Tweet of the day:
Fire alarm as @AndrewLittleMP is about to announce new line up. Well that's one way of clearing out the dead wood
— Rob Hosking (@robhosking) November 23, 2014
Tweet of the day:
The NBR has interviewed tax experts who say that Labour’s expert panel couldn’t sort out the complexities of the CGT in time to prevent a revenue hole.
The print edition has fuller coverage by Rob Hosking which says that wishful thinking and invention play too large a part of Labour’s fiscal policies.
. . . The questions do not just involve the much discussed capital gains tax – although this certainly features prominently.
Also under question are assumptions about an unspecified tax crack-down which is supposed to net $200 million ain extra tax revenue a year.
But more critical is the framework of all this – something highlighted by Labour leader David Cunliffe’s floundering response to a challenge by Prime Minsiter John Key in this week’s leaders’ debate in in Christchurch . . .
One over-riding problem with the plan is the need for the panel to resolve technical issues and tax changes ready for the next financial year.
“I just can’t see them being able to do that,” says Ernst & Young tax partner Aaron Quintal. . . .
Deloitte technical director of tax Robyn Walkers . . . also warns the capital gains tax could be higher than Labour is promising. . .
Labour’s policy is for 15% CGT but the Green and Internet Mana parties want it to be levied at the individual’s marginal tax rate which will mostly be the top one.
The other question that could affect that narrow surplus target is promises for even bigger tax crack-downs that Inland revenue has been running in recent years.
Labour’s budget plan involves an assumption this crackdown will bring in $200 million a year in tax revenue.
“That is just a made-up figure says Deloitte tax specialist Alex Mitchell. . .
The other ‘revenue hole’ comes back to the capital gains tax and this is to do with the gap between rhetoric and the reality of such a tax.
The political and emotional attraction of a CGT is that it will combat inequality but it doesn’t gather enough to do that.
“Capital gains taxes do not raise much revenue,” Mr Quintal says. “In the UK it is around 1% of the tax take: in Australia it is half of 1%. . .
” . . . In New Zealand realistically we are only looking at something around $500 million a year probably.
“That is not going to do what they say it is going to do.”
The $200 million in extra revenue isn’t the only thing that’s been made up, so is the assertion that IRD have been consulted on the CGT.
Duncan Garner asked David Cunliffe if he’d consulted the IRD on Labour’s capital gains tax.
Cunliffe said he hadn’t personally but the party had.
Garner asked IRD and got a response saying they’d had no discussions on it:
Labour’s big spending promises are based on more and higher taxes based on rhetoric which won’t be matched in reality.
That would be bad enough if the party was able to govern alone. The higher spending and tax policies of the mis-matched group of parties it would need to from a government make the outlook under a labour-led government even more dire.
If the numbers don’t stack up nor will any of the other policies which depend on them.
John Armstrong says Labour is the living dead after its tax fiasco.
It’s suffering from a variety of self-inflicted wounds, not least of which is that its numbers don’t stack up.
Quote of the day:
Reserve Bank Governor Graeme Wheeler can only show restraint on interest rate rises if New Zealanders show restraint of their own.
This is Rob Hoskings’ introduction to a column headlined: Want low interest rates? Keep lid on spending.
We all have a role to play in that through our own spending and saving and also what we expect of government.
National has made it quite clear it won’t be doing an election-year lolly scramble.
The return to surplus hasn’t been easy and it’s not going to blow the hard-won gains by profligacy.
Opposition parties try to give the impression they accept the wisdom of careful management of public funds. But their strong attacks on every single measure National has introduced to curb spending and their propensity for big-spending promises show they don’t really mean it.
They’re wringing their hands over the Reserve Bank’s small increase in interest rates from historic lows and today’s expected rise, while not resiling from the borrow and spend policies of the noughties which pushed interest rates into double figures and led New Zealand into recession before the rest of the world.
New Zealand has recovered well from the recession, but continued good economic health requires more of the prescription of increased savings and investment and restrained spending from all of us.
