skew New Zealand investors away from local assets, distort the KiwiSaver market and mangle the portfolio investment entity (PIE) regime if introduced, according to the founder of the country’s largest direct-to-consumer managed fund platform.

Anthony Edmonds, InvestNow founder, said while the TWG final report includes some welcome reforms, overall the capital gains tax (CGT) recommendations would add cost, complexity and confusion to New Zealand’s relatively efficient managed funds market.

“For example, the TWG’s plan to increase tax on New Zealand shares by applying CGT while leaving the fair dividend rate (FDR) tax for offshore shares unchanged would naturally drag capital offshore at the expense of local assets – at a time when New Zealand needs to fund major infrastructure projects,” Edmonds said. “In trying to discourage people from investing in residential property, the TWG has created a tax disincentive for Kiwi shares, which can only distort investment allocation decisions.”

Essentially, the TWG recommendation to tax unrealised capital gains on PIE funds marks a return to the ‘bad old days’ when Kiwis paid more tax on managed funds than direct share investments. . .

Concern over the housing shortage is one of the motivating factors for a CGT but It won’t improve home affordability in the long term:

Bindi Norwell, Chief Executive at REINZ says: “In the short-term there may be some initial relief in house price affordability as investors look to sell their property to avoid paying CGT. This may create opportunities for first home buyers.

“However, in the long term it’s likely to push house prices up as people look to invest more money in the family home, as there will be less incentive to invest in rental properties or other forms of investment e.g. equities.

“This will also have a flow on effect for the rental market with fewer rental properties available for tenants, thereby further pushing up weekly rental prices when they are already at an all-time high.

“The report even recognises that any impact on housing affordability could be small, therefore, we question whether all of the administrative burden and cost to implement GCT is worth it? Especially as CGT coming at the end of a raft of legislative changes the housing market has faced recently including the foreign buyer ban, ban on letting fees, insulation, healthy homes and ring fencing. . .

A tax that results in fewer and more costly rentals and more expensive homes is not a good one.

Nor is a tax that is fatally flawed:

Today’s Tax Working Group report recommendation for a new capital gains tax will not address residential housing affordability but it will penalise business owners and create costly complexity in our tax system, meaning it is fatally flawed, according to Business Central.

“New Zealand’s tax system is envied worldwide. The proposed capital gains tax increases compliance costs without boosting productivity,” says Business Central Chief Executive John Milford.

“Business Central agrees with the conclusions of the minority view on the Tax Working Group.

“A capital gains tax is just another cost on business, nothing more. . .

It would hit small and medium businesses hardest:

Key areas of the Tax Working Group Final Report released today were disappointing, says Canterbury Employers’ Chamber of Commerce Chief Executive Leeann Watson. . . 

Ms Watson says the proposed capital gains rules should not be implemented because of the significant impact on small and medium-sized enterprises (SMEs).

“We support the Government’s review to ensure that our tax system is fit for purpose for a changing business environment. However, there is very real concern that taxing both shares and business assets under a comprehensive capital gains tax regime would create double taxation.

“This could disadvantage New Zealanders owning shares in New Zealand and create inconsistencies around overall taxation on investment.”

Ms Watson says a capital gains tax would be unlikely to achieve the desired outcome for business.

“There is concern around the effect for capital markets in a capital constrained economy with a long-term savings deficit. Adding further tax on the savings and investment of those New Zealanders in the middle-income bracket won’t drive the deepening and broadening of the capital base that we need for business investment, which is higher productivity and wages.

“While the impetus behind the changes are aspirational, there is little to indicate they would significantly reduce overinvestment in housing or increase ‘tax fairness’. In addition, there is concern that additional administration costs and investment distortions could outweigh any benefits and potentially discourage much-needed investment and innovation by locking businesses into current asset holdings.

“It is vitally important that we remain competitive as a country and are not continuing to add further compliance for business and in particular small business, who represent 97% of all businesses in our economy.”

Ms Watson says there needs to be a viable business case for any changes to the current tax system.

“There seems to be a real focus on ‘fairness’ in the system design, as opposed to revenue-building, so we need to be careful that any tax changes are for the right reasons and are backed by a clear, practical and sustainable business case. We currently have a fairly simple and efficient tax system that should be kept and better enforced, with changes to specific rules where needed.” . . 

The costs of a good tax would not outweigh the benefits:

The Employers and Manufacturers Association (EMA) says the key issue in the Tax Working Group’s proposal released today is that the cost of its capital gains tax rules will outweigh any benefits.

Chief executive Brett O’Riley says any gains from such a broad-based capital gains tax would be eaten up by administration and other costs, leaving little revenue.

“Fundamentally the proposed capital gains rules don’t address the Tax Working Group’s objectives of reducing over-investment in housing and increasing tax fairness,” he says.

Mr O’Riley is also concerned that capital gains tax on business assets could discourage investment and innovation, locking businesses into their current asset holdings. He says there are other policy settings that could be changed to increase investment in different asset classes, away from property.

“I also fail to see how taxing growth on the value of assets from the proposed commencement date of 1 April 2021 would work, because it would be open to conflicting valuations,” he says. “It could also act as a further disincentive to growth when New Zealand already has issues with business not growing from SME’s into larger scale operations and a CGT may also limit the availability of capital to reinvest in businesses as smaller businesses face an additional tax bill.

“It’s difficult to see any benefits for the business community from implementing the proposed capital gains tax rules, as taxing both shares and business assets appears to be double taxation,” says Mr O’Riley.

It is relevant to note that a number of the Tax Working Group do not favour its recommendations on capital gains tax. The minority view summary is available here

One reason for dissension was compliance costs:

Former IRD Deputy Commissioner Robin Oliver was one of the 11 in the Tax Working Group.

Along with two others from the group, he believes the costs and bureaucratic red tape involved in adopting all the capital gains options outweigh the benefits.  

“We didn’t agree that this was in the best interest of the country to go the full extent, particularly in the business area, taxing share gains which result in double taxation,” he said.

“To get a valuation for all business assets in all parts business and all business will easily cost over a billion dollars in compliance costs. The amount of revenue you’ll get is relatively minor.”

As for taxing shares, Mr Oliver said it would result in New Zealanders who invest in New Zealand companies paying more tax when foreigners investing in New Zealand companies will pay no more tax. Furthermore, New Zealanders investing in foreign companies will pay no more tax.

“The obvious conclusion is New Zealanders will own less New Zealand companies and more foreign companies, and foreigners will own our companies,” he said. . . 

The proposed tax is no panacea for fairness:

Deloitte tax partner Patrick McCalman warns that a CGT is not a panacea for tax fairness.

“At one level, there is an attractiveness in the argument that a ‘buck is a buck’ and everyone should bear the same tax burden on every dollar earned. However, when one delves into the detail of the design, other issues of fairness emerge,” says Mr McCalman.

“For example, is it fair that property could pass on death without an immediate CGT cost, while gifts made during one’s life would be taxed? For family businesses, wouldn’t it be more productive to be able to pass assets from generation to generation before death,” he says.

“Accordingly, we need to be cautious as to how much ‘fairness’ a CGT will introduce. It may simply change where the ‘unfairness’ is perceived to sit within the tax system, creating new tax exemptions that would distort where investments are made.”

Complicating matters further is the political dimension. And MMP only exacerbates the political difficulty and increases the likelihood of whatever ultimately sees the light of day being less coherent from a policy perspective. . . 

The Deloitte paper raises several questions about fairness:

At one level there is an attractiveness in the argument that a “buck is a buck” and everyone should therefore bear the same tax burden on every dollar earned. However, when one delves into the detail, other issues of fairness emerge including new tax exemptions which would distort where investments are made – in effect, in seeking to create fairness, the proposal creates a number of layers of unfairness. For example:

    • With a CGT applying at full rates with no inflation indexation, is it fair that someone who buys an asset is taxed on the full amount of any gain when part of that gain is simply inflation? How will they be able to re-invest in a new asset if the inflation element is taxed?
    • Is it fair that the family home and artwork are excluded but most other property is not? Consider a plumber who has a $500,000 house and a $500,000 commercial building who would be taxed on the disposal of the commercial building. Should they have instead bought a $1,000,000 house, rented a business premise and enjoyed a tax free capital gain?
    • Is it fair that that investors in New Zealand shares would pay tax on capital gains but investors in foreign shares would continue to be subject (as they are presently) to the 5% FDR rate (even if gains are less or more)?
    • Is it fair that small business (turnover less than $5 million) could sell assets and defer the CGT bill if they reinvest the proceeds, while medium and larger size business cannot?
    • Is it fair that property could pass on death without an immediate CGT cost but gifts made to children during one’s life would be taxed?
    • Is it fair that there are proposed tax reductions for KiwiSaver to compensate for CGT but not for other forms of investment?

