Rural round-up

May 28, 2016

Westland ups its payout prediction for the coming season:

New Zealand’s second biggest dairy co-operative Westland Milk Products has released a budget for the 2016-17 dairy season of $4.55 – $4.95 per kilo of milk solids (kgMS).

Payout for the current season will be in the range of $3.80 – $3.90 per kgMS.

Westland will also start its payout advance payments for the 2016-17 season at $3.80 per kgMS, payable 20 September 2016. . . 

Westland tops Fonterra – Hugh Stringleman:

Dairy farmers received cold comfort when Fonterra announced a low forecast milk price of $4.25/kg milksolids for the new season from June 1, with an advance rate beginning at $3.01.

Analysts’ expectations had been for an opening price of $4.60 or more, as well as some upside when world product prices steadily improved as expected towards the end of 2016.

They said Fonterra seemed to base its opening forecast on spot market prices and not the generally expected improving trend. . .

Farm profits help rural students get ahead – Kate Taylor:

A hill country farm east of Dannevirke has helped hundreds of young people with their tertiary studies. Kate Taylor visited to find out how.

Sheep and beef farmer Max Buckendahl has called the Weber district home for almost three decades but when his 30th anniversary rolls around next year he’s off to see the country.

Together with partner Lynn Moss and a fifth-wheeler artic truck caravan, he’s going to work (and fish) in the warmer climates of Northland for half the year and travel New Zealand for the other half.

“There’s no particular reason to go now but I wanted to stay here 30 years first,” he says. . . 

Silver Fern Farms:Details of Special Meeting:

• Special Meeting date set for Monday, 11 July 2016

Dunedin 27 May 2016: Silver Fern Farms has today settled the statement from two of the 80 requisitioners, in a form that Silver Fern Farms is willing to include in its Notice of Meeting, and has set a date of Monday 11 July to hold the Special Meeting.

The Board has received a statement from two of the 80 requisitioners and notes that the original 80 requisitioners sought a meeting of shareholders to consider: . . 

Silver Fern shareholders to vote again on Shanghai Maling deal in July – Paul McBeth:

 (BusinessDesk) – Shareholders of meat processor Silver Fern Farms will have a second vote on whether to approve its planned tie-up with China’s Shanghai Maling Aquarius in July, though the board intends to go ahead with the deal irrespective of the outcome.

The cooperative today set the meeting for July 11 in Dunedin where shareholders will vote on approving the proposed partnership and restructure, where the Chinese firm takes 50 percent ownership of the meat processor in return for $261 million of cash, a special dividend, and funds to bankroll the cooperative for seven years. Shareholders backed the deal in October, but John Shrimpton and Blair Gallagher, representing a group of 80 shareholders, have since sought a special meeting to effectively reconsider the transaction. . . 

Federated Farmers welcomes Freshwater Improvement Fund:

Federated Farmers is commending the Government on a new $100 million Freshwater Improvement Fund to aid communities investment in solutions for water quality in New Zealand’s rivers, lakes and groundwater supplies, announced in yesterday’s budget.

Federated Farmers water spokesperson Chris Allen says the fund will help communities achieve desired water quality outcomes sooner.

“It’s going to take innovative thinking, time and money to get to the level of water quality our communities aspire too,” he said. . . 

TB continues to be challenge for next decade:

Funding for TB control is less than it has been in the past but Federated Farmers is confident the new programme will continue to make progress with a more efficient spend of the money.

Federated Farmers OSPRI (TB Free NZ) spokesman Anders Crofoot said: “The amended TB Plan is a shift in approach from containing the disease to active eradication in livestock and wildlife. To date we’ve been successful at removing TB from large areas of New Zealand. This means with improved operational efficiencies and targeted work, enabled by advances in modelling we should see new TB Plan targets achieved.

The programme carried out by OSPRI will aim to eradicate bovine TB from cattle and deer by 2026, and from TB-infected wildlife in New Zealand by 2055. . . 

Government Support for Landcare:

Yesterday’s Budget marks a return to stable base-line funding for the work of NZ Landcare Trust.

