Required Reading
- Michael Bassett on Clark’s career and achievements
- NBR Editor Nevil Gibson on the myth of centre-right and centre-left equivalence
- Kiwi Pundit critiques the ACT/National agreement
- The Strategist quoting David Kilcullen on what is going wrong in Afghanistan. I’ve met Kilcullen and heard him present on Afghanistan and the man is seriously worth listening to.
- Liberty Scott’s advice to new Ministers.
- Whale Oil on Technorati’s State of the Blogosphere
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November 19th, 2008 at 5:58 pm
Thanks for this.
I’d love a sidebar with this sort of stuff.
November 19th, 2008 at 6:23 pm
I agree with Turpin. Make this a regular feature.
November 19th, 2008 at 6:26 pm
Not convinced by Gibson at all. For starters, how the crap does he know what John Key’s approach is? The man’s only been in a week. Secondly, Labour was about building the public sector up, not dragging the private sector down. There is a difference. To blame private sector debt, and household debt, on the government is total balderdash. As for John Key having a ‘pioneers view’, I could not understand what he was trying to say at all. The article did nothing to ‘dispel myths’ about the extent to which Labour and National have met in the center this election.
Bassett’s spin is kind of funny though. He stopped just short of saying she’d be captured at the border with a wagon full of gold.
November 19th, 2008 at 6:34 pm
Basset straight to the heart of the issue – it was all about power. Tough for the people who thought Labour was there to help them.
November 19th, 2008 at 6:52 pm
Ben Wilson:
To blame private sector debt, and household debt, on the government is total balderdash.
No, it’s not when you consider:
Labour’s approach to running up huge surpluses resulted – through over-taxation – in committing that money to vote-buying and subsidised saving while the private sector (including households) ran up unsustainable debt.
Money that’s taken in excess and unnecessary taxation is money that can’t be used to pay down the mortgage, credit/charge cards and other loans. The 39c top rate “envy tax” also encouraged overinvestment in property through tax avoidance measures, which led to the property bubble that is now bursting. House prices rising 10% a year made people feel rich and fuelled unproductive debt-funded consumption.
It’s a disgrace so many billions of dollars over the last nine years have been wasted on vote-buying welfare, overpriced property and consumer baubles. A pint-sized, middle-income, semi-industrialised country almost as remote as Antarctica can’t afford to squander its precious limited capital like this. Labour’s overtax-and-spend policies have been ruinous for New Zealand’s long-term future. I hope National can be a bit bolder in tax and regulatory reform.
November 19th, 2008 at 7:02 pm
ISeeRed
You, like me, could see how absolutely bloody stupid the envy tax rate was.
At 33% people accepted it and got on with trying to expand business. At 39% they looked at all sorts of silly tax avoidance schemes. Weird eh. There must be a number in there between 33 and 39 that provokes that sort of silly behaviour.
November 19th, 2008 at 8:21 pm
Michael Bassett nails it.
November 19th, 2008 at 8:30 pm
Agree with Turpin and Baxter.
Make this a regular, DPF. This is not just a blog, it’s “new media”.
And full marks to Michael Bassett, good u posted him, DPF.
Tauhei Notts, 33% is “pushing your luck” already. Go higher, and all the avoidance tactics kick in. AND you can bet actual total taxation receipts would be higher at the lower tax rates. But the politics of envy is a powerful force, eh. Even the Obamessiah said when specifically asked on this subject, that he did not care if taxation receipts were lower if taxes were hiked on the rich, it was about “making them pay their share”; and Americans still elected him.
We live in strange times. Economic illiteracy, ignorance, and political exploitation of that by specialists in the politics of envy, mean we are close to the end of Western democracy as we know it. The free world survived FDR after much grief, and it was a close-run thing. It may not survive BHO.
November 19th, 2008 at 8:33 pm
ISeeRed and Tauhei, seeing a connection between not-particularly-high taxation in NZ and the international housing bubble and debt crisis is not something I can follow. The only factor I could see that really encourages taking on debt is easy credit, ie low interest rates and sub prime chicanery. Keeping rates low is neither a solely Labour policy, nor a solely NZ one. So blaming private sector debt on the government requires you to believe that the government should have taken away the independence of the Reserve Bank and insisted on high interest rates. Is that what you think should have been done, and what should be done now?