At one level, true fairness can only exist if all asset classes and forms of remuneration are subject to the same tax rate. But even then, anomalies will always arise. . . 

The proposed tax would be especially bad for farming and farmers:

Federated Farmers has said from the outset that a capital gains tax is a mangy dog, that will add unacceptably high costs and complexity.

“There is nothing in the Tax Working Group’s final report, released today, that persuades us otherwise,” Feds Vice-President and Commerce spokesperson Andrew Hoggard says.

“A CGT would make our well-regarded tax system more complex, it will impose hefty costs, both in compliance for taxpayers and in administration for Inland Revenue, and it will do little or nothing to ease the housing crisis.”

It is notable that even the members of the working group could not agree on the best way forward, with three deciding a tax on capital gains should only apply to the sale of residential rental properties and the other eight recommending it should be broadened to also include land and buildings, assets, intangible property and shares.

“Federated Farmers believes that the majority on the tax working group have badly under-estimated the complexity and compliance costs of what they’re proposing, and over-estimated the returns.”

The recommended ‘valuation day’ approach to establishing the value of assets, even with a five-year window, will be a feeding frenzy for valuers and tax advisors, “and just the start of the compliance headaches for farmers and other operators of small businesses that are the driving force of the New Zealand society and economy. . .

Farm succession is difficult enough as it is.

A CTG would make it harder still and encourage older farmers to hold on to their farms. That would lead to more absentee ownership and leasing with less investment in improvements as happens in other countries.

New Zealand doesn’t have a lot of many wealthy people and while those relatively few would pay more with the CGT as proposed, if their accountants and lawyers didn’t help them find ways to minimise their liability, they’d still be wealthy.

The many small business owners and more modest investors would not. They’d have the reward for their hard work and thrift cut back and lose enough of the value of their investments to hurt – unless they’d invested in art, cars or yachts which would be exempt.

That sends the message that such luxuries are good while investing in businesses and productive assets is not.

Where’s the fairness in that?


KiwiBuild is KiwiFail again

24/01/2019

A report from the New Zealand Initiative calls KiwiBuild Twyford’s tar baby:

  • Relative to income, dwelling prices in New Zealand are among the highest in the OECD. This is New Zealand’s housing affordability problem in a nutshell.
  • High population-driven demand growth has collided with inflexible supply-side constraints.
  • Land prices have sky-rocketed, but construction costs are also too high.
  • KiwiBuild cannot hope to materially increase home ownership proportions – the original 2012 objective. Additional housing, if achieved, will likely lift renting and ownership more or less in tandem.This report explains why KiwiBuild – defined as the government’s pledge to build or deliver 100,000 homes within a decade – fails against all the objectives set for it:
    • It is not about social housing to help those at the bottom.
    • Nor is it about helping struggling first-home buyers. They cannot afford KiwiBuild homes at current costs. KiwiBuild is for the relatively well-off.
    • It is intended to be subsidy free, since wealth transfers to the well-off are hard to justify. But its inducements to attract private developers are subsidies.
    • Even more paradoxically, if there were no subsidy, there would be no gap for KiwiBuild to fill. Private developers will meet unsubsidised market demand.
    • It cannot hope to increase the housing stock sustainably. Only enduring lower property prices can induce people to own more dwellings than otherwise. KiwiBuild reduces neither land values nor construction costs at the margin.
  • The enduring effect of the policy is a changed composition of the housing stock by decree rather than by public demand.
  • KiwiBuild is floundering having no clear public interest objective. It constitutes a massive political and bureaucratic distraction from what is really needed – direct action to reduce land values and construction costs.

The government should not be in the business of subsidizing property developers and people on well above average incomes.

It purports to be focused on helping the poorest and most vulnerable.

Instead, policies like KiwBuild and fee-free tertiary education waste millions on people who aren’t poor, many of whom are or will be wealthy.

Not only is it a bad policy, it hasn’t a show of meeting its target to build 1000 houses by July.

KiwiBuild is KiwiFail again.


$1 in 3 wastefullly spent by govt

19/09/2018

The New Zealand Initiative’s Fit for Purpose? Are Kiwis getting the government they pay for? shows we’re not getting value for money.

Dr Bryce Wilkinson explains:

Taxes in New Zealand have risen four times faster than incomes in the 20th century. Taxes now take more of our income than in almost any country outside Europe. We have become a high tax country.

We, the public, need the government to spend our tax money well.

Government is a dominant provider of many activities, including health and education. Poor performance here would harm current and future New Zealanders.

Government also dictates much resource use through ownership and regulation. It is a major landowner, and there are 50 times more Parliamentary Acts now than in 1908.

It should aim to get the best possible outcomes for New Zealanders from its assets. It should also regulate wisely and administer those regulations well.

The report’s focus on value for money is not ideological. Who would not want to see government doing the best possible job for New Zealanders?

This shouldn’t be ideological or partisan, but the left does too often mistakenly equate more spending with better spending.

How well is government spending our tax money?
The quality of much government spending is poor. The Productivity Commission’s inquiry into public sector productivity showed why. Public sector agencies are not focused on productivity. Measures are too often lacking or neglected.

A 2013 report published by a Canadian think tank, the Fraser Institute, assessed outcomes compared to spending in 192 countries. South Korea came out on top. Its government was spending 27% of GDP to achieve a performance score of 7.5. In New Zealand, government was spending 38% of GDP for a score of 5.5.

Perhaps, one-third of New Zealand government spending is wasteful. That represents around 13% of GDP, or $20,000 per household, annually.

Every cent not wasted is a cent more to spend on something we need, or to leave in taxpayers’ pockets.

Imagine the positive impact of that money being spent where it has a positive impact instead of being wasted and/or of each household keeping more of what they earn.

A 2009 OECD report similarly assessed spending efficiency in school education. The indicated level of waste in New Zealand spending on education was one dollar in six.

Less waste would mean more money to improve outcomes. Currently, around 17% of 15-year-olds can barely read. The government has likely spent more than $130,000 on each of their schooling. Few would regard this as an acceptable outcome.

Nearly a fifth of children getting through school unable to read and write is appalling. There will be many reasons for this failure and wasting a sixth of the budget will be one of them.

That extra dollar in six spent well could improve pay and conditions for teachers and support staff, provide extra help for pupils who need it and/or do away with at least some activity fees and fundraising.

In health, even official reports acknowledge a lack of focus on productivity. The OECD has also assessed the efficiency of health spending across member countries. A 2010 report indicated that New Zealand could spend 2.5% of GDP less a year for similar outcomes. Of the order of one dollar spent in four looks like waste.

One dollar in four wasted – that’s 25% of health spending that’s not getting spent where it should be.

Such findings from international comparisons are only motivational. They do not show what New Zealand would need to change or whether such changes are plausible. Their value is in inviting us to learn from countries that seem to be doing better.

In some cases, government providers would be more focused on productivity if users had more choice of providers. Government providers can fail to give value for money when users are captive. Users will be more empowered if they have a wide choice of providers and if state funding follows them. The funding of pre-school education has this feature.

Choice tends to improve competitiveness and performance but this government isn’t keen on it.

How well is the government doing as a regulator?
The Crown’s performance as a lawmaker and regulator is flawed. There is widespread dissatisfaction among regulators with the quality of the law they have to administer. The statute book has become too prescriptive and too detailed. Parliament cannot hope to keep it up to date and fit for purpose.

It needs to be easier for lawmakers to resist the pressures to legislate poorly. Greater reliance on simpler laws of a more general nature is desirable. Prescriptive law quickly becomes out of date. Change is unlikely as matters stand.

Bad law leads to added costs and unexpected consequences.