I don’t have the time or inclination to provide the same service of a reasonably comprehensive list of links to news stories and blog posts on issues of the day.
However, I’m willing to start with a few and invite anyone who has read anything I’ve missed to add a link to it in a comment.
I won’t pretend to be balanced – there will be more links to blogs of a bluer hue. Anyone who wants the red and green end of the spectrum better represented is welcome to leave links.
John Key in Samoa
Prime Minister John Key has today announced New Zealand will invest $1 million to help boost Samoa’s tourism sector. . .
Tova O’Brien - Pacific voters warming to National:
With large sections of New Zealand’s Pacific Island community now gravitating towards National, the battle for the Pacific vote has gone offshore. . . .
David Farrar @ Kiwiblog – So what will Labour cut?
Labour is claiming that it will cut migrant numbers by somewhere between 20,000 and 35,000 to get net migration from 40,000 to somewhere between 5,000 and 20,000. . .
Pete George @ Your NZ – Cunliffe still vague on immigration:
Cunliffe was interviewed about immigration on Q & A on Sunday. . .
Hannah McLeod @ Southland times - State house sales reap $4m:
Millions of dollars from state housing sales in the south could be going towards new homes in Auckland. . .
Catherine Harris @ Stuff – ‘Holistic’ plan for housing sought:
New Zealand needs a wider discussion about housing affordability and the issues that surround it such as migration, say senior figures in local government. . .
RadioNZ – Fast-track housing plan for Taruanga:
Tauranga City Council wants special rules to speed up housing developments.
Andrea Vance @ Stuff – Labour MPs not happy with Mana Internet:
Senior Labour Party MPs have used social media to attack the alliance struck between Mana and the Internet Party. . .
Inventory 2 @ Keeping Stock – White-anting in Labour? Surely not…:
Is David Cunliffe being white-anted again? You’d have to wonder after reading Andrea Vance’s story on Stuff: . . .
Cameron Slater @ Whale Oil – Things are falling apart in Labour:
When something happens that isn’t going the way a political party particularly wants, they need to get together, work out a strategy, and communicate that coherently. . . .
Isaac Davison @ NZ Herald – Labour looks at changing $10m-for-residency scheme:
Labour is looking “very closely” at changing the rules for foreign investors who can get residency in New Zealand by paying $10 million. . .
Chris Keall – Where’s all the Baboom development taking place? . . .
Cameron Slater @ whale Oil – Internet Mana Party “a joke from the far left” – Key:
Unlike our media, John Key is refusing to take the Internet Mana Party seriously. . .
Josie Pagani @ Pundit – Say no to the cup of Te:
No way should Labour do a ‘Cup of Te’ deal.
Labour should stand up for its own strong values. . .
Danyl Mclauchlan @ Dim Post – On the logic behind a strategic loss:
Rob Salmond makes fun of Bomber, which is something we can all enjoy. But I do think that Bomber’s theory that a faction within the Labour Party would prefer a National victory in 2014 if the alternative is a Labour/Greens/New Zeland First/Mana/Internet Party government is pretty plausible. . .
Q & A @ TVNZ – Laila Harre interviewed by Susan Wood:
SUSAN: Long time unionist and left wing politician Laila Harre is back, she’s been a member of Labour, New Labour, Alliance, and the Greens, and now she’s taking the helm of the Internet Party, she joins me now good morning. Most political parties are built on something positive, on a movement, on beliefs. How can the Internet Mana Party which is built on yes, wanting to change a government, but an almost pathological dislike of the Prime Minister work? How can it be a force for good? . . .
Andrew McMartin @ TV3 – Carbon tax means nothing without Labour – English:
The Green Party’s carbon tax policy “means nothing” without Labour support, Finance Minister Bill English says. . . .
Peter Cresswell @ Not PC – The Greens cutting taxes?
Let’s start with the good news. . .
Lindsay Mitchell – Support for the Greens carbon tax surprises:
The Taxpayer’s Union has come out in support of a carbon tax that is revenue neutral. On balance they find it preferable to the Emissions Trading Scheme.