The Minister for the Environment is responsible for financial appropriations for the 2016/17 financial year which include approximately $27 million for grants to third parties for water initiatives, environmental management and education programmes.

A specific appropriation identified within ‘Vote Environment’ has been established for the promotion of sustainable land management practice through a national network of coordinators. These funds are available due to the reprioritisation of $800,000 from the Community Environment Fund. This transfer reflects joint Ministers’ decision to fund the NZ Landcare Trust activities for 2016/17 and out years. No expiry date for this resourcing commitment has been set and it is identified as an on-going commitment. . . 

DairyNZ’s commitment to supporting dairy farmers:

Industry body DairyNZ is committed to supporting dairy farmers following the announcement by Fonterra of an opening forecast Farmgate Milk Price of $4.25 per kgMS for the 2016-17 season.

“The $4.25 per kgMS is not a surprise, although the particularly low opening advance rate of $2.50 per kgMS plus capacity adjustment is tough for farmers who will find the winter particularly difficult,” says DairyNZ chief executive, Tim Mackle. “This is the lowest opening advance rate in at least the last 14 years.

“The break-even milk income required for the average farmer is $5.25 per kgMS, yet under this forecast scenario they’ll only be receiving $4.45 per kgMS all up in terms of farm income, including retro payments from last season and dividends. . .

PwC supports NZ Milk Futures to manage milk price risk:

The NZX today launched a NZ Milk Futures contract that will eventually provide the opportunity for large and small dairy farmers to proactively risk manage milk price movements and volatility.

“The new futures contract essentially replaces, and considerably enhances, the Guaranteed Milk Price (GMP) contract previously offered by Fonterra,” says Roger Kerr, PwC Partner and Treasury Advisor.

“While the new futures contract has been expected, it will need support from the market to ensure its viability. This means that industry players with resources available to make this commitment, should be encouraged to participate,” says Mr Kerr. . .


Rural round-up

August 28, 2012

More milk. less impact achievable – Hugh Stringleman:

The technology exists to lift milk production and manage the environmental impacts of dairy industry development, according to soil scientist Ross Monaghan and environmental consultant Ciaran Keogh, both frontline speakers to the annual Environmental Defence Society conference session called Greening Farming.

Farmers need clear signals from industry leaders and strong extension networks to adopt best practice for environmental sustainability, according to AgResearch senior scientist Ross Monaghan.

“As a technocrat, I believe we have good management options and systems to manage our resources, grow our industries and yet reduce our environmental footprints, he said. . .

Ministry Formally Warns Growers Following Misuse Of Chemical Spray

The Ministry for Primary Industries (MPI) has completed an investigation into the misuse of the antibiotic streptomycin on kiwifruit, and 26 growers who admitted using the chemical outside the strict use conditions have been sent a formal warning letter.

The misuse of the compound constitutes a technical breach of the Agricultural Compounds and Veterinary Medicines (ACVM) Act 1997.

MPI Director Compliance Dean Baigent says MPI approved the use of streptomycin on kiwifruit under strict use conditions to avoid any possibility of chemical residues occurring in fruit. The conditions included a maximum of three spray treatments onto leaves prior to vine flowering. . .

Hunterville Farmer Is The 2012 B+LNZ Young Rancher

Hunterville farmer Peter Fitz-Herbert has been awarded a Beef + Lamb New Zealand agricultural scholarship that will take him to the Five Nations Beef Alliance and Young Ranchers Programme being held in British Columbia, Canada next month.

Peter, who is the stock manager on the Fitz-Herbert family farm, will accompany Beef + Lamb New Zealand Northern North Island Director, James Parsons to the Five Nations Beef Alliance. It is made up of producer organisations from Australia, Canada, Mexico, New Zealand and the United States and meets annually to discuss global issues and opportunities for the beef sector. . .

Risk expert: banks left farmers in dark –  Rob Stock:

Risk and derivative experts say banks, including ANZ National Bank and Westpac, should not have sold complex interest rate swaps to farmers.

Claims are also emerging that though swaps were sold as “interest rate risk management” tools, unsophisticated farmers lacked the expertise and tools to monitor their position, and were provided with little or no ongoing support or advice to manage their interest rate risks.