What about our high international rankings?
Many international agencies assess countries’ outcomes for aspects of wellbeing and economic performance. New Zealand enjoys top-tier world rankings in many of these measures.

Does this mean government is doing a great job? Yes, and no.

We rank among the best for many but not all aspects. The report identifies 20–30 government-dominated areas of weakness. Some are no surprise. These include overseas investment and aspects of labour market laws. Infrastructure quality is another weakness.

Labour law changes on the table now are going to make matters worse and the redirecting of fuel taxes from roads to public transport and cycleways will too.

More surprising is the weakness in our legal system. We rank poorly in the ease of enforcing contracts and resolving insolvency and the quality of judicial processes.

There is no excuse for our 54th ranking by the World Bank for the quality of our judicial processes. Gallingly, Australia is ranked first.

The bottom line is there is compelling evidence of much government waste. It is occurring for many reasons, but a major symptom is a lack of focus on efficiency.

Were the state to do a better job, it could use the savings to raise wellbeing by:
• maintaining government outputs, while cutting tax revenues; and/or
• increasing government outputs from unchanged government spending.

Those options are outside the scope of this report. The first task is to achieve the savings.

National managed to get some improvement in some areas during the GFC – requiring the public service to do more with less.

Under Bill English’s social investment regime the government focused on treating causes, acknowledging that sometimes you have to spend more in the short term to get savings later.

It also set measurable targets and reported on progress towards them.

But all parties need to focus on getting better value for taxpayers’ dollars.

It would help if all of them acknowledged that the government isn’t always the bet option for providing services; that governments aren’t good at picking winners and that the quality of their spend is far more important than the quantity.

It would also help if more of us didn’t think of the government as the first or only source of support.


NCEA not achieving literacy & numeracy

05/03/2018

The New Zealand Initiative looks at the costs of NCEA:

Ministry data shows that between 2001 and 2016 the difference between the percentage of Māori and All students achieving Level 3 (or its equivalent) has narrowed. However, in the more meaningful benchmark of University Entrance, the gap has grown even wider.

International PISA data shows that since testing began in 2002, New Zealand’s educational equity has worsened and our 15-year-olds’ reading, maths and science scores have almost constantly declined. This contrasts starkly with the same period’s NCEA data, which shows ever-improving performance and rising equity.

If NCEA data can paint a picture of constant improvement, while almost all other measures expose decline, there is reason to believe we have a problem.

Added to this, 2014 research by the Tertiary Education Commission found that within a sample of 800 Year 12 students with NCEA Level 2, 40% failed an international test of functional reading and 42% failed it in numeracy. How can students be succeeding in NCEA when they lack basic skills in reading and maths?

In pursuit of flexibility and inclusion, NCEA all but abandoned the idea of a core curriculum requirement. Instead, nowadays, students need only ten loosely defined Level 1 credits in literacy and in numeracy. Beyond this, all subjects – from meat processing to mathematics – are valued equally.

This means well-advised or motivated students can still achieve a broad and valuable education. However, for poorly-advised or less motivated students, NCEA also offers a plethora of ‘safer’ alternatives. These will maximise NCEA success by avoiding academically challenging content. With pressure on teachers and schools to drive up NCEA pass rates, some students may even be encouraged towards these safer choices.

This way, NCEA’s flexibility ensures almost all students achieve a qualification, and creates glowing headline figures for government and schools. However, the downside is that NCEA also masks huge variation in students’ achievements; it widens disadvantage while hiding it behind an alluring façade.

A system which shows improvements while literacy and numeracy rates are declining, enables pupils to take less challenging subjects that count as equal to more challenging ones, masks variations in achievements and widens disadvantages would, by NCEA’s measure get a not achieved.

It’s not just pupils who lose with NCEA:

NCEA exerts unintended negative consequences on the most important interaction in schooling: that between teacher and student.

For example, although chunking enables course flexibility, it also increases assessment volume. And because most assessment now happens internally, NCEA increases teachers’ workloads.

‘Teaching to the test’ describes the practice of coaching students in the detail of exam questions and selected content, to boost their short-term performance in assessments rather than their long-term learning. Some teaching to the test is inevitable with any high stakes assessment. However, at least three features of NCEA’s flexible design exacerbate the practice.

And NCEA doesn’t achieve for employers either:

Many employers are vexed by NCEA’s complexity and disappointed by school leavers’ skills. Although University Entrance restricts NCEA’s flexibility, too many students miss out because they fail to realise the implications of their choices. Universities also reverse-engineer NCEA data to create crude, yet life-defining rankings.

The Initiative makes seven recommendations that will:

 . . .raise expectations and equity by creating a safety-net of core subjects all students must master. They will reduce teachers’ workloads and the volume of assessment, reduce the opportunities and incentives to teach to the test, and improve teaching and learning.

Recommendation 1Raise English (and Te Reo) and maths requirements: The government should amend NCEA so that achievement at Level 1 or higher requires a minimum number of Level 1 credits in the core subjects of English (or Te Reo) and maths. This new list of eligible standards should replace the current literacy and numeracy requirements. It should also demand levels of mastery that ensure all students with NCEA also meet international benchmarks for functional literacy and numeracy.

Recommendation 2Expect a broader core of subjects: The government should signal higher expectations of the breadth of core subjects all students must master in school (two suggestions as to how this might be achieved are given in the final chapter).

Recommendation 3Reduce the number of standards: The government should reduce the number of standards so that within a particular subject there is minimal to no choice and each standard covers a bigger and broader set of skills and knowledge (there is far less ‘chunking down’). The optimal size and number of standards may vary for different subjects, to be determined by subject and assessment experts. However, broadly the ambition might be set to reduce the number of standards in a subject at each level from 6–8 to 1–3.

Recommendation 4Make it harder to teach to the test: The New Zealand Qualifications Authority (NZQA) should rely more heavily on the reassurance provided by elements of norm-referencing (e.g. PEPs and the cut score procedure during grade score marking) to move away from such close matching of external assessment to past assessments and specifications. Instead, they should inject elements of ‘surprise’ that encourage teachers to teach the breadth of their subject’s curriculum, rather than to its assessments. Reference tests could also be deployed to help examiners identify national level changes in students’ performance over time.

Recommendation 5: Reduce reliance on internal assessment: The government should reduce NCEA’s reliance on internal assessment, so it is used only where external assessments cannot capture performance in essential areas.

Recommendation 6: Use Comparative Judgement software: NZQA should use Comparative Judgement (CJ) software to improve the reliability and efficiency of the processes available to judge external and internal assessments. CJ would also better capture genuine quality in essay-type assessments, and equip assessors to ask more open-ended and creative questions.

Recommendation 7: Commission independent analysis: The Ministry of Education should openly evaluate NCEA’s effects by commissioning and publishing independent analysis (various suggestions are given in the final chapter).

Recommendations 1-5 trade some of NCEA’s flexibility for higher equity and standards. In the short term, they may generate a drop in NCEA achievement. However, in the longer-term, these recommendations will raise expectations, equity and outcomes across the board.

Education, especially literacy and numeracy, is one of the surest pathways out of poverty.

The current assessment system is failing pupils, over-burdening teachers and is not helpful for potential employers.

Knowing what a pupil has achieved in details might be helpful for practical subjects, for example an employer at a clothing factory might want to know a prospective employee can sew button holes.

But for general subjects the details don’t matter. Employers who looked at a CV and saw a pass mark in University Entrance geography, knew the pupil could read, write and reason. By contrast NCEA results would show a lot of detail that meant nothing and could mask that the pupil was illiterate and innumerate.

NCEA isn’t achieving. It must change and change quickly.

 


Quote of the day

18/03/2015

In self-proclaimed intellectual circles, it has long been fashionable to belittle the idea of economic growth. “GDP is not the same as happiness”, some critics of growth will explain. Others will warn that excessive growth could destroy the environment and leave our planet uninhabitable. Others still will warn that the finite nature of our resources does not allow continuous growth in any case.

This kind of critique has become a pastime of the chattering classes. It is now part of polite conversation in the better suburbs of developed world cities. To question the value of growth at dinner parties in air-conditioned or heated houses while sipping French champagne and eating Italian prosciutto presumably adds a sense of intellectual gravitas to one’s physical well-being. These people probably do not even realise the self-contradiction in condemning economic growth while enjoying its blessings.  . .