November 19th, 2008 at 8:45 pm
Thanks Mr Bassett.
Couldn’t have put it better.
November 19th, 2008 at 8:45 pm
The Michael Bassett article (a great summary of Huluns perfidy) and the one on Afganistan are great. More of this stuff please.
November 19th, 2008 at 8:48 pm
“Economic illiteracy, ignorance, and political exploitation of that by specialists in the politics of envy, mean we are close to the end of Western democracy as we know it.”
Somehow I doubt it.
More likely the sad fag end of discredited Reagan, thatcherite, ACT, whatever it likes to call itself, miraculously resurrected in NZ for one last dying gasp….
November 19th, 2008 at 10:40 pm
I like the Michael Bassett quote, “Other politicians have always understood that “it’s the economy, stupid”. Not the Princess of the Mushies.”
I have to agree that Helen Clark was indeed stupid. Sadly there was an even larger pool of more stupid New Zealanders who voted for her. They’re paying for that mistake right now in the current deep recession hitting New Zealand.
November 19th, 2008 at 10:55 pm
If the new government had any sense it would cut the 39c tax rate back to 33c on 1 April 2009. Michael Cullen is gone, why is his tax rate still there?
The problem is that New Zealand now has a complete wet in the form of Finance Minister Bill Mr 21% English. A man who projects the appearance to be more concerned about his own power than what is best for New Zealand. This is a guy that literally is half the man John Key is if you look at the party vote achieved for 2002 and compare that with 2008.
November 19th, 2008 at 11:03 pm
Bassetts Headline says it all.
Clark’s Career, and Achievements.
Which came first, and how relevant for her was the second issue.
Helen Clark has a personality disorder. I truly believe that it is like the middle aged person, that still can’t smoke cigarettes in front of either of their Parents.
Only her sexuality was her own shame. Nobody else cared. Not an issue in the 21st Century.
But for Her, it was a constant worry. Sure, plenty of folks smoke at parties outside. So many are middle aged, or even older.
So many would be mortified if a parent walked around the corner and caught them. Certainly old enough, and certainly legal.
Imagine your terror if the folks dropped in, when you were in bed with multiple same sex partners?
Hold that thought, but it gives us an idea about why Helen has been so driven, and indeed so secretive.
We all think that she is Gay. So What?
All it does is gives us a clue as to how she approached her role in Government. Secretive, and controlling. Scared to death about discovery. Watching her Dad wearing a Labour Rosette on election night was illuminating.
Nothing wrong with that at all. Her Dad has every reason to be proud, and indeed has her Mum.
Helen Clark did many good things at the start of her Leadership Years. Thatcheresque at the end. No connection, and complete subservience required by devotees. Women in power for a long time are actually more dangerous than men in power for a long time. Why? Men can always be controlled by women.
Helen Clark has been driven by a fear of discovery. Fear that her parents may not understand her sexuality. Her marriage to Peter Davis was one of convenience. Sure that they are indeed good friends.
The bottom line is that the Feminist Agenda was always going to make the electorate tire. A bigger problem is that academics, and idealogues are actually unable to deal with the world of profit and loss.
At the end of the day Helen Clark was entirely two dimensional. Entirely two faced. Completely out of her depth in matters of Country Finance.
Pity Really.
November 19th, 2008 at 11:28 pm
Along the same lines here is an article by John Bishop in the Dom Post about what Labour needs to do to come back in 2011. You can see he doesn’t think they have much of a chance. Particularly liked his scathing attack on the Greens:
“The Greens cannot avoid some responsibility for the failure of the centre-Left bloc. In the 1975 election, the Greens’ antecedent, the Values Party, got 5.3 per cent of the votes. In 2008, the Greens – after 12 years in Parliament – have got this up to 6.4 per cent. Their best-ever share of the party vote was 7 per cent in 1990 and 2002.
