Word of the day

Tax – a compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions; an involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government activities; fee charged (levied) by a government on a product, income, or activity; a burdensome charge, obligation, duty or demand; a strain or heavy demand; to impose a tax, lay a burden or make heavy demand on someone or something; to demand a tax in consideration of the possession or occurrence of (income, goods, sales, etc.), usually in proportion to the value of money involved; to take to task; censure; reprove; accuse.

Join the dots

Steven Joyce, wearing his Associate Finance Minister’s hat, told the National Party Mainland Conference that in the past five years core government expenditure increased by 50% while the tax take rose by half that amount and the economy grew by only 3%.

Later Finance Minister Bill English told us that the government will do all it can to protect New Zealand from the sharpest edges of the recession and that the ability of businesses to invest and employ is the only way to counter unemployment.

It wasn’t hard to join the dots and work out that the government’s ability to blunt those sharp edges and businesses’ ability to invest and employ would have been so much greater had core government expenditure and the tax take not grown so much and had the economy grown more under Labour’s watch.

They’ve kept the wrong half of the promise

A Tuatapere courier driver has become blind in one eye while waiting for cataract surgery.

 John Harvey, 70, has been waiting for the surgery on his right eye since having the procedure done to his left eye in March 2005 at Dunedin Hospital.

And now he’s been told Southland Hospital’s ophthalmology department is accepting only sight-threatening referrals until further notice.

Remember how Labour promised in 1999 that if we paid a little more tax they’d fix health?

In spite of taking a lot more tax the health system is ailing which means they’ve kept the wrong half of the promise.

Feds Chief Not Out To Win Friends

When I was a child, every meal began with grace. I suspect relatively few families do that now and even if they did I don’t think they’d be taking any notice of Federated Farmers out-going President  Charlie Pederson:

“Folks in the city need us more than they know,” he told the federation’s annual conference in Christchurch today.

“Three times a day as they sit down for a meal every New Zealander should say “thank God for the producers”.

And he suggested than when people sat down after a meal, in front of their large flat screen TV, they should also thank God for exporters “because without them this proud little nation would be the largest third world country in the South Pacific”.

He’s right about the importance of producers and exporters but this isn’t the way to get support from those who fail to appreciate that.

Mr Pedersen, a dairy farmer, railed against the “cruelty” of Resource Management Act, which regulates environmental standards for use of land, air and water.

The RMA needs some attention – but it’s not because it regulates air, soil and water, it’s the way it does it which is the problem.

“Food producers are on the brink of feeling unloved and unwanted in this country,” he said, speaking in the wake of complaints that the nation’s 10,000 dairy farmers are being attacked for their intensive style of agriculture.

And public comments like his introductory ones are part of the reason for this.

Mr Pedersen said today there were untruthful people who would brand farmers as “profit-driven people, unconcerned about our environmental footprint”.

“Much of the contempt we face as food producers is falsely based,” he said. He particularly criticised the “hypocrisy” of consumers living in unsustainable cities who demanded farmers accept responsibility for the environmental effects of production.

He’s right that much of the criticism is not based on fact and there is an element of both ignorance and hypocricy from critics. We have only one world, we all need to look after it and it’s best to address the logs in our own eyes before worrying about the specks in other people’s.

Another approach would be for consumers to share the cost of Kyoto and a better environment by paying an extra tax on all food.

“The proceeds of this tax could be used to help New Zealand food producers to buy carbon credits and compensate for property loss under the RMA,” suggested Mr Pedersen.

“Such a tax would have the double benefit of keeping New Zealand food producers viable and still producing in New Zealand, and allowing all New Zealanders to share the responsibility”.

No thanks – we’ve already got too many taxes and compliance costs and a subsidy by any other name is still a really bad idea.

Fonterra payout good for country

The ODT see more pluses than minuses in the increased Fonterra payout:

The good:

Fonterra announces record payout to farmers of $7.90 kg of milk solids for this season; up from $4.46 last season.

The higher payout increases by $4 billion the cash injection into the economy.

It will be worth an extra $30 million to the Otago economy and an extra $70,000 in gross income to an average Otago farmer.

2008-09 opening forecast payout $7 kg of milk solids.

The bad news: Consumer dairy-product costs will rise, putting pressure on already stretched grocery budgets.

Another plus for the country, which might not be appreciated by farmers, is the increased tax that will be paid. Last season’s payout meant that most farmers made small, if any, profits. Even with the increased costs of fertiliser, feed, fuel, power and wages most farmers will have very healthy taxable profits this season.

 

The opening forecast of $7 for next season is also very good news – even with the cautionary advice that actual payouts can be higher or lower than initial forecasts and the uncertain international finanancail situation might mean the final payout could drop. Of course it could, but the growing demand for protein makes that unlikely.

 

Largely overlooked in the excitement over the increased payout was the news  that Fonterra’s fair value share price has dropped from $6.79 to $5.22.