Economic growth is no silver bullet to all the world’s problems. But it comes close. There is overwhelming evidence that the unprecedented economic expansion humanity has experienced roughly over the past three centuries has been a great force for good. It has made our lives better in ways that would have been unimaginable to previous generations.

This should also be the response to the aforementioned critics of growth. At which stage in history do they believe we should have proclaimed the end of economic development? Certainly not in Plato’s time (4th century BC) since that would have prevented the invention of the canal lock (3rd century BC) and paper (2nd century BC). Development should not have stopped at the time the Gospels were written either since otherwise we would not even have invented the wheelbarrow (2nd century AD).

To move to more modern times, had economic development stopped when Ernst F. Schumacher suggested it should (Small is Beautiful was published in 1973), we would have never seen CD-ROMs, the Internet or the first vaccine for meningitis. And even if we had only stopped to grow and develop when Pope Francis told us to in November 2013, we would have never seen the first human clinical trials in the United States for a wearable artificial kidney – or the new iPhone 6.

Economic growth is the driver behind all of these developments because at its core, economic growth is not mainly about the production of more but about the discovery of better (though often it is both). Economic growth helps us to find new and improved ways of combining resources. The outcomes could be a new medicine, a faster way of travelling, a healthier way of eating or a better way of learning. . . Dr Oliver Hartwich

This is an extract from the New Zealand Initiative’s report The Case for Economic Growth by Eric Crampton and Jenesa Jeram.

 


Quotes of the year

31/12/2014

Offering to trade fines for sexual favours is not simply sleazy as the judge seemed to view it. It’s about a principle which is absolute, regardless of its nature or monetary dimension. It behoves the Police Commissioner to appeal against this ridiculous sentence so wiser heads can send a vitally important message, namely that corruption is corrosive, strikes at the heart of civil society and will absolutely not be tolerated. Sir Bob Jones

“I love to observe how they process the high school situation. Over the last couple of months I’ve just started to realise that, wow, people in the real world don’t care if your legs aren’t perfect.” Lorde

”I find the chances of it being stolen are pretty minimal, but the chances are even more minimal of it disappearing by itself through two paddocks surrounded by deer fencing,” Bill Keeler

It’s been said that the New Zealand economy is likely to be the “rock star” of 2014 but we all know what happens to rock stars who spend all their money on having a good time. I’ve said it before – the only way we’re going to become a top-tier First World country is by growing the pie.

Sadly, we’ve always been much better at eating them. – Colin Espiner

To judge the dead may give some comfort to the living, but no matter how fervently the misdeeds of previous generations are condemned, they cannot be undone. Therefore, whatever justice we seek to do here and now, let it be to right the wrongs of the present – not the past.

We fair-skinned Polynesians are not – and can never be – “Europeans”. Just as contemporary Maori are not – and can never be again – the Maori who inhabited these islands before colonisation. Both of us are the victims of historical forces too vast for blame, too permanent for guilt.

And both of us have nowhere else to go.Chris Trotter

 

Just 380,000 individuals pay half of all income tax.

If you earn more than $80,000 you are in that group. Most tax is paid by businesses through corporate tax or receipted GST payments. Possibly 80 per cent of the country is taking more from the state than they are contributing.If you are a net contributor most of your money will go to paying for the welfare of others.Most of those who seek to reduce their tax obligations are net contributors to our society. The only complaints against them are they do not pay enough.Beneficiary cheats, by contrast, are providing nothing to start with and seek to enrich themselves further by deception and dishonesty.Judges understand this, which is why beneficiary cheats go to jail for longer, as they should. – Damien Grant

Democracy, certainly at candidate selection level, isn’t generally a process of exquisite delicacy, scrupulous manners and sensitivity to hurt feelings. Oftentimes it’s just a few steps removed from full-on internecine civil warfare, albeit conducted largely out of sight. – Southland Times commenting on Labour’s selection process for the Invercargill electorate.

“The other analogy I have learned quite a lot is this idea that life’s like the drafting race because you learn quickly, farming, all the things that begin with D like drenching and drafting, docking and dagging, getting into debt and dealing with DOC. If you go up the drafting race, even for a ewe you have to look good: You mustn’t limp, head up, eyes forward don’t show your teeth if they aren’t terribly good, clean bum, good digestion, good tits – the whole way – because you want to go to the right, to the mixed age ewe mob, because [then] you get kind dogs and good food. Straight ahead is not much fun because you will end up a chop on the table. – Christine Fernyhough

“Nah, no tear in the eye. I’m from south Dunedin,” he grinned. Brendon McCullum

‘‘A government is a periodic monopoly that needs the threat of other entrants to get it going.’’ – Bill English

We must avoid complacency that might flow from believing today’s good times are permanent.

We don’t want to make a habit of doing the hard work under pressure, then putting our feet up just when the serious long-term gains are within our reach.Bill English

If there are going to be on the ground and social media campaigns, they needs to be led by Australians.  We need to get Australians saying that they want the best products at the best price.  We need Australians to demand choice instead of supermarkets telling them what they’re allowed to buy.  We also need Australians to see how deeply cynical the supermarkets are by reinforcing the values we share, namely, freedom of choice.  This needs to turn Coles and Woolworths market research on its head and hit them where it’ll hurt the most; market share.  That’s the only language they understand.  It is also by reinforcing that Kiwis are kin, something the centennials of the Great War will strongly affirm. – Bruce Wills

Personally, I’ve never heard of an economy taxing its way to greatness but I have sure heard of economies taxed into oblivion.Willy Leferink

And perhaps that’s the every day wisdom of parents at the fore – it’s the minestrone soup solution of life – if you’re short of meal options, throw all the vegetables into a pot, with a sprinkle of flexibility and the seasoning of life, and see what you come up with. – Tariana Turia

The notion that environmental protection and economic development are potentially conflicting goals is not, in my view, a recipe for success. It removes any expectation that businesses should take responsibility for protecting the environment; or that environmentalists need to consider social or economic costs of environmental outcomes.

In my world, economic and environmental considerations are two sides of the same coin. It is hard to be green if you are in the red; but you cannot have long-term social or economic prosperity if you undermine the natural capital you rely on to create it. – Lynda Murchison

People’s first consideration when buying food was price, despite claims they might buy based on factors like organic growth, she said.

While people might think buying organically or from the farmers market was environmentally friendly, research showed carbon dioxide emissions were higher buying that way, Prof Rowarth said. – Jacqueline Rowarth

. . . Even during booms some businesses will fail, and even during recessions some businesses will soar. That is because what ultimately determines the fate of companies is not whether the economy grows 1% or shrinks 1%, but the quality of management and their ability to anticipate and handle changing conditions be they for their markets, their inputs or their processes. . . Tony Alexander

Members of the Opposition believe monetary fairies can make the exchange rate settle permanently lower by forcing interest rate cuts and printing money while letting inflation therefore go up. Given the non-zero possibility that such economically ignorant policies get introduced it is worth getting inflation protection by investing more in property – not less. Tony Alexander

 The global financial crisis was the worst economic meltdown in living memory.

“The 1987 crash was a a blip on the charts by comparison.”

On top of that, the Christchurch earthquakes dealt a massive hit to the government books. “The mythical observer arriving from Mars who saw the accounts in balance after two thumping great shocks like that – you’d have to say someone had navigated pretty smoothly through that.” Donal Curtin

Two thirds of the [welfare] liability came from people who first got a benefit under the age of 20. “So it confirms what grandma told you. “Don’t let those young people get off the rails because when they do it’s very expensive.” – Bill English

That it can sweetly awaken, and joyously strengthen and that you need to give it to get it. Sarah Peirse answering the question: what do you know about love?