They are nowhere nearer to being in government or having a substantial influence on government than they were when they had three MPs elected as part of Jim Anderton’s Alliance in 1996.
Only 3.5 per cent of voters think the Greens are the party closest to what they feel are the important issues, according to research by Victoria University. National got 43 per cent and Labour 20 per cent. Even ACT got 6 per cent. The green cause may be worthy, but the current leaders have failed as advocates.”
http://www.stuff.co.nz/vote08/4765613a28480.html
November 20th, 2008 at 12:29 am
Crikey DPF, I woulda thought with the amount of amusing penetrating insightful material that exists on Whaleoil’s site that you might have selected a better “compulsive read” than that frightfully boring technorati stroll.
To those who haven’t yet seen them, Whaleoil’s video posts are especially good, a real scream. Highly recommended if you haven’t seen them, just scroll through the archives.
BTW, what the hell is a “technorati” anyway.
It’s slightly rhetorical, as in I’m not really interested in knowing. Hey but thanks for the other links, Bassett’s article is a real killer.
November 20th, 2008 at 2:33 am
Basset is very good at political analysis, of course he has the knowledge of the ‘olden days’ to help provide clarity.
http://www.ft.com/cms/s/0/2fe6cf16-b4c0-11dd-b780-0000779fd18c.html
November 20th, 2008 at 8:14 am
@ Ben Wilson
Let’s start from the beginning.
THe NZ Government was running a fiscal expansionary policy. We know this because as soon as growth dropped (before crisis), they were looking at a period of budget deficits. In effect, the surpluses only occurred because of economic growth.
This required the RB to apply high interest rates (via ECA) to take the edge off. The first main consequence of this is that the NZD strengthened. We ended up running very high trade deficits. So expansionary fiscal stance, causes tight monetary, causes high interest rates and exchange rate, causes trade deficits. Trade deficits have to be funded by overseas borrowing- so that’s currently about $10b a year. This was why many commentators had referred to the NZ economy as a dual economy. An over-heated domestic economy and a sick export economy.
The second mechanism was the housing bubble. People shifted their investments to activities that could justify the interest rates. You couldn’t make money growing trees, and you had a lower rate of return on entrepreneurial activity because of the 39% tax (e.g. I got out of consultancy in Asia). Housing was in a pathway that accommodated tax avoidance and had a rate of return enough to match the interest rates. As housing values soared, net household wealth increased, and people borrowed more money because of it (credit card debt etc). Banks could raise funds in overseas capuital markets and plow it back into NZ. Aiding the bubble was tight housing supply and increased immigration, prompting a general increase in demand.
In effect, the government was saying to households we don’t ‘want you to borrow more money’, but we will create conditions that will lead to this outcome. The real way to get out of this cul-de-sac would have required a shift in economic direction to lift productivity. Instead it slowed down.
This basically means the best chance we ever had to get the NZ economy into the best position to survive the ups and downs of economic cycles, was pissed away on a bloated public sector, a stupid train set, a lot of middle-lcass welfare and a sheep station or 2.
November 20th, 2008 at 8:33 am
Michael Bassett’s article is a breath of fresh air cutting thru the cant and hubris of other political commentator syncophants.
Glutaemus Maximus 11:03 pm was good collateral to that.
November 20th, 2008 at 8:48 am
In my musing I’ve been thinking of the reality that, in the last decade The Labour/Green/NZFirst/UF parties missed an opportunity to invest in the infrastructure to help drive the country forward in the next decade.
They had the receipts but they were too busy buying off the votes of their interest groups the rainbows, beneficiaries and the unions rather than building an environment that the country could grow in.
I have crossed swords before with people who advocate taking the vote away from beneficiaries whilst they are in that position rather like the convicted based on their inability to fully contribute to the society they live in and being a cost to it rather than contributing.
Having had time to expel the vitriol at the good news of getting rid of the toxic people who have run this country for the last 9 yrs (with the exception of Peter Dunne), I now wonder if those people I objected to may have had a point.
I question whether if those beneficiaries had not had the vote whilst beneficiaries would Labour have been able to stay in power so long?