One of New Zealand’s best-known risk advisers, Roger Kerr from Asia-Pacific Risk Management, said he believed at least a proportion of the swaps were sold to farmers who did not know what they were buying. . .

Farmers’ bid to revisit divorce deal rejected – Matt Nippert:

A New Plymouth farmer has lost a Court of Appeal bid to recalculate his divorce settlement after judges ruled his sudden recovery from a brain injury and a rapid rise in farm property values could not have been anticipated.

Neil Johnston had been appealing a decision ruling against his claim against a law firm and his court-appointed property manager claiming a five-year delay in settling his divorce left him $780,000 out of pocket. . .

Kiwifruit executive has his hands full – Jamie Ball:

Not even six months in the job but it’s been a week of reckoning for Barry O’Neill, Kiwifruit Vine Health (KVH) chief executive.

But, cometh the hour cometh the man. The discovery ofPsa-V in two Waikato orchards last week might have taken the wind out of many a sail, but not Mr. O’Neill. It is, after all, what the independent pan-industry organisation was established to minimize in 2010.

With a lengthy career in the biosecurity sector within New Zealand and overseas behind him, Mr. O’Neill, is taking the Psa challenge head-on. . .

Data to be shared in sheep measles’ fight

Confidential information about sheep and deer farmers collected for stopping the spread of sheep measles is about to be shared to strengthen biosecurity in New Zealand.

Ovis Management project manager Dan Lynch said 20,000 sheep and deer farmers’ contact details were obtained from meatworks and held in a confidential database to help control the spread of sheep measles.

The Primary Industries Ministry managed FarmsOnLine and wanted the database details so there could be a swift response in the event of an exotic disease outbreak, such as foot and mouth, he said. “The benefits far outweigh the issues.” . . .

Poppy crop trials continuing – Gerald Piddock:

Australian company Tasmanian Alkaloids is still two to three years away from deciding whether to push for growing pharmaceutical poppies on a commercial basis.

The company has conducted trials of several varieties of the poppies in Canterbury at an undisclosed location, beginning in 2009.

The trials are moving slowly and that decision was still being evaluated, Tasmanian Alkaloids operations manager Rick Rockliff said. . .

Many queries still over plan – Gerald Piddock:

A group of South Canterbury farmers have been left with plenty to ponder as they come to terms with the implications of Environment Canterbury’s Land and Water Plan.

The plan would see new limits brought in on water quality established at a regional and sub-regional level through the zone committees of the Canterbury Water Management Strategy.  . .

Rain enough for all but Southland – Annette Scott:

Paddling a kayak out to check on cows has been just one of the challenges faced by southern farmers coping with the rain deluge over the past couple of weeks.

While many regions of the South Island, including Southland, were facing drought conditions following the extreme dry of June and July, that has been rectified at least in Canterbury and Otago.

With up to 300mm of rain recorded in North Otago over the past three weeks, 250mm in South Canterbury and 200mm in Mid Canterbury, most farmers are ready for the sun to dry up sodden farmlands. Southland has capacity for more rain with just 3mm recorded in Gore and 7mm in Invercargill. . .


Roger Kerr has died

October 29, 2011

In announcing the death of Roger Kerr, Business Round table chief executive, the New Zealand Herald quotes Sir Douglas Myers who calls him a national treasure.

I didn’t have the pleasure of meeting him but have long admired him through his writing.

He explained his views simply and backed up opinions with fact.

He made huge contributions to business and public policy.

His death is a loss to New Zealand.

It is an even greater loss to his family and friends to whom I offer my sympathy and this:

Turn Again To Life

 If I should die and leave you here awhile,

Be not like others sore undone who keep

Long vigil by the silent dust and weep.

For my sake, turn again to life and smile,

Renewing they heart and trembling hand to
do

That which will comfort other souls than
thine.

Complete these dear unfinished tasks of
mine,

And I perchance may therein comfort you.

                                                             Mary Lee Hall.

His wife, Catherine Isaac, will be carrying on his work should she get into parliament.

UPDATE: TV3 has republished a transcript of his last interview on The Nation.