“I don’t think our native species care too much as to whether it is public land or private land. Whether it be iwi, or whether it be Sir Michael Fay, what we’re interested in in these partnerships is maximising conservation gain.” Nick Smith

Federated Farmers is an apolitical organisation – “we don’t care who is in government as long as they agree with us”.Conor English

. . . Taxes are not the price we pay for a civilised society. At best they are the price we pay for a civilised government. But they are also the price of overly bureaucratic procedures, unpredictable outcomes, and the loss of freedom to make our own decisions. – NZ Initiative

I make no apology for being a male. I hope I’m seen as a considerate, compassionate and communicable male; I make no apology for that. If I have faults, and I’m sure I do, well I don’t think  I can blame my gender for my behaviour without it being a cop-out. There ain’t nothing wrong in being a bloke if you behave yourself properly! – Chris Auckinvole

Mr Speaker, my second point I wish to make is the importance of valuing hands on learning within our education system. We must appreciate these very important students who in the future will fix things, build things, be it trucks, motor cars, be it buildings, be it bridges, roads, essential infrastructure and all manner of other things.

To do this the education system must equally value these people as much as we do doctors, nurses, lawyers and accountants and design an education curriculum accordingly. Putting it simply, we want to create many Einstein’s, but to create an Einstein you also need 1000 skilled technicians to make those things. – Colin King

“Talking about ponies and horse races, if you think of the economy as a horse race, you know it would be silly to put the hobbles on one of the leading horses so the rest can catch up,”Alister Body.

“I don’t think a party that’s on the extreme edges one way or another is going to be beneficial for Maori,” . . . “I think we as Maori also need to realise that compromise is a part of political involvement in New Zealand politics,”  . . .  Dr Lance O’Sullivan.

. . . if democracy means anything, it means suppressing the savage within and submitting the issues that divide us as individual citizens to the judgement of the electorate as a whole. Even more importantly, it means accepting that collective judgement – even when it goes against our individual contribution to its formation.Chris Trotter

HONG KONG | How did this small city-state of 7.3 million people go from having a per-capita income of only a few hundred dollars per year to a per capita income that is equal to that of the United States in only 50 years? The simple answer is they had the British common law legal system, strong private property rights, competent, honest judges, a non-corrupt civil service, very low tax rates, free trade and a minimal amount of economic regulation. There was no big brother government looking after the people, so they had to work hard, but they could keep the fruits of their efforts. . . Richard W. Rahn

One of our human limitations is that we look at the problems ahead through the eyes of our current technology and from this perspective they can look overwhelming. This myopia traps us into negativity – we think we must go backwards to achieve our goals – Dr Doug Edmeades

For the health-conscious, the prevailing wisdom is that natural food is the best food. But no matter what studies of GMOs say, one scientific fact is inescapable: basically none of our dietary staples are natural. Some 10,000 years ago, our ancestors picked tiny berries, collected bitter plants and hunted sinewy game, because these are the foods that occurred naturally in the wild. Then came agriculture, and with it the eventual realization that farmers could selectively breed animals and plants to be bigger, hardier and easier to manage. David Newland

. . . Most of all they should embrace the modern age and recognise that social and economic salvation and uplifting the underclass does not simplistically lie in ever increasing taxes on the industrious and thrifty and their transfer to the indolent. There’s nothing positive or progressive about that. . . Sir Bob Jones

We think it’s pretty legal, we think these guys are just having a crack and have a bit of an eye for the main chance because it’s an election campaign. – Steven Joyce

I won’t be wanting to see any hint of arrogance creeping in.” . . .

. . . “One of the big messages I’ll be wanting to give incoming ministers and the caucus is that it is incredibly important that National stays connected with our supporters and connected with the New Zealand public.” John Key

“Make sure you know why you’re in it – politics is not about celebrities. And nurture your self worth.

“You can’t afford to mortgage out how good or bad you feel because of tomorrow’s headlines.” – Julia Gillard

New Zealand is not perfect, but we do now have a multicultural society based on a bicultural heritage.Philip Burdon


Rural round-up

04/12/2014

Another industry signs up for biosecurity partnership:

Primary Industries Minister Nathan Guy has welcomed Pipfruit New Zealand onboard as the third industry to join the Government’s biosecurity partnership.

The Deed of the Government Industry Agreement (GIA) for Biosecurity Readiness and Response was signed by Pipfruit New Zealand today.

“This means that apple and pear growers and the Ministry for Primary Industries (MPI) can work closely together and make joint decisions on readiness and response to manage mutual high priority biosecurity pests,” says Mr Guy. . .

More support for Otago farmers to improve water quality:

Dairy farmers in Otago are receiving more support to meet upcoming water quality rules through a series of DairyNZ ‘EnviroReady’ field days being held with the support of Federated Farmers and Beef + Lamb.

More than 200 farmers and rural professionals attended four recent field days in both north and south Otago, with the last one being held this week at Elderslie, near Oamaru.

DairyNZ’s sustainability team manager Theresa Wilson says the farmers were given an understanding of new regional environmental rules and regulations presented by Federated Farmers’ policy staff. . .

ANZ to pay $19 million in interest rate swaps case:

The Commerce Commission has reached a $19 million settlement with ANZ Bank New Zealand Limited (ANZ) in relation to the marketing, promotion and sale of interest rate swaps to rural customers between 2005 and 2009.

The settlement will see ANZ establish a payment fund of $18.5 million, to be used to make payments to eligible customers (those who registered their complaints with the Commission). The Commission will also receive $500,000 towards its investigation costs, and some monies from the payment fund are able to be distributed to charitable organisations for the assistance of the rural community. . .

Federated Farmers call Commerce Commission ANZ settlement ‘fair and equitable’:

Federated Farmers have described the Commerce Commission settlement with the ANZ Bank over interest rate swaps as ‘a fair and equitable outcome’ for rural customers.

Federated Farmers President Dr William Rolleston says the agreement that the ANZ will pay compensatory payments to customers, who believe they were misled by their interest rate swap contacts, is the best outcome which could be expected.

“While some farmers found interest rate swaps a useful instrument, others felt they were not adequately informed of the risks should the market run against them. The Global Financial Crisis created those unexpected and unfavourable conditions. Federated Farmers wrote to the Commerce Commission asking it to investigate and the outcome today vindicates our stance,” Dr Rolleston says. . .

Rural areas need law reform – Hugh Stringleman:

Regional economies are declining when a means of revitalisation is within reach according to a new study of the potential for mining.

The New Zealand Initiative think tank has published the Poverty of Wealth, subtitled why minerals need to be part of the rural economy.

It sought to answer the conundrum of why resource-rich regions were not tapping into the wealth beneath their feet. . .

Weevil-killing wasp in demand:

Farmers in Southland have been queuing up for supplies of a small parasitic wasp used to fight a serious pest.

Scientists have warned that farms in region could be hit hard by the clover root weevil again this summer – one of the worst pasture pests that attacks and destroys clover.

AgResearch scientist Colin Ferguson said more than 200 farmers had attended workshops in Southland to find out more about the pest and where and how to release the wasps. . .

 20K signs without delay  call:

Rural Women New Zealand says this week’s accident in Canterbury, when a teen was hit crossing the road after getting off a school bus, may have been avoided if the bus had been fitted with flashing 20K signs.

Rural Women New Zealand took part in a trial of new LED signs in Ashburton last year, which included a public education and police enforcement campaign. The trial proved very successful in slowing drivers and Rural Women New Zealand hopes that the signs will be approved for general use on school buses in 2015. . .

Blue Sky Meats acquires Clover Export, adding beef, venison processing – Jonathan Underhill:

 (BusinessDesk) – Blue Sky Meats, whose shares trade on the Unlisted platform, has agreed to acquire Gore-based Clover Export, adding processing capacity in beef and venison to the range of services it can offer to sheep and bobby calf customers, while attracting new suppliers.

No price was disclosed for the transaction. Chairman Graham Cooney said Clover is about 10-15 percent of the size of Blue Sky in terms of turnover. Blue Sky’s revenue was $95.3 million in its 2014 year. More details may be given in the company’s annual report after its March 31, 2015, balance date.

Clover’s owners include European shareholders and, as part of the deal, Blue Sky has agreed to continue with Clover’s horse meat processing on a toll basis for sale into the European market. Horse meat will be a small ongoing business, amounting to about “a day a month,” Cooney said. . .