The emphasis on the unbundling of the framework of civil society and our Judeo Christian heritage and not focussing on creating the environment where our entrepreneurs and people with vision can grow.
Let’s not forget the wavering dumbing down (read breakdown) of our education system towards mediocrity and the loss of the very apprenticeships (over the 9yrs) that we need in order to compete on the world stage.
The people resource of our very future who don’t all need degrees.
It seems laughable that JK and co have in 3yrs to position us so that we can grow with macro elements appearing to be totally against their remit from us and then win again to complete the work.
All with the risk that those same people who don’t contribute can put the same sloppy people back into power who have left us bereft in the first place.
Democracy is a conundrum isn’t it?
I’m with Chthoniid on this one Ben.
November 20th, 2008 at 9:11 am
Chthoniid, your story breaks down on the housing bubble. People don’t switch to property because interest rates are high. Explain to me why that would make any sense at all. Oh, that’s right, to avoid tax. Well I’m sorry man, but most investors who have half a brain are more focused on getting value from their investments than avoiding tax. They switched to property because it was rising, and the high interest rates was a response to that, an attempt to cool that off, because the Reserve Bank rightly saw that property values were inflated.
So we come to the question of why property values were inflated. You would like to blame that on Labour. But property was severely inflated around the whole world. I don’t really want to get into a boring discussion on how that happened, it’s enough for this discussion to say it’s TOTALLY RIDICULOUS to blame it on the NZ Labour Party.
In case you guys didn’t notice, the economic meltdown is a GLOBAL phenomenon. Every currency in the whole world fell badly against the USD. Every stockmarket is down hugely. Property everywhere is down. Finance companies everywhere are falling over. Labour did not cause this. If they have any blame, it is in sharing in the global complacency that led to the global housing bubble, which came from global tolerance of shonky lending practices BY THE PRIVATE SECTOR.
Of course, when you have an economic meltdown driven by the world’s most powerful economies, then it’s going to look bad on the books of every country. NZ is no exception. At least the public debt is in a manageable position, I wouldn’t wish on an incoming government the kind of scenario that Labour faced in 1984.
There is no question that National is going to have to manage a bad economy. But it’s not a bad economy of the previous government’s making. It is a bad economy of global proportions. It is probably the worst economic climate since the Great Depression, and it’s just as well NZ does actually own some shit, rather than just owing it. National at least has options. Labour has that to it’s credit.
It’s going to be a very interesting time to watch how National tries to dig out of this crisis. I won’t blame them if they struggle, because the entire world is struggling. NZ is totally reliant on exporting to make money, and if foreigners stop spending then we are screwed, whether we’re good little socialists or good little laissez fairies. I don’t expect National to come up with all the answers. In fact they should be trying to formulate the answers in deep consultation with all of our trading partners, and the management of local affairs is going to be a footnote to that. The only real effect their handling of local matters will have is governing how much real suffering happens here, and who it is that suffers. But someone will suffer, that is certain.
November 20th, 2008 at 9:21 am
Very good Bassett article.
Replace “Aunty Helen” with “Barrack Obama” in the quote above, and that’s what the US is in for…
November 20th, 2008 at 9:51 am
Nevil Gibson:
I like that. Labour had an agenda, but National has a task.
How else could we put it?
Labour had a scheme; National has a mission.
Labour had a plot; National has a strategy.
Labour had a machination; National has a blueprint.
Labour had a compulsion; National has a sacred duty.
November 20th, 2008 at 9:56 am
Ben Wilson wrote:
I think you’ll find you’re mistaken.Japanese Yen versus the US dollar as one example.
Tax avoidance is a way of getting value from various investments. If I can write off my mortgage costs against tax I’m paying elsewhere (LAQC) who cares about higher interest rates when there are capital gains to be had?
November 20th, 2008 at 10:05 am
Oh, and Michael Basset actually lives in Mt Albert, ‘Aunty’ Hulun doesnt.