Democracies don’t have famines

July 31, 2011

Quote of the week from Roger Kerr:

Less edifying was a session titled ‘An Uncertain Harvest: Investigating Global Food Security’. Malthus seemed to have a couple of seats at the table in a round of agonizing about food security and whether the world can feed its population in the 21st century.

I made the point that food security is often the code word for agricultural protectionism. It has been the excuse for the common agricultural policy and protection of Japan’s rice farmers, for example. If markets are allowed to work, trading is free, and property rights and contracts are secure, it is hard to see why global supply and demand will not balance over the longer term.  As one delegate said, there’s never been a famine in a democracy.  

Consumers never win from protectionism and in the long-term producers don’t either. New Zealand is proof of that.

We might have been dragged kicking and screaming into the real susbisdy-free world in the 1980s but New Zealand farmers are much the stronger for it now.

Protectionism increases the power of politicians and bureaucrats which adds costs and uncertainties.

It also upsets the law of supply and demand, creating unwanted surpluses or unnecessary shortages.

Aid might be needed in the short-term but the best way to tackle famine is to open borders and ditch subsidies.

Fair Trade is a compelling slogan but the only really fair trade is free trade.


Vote for change to what?

June 28, 2011

The campaign against MMP has become more organised with the newly incorporated Vote for Change .

“Vote for Change asks the 40% of New Zealanders who have already realised that MMP doesn’t offer enough accountability, to join our group” says Wellington Lawyer and Vote for Change Spokesperson, Jordan Williams. “We want Kiwis to use their opportunity to have a better voting system. Only by voting ‘change’ in November can we ensure a proper debate on MMP’s merits. Only a vote for change will mean there is another vote, a run-off between MMP and one of the four alternatives at the 2014 election.”

“Vote for Change wants a system that restores more certainty, that allows voters to easily hold governments to account and kick rascals out of Parliament,” says Mr Williams. “The current system lets party bosses sneak MPs who have been dismissed by their local electorates back into Parliament on party lists.

“New Zealanders are tired of Lists that make MPs beholden to political party bosses instead of being accountable to constituents. We want politicians to have to think of the people they serve and not party list rankings when making tough decisions” says Mr Williams.

Although it is clear it does not support MMP, VfC has not yet decided which alternative it will advocate voting to change to.

Vote for Change has not endorsed a particular alternative to MMP. “We want New Zealanders who understand that MMP has not delivered, to go to our website, join us help determine what voting system is best for New Zealand,” says Mr Williams. “With a more substantial membership base we will work out what voting system we think is the fairest”.

The VfC website lists its founding members who include former Labour Party president and mayor Bob Harvey, former Labour cabinet minister Michael Basset, former National party MP Annabel Young and Business Round Table executive director Roger Kerr.

Some of the more strident supporters of MMP try to vilify anyone who isn’t happy with the system but as David Farrar points out all five electoral systems on offer are acceptable electoral systems:

 All of them are in use in various countries that are universally recognised as democratic. The moment someone tells you that only one system is acceptable, is the moment when you should stop listening to them.

There are of course degrees of acceptability, some systems are more so than others, although which is very much a matter of opinion.

I don’t like MMP but am unsure which of the alternatives would be both better and have a chance of winning a referendum when put up against MMP.


Protectionism favours few, costs many

June 19, 2011

Unions and some of Dunedin’s citizen’s are agitating for KiwiRail to buy new wagons from Hillside Workshop.

Roger Kerr explains what’s wrong with that:

Here we are seeing the same old protectionist fallacy. Assuming KiwiRail has got its numbers right, building rolling stock here at higher cost would mean its customers would face higher prices across the board. They would grow less and create fewer jobs.

Many of the customers would be in the export sector. The badly needed rebalancing of the economy would be hampered. And of course KiwiRail would be an even bigger drain on taxpayers.

More than 20 years after the painful but necessary reforms of the late 1980s and early 90s some people still haven’t got the message – protection favours few and costs many.

This is a lesson Candians have yet to learn too. Dan Gardner writes about Canada’s failure to make the most of its potential for increased food production:

Canadian consumers pay far more for dairy and poultry products than they would in a free market. Supply management also makes it difficult or impossible for producers to achieve the economies of scale needed to drive costs down. Perhaps worst of all, it impedes trade liberalization.