Another Success for NZ Farming:

CarboPhos®, a phosphate based fertiliser developed after conducting pot, plot and field trials and construction of a pilot plant in Nelson NZ, has been granted a patent in both New Zealand and Australia.Independently monitored trials have shown it can be applied at half the rate of the NZ mainstream phosphate product, saving time and costs for farmers. Sales continue to grow in New Zealand as farmers begin to understand the need for slower release, soil and biology friendly nutrients, compared with the mainstream fertiliser.

Chris Copplestone, Managing Director of The Growing Group commented “We are extremely proud of being able to offer a solution to farmers who understand the need for traditional nutrients, delivered in a granular form free of the traditional sulphuric acid base”. . .

 

 


Blanket policy blunt tool

13/07/2014

Labour’s blanket class size policy won’t address inequality, according to Rose Patterson of the New Zealand Initiative.

The biggest and most important resource in education is not school donations or digital devices. It is teachers. And while Labour’s policy to reduce class sizes, at face value, addresses this most important resource, the class size debate is a nuanced one.   

There are two important caveats with Labour’s policy. The first is that a blanket class size policy to increase the quantity of teachers may not be the most effective tool in the policymaker’s toolbox.  The second is that it does nothing to address something dear to the heart of Labour – inequality.   

Quantity versus quality
National’s $359 million Investing in Educational Success (IES) policy announced at the beginning of this year is a deliberate attempt to improve the quality of teaching. The IES is a game changer, designed to provide clear career structure for teachers. The idea is that exemplary teachers share their skills with others to lift the game for all.

Labour’s class size policy is in blatant opposition to that. They want to scrap the IES and reduce class sizes by injecting an extra 2,000 teachers into schools. If elected, they would gradually reduce class sizes for year 4-8 students from 29 to 26, and reduce secondary school class sizes to a maximum of 23. 

It appears National wants to improve the quality of teaching and Labour wants to increase the quantity of teachers; both believe that their policy will improve the quality of schooling. . .

More teachers where there are more vulnerable pupils could help those who need it most.

But National’s policy of better teachers will do more to left education standards than Labour’s blanket policy of less than one more teacher for every school regardless of their needs.

But what does the evidence on class sizes say? Primary teachers’ union (New Zealand Educational Institute) head Judith Nowotarski quotes research to show smaller class sizes have benefits for learning and life success “beyond the school gate”. Other research shows that on balance, for the same level of resource, more could be achieved by lifting quality, assuming of course the IES policy is effective.

Blanket policy too blunt 
While lifting the quality of teaching might be more effective on balance than reducing class sizes, that’s not to say that class size doesn’t matter. The impact of class sizes depends on a number of factors, like the stage of schooling, the subject being taught, and the background of students.  . .

As Ms Nowotarski says, smaller class sizes are “particularly important for vulnerable children, those from disadvantaged backgrounds, and those who start school behind their peers”. And Associate Professor John O’Neill of Massey University’s Institute of Education says the class size policy could be more effective if it targeted lower decile schools.

Both hit the nail on the head.

While there is a lot of lip service paid to the decile system, where lower decile schools receive targeted funding, let’s not forget this is only for a school’s operational fund. To put the figures into context, the total operational spend last year was $1.23 billion, and 13% of this fund is decile based. Funding for teachers, which racked up to $3.44 billion last year, is not at all decile targetted.

In other words, while funding is targeted to even out the disadvantages that children from poorer backgrounds start off with, it doesn’t specifically provide more of the most important educational resource: teachers.  

Teacher numbers
Perhaps the question of whether class sizes matter for children of different socio-economic backgrounds is evident in how schools actually use their resources in practice.

The New Zealand Initiative will release a research note on this very issue next month. And one of the surprising findings is that although schools are entitled to the same number of teachers regardless of decile, somehow, lower decile schools employ more teachers. And it’s a stark difference: decile one schools employ one teacher for every 20.6 students, while decile 10 schools employ one per 30.1 students on average.

As schools can use their operational fund to employ extra teachers over and above what they are entitled to under the formula that Labour is proposing to tweak, it seems lower decile schools are using their discretionary funding to employ more teachers. In other words, in the absence of targeted funding to provide smaller class sizes to lower decile schools, schools figure out a way to do it anyway. They recognise the importance of smaller class sizes for their students. But this is not recognised when resources are divvied out from Wellington. 

Low decile schools are already providing smaller classes themselves.

Despite all this, reducing class sizes without improving the quality of teaching is unlikely to lift student learning. Lower decile schools are employing more teachers for their students, but another question still is whether they have the ability to attract highly effective teachers.

The blanket class size policy is an easy vote winner, but it’s a blunt tool.

It might be an easy vote winner but it’s up against a policy to improve the quality of teaching and that will have more appeal to voters – especially parents and prospective employers – than the blanket approach that will give schools less than one extra teacher each.


Is inequality really the problem?

10/06/2014

Forget inequality, it’s not the real problem. This is the view of Roger Partridge, chair of the New Zealand Initiative:

Since the publication of The Spirit Level in 2009, and its ‘devastating critique’, The Spirit Level Delusion, in 2010, debates in the media and among politicians have been gripped by wealth inequality fever. The latest instalment is French economist Thomas Piketty’s Capital in the Twenty-First Century – a book which is at the centre of its own maelstrom over the accuracy of its analysis.

But is inequality a worthy cause célèbre? All other things being equal, few people on either the left or right would disagree that less inequality is better than more. And any parent will know that equality will lead to a more civil, stable, state of affairs within the family – and this is no doubt also true for society as a whole. But the factors that drive inequality in economic outcomes in a free market economy also produce great benefits. China may now have greater extremes of wealth than it did before Deng Xiaoping’s reforms, but the Chinese live 25 years longer and are 50 times richer than they were 25 years ago. . .

This reinforces the view that we can be equally poor or unequally rich.

Focussing on inequality – and looking to redistributive policies to solve it – risks throwing the baby out with the bath water. We would not restrain our more talented child just to make her less successful, younger brother feel better, so why should we levy our most talented, productive citizens?

The easiest way to reduce inequality is to bring the top down but that won’t improve matters for anyone.

What is needed is a focus on the real problem: that not everyone in our society has the skills needed to take advantage of the opportunities that should be available to all. Among them are the 20 per cent of New Zealand’s school-leavers who, year after year, do not achieve NCEA level 2. It requires a suspension of belief to conclude they are failing because the rich are getter richer. The problem is more complex, but we will not solve it if we look in the wrong place.

If Piketty’s thesis is correct, and inequality in the West has increased in the last 50 years, then it has coincided with a great social experiment, the welfare state, which has seen an unprecedented rise in just the sort of redistributive policies Picketty believes are needed to solve the inequality problem. But as the Welfare Working Group reported in 2011, the welfare state in New Zealand has led to long-term welfare dependency, deprivation, financial stress, low living standards, and poor health and housing. It just might be that Piketty’s solution is the real problem.

In spite of what the opposition and their supporters think, inequality isn’t getting worse:

. . . Hon BILL ENGLISH (Minister of Finance) : The evidence shows that inequality in New Zealand has been flat or slightly declining since the mid-2000s. We also believe that a number of the measures the Government took through the recession certainly prevented inequality from worsening at a time when the Government was very short of revenue. But I welcome the member’s interest in the IMF’s view, because among its recent comments on New Zealand, the IMF emphasised the importance of ongoing fiscal discipline to a sustainable economic recovery. Nowhere in the statement does the IMF refer to inequality, and that is for a very good reason in respect of New Zealand—that inequality in New Zealand has not increased over the last 10 years. . . .

That inequality isn’t getting worse doesn’t mean it couldn’t – and shouldn’t – improve.

Education is one of the keys to improvement:

The interesting thing about the OECD work is that it shows that economic inequality in New Zealand has among the lowest levels of impact because of our education system. Part of the reason for having public education—in fact, the main reason—is to overcome the inequalities of birth and inequalities of opportunity. That is why this Government is so strongly focused on helping our system be more effective in overcoming economic inequality. Another reason there is high transience in those schools is that the State housing system does not meet the needs of those with serious housing need. That is why the Government is changing that policy next week.

Hon David Parker: Why can the Minister not see that rising inequality under National goes against the egalitarian values that New Zealanders hold dear, is making educational outcomes worse, and is holding back economic growth?