 That’s disappointing for those wanting to get out of the industry or change suppliers – friends who are selling found themselves around $500,000 poorer after the announcement. But it will make it a little easier for people planning to sign up to Fonterra because it reduces the cost of entry. And one reason for the drop in the share price could be competition from other companies which don’t require new suppliers to buy shares, making it much cheaper for them to get in to the industry.

 

The increased payout and good forecast will make dairying more attractive, but excitement will be tempered by the knowledge that costs will also rise, and most won’t go down if/when the payout does. Fertiliser prices have already risen: superphosphate was $270 a tonne and is now $511; urea has gone from $690 to $948 and the price of DAP has more than doubled from $706 to $1526.

 

 

The price rise is being driven by increased international demand. It won’t be welcomed by those in dairying and will be even less welcome for sheep farmers.

Key differences in tax cuts & ETS

John Key and National have neutralised a lot of the issues which Labour might have used to attack them. To avoid the accusation of being Labour-lite they need some key (no pun intended) policies to clearly differentiate the party and they’ve got two in tax cuts and the Emissions Trading Scheme.

 

Tracy Watkins says National will trump Labour with a tax cut worth at least $50 for the average worker.

 

Accountants report sheep farmers are facing losses of up to $200,000 in the past financial year so they won’t be worrying about paying tax but many dairy and cropping farmers will. And regardless of individual balance sheets, everyone will gain from tax cuts if they take a bit of pressure off wages.

 

Critics of tax cuts always say they’ll have to be matched by spending cuts, but the tax take doesn’t necessarily mirror the tax rate. The tax take can go up when the rate goes down because there is an increase in productivity.

Key’s announcement yesterday that National’s support for the ETS will depend on six conditions has gained support from business although the Government is not being swayed.

The Herald reports on the conditions and Climate Change Minister David Parker’s response to them:

ONE
Key: The ETS must strike a balance between New Zealand’s environmental and economic interests. It should not try to make New Zealand a world leader on climate change; Kiwis can’t afford to pay the price for that particular experiment.
Parker: The ETS is designed to balance environmental and economic interests. The Government’s recent delay of the entry of the fuel sector until 2011, and extension of the phase-out of free allocation until 2018, are examples of balancing economic imperatives with the environment.

TWO
Key: The ETS should be fiscally neutral rather than providing billions of dollars in windfall gains to the government accounts at the expense of businesses and consumers. National does not think it is responsible for the Government to use green initiatives to swell the Crown coffers at the expense of Kiwis’ wallets.
Parker: The ETS would not result in a surplus of credits for the Government in the short term, and any surplus that might result later depends on New Zealand’s target under future international agreements. The five-yearly reviews of the scheme are the way to take account of that.

THREE
Key: The ETS should be as closely aligned as possible with the planned Australian scheme, with common compliance regimes and tradability. In my second speech as National Party leader, I called for close co-operation with our biggest trading partner on this, and I continue to call for it. Given the Australian timetable for developing an ETS, I believe it’s still possible.
Parker: New Zealand officials are in close contact with Australian officials as both sides develop their schemes. They are very likely to be compatible, but New Zealand’s priority is to design a scheme that is best suited to our strengths and weaknesses, not Australia’s.

FOUR
Key: The ETS should encourage the use of technologies that improve efficiency and reduce emissions intensity, rather than encourage an exodus of industries and their skilled staff to other countries.
Parker: The select committee and the Government are already considering intensity-based allocation within a cap.

FIVE
Key: The ETS needs to recognise the importance to New Zealand of small and medium enterprises, and not discriminate against them in allocating emission permits.
Parker: This matter is under consideration by the select committee.

SIX
Key: The ETS should have the flexibility to respond to progress in international negotiations rather than setting a rigid schedule. This way, industry obligations can be kept in line with those of foreign competitors.
Parker: This has already been achieved, by way of a five-yearly review that is proposed on the phase-out of free allocation.

 David Farrar answers Parker on Kiwiblog.

 

He’s right and Labour has got it wrong. There is nothing to be gained by New Zealand being world leaders on this. We’ll only risk losing businesses to other countries with less rigorous requirements which will have a huge economic and social impact here while at best doing nothing for the environment and potentially making emissions worse.

Labour has contributed to inflation

John Armstrong points out that it wasn’t the best PR for ministers to arrive at parliament in the new crown BMWs as voters are reeling from the sharp rise in the price of groceries and petrol.

 

Ministers talked of how Labour had lifted real household incomes, while stressing increased global commodity prices are beneficial to the New Zealand economy.

That was cold comfort to households where budgets are stretched by the combination of rising consumer prices and higher mortgage interest rates.

Neither development is Labour’s fault.

 

 

He is right that Labour can take no credit for the rising world price of commodities but they can be blamed for the pressure on interest rates. One of the drivers of inflation has been Government spending and that has forced Dr Bollard to lift and then maintain interest at the highest level in the OECD.

 

Taking more tax than it needs, using it to increase the bureaucracy rather than improving services and redistributing it for political gain rather than the greater good has done little or nothing for productivity and contributed a lot to inflation.