“Our government will also continue to open new markets for Canadian business in order to create good jobs for Canadian workers,” the Conservatives promised in the Speech from the Throne. That’s good. Canada is a trading nation and the steady expansion of free trade is very much in our interest. But then came this: “In all international forums and bilateral negotiations, our government will continue to stand up for Canadian farmers and industries by defending supply management.”

And what’s the affect of supply management?

Who pays? Consumers who often don’t know they are. Who benefits? A small number of farmers who are highly organized and concentrated in certain ridings. Politicians who swear to defend the status quo get the gratitude of the former without incurring the wrath of the latter — while any politician who dares to even consider change gets no gratitude and lots of wrath.

“Look at us,” Larry Martin suggests, “and look at New Zealand, sitting out there in the middle of the ocean, not close to anything.” In the world of food, New Zealand is a “superpower.” And yet, thanks to daring reforms in the 1980s, New Zealand’s farmers owe almost none of their income to government support. “You think, ‘if we could do even half of what they have done wouldn’t we be in great shape?’”

Yes, those “failed” polices of the 80s made our economy freer and are one of the major reasons we’re getting the benefits from increased demand for commodities.

Instead of producing things the world doesn’t want or need at considerable cost to the domestic economy through subsidies, we’re following market signals to produce what the world wants to buy.

Hillside  workers should stop wasting their energy trying to return to the bad old days of protectionism. Instead, they should concentrate on developing the flexibility to produce what someone wants to buy at a price they’re prepared to pay.

KiwiRail is already costing the country too much, we can’t afford to add to those costs by subsidising Hillside.

Hat tip: Offsetting Behaviour & Something Should Go Here who both discuss Gardner’s piece.


It’s tax freedom day

May 3, 2011

Today is tax freedom day . Business Round Table executive director says it’s five days earlier earlier than last year and one earlier than the year before:

Mr Kerr said Tax Freedom Day represents the notional day in the year when the average New Zealander stops working for the government and starts working for themselves.

The calculation was based on central government core expenditure, which was forecast to be 33.4% of gross domestic product (GDP) in the government’s December 2010 Half Year Economic and Fiscal Update.

“The average New Zealander effectively spends one third of the year working for central government,” Mr Kerr said.

Tax ‘freedom’ actually came a little bit earlier this year than in the last couple of years: Tax Freedom Day in 2009 and 2010 fell on May 4 and 8 respectively, according to revised data.

I’d give that an improving but must do better, especially when local body rates are taken into account.

Mr Kerr said a number of fast-growing Asian and other countries have levels of government spending, and hence tax burdens, that are well below the OECD average.

“While soundly based government spending on public goods and a safety net is justified, economic research suggests that beyond a certain point government spending and taxation are harmful to economic growth.

The line between enough tax to provide for public good and a safety net and so much it harms economic growth isn’t easily drawn.

But lower tax rates can result in higher tax takes from a growing economy.


What’s fair?

March 23, 2011

It’s not fair!

Any parent will be familiar with that plaintive cry from a child and it’s also heard from people old enough to know that life isn’t fair.

Bad things happen to the good; good things happen to the bad and we don’t always get our just deserts.

During a discussion after a farm tour on Monday discussion got round to succession. A banker addressing the issue spoke of how difficult that can be when equal might not be fair and fair might not be equal.

That doesn’t only apply to farm succession.

The book The Spirit Level argues that equal societies are better and this is used by the left to justify redistributive policies.

The UK think tank Reform’s Fairness Test which concludes:

While there is no one single agreed view on fairness most people would accept that the extent to which government actions combat disadvantage should be central to any definition. This supports a focus on education and welfare reform. This does not support encouraging high-earners’ migration, maintaining the middle class money-go-round, increasing personal tax allowances or postponing difficult decisions.

The easiest way to make society equal is to drag the top down.

But taking more from people who, largely through their own efforts rather than luck, have more, is definitely unfair and as the collapse of communist regimes shows, ultimately does not work.

The most sustainable, though not easiest, way to help the poor and disadvantaged is to equip them with the skills to help themselves and to increase economic growth.