I wonder why we need either. . . .
Mark Hubbard @ Life Behind the Iron Drape - Green Naivety: Carbon Tax:
Julie Anne Genter is a New Zealand Green MP, and promoting the NZ Green Party policy this election year of a carbon tax, including on agriculture – dairy, initially, with other livestock to follow presumably. . .
Rob Hosking @ NBR – Election 2014 – The Minors’ Strike:
The Green party must be quite relieved its conference was this weekend . . .
Northland Kaumatua Rudy Taylor says Labour MP Kelvin Davis has the heart and the mana along with total support to win the seat of Te Tai Tokerau in the upcoming general election. . .
Scott Yorke @ Imperator Fish – How to win an election:
It’s all about the party vote. Electorate contests can be distracting, because in most cases they will be irrelevant to the result. A few electorate results will be critical, but only where they would allow a minor party to enter Parliament. . .
• Internet Mana forecast to win 3 seats
• National expected to sneak in with minor parties’ support . . .
Beehive - Vodafone to anchor Innovation Precinct:
Canterbury Earthquake Recovery Minister Gerry Brownlee and Science and Innovation Minister Steven Joyce today released the spatial framework for the Christchurch Innovation Precinct and announced that Vodafone’s new South Island headquarters will anchor the precinct. . .
The Government will invest $28.6 million operating funding (including $11.8 million of contingencies) over the next four years in three Information and Communications Technology (ICT) Graduate Schools to help address significant high-level skills shortages in the rapidly growing ICT industry, Tertiary Education, Skills and Employment Minister Steven Joyce says. . . .
Education Minister Hekia Parata has welcomed advice from sector leaders on the Government’s $359 million initiative to raise student achievement, saying it maintains momentum and strengthens the path forward. . .
Trans Tasman’s 5th Annual Briefing Report – New Zealand Government Departments People and Policy, 2014 Edition , has announced its top performing Government Department of the Year and the best Government Department CEO. The pair is chosen by a 16 strong Independent Board of Advisers . .
Hamish Rutherford @ Reserve Bank governor named top chief executive:
A former top international banker, who stared down the Beehive with lending restrictions and official cash rates rises months from the election, is this year’s public sector chief executive of the year. . .
Matthew Beveridge – Green Party AGM:
Queen’s Birthday Weekend was also the weekend the Green Party held their annual conference. As one would expect, there were a number of policy announcements, free doctors visits for up to 18 year olds and a change from the ETS to a Carbon Tax system. . .
Bob Jones @ NZ Herald - A message to screaming John Minto: Shut up:
If Parliament proposed a nationwide synchronisation of clocks and watches, then at a given date and time, invited everyone who’s had an absolute gutsful of the screaming skull, otherwise known as John Minto, to go outside and jump up and down for two minutes, imagine the reaction. . .
Lindsay Mitchell – More welfare changes on the way:
The government has announced a rewrite of the Social Security 1964 Act, which is a massive maze of dated legislation. . . .
Cameron Slater @ Whale Oil – Political porkies:
It seems the minor parties are able to get away with making stuff up, or flat out lying.
As a new service we will now start calling out these ratbags. . . .
David Farrar @ Kiwiblog – The new blockbuster:
It’s a poster of Dr No, you’ll have to pop over to see it.
Adam Bennett @ NZ Herald – Peters rubbishes claim he paid Harawira’s protest fine:
Current and former MPs and “ordinary people” banded together to pay the $632 fine Hone Harawira received last year for defying police at a 2012 Auckland housing protest. .
Inventory 2 @ Keeping Stock – Pay your own fine Hone:
Hone Harawira is in trouble over trouble he was in last year. If that sounds confusing, hopefully the Herald will explain: . . .
David Cunliffe says Labour may revisit MMP’s “coat-tail” provisions if elected . . .
Rob Hosking makes some pertinent observations on the progressive fallacy of New Zealand’s political left.
One of the great paradoxes of New Zealand politics is that “progressives” are obsessed with the past and tradition; conservatives will breezily move on. . .