Hon BILL ENGLISH: There is a very simple reason we do not believe those things, despite the fact that the member does, and that is that the measures of inequality in New Zealand and the facts demonstrate that it has not got worse. That is not a political assertion or an ideological conviction; it is the facts as laid out in the annual report from the Ministry of Social Development, which was set in place by the previous Government. On “Planet Labour” I know facts have very little impact, but on Planet Earth and in New Zealand the facts matter. . .

The opposition has leapt on the inequality band wagon but have fought every initiative National has introduced to move people from welfare to work.

Welfare dependency is the cause of a great deal of inequality and helping those who can work to do so is one of the most effective way to improve not only financial outcomes but social ones like health and education too.


Case for fewer restrictions on foreign investment

01/05/2014

The New Zealand Initiative wants fewer restrictions on foreign direct investment:

New Zealand affords itself the luxury of treating overseas investment as a privilege rather than as a necessary and desirable means of better integrating ourselves with the world, so as to make the most of what it has to offer.

That blinkered attitude permeates our regulatory regime, which the Organisation of Economic Co-operation and Development assesses to be more restrictive than the regimes of 47 other countries out of a total of 53 countries.

This a a strong contradiction of the oppositions parties’ stance that our regimes aren’t restrictive enough.

Before international investors can deploy their capital they must find out if their planned investment concerns assets deemed sensitive.

Prior approval is required for such investments and the definition of a sensitive asset is very broad indeed.

For example, every parcel of non-urban land greater than 5 hectares is deemed to be sensitive, no matter how swampy, erosion prone, or barren, and perhaps 99% of New Zealand’s land cover is non-urban.

If their planned investment is deemed to be in a sensitive asset we absurdly subject foreign investors to tests of character, relevant business experience and acumen and financial commitment.

These are not tests that politicians are known for applying to themselves when investing taxpayers’ money, and neither are they tests that apply to local investors.

Regardless, one would have thought that the intention to invest real money buying the asset in question was in itself proof of financial commitment.

The intention to invest is proof of financial commitment but there is a place for tests of character and relevant business experience too. We don’t, for example, want to import the proceeds of crime.

As the Treasury has repeatedly pointed out, if the concern is with how the asset might be used, then this is a use question, not an ownership question, and all overseas investors must comply with exactly the same rules and regulations that apply to any asset use in New Zealand anyway.

All investors should comply with the same rules.

The Overseas Investment does ask a lot more of foreign investors for example granting public access through farmland that a domestic investor wouldn’t have to do.

That can result in public good, it could also put off foreign investors who would take their money elsewhere.

Our regime is at its most absurd when the investment is in so-called sensitive land and the investor does not intend to live in New Zealand indefinitely. In this case, the law requires the relevant minister or ministers to be satisfied that the overseas investment will benefit New Zealand. The catch is that the primary benefit – the sale proceeds to a New Zealand vendor, are not counted as a benefit. Yet, if securing that benefit was not the prime reason for selling, what was?

This regime is not only bureaucratic overkill; it actually harms New Zealand.

The world’s best companies and innovators do not have to invest in New Zealand. If we put hurdles in their way, they can simply shrug their shoulders and invest elsewhere. That makes our international links weaker, our assets worth less, and our country more of a global backwater. This is the core message of our newly released report Open for Business – Removing the barriers to international investment.

In very limited, particular cases there may be good reasons to be careful about foreign investment, but reasons based on emotional, anti-foreigner sentiment do not make the cut.

After all, most New Zealanders are the descendants of immigrants.

National security issues are widely regarded internationally as a good reason, yet New Zealand’s regulatory regime has little or nothing to do with national security.

Reciprocity is a further reason for why the Overseas Investment Act needs to be reformed. Few would want to see New Zealanders treated unfairly when trying to buy a property or business overseas, so why do the same at home?

We are hypocritically applying double-standards when we believe we should be freely able to invest overseas, yet put obstacles in foreign investors’ ways.

As we highlighted in our previous report Capital Doldrums, New Zealand also stands out unfavourably internationally for the slump in its ranking for investment attractiveness.

New Zealand ranks highly in most international comparisons but falls short in this important one.

A regime that is hostile to investment is a threat to New Zealanders’ future living standards.

Our standard of living depends on being competitive in world markets for goods and capital. We can exploit economies of scale through world trade, and we can maintain competitiveness and improve productivity if we continually tap into the technology and expertise of the world’s best firms. If we do that well, New Zealanders can enjoy the best the world has to offer and great job prospects – without emigrating.

Certainly, there is no case for gloom. We rank very highly on some measures of international competitiveness, and we are still attracting overseas investors. A Treasury working paper has estimated that imported capital between 1996 and 2006 cumulatively raised our incomes by $2,600 per worker and wealth per capita by $14,000 in 2007 prices.

Nevertheless, we need to excel in policy settings across the board if we are to offset the disadvantages of size and distance.

In our new report, we examine New Zealand’s regime in considerable depth, drawing heavily on Treasury’s far-ranging review of the regime’s shortcomings and policy options in 2009–10. The picture that emerges from their and our research is a disturbing anti-investment bias in our legislation – without actually offering any good public policy reasons for its main features.

An anti-investment bias without good public policy is stupid.

After more than two years of research on this issue, our conclusion is this: New Zealand’s regime represents a muddled, overly bureaucratic response to an ill-identified problem.

We believe that the starting presumption for a fit-for-purpose regime should be that asset transactions between a willing buyer and a willing seller should proceed unless there is a good public interest reason otherwise.

If an otherwise legitimate transaction is to be stopped for the benefit of the public at large, the costs of achieving that benefit should not fall unfairly or unduly on the asset owner. This means respecting the would-be vendor’s property rights and addressing the issue of compensation, if appropriate.

Those opposing foreign investment never take into account the vendors and what good they can then do with the money they receive. Nor do they think of the cost delaying or prohibiting a sale might impose on them.

We believe that the onus of proof for keeping our highly regulated FDI regime is on those who want to keep it.

If other countries can do well with much lower levels of regulation, we are also capable of doing the same.

This means that we should be treating domestic and foreign direct investors the same – and we should be treating foreign investors in the same way we wish to be treated as investors abroad.

New Zealand should be open for business. We need to remove the barriers to foreign investors. We have nothing to lose from such openness but much to gain.

Oversight of foreign investment is sensible and I am not averse to some restrictions.

But restrictions which cause problems for no good reason are detrimental to individuals and the economy.

 


Foreign investment isn’t easy here

09/11/2013

The New Zealand Initiative is researching foreign direct investment and is seeking information:

The $200 million sale of the Crafar farms to Shanghai Pengxin generated a storm of controversy last year, as well as massive legal fees as teams of lawyers waded through rivers of red tape to get the deal across the line.

Yet if the same deal were proposed in Australia, it would apparently have passed with barely a squeak of protest under their Foreign Direct Investment rules, while in Canada it is a more complicated “maybe”.

It seems not all FDI regimes are created equal, particularly as inbound investment is often subject to grey-area factors that are not captured in the black ink of the rules.

We would like to tap into the knowledge of our international friends and followers, so perhaps you can help us:

In what international jurisdictions would the purchase of $200 million (US$165 million) of productive farmland by a Chinese conglomerate have gone through smoothly, and in what countries would it have been red-flagged, as it was in New Zealand?

Your input will be included in our second FDI report, which compares New Zealand’s inbound investment policy framework to other international jurisdictions. All submissions will be published anonymously.

If you would like to help us, please do so in email form to khyaati.acharya@nzinitiative.org.nz by 18 November 2013.

The NZI has comparisons with other countries:

Australia: A $200 million investment would appear to be able to sail through because it is below the investment threshold of A$244 million that triggers Australia’s FDI rules.

Canada: A $200 million investment would appear to sail through at the Federal level because it would be under the threshold level of C$344 million that applies to Chinese investor as China is a WTO-member. However, perhaps it would trigger FDI scrutiny at the provisional level, perhaps most particularly in Alberta, Quebec, Saskatchewan and Manitoba, all of which restrict significant investments by overseas persons in productive farmland.

Hong Kong: Presumably, no FDI restrictions would apply to a $200 million purchase in Hong Kong.  But does Hong Kong have $200 million of dairy farmland to purchase?