That will be expensive in the short term but will increase the number of people making a positive contribution to the economy in the long term.

Hat Tip: Roger Kerr.


Did you see the one about . . .

December 27, 2010

Happy Solstice Day Larvartus Prodeo celebrates the solstice with photos. While there check out All I want for Christmas – a list of rights and freedoms which are priorities for modern living.

The story I can’t really tell – Liberty Scott reminds us not everyone is free.

Trade and Farming – Anti Dismal on which came first.

How economics saved Christmas – Roger Kerr with a different version of the Grinch Who Stole Christmas.

Policy implications of happiness – Offsetting Behaviour on  exactly what the title says.


Three views on Chilean miners’ rescue

October 17, 2010

Theodore Dalrymple in the Wall Street Journal – In Chile the lessons of isolation:

That they behaved with great fortitude, courage, faith and dignity will hardly be denied by anyone; the efforts to save them were inspiring. . .  Angels could hardly have done better. . .

 . . . The miners were also aided by another factor. While they were isolated in the physical sense, they were far from isolated in any other. For once, media attention was wholly beneficial in its effects. The miners were in the eye of the world. They knew that what they did, how they acted, would be known to untold millions.

You have only to consider an alternative scenario to realize how important this was to their survival. Suppose that they had been trapped underground all that time, with enough food and drink to survive, but not knowing whether anyone was making an effort to reach them, or whether their plight was of any concern to anyone other than their immediate family (something that they could pretty well assume, but which in those circumstances would have been a cause of anxiety rather than of consolation). Would their conduct then have been so admirable? Would they have been able to maintain their equanimity to such a remarkable degree?

It seems intuitively very unlikely . . . Here, then, is an illustration of the evident but often forgotten fact that social pressure is conducive to virtue as well as to vice. . . No man but an out-and-out psychopath wants to appear worse than his fellows in the eyes of the world; and the miners’ (justified) pride in appearing brave and self-composed helped them to survive their ordeal. . .

Jim Hopkins in the NZ Herald: 33 reasons to make us feel more alive.

Take a bow, humanity. We made it happen. Or, more precisely, our inventions did.

So many inventions from so many inventors: cables and pulleys and machines that harness electricity; gears and cogs and pumps making oxygen; wires and winches and wirelesses, too.

And there, turning slowly on top of its simple wooden frame, raising the Phoenix upward, one of the earliest of them all, our liberating, rescuing wheel.

Throughout our time on this planet, it’s the things we’ve invented that have masked our frailty and freed us from it. Not completely, of course; we’re too frail for that.

//

Disease and disaster still have their wicked way with us. So, for the frailties invention cannot master, we have faith and hope, prayer and drama. . .

. . .  No one watching the drama unfold on their picture machine can feel so intensely alive as those rescued miners must. Nor can we be as grateful and relieved as their families and lovers and friends. But we can share some part of those emotions and know that they make us feel more human and more alive.

“Be strong, my love. I love you,” one miner wrote to his wife from deep in the earth. “I love you.” That is all any of us can hope to hear. “Be strong, my love.” And that is all that any of us can be, whatever hole we’re in.

Daniel Henninger in the Wall Street Journal – Capitalism saved the miners (HatTip: Roger Kerr):

It needs to be said. The rescue of the Chilean miners is a smashing victory for free-market capitalism. . .

If those miners had been trapped a half-mile down like this 25 years ago anywhere on earth, they would be dead. What happened over the past 25 years that meant the difference between life and death for those men?

Short answer: the Center Rock drill bit.

This is the miracle bit that drilled down to the trapped miners. Center Rock Inc. is a private company in Berlin, Pa. It has 74 employees. The drill’s rig came from Schramm Inc. in West Chester, Pa. Seeing the disaster, Center Rock’s president, Brandon Fisher, called the Chileans to offer his drill. Chile accepted. The miners are alive.

Longer answer: The Center Rock drill, heretofore not featured on websites like Engadget or Gizmodo, is in fact a piece of tough technology developed by a small company in it for the money, for profit. That’s why they innovated down-the-hole hammer drilling. If they make money, they can do more innovation.