November 20th, 2008 at 10:08 am
Ben
yes the economic problems are global I agree.
that’s not the issue though
trust is.
no one wants to not get their money back so they are hesitant of lending it to some other scmuck who won’t pay back when they should.
its like a game of musical chairs being played by banks worldwide who are all netted to each other in the game.
but when the music stops how many chairs are there to sit on?
how many will be left standing and have to leave the game?
who has goodies in their parcel and how much dog poop is there?
all the bail out is doing is temporarily adding more chairs and even then it is selective not market driven.
so we will see more fear and distrust…
because of the greed and packaging of dog shit in the so called investment parcels.
they are all netted as thats the way the world works
that’s why its global.
the issue originally is that Labour didn’t invest in infrastructure or make creating the environment potential for our entrepreneurs to grow out of or thrive in.
why?
because they as ideologues were pursuing a political social agenda and never looked for the countries future just their own.
Basset clearly enunciates this in his word pictorial of Helen and the environment she created to fulfill her goals.
November 20th, 2008 at 10:11 am
Fletch
I don’t know what the US is in for as many of the old players are being signed up for the team.
However the character of the man who leads does matter.
ability is all to the good but without character shit happens at sometime.
take Enron
they had very able lawyers accountants etc etc
but No character at a high level.
therfore when shit happened it was big shit.
who got hurt?
everyone and then some?
it all comes down to character.
ability helps though you can hire that.
As an aside Enron looked at carbon trading in the 70-80s as they thought it had potential as an marketing and sales vehicle.
Global warming wasn’t the flavour of the day then was it?
November 20th, 2008 at 10:19 am
Ben, if property prices are growing at 10%, interest rates are 6% and the return on forestry is 4%, where do you think the money is going? It’s being sucked out of real investment activity and poured into the property market. You are not taking a portfolio approach. Likewise, there are accounting tricks that can exploit the costs of managing property and capital gains, all of which become more attractive when taxes become higher. And less attractive when taxes are lower.
Technically, I don’t blame Labour for the bubble but they were complicit in letting it continue, as any measures to deflate the housing market would have required falls in both their spending plans and cuts to household consumption. In effect, avoiding applying the economic medicine was expedient for them because it allowed them to cling to power. The bastards were never looking out for the country or all NZers, they were looking after themselves.
What I am largely more concerned about, and what you are avoiding completely, is the persistence and growth of our trade deficits. We’ve just spent $10b more on imports than we’ve earned on exports. That’s the pattern for years. That makes us very, very vulnerable to international economic conditions. Most of those dollars we’ve over-spent, were lent to us by foreigners. That means that as a country goes, we are still highly indebted.
Now, while the global crisis is going to make the recession longer and worse, we were already in recession before this occurred. We were already looking at a decade of debt before the crisis occurred. We already had a $10bn trade deficit before the crisis had occurred. We already had falling productivity growth. Yes, international conditions have just dealt us one of the worst economic hands we’ve ever had to face. But we would be in a vastly better situation, if the Govt had used its opportunity to cement in some serious economic gains.
November 20th, 2008 at 10:27 am
sorry Ben
I’m with Chthoniid
“We were already looking at a decade of debt before the crisis occurred. We already had a $10bn trade deficit before the crisis had occurred. We already had falling productivity growth”.
What’s in the piggy bank and how many income generating assets are we building vs the debt we aren’t dealing to.
November 20th, 2008 at 10:32 am
Labrator, ok, I’ll give you that the yen is not doing so badly. Not that that is a good thing for Japan, since it is also a massive exporting nation. And the Nikkei has taken a major beating. So all is not well in Japan either.
Re tax avoidance. If you are basing the profits of your business around tax avoidance rather than underlying value, you are crazy. If you are ignoring high mortgage payments because you can write some of it off against tax, you are crazy. You don’t grasp the fundamental point that *a loss is still a loss*. Going into business to make a loss so you can save tax is just silly. You can always make a loss – just pay your staff too much, or burn some of your equipment.
Now I’ll admit that a lot of people *around the entire industrialized world* have bought into such foolishness, and are now getting burned. But is that Labour’s fault?