Those who believe, as a matter of faith and of self-identity, they are on the side of history tend to find it difficult to move on from lost battles.
It is not they who got it wrong, it is the voters.
Which leads, paradoxically, to New Zealand “progressives” obsession with the past: in particular, with rolling back what they call the “neoliberalism” of post-1984 New Zealand.
That is at the core of Labour’s policy direction: it is still very much aimed at promising a better yesterday.
Government assistance for specific industries (wood processing), capital gains taxes, higher tax rates more generally, a de facto return to centralised wage fixing, intervening in the exchange rate, ministries for “social inclusion” and the like, compulsory saving … it is all about re-fighting old, lost, battles of the Norman Kirk/Bill Rowling 1972-75 government.
Which does not, somehow, seem all that progressive.
While Labour and its potential coalition partners are looking back to the past, peddling regressive policies and promising a better yesterday.
National is looking to a brighter future with progressive policies that will deliver a better tomorrow.
Labour believes the best years are behind us and will try to take us backwards.
National believes the best years are in front of us and has the policies to take us forward.
Labour’s presenting pessimism.
National is providing optimism.
Labour once claimed to be the champion of the poor.
The monetary policy announced by its Finance spokesman David Parker yesterday is further proof that it has strayed far from that because it would hit the poor hardest.
Labour’s plan to use New Zealanders’ retirement savings as a monetary policy tool would hit low and middle-income New Zealanders hardest, and not achieve what Labour thinks it would, Finance Minister Bill English says.
“This idea mixes up people’s own retirement savings – which require certainty over a long period – with the Government’s monetary policy, which the Reserve Bank reviews and can change every six weeks. The two are completely different and should stay that way.
“Labour’s approach will force people to save at least 9 per cent of their wages, plus more when the Government decides to up the contribution rate. This cut in take-home pay would hit hardest those low and middle-income families who are unable to save much, or who are focusing on paying their mortgages.
“Our current monetary policy settings are considered world-best practice. In the last few years we’ve come through a domestic recession and a global financial crisis and now have sustained economic growth, increasing wages and jobs and interest rates are just coming off 50-year lows.
“Labour’s ‘tool’ is a confusing solution looking for a problem. This is wishful thinking and there is no evidence it would actually work. Even if it did it would require Kiwi families to accept a higher cost of living and higher compulsory savings at the same time, which would be a double squeeze on them.
“Labour has a recent history of over-spending in government. It should commit to spending less itself, rather than forcing householders to do the hard work for it.
“Low and middle-income earners would be paying the price for Labour’s lack of discipline,” Mr English says.
Compulsory savings isn’t going to appeal to people who have little or no spare money to save.
Compulsory savings with a variable rate which means you could be forced to save even more of the money you don’t have to spare will have even less appeal.
The idea behind the proposal is to give the Reserve bank and alternative tool to interest rates for fighting inflation.
No-one with borrowed money welcomes interest rate rises but at least most people have some control over how much they borrow and how quickly they repay it.
When interest rates go up they could choose to reduce their debt.
With compulsory savings they would have no choice about how much they pay, and no choice about reducing the amount they had to pay.
Increases in compulsory savings rate will hit everyone but interest rate rises affect a relatively small number of people directly: *
Only 26% of single families and 55% of couples have mortgages.
Then there’s the impact on wages.
Labour’s compulsory scheme would require greater contributions from employers over time.
When working out what they can afford to pay staff it’s the total cost not where the money goes that matters so a greater contribution to KiwiSaver accounts will leave employers with less for wage increases.
Rob Hosking explains why Labour’s big tool won’t work:
. . . The entire policy rests on the assumption a lower interest rate will also lead to a lower exchange rate. This is by no means a given. . .
The second issue is more political.
Forcing people to save more is not a costless move for them. Someone on an average income who suddenly has another chunk of their cashflow taken out of their weekly income is going to feel the pinch. . .
Forcing people to give up something is going to be fraught with political difficulty.