This profit = innovation dynamic was everywhere at that Chilean mine. The high-strength cable winding around the big wheel atop that simple rig is from Germany. Japan supplied the super-flexible, fiber-optic communications cable that linked the miners to the world above. . .

Samsung of South Korea supplied a cellphone that has its own projector. Jeffrey Gabbay, the founder of Cupron Inc. in Richmond, Va., supplied socks made with copper fiber that consumed foot bacteria, and minimized odor and infection. . .

 In an open economy, you will never know what is out there on the leading developmental edge of this or that industry.But the reality behind the miracles is the same: Someone innovates something useful, makes money from it, and re-innovates, or someone else trumps their innovation. Most of the time, no one notices. All it does is create jobs, wealth and well-being. But without this system running in the background, without the year-over-year progress embedded in these capitalist innovations, those trapped miners would be dead. . .

Update:

Hamish Collins at No Minister writes on The Chilean miners and capitalism.

And Pablo at Kiwi Politico  posts on The real Chilean miracle.

Update 3: Robert Tracinski at Not PC on Something heroic in their way of trading.


Taxes not low when Tax Freedom Day’s in May

May 18, 2010

Last Tuesday was Tax Freedom Day.

That’s the notional day when the Business Round Table calculates that the  average New Zealander stops working for the government.

Executive director Roger Kerr said:

 . . .   the calculation of 11 May was based on central government core expenditure, which is forecast to be 35.5 percent of gross domestic product (GDP) in the government’s December 2009 Half Year Economic and Fiscal Update.

 “Tax Freedom Day in 2008 and 2009 fell on 10 and 11 May respectively, according to revised data. However, it arrived two weeks earlier in 2007 (27 April). The big delay in the arrival of Tax Freedom Day since then reflects the rapid growth of spending during the last term of the previous government. The present government’s forecasts indicate little relief for taxpayers in the next three years. Mr Kerr said that the Business Roundtable regarded government spending as the best measure of the overall tax burden because almost all government spending ultimately has to be financed from present or deferred taxation (borrowing). It ‘looks through’ periods when the budget is in deficit or surplus.

The growth in spending in the previous government’s last term shows how expensive the 2005 election was and how much of our money was used to win it.

The dead rats National had to swallow before the 2008 election and the response to the world recession has kept state spending higher than it ought to be.

There’s little comfort in the finding that Tax Freedom Day here is earlier than the OECD average of June 14.

This reflects the sharp expansion in spending by many OECD countries, partly in response to the global financial crisis. It highlights the need for “large scale fiscal adjustment” as countries recover from the economic downturn which is recommended by the International Monetary Fund.

A comparison with those countries  came up again last week with a report showing that our tax wedge – individual tax as a percentage of labour costs – is amongst the lowest in the OECD.

However Kiwiblog  points out this report isn’t comparing apples with apples:

This is not a measure of the overall level of taxation in the economy. It is a measure of the difference between gross pay and net pay. There is a huge difference.

 Macdoctor also noticed that report  didn’t take account of consumption taxes, compulsory superannuation and employers’ contributions to social security.

Back to the Business Round Table report which noted:

 A number of fast-growing Asian and other countries have levels of government spending, and hence tax burdens, that are well below the OECD average. Their advantage has increased as they have not generally increased spending to the same extent as developed countries.

 If the tax burden is measured as a ratio of taxation to GDP instead of spending, the picture of New Zealand as a highly taxed country is accentuated. The latest OECD figures show that the ratio of ‘general government total tax and non-tax receipts’ to GDP for New Zealand is 40 percent for 2010, well above the average OECD ratio of 36.6 percent and much higher than Australia’s ratio of 33.1 percent.

Kerr isn’t suggesting there should be no tax:

“While soundly based government spending on public goods and a safety net is justified, economic research suggests that beyond a certain point government

spending and taxation are harmful to economic growth.”

Finance Minister Bill English has given pretty strong signals we’ll get tax cuts in Thursday’s Budget.

That in tandem with measures to improve public service efficiency and economic growth gives some hope that Tax Freedom Day will be earlier in future.

That will provide security for essential public services while allowing us to retain a bit more of our own money.


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