Too little and too much

April 5, 2016

Oh Dear.

Labour leader Andrew Little still wants to stiff-arm banks:

. . . ‘I stand by the stance I took, which is to get very heavy-handed with the banks. Because the truth is when the banks fail to follow the signal that the Reserve Bank is sending, that’s keeping money out of the back pockets of ordinary Kiwis, and I will always fight for their interests and for their rights. If the banks don’t want to play ball when it comes to the way we run our monetary policy, actually, there’s only one outfit that can really take them on, and that’s the government.’. . .

The Reserve Bank is independent because it’s not the government’s role to set interest rates.

Retail banks are independent businesses and it’s not the government’s role to tell them what interest rates they should charge.

Interest rates are at historically low levels. They are higher in New Zealand than in many other countries which is partly a reflection on overseas investors’ perception of our economic and political stability.

That would be threatened by any stiff-arming of banks by government.

State intervention would also make business more risky for banks, the lenders and their borrowers.

Little’s not the only politician on the left who wants the government to get involved in banking.

Green co-leader James Shaw wants it to give $100m to Kiwibank which Prime Minister John Key described as dangerous:

He told Morning Report he did not support the idea, as the bank would be asked to make “non-commercial loans” – putting it in a weak position.

He said the Greens were using a state-owned enterprise (SOE) to bring about a policy goal.

“But to do that would be highly dangerous, because what you will end up doing is being in a position where you’re effectively asking them to make non-commercial loans, and potentially non-commercial returns.”

Mr Key said that would be “very poor public policy” and could lead you to a situation where the bank had to be bailed out. . . 

Jim Rose at Utopia points out other flaws:

Note well that the $100 million capital injection is to expand in to commercial banking. More aggressive passing on of interest rate cuts may jeopardise credit ratings if this lowers the profitability of KiwiBank. KiwiBank has an A- rating. . .

KiwiBank is minnow in the mortgage market and a pimple in commercial lending. Rapid business expansion is risky in any market, much less in banking. . . 

The proposal to use KiwiBank to lower mortgage rates does not add up. KiwiBank does not pay much in the way of dividends to fund such a foray.  KiwiBank is already far more leveraged than any other New Zealand major bank. 

Rob Hosking points out that while the policy might have political appeal it is bad economics:

Somewhat lost in all this is the risk of a policy that will encourage New Zealanders to take on more debt. . . 

 

New Zealand’s current account deficit has been there since 1974 and although it is now lower than the peak it reached a decade ago, it is still firmly in the red.

The Scandinavian and North European countries might be running larger household debts on their balance sheets, but these are internally funded: Norway and the Netherlands, for example, are running current account surpluses of  around 10% of GDP as opposed to New Zealand’s 3% of GDP deficit.

So they can afford to run up those debts.

New Zealand cannot. And a drive to push interest rates down – a taxpayer-funded drive no less – sounds more than a little foolish given New Zealand’s long-standing economic and financial vulnerabilities. . . 

Shaw’s suggestion of $100m sounds like a lot of money and it is far too much for taxpayers but it wouldn’t be enough to help many people.

Besides, if people can’t borrow money at the current very low rates, it would be a dangerous move for them, the banks, any other creditors and the wider economy, to try to make it easier.

When Labour was in power in the 1980s interest rates were higher than 20%. When it was in power in the noughties, interest rates were in double figures, well above current rates.

There were several reasons for that and the big one which politicians could have influenced was high government spending and mismanagement of public money.

If Little and Shaw want to keep interest rates low they should be supporting the current government’s efforts to keep a tight rein on its spending and developing policies which would continue that.

That is far better policy than either stiff-arming banks or using more taxpayers’ money to prop up Kiwibank.


Quote of the day

July 31, 2015

New Zealand isn’t very good at political sex scandals.

This week from the United Kingdom we had a peer of the realm, a man in charge of enforcing conduct standards in the House of Lords, filmed wearing a red bra and sniffing cocaine off the breasts of prostitutes.

Now, that is a sex scandal.

In New Zealand, we have some sex that didn’t happen, and some bad poetry.Rob Hosking


Quote of the day

July 6, 2015

We do not belong to those who have ideas only among books, when stimulated by books. It is our habit to think outdoors — walking, leaping, climbing, dancing, preferably on lonely mountains or near the sea where even the trails become thoughtful. – Friedrich Nietzsche.

Hat tip: Rob Hosking in a post on walking – ‘that suspensive heaven’ which is topped by a stunning photo above Lake Wanaka and that anyone to whom walking, thinking, and just slowing down appeals and noticing will enjoy.


Quote of the day

March 17, 2015

. . .  I’ve never disliked religion. I think it has some purpose in our evolution. I don’t have much truck with the ‘religion is the cause of most of our wars’ school of thought, because in fact that’s manifestly done by mad, manipulative and power hungry men who cloak their ambition in God. – Terry Pratchett

Hat tip: Rob Hosking


Spies spy

March 6, 2015

Our spies are spying.

That isn’t news, it’s what spies do.

If there’ sandy news, it’s that some people appear to be surprised by this. Rob Hosking writes:

So. It seems we have a spying agency which, we learned today, spies on foreigners.

If anyone is surprised, let alone shocked, by this, they really are too gentle a soul for this cruel world.

Spying on foreigners is pretty much what comes on the label when you set up a spying agency. It’s what they do.

Unless you thought David Lange’s Labour government set up the Government Communications Security Bureau to run the country’s pest destruction boards, or to play Farmville on their neat new computers, what on earth did you think the agency has been doing?

The fact GCSB is spying on “friends?” First, those friends have some rather dubious friends and matters such as money laundering of criminal and terrorist activity are key parts of law enforcement these days. . .

We need to know what’s happening in our neighborhood.

To do that we must keep an eye not only on our neighbours but those who might be trying to influence  them.

If there’s anything to raise concern it’s not that our spies are spying, it’s about the oversight of them.

One can accept that, in today’s technologically advanced era, spy agencies are in a permanent race to keep up.

The unspoken assumption of Mr Hager and his excitable supporters seems to be that New Zealand’s GCSB is under some sort of obligation to not do what everyone else – government, citizen, criminal, lobbyist, activist – can do.

That is just silly.

But if a government agency is – as it clearly has done – is now undertaking the kind of surveillance on the scale in which one would expect in today’s world, there needs to be a stepped up level of independent oversight to match the increased spying activity.

There has been some increase, in the amendment legislation passed in 2013, but it is small compared to the rise in activity.

The cost of freedom is eternal vigilance, as the old wisdom has it. This applies to the activities such as the GCSB in two ways: one is we need to expect it to be vigilant in New Zealand’s interests, especially in our “backyard.”

But such vigilance also needs to be applied to an agency with such sweeping, and increasing, powers as the GCSB – especially if it is acting, as it appears to be, at least as much for other governments as it is for our own.

Our spies need to keep their eyes on our neighbourhood and someone needs to keep an eye on them.

 


Clearing out dead wood

November 24, 2014

Tweet of the day:


Labour’s numbers don’t add up

September 6, 2014

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.


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