When it to implementation you can expect a wave of applications for exemptions, and this can be expected to lead to an administrative catscradle and a political tangle. . .
BusinessNZ chief executive Phil Oreilly has concerns about the workability of the policy:
. . . The proposed policy would ‘mix the targets’, he said. Instead of a sole focus on inflation, the Reserve Bank would also have to focus on achieving a positive balance of payments, stable economic growth and stable employment. This raises the risk of not achieving some or all targets.
“New Zealand’s external balance is a result of a number of factors, including over-consumption, over-regulation and inefficient government spending. It’s hard to see how the Reserve Bank can be particularly influential in changing these.”
Mr O’Reilly said there was potential for uncertainty and confusion from having different levers over interest rates and KiwiSaver rates.
“While the Reserve Bank would apparently retain control over its existing interest rate lever, it would probably need to go to the Government for the power to use the KiwiSaver savings lever each time it sought to do so. This would not only slow down the Reserve Bank’s decision-making ability, but would undoubtedly introduce politics into the decision making process. All of this would potentially add a great deal of political uncertainty to New Zealand’s macroeconomic settings.
“Labour’s policy brings the risk of a future government politicising what has until now been an apolitical process.
“Can you imagine a future Government agreeing to a Reserve Bank recommendation to raise KiwiSaver rates three months before an election? “ Mr O’Reilly asked.
He said restricting immigration numbers as a way to reduce house prices could have negative consequences, potentially leading to wage inflation and constraints on firms unable to gain the skills they need.
“The policy announced today makes little mention of the key role played by other government policies in reducing house prices and making our economy more competitive. We note for example the recent Productivity Commission report on housing affordability which pointed to the key role played by land supply constriction in increasing house prices. ”
There would also be more uncertainty about incomes as a result of the proposed policy, he said.
“Income earners would be uncertain as to whether or not their KiwiSaver or their mortgage rates might rise, or both. This would have impact on private sector wage setting. . . “
So the policy won’t necessarily achieve it’s aim which is to reduce the exchange rate.
It would threaten the political neutrality of the Reserve Bank.
It would also leave people with less money to spend and it would leave them with no certainty over how much they would have.
Even the best budgeters are used to unexpected expenses but in the normal course of events we can all expect certainty over income.
With Labour’s proposed Variable Savings Rates, we won’t have any certainty.
It would be like being subject to possible changes in tax rates every six weeks and it’s the poorer people whom Labour used to champion who will be hurt most by that.
* Hat tip Lindsay Mitchell
HSBC economist Paul Bloxham labelled our economy a rock-star one.
In the print edition of the NBR, (not on-line) Rob Hosking cautions points out the dangers in that:
New Zealand’s economic rock-star excesses of the 1970s led to a long and painful rehabilitation in the 1980s and 1990s.
New Zealand’s economy is in fact more of a good solid alt-country band – one whose members have been through rehab, kicked the worst of their nasty habits (though not all – see those household debt figures mentioned above) and which is now carving out a more mature, less over-the-top style.
It is one we should stick to.
New Zealand’s economy is growing again and it needs to keep doing so.
It’s the only way we can afford to repay debt and afford the first world goods, service and infrastructure, public and private, we want.
Falling off the responsible wagon will return us to the over-indulgence and excesses funded by over-taxing and spending which put New Zealand into recession long before the GFC.
The damage that would do would eventually require another long and painful rehabilitation and we don’t want to go back there.
Friday’s announcement that the operating deficit before gains and losses was $379 million higher than forecast shows there is no capacity for excess.
. . . “Given the large size of both the revenue and spending bases, overall we are still tracking reasonably close to forecast for the first six months of the financial year,” Mr English says. “And we remain on track to surplus in 2014/15. As we’ve said many times, this will require ongoing discipline and responsible fiscal and economic management. “New Zealand certainly doesn’t need irresponsible and expensive spending promises – which we’re already seeing from other political parties – more than a year before we’ve even posted a surplus.” . . .
What we need is more of what we’ve got – disciplined spending and policies which promote growth.