Korea: We understand that South Korea does limit investment in arable farmland given its limited availability and national significance, but we don’t have any details.

Singapore: We understand that Taiwan does not consider productive land to be a sensitive national asset and applies no monetary threshold to inwards FDI. If so the investment should sail through.

UK: We understand that the United Kingdom would impose no screening requirement on such a transaction and has no monetary threshold for triggering scrutiny, nor is farmland regarded as a ‘sensitive area’.  Presumptively, the purchase would sail through.

USA: At the Federal level the purchase would sail through since all a foreign purchaser of US farmland is required to do is to disclose the purchase to the Secretary for Agriculture.

Foreign investment in farms isn’t easy here.

A New Zealander who manages a farming business for an international company tells me that going through the Overseas Investment Office was a long and difficult process.

It took ages, and was expensive, even when the company was selling a farm it already owned here to buy another and had a good record of employment, development, and responsible stewardship of and best environmental practice on its properties.


NZ up good, Aust down bad

05/09/2013

More good news. We're on the right track.

For the first time in the history of the World Economic Forum’s competitiveness index, New Zealand is ranked higher than Australia.

New Zealand has outperformed Australia on the latest Global Competitiveness Index for the first time, according to an annual report compiled by the World Economic Forum.

New Zealand climbed five places from last year to come in at 18th on the overall ranking of global competitiveness, while Australia slipped one place to drop out of the top 20 for the first time with a score of 21.

The annual Global Competitiveness Report is compiled from 111 indicators, categorised into 12 pillars of competitiveness in four main sub-indices: basic requirements, efficiency enhancers, and innovation and sophistication factors.

Dr Oliver Hartwich, Executive Director of the New Zealand Initiative – which helped compile the survey data – said the improvement reflected the steady recovery of the local economy and prudent pro-growth policies that have been put in place to support it, helping New Zealand hold its competitive ground while other countries slipped back amid a weaker global growth outlook.

That contrasted with Australia, which is New Zealand’s second biggest trading partner, where deteriorating labour market conditions (ranked 54th globally, down 12 places from last year) and a heavy regulatory burden (ranked 128th in the world) weighed on the country’s competitive ranking.

“The performance is more startling when you consider that just five years ago New Zealanders were staring at ballooning deficits and a deep recession while the Australian government was debt free and riding the tailwind of a mining boom,” said Dr Hartwich.

New Zealand was ranked among the top 10 in the world for the quality of its institutions, health and primary education, higher education, goods and labour market efficiency, and financial markets development.

Dr Hartwich cautioned against complacency, noting that the country had failed to make any improvement on its innovation and business sophistication factors, ranking 27th globally – behind both Puerto Rico and Qatar.

“We need to focus on boosting our capacity to innovate and in areas of the economy besides our traditional agricultural strengths,” Dr Hartwich said. “The urgency for this is underscored when you consider that Switzerland, which was ranked second in the world for both innovation and business sophistication, was named the most competitive economy in the world for a fifth year straight.”

The next most competitive countries were Finland, Japan, Germany, Sweden, the United States, the Netherlands, Israel, Taiwan and the United Kingdom.

New Zealanders enjoy beating Australia but we shouldn’t let trans-Tasman rivalry blind us to the down side of these results.

That New Zealand’s competitiveness has improved is good but Australia going backwards is bad for them and us.

They are our closest neighbour and one of our most important trading partners.

If their economy is less competitive it makes it more difficult for our companies which trade there.

Our improvement and Australia’s backslide can largely be credited, or blamed, on different government policies.

In a column at the New Zealand Initiative, Hartwich, writes:

. . . Many of our New Zealand members have extensive business relations across the Tasman and are intimately connected to the Australian economy. It has been palpable in recent months how their perceptions of the two economies have changed. While they have become more and more buoyant about New Zealand’s domestic prospects, their assessment of the Australian economy has gradually deteriorated. . .

The survey of Australian business leaders, conducted by the Australian Industry Group, revealed that the most problematic factors for doing business in Australia are restrictive labour regulations, inefficient government bureaucracy, tax rates and tax regulations.

New Zealand, on the other hand, shows an altogether more promising picture. The greatest objective difficulties are macroeconomic circumstances and, unsurprisingly, market size. However, the country scores high for the quality of its institutions, its education and health systems, its goods and labour market efficiency as well as the development of its financial markets. The areas in which kiwi business leaders see the greatest need for improvement are infrastructure, the education of the workforce and the country’s capacity to innovate.

Again, I would take issue with the WEF’s macroeconomic assessment. On New Zealand, it seems too pessimistic to me.

There are some obvious macroeconomic dangers for the New Zealand economy, in particular an overheating property market. On the other hand, fiscal policy has been going in the right direction for the past five years. The current government has maintained spending discipline in the most adverse circumstances.

When Bill English became Minister of Finance in 2008, he not only had to confront the repercussions of the global financial crisis, but also inherited an economy in recession, a collapsed non-bank finance sector and the prospect of deficits for years to come. To make matters worse, two earthquakes destroyed the CBD of the country’s second largest city, Christchurch.

Despite this, the New Zealand government remained committed to returning the budget to surplus while trying to provide some stimulus through income tax cuts. The strategy worked: The New Zealand budget will be in surplus from next year and growth is steady.

This macroeconomic outlook directly translates into the economic mood. According to the ANZ Business Outlook survey, a net 48.1 percent of New Zealand firms expect general business conditions to improve in the year ahead, down from a 14-year high of 52.8 percent in July. In contrast, last month’s National Australia Bank’s survey of Australian business confidence fell to its lowest level since November 2012.

Just this week, Newport Consulting revealed that almost 60 per cent of Australian business leaders believe that Canberra is working against them. Only 13 per cent of New Zealand business leaders said the same about their own government in Wellington.

The same survey also showed that a vast majority of Australian executives experienced a slow-down in the Australian economy, whereas only 37 per cent of New Zealand corporate leaders said the same about their own economy. . .

This reflects well on New Zealand and the National-led government’s policies but there is absolutely no room for complacency here.

The policies which helped New Zealand’s competitiveness have been consistently criticised by the opposition and the policies promulgated by Labour’s aspiring leaders are those which are doing the harm in Australia – restrictive labour regulations, inefficient government bureaucracy, tax rates and tax regulations.

The improvements in New Zealand’s economy which have boosted our competitiveness have taken a long time and a lot of hard work. that isn’t finished yet but all the good could be undone in a very short time with a change of government.

If we don’t have a government determined to maintain spending discipline and focussed on policies which make it easier to do business and employ people, we’ll be following Australia backwards.


Feds seek foreign land register

19/05/2013

Federated Farmers wants a foreign land register to provide more information on farms and rural businesses in overseas ownership.

National president Bruce Wills told the Primary Industry Forum his organisation supports foreign investment because the country was built on it and can’t progress without it.

He says the Overseas Investment Act strikes the right balance and Federated Farmers wouldn’t support further controls on foreigners buying farmland.

But he says more information is needed about the amount of land in foreign hands. . .

I don’t think we need any more controls on foreign ownership but it would help the discussion if there was better information on the issue.

We know when foreigners buy land but we don’t always know what happens to it after that.

If a foreign buyer sells to another it will need Overseas Investment Office approval and become public but sales to New Zealanders aren’t always publicised.

Nor do we always know if the foreigners who buy land or businesses are residents about which most people have fewer reservations.

However, a report by the New Zealand Initiative does debunk several myths including:

Myth: Asians are increasing taking over New Zealand.
Fact: It is Australians who have largely been taking over New Zealand. In the year to March 2012, they own 55.8% of foreign investment – up from 31.5% in March 2001. In March 2012, Asian investors owned just 3.1%.

Myth: New Zealanders are becoming tenants in their own country.
Fact: Of the 28.7 million hectares in New Zealand, only one million is owned by foreigners, while the Department of Conservation alone owns eight million.

Myth: Foreign investment is a one-way street with New Zealand an easy target.
Fact: New Zealand has one of the most restrictive regimes in the world and there has been no obvious upward trend since 2000 relative to GDP. New Zealand investment abroad has dropped slightly from just above 13% relative to GDP in 2002-03 to 12% in 2012. This up markedly in dollar terms since the 1990s.

The report is here.

 


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