Turpin, you have shotgun blasted too many points at once to answer any of them. None of your questions are well formed and none of your points are argued. The only one that even pertains to what I said is the bold and unsubstantiated claim that Labour has not invested in infrastructure. Well I don’t know where you live but around me there has been massive infrastructure investment, so much it’s damned annoying on account of so many damned works going on. What kind of infrastructure are you talking about that they should have invested in? Almost every public service has received a lot more funds during their term.
November 20th, 2008 at 10:55 am
Chthoniid, I’m glad you agree that the property bubble was not caused by Labour. Now the question is: What do you think should have been done about it, that wasn’t done? What would National have done? My memory was that at the time, their only policy for anything was to cut tax. Would that have cooled property? NO, it would have inflated it, as more people would have had more money to buy more property. Or more debt, in reality.
I agree that *private* trade deficits are very hard to sustain economically. They’re also very hard to control governmentally. Again, the borrowing you speak of is all private, and it’s not even from NZ institutions. What power does the government of NZ have to stop me wracking up purchases on my Australian credit card? I’ll tell you – none. The only thing that brought that under control was my own personal discipline. You seem to be trying to land a complete failure of personal discipline of households and businesses in NZ on the government.
Now I’ll give you that it could be possible to control how much foreign debt NZers can rack up. But any such controls are widely derided by the right as creeping socialism, as governmental interference in the marketplace, as Auntie with her hand on my wallet again. Which is why I have no time for such ideological nonsense. If there is urgent need to control how NZ individuals and businesses take on foreign debt, then could the Right please be honest and SAY SO, rather than trotting out slogans about private enterprise and free markets, like those things aren’t being discredited en masse, globally, right now????
November 20th, 2008 at 11:10 am
We’ll it’s made for a lot of “crazy” rich pricks TM;
Well you’re not following the fact that you can structure companies to lose money if the tax arrangement makes this beneficial. Look up LAQCs to see what I’m talking about. If you owned a house and were in the top tax rate then you should fire your financial advisor for not telling you about this.
November 20th, 2008 at 11:13 am
Surely you aren’t being serious here are you?
November 20th, 2008 at 11:17 am
I think we should be talking about tax minimisation here as tax avoidance is the illegal stuff. There is a rather big difference!
While you make a good contribution Ben, your argument about “value” completely defies logic. Go ask some business people, property investors & developers and some business managers if you cant grasp reality on this one Ben. I think its the height of arrogance for you to be second guessing the market on what is “value” for the cause of defending the indefensible 5th labour govt.
But I will try to explain:
1) Value is about what something can be bought or sold for. That is the underlying value. A lower tax investment opportunity is thus more attractive for buyers compared to a similar deal without the same tax advantages. You seem to associate book value with real value. This is just an accountants measurement not what something is truly worth.
2) The Clark Govt’s LAQC tax regime passed around 2002? allowed small property investors to form a company, sell their rental property to the company (or simply buy a property with the purchasing entity being a new company) and enjoy tax deductibility from their “losses” being rent (income)-interest (expenses). These were not real losses when you take into account the increase in property values by 10% per year at least on average. What it meant is the LAQC was a very effective way of both offsetting high interest rates and minimising tax. Obviously this enabled investors to increase their profits substantially. Understandably, mum and dad investors also shifted to these proeprty investment vehicles and away from productive investments. This is a specific examply showing how Labour specifically contributed to the problems Cht discussed.
Also, Ben when you talk about infrastructure investment, this does not include the public service beuracracy! Nor does it include maintenance works performed by local Councils! It would have taken Labour 3 years just to get something through the RMA anyway. The 5th Labour govt was so ideologically driven they would not even look at the RMA so the claim on infrastructure is just not credible. Labour 1/10 for infrastructure.
November 20th, 2008 at 11:26 am
Ben
Thanks for the heads up
what about power generation, motorways, rail, Broadband, R&D nurseries, Universities instead of students.
sorry shotgunning again.
apologies.
November 20th, 2008 at 11:26 am
OH did I mention the RMA?
sorry I’m not that hot on the laws they enacted or didn’t.
I’ll leave that to others.
November 20th, 2008 at 11:34 am
It doesn’t matter who does the borrowing. That’s the whole point about a market economy. Everything is linked. Our national economy owes the rest of the world a shit load of debt. There is no such thing in the eyes of foreign lenders, as a private trade deficit. The country has a trade deficit.
Trade deficits aren’t difficult to control economically. Largely it requires a more balanced fiscal stance and more benign trading conditions for exporters. Which aside from dairy farmers, has not been the case.
But the NZ Govt does have a powerful way to stop you buying foreign goods. It’s called the exchange rate.
The Labour Govt said, that we will adopt a fiscal expansionary stance. It was quite clear that this would impact monetary policy, and hence the money markets. The result meant the Govt ‘drove’ down the price of foreign currency (NZD appreciates, exports falter).
This is a market economy. The only thing we expect people to do is respond to prices. We make the price of foreign exchange lower, people will import more. That’s what happened. How did we drive the price down- fiscal policy. Who was in charge- Labour.
Long term consequence- more and more debt.
You make anything too cheap, and people will buy more of it.
November 20th, 2008 at 11:38 am
Wilson, try to differentiate regulation from socialism, there is a big difference. Sure there are some Libertarians who are about as nuts as you socialists but I am not one of them. Private enterprise have not been discredited now, its is the burst of a bubble caused by a whole host of reasons, one of the key ones being the successive US govt light regulation and lower restrictions to credit. I know muppets like yourself would love to go back to the dark days pre-capitalism but that is never going to happen.
If National had been govt from 99 onwards there would have been no 39% envy tax, gradual tax reductions (like in Aus), careful control of public spending, infratructure investment, productivity growth and we would have safeguarded our ecomomy from a good proportion of the decade of deficits. Tell us how Labour can campaign on their record of surpluses and low unemployment and “good economic times under Labour” but now distance themselves completely from the economic mess we are now in? Hypocrisy anyone?
You are sounding like a left wing troll now knowing you have convincingly lost the rational argument.
November 20th, 2008 at 11:41 am
Actually I need to qualify an earlier remark. I don’t believe that Labour started the bubble. Housing prices were already on the rise through the combination of tight supply and increased immigration.
What I would argue is that they were complicit in sustaining it, as any moves to take the heat out was calculated to have a greater immediate political cost.
November 20th, 2008 at 11:41 am
so that’s why I buy cd’s at cash converters!
November 20th, 2008 at 11:43 am
Chthoniid
“Housing prices were already on the rise through the combination of tight supply and increased immigration.”
Does that mean if we increased the amount of land available to we would lower house prices?
if that is so why aren’t the councils doing it?
November 20th, 2008 at 11:48 am
Reason is RMA, and greenbelts to limit supply.
Owen McShane probably has a clearer idea of why councils don’t increase area. Some of it goes back to the good old planning days where taking land out of ‘productive farming use’ was regarded as an anathema. Also, new housing divisions attract a lot of objections from neighbouring residents under the RMA.
There are probably also things that could be done with building permits and resource consents that would also boost supply.
November 20th, 2008 at 11:51 am
Labrator, I follow it. I own my company, and I understand writing off costs. But any financial advisor that starts telling me that I should borrow money at a high interest rate, just so I can lose money and claim tax back, is going to get laughed at. I make money by making product. I minimize costs. Tax is one of those costs, and I get my accountant to make sure I’m not paying more than I should. I also own property, from which I conduct my business, and also live in. I have not been tempted, just because of high tax rates, to own a property far more expensive than I can afford, just because I will lose less than my neighbor who earns less money, on the writeoffs. That’s not seeing the wood for the trees. I don’t care what “rich prick” you’re channeling your financial advice from.
Damned straight I am. Capitalism is melting down right now. So far, it has no answer. Except EAT IT.
glubbster
I’m arrogant then. The market has no bloody idea about value, that is evident right now, because on a daily basis the massive American economy can be fluctuating by up to 10%. Do you think that represents underlying value in any way at all, that America can become 10% less valuable in 8 hours, and then reverse that the next day? That’s madness.
As for ‘defending the indefensible 5th Labour Govt’, my only cause is to inject some reality into your criticisms. If you want to blame them, blame them for something realistic, not the bloody sky falling, or your beer being too warm. Or the recession.
Regarding LAQC, the tax regime you speak of has been like that for all my life. Minor details may have changed, like exactly what kind of shonky little instruments can be made to let smaller investors gamble their savings away, but writing off interest on property was exactly how my Grandfather made his fortune waaay back when. Nothing changed except that because more people had more money to do it, more people did it, and lost more money. Everywhere, including in Bush’s America, Howard’s Australia, Blair’s Britain, and Clark’s NZ. Fortunately, I did not do it, sorely tempted though I was in 2005. I do not thank Labour for my wisdom, nor do I blame them.
Re infrastructure. The ‘right’ seems to be totally schizophrenic on this issue. On the one hand they will scream blue murder for the rights of individuals to obstruct major public works like power lines through their farms, on the other they get bitter if a chemical company has to show how they plan to dispose of their waste. I just don’t buy it. I’m sure there are plenty of individual instances of ridiculous compliance costs everywhere but there are also plenty of examples of people’s rights getting run over roughshod, and regulation is actually the only way to stop this.
I clearly recall in 1996 (under National) with my first property having to pay $500 for them to allow consent for me to put a driveway to my property I was developing. This payment was not to cover anyone coming out to look at the actual situation and judge whether it was fair or justified. It was pure money grubbing. Pay, and we sign. I payed. They signed. The driveway was laid. It was right over a water main, which was cracked in the process, taking water out in the street for hours, and costing the council heaps to fix. Should there have been more or less compliance in the process? Probably. Was I bitter at the time about the cost? Of course.
November 20th, 2008 at 12:08 pm
Cthoniid
There is a colossal difference. I have no duty whatsoever to pay off your credit card. But I take my share of whatever public debt there is. Individuals can actually go bankrupt to avoid debt payments. Countries can’t. Public debt is forever. Private debt lasts as long as it takes them to sell my house and car.
A ‘more balanced fiscal state’ is too vague to discuss, you’ll need to be more specific. As for ‘benign trading conditions’ do you mean ‘a low dollar’? Because I’m yet to see how that would stop me borrowing foreign money, if that money was worth more.
That does nothing at all to stop me from buying foreign goods with foreign money. Which is what foreign debt is. In fact, when the NZ dollar was high was exactly the time when I did pay off my foreign debt. So I don’t follow you at all.
Furthermore, the lever you are talking about is interest rates, since the government can’t ‘set exhange rates’ when we have a floating dollar. The market sets it. Now if you are saying that the government could have solved the trade deficit with lower interest rates, what effect do you think that would have had on property prices? Would NZ have been burned more or less by an even bigger housing bubble?
November 20th, 2008 at 12:13 pm
glubbster
I think you’re giving up, man. I’m not trolling and if you want to talk rationally any more, please drop the abuse.
November 20th, 2008 at 12:16 pm
$500 is not too bad compared what you pay now.
Your point on infrastructure is pure speculation.
But you dont address the substance of any of my points or Cht’s simply silly things at the margins of the debate.
If LAQC’s did not change anything then why are they so widespread?
Currency & stocks goes up and down every hour as new information comes to the market. In the property market things do not change as quickly as that. As people pay off their mortgage (helped by not having to pay tax on their LAQC “loss”) and their property grows they have been able to reap substantial gains when they realise the value fot he asset (on sale). This is the underlying value of a property asset. The profit may also not be taxable (depending on a few things) unlike other more productive assets.
I think its hiliarious you are like Chicken Little saying “the sky is falling in” on capitalism.
November 20th, 2008 at 12:32 pm
Cmon Wilson we know you are not willing to admit one fault with the previous Labour govt, even when economic analysis of the expansionary policy of the Clark years is very clearly set out. We know you decry the sky is falling in on capitalism (for saying that yes you are a muppet). You pretend that Cht was agreeing with you when he was completely disagreeing (we all know Labour is not to blame for the global economic meltdown! But the argument is that Labour has thrown away good weather for its own agenda). Call it abuse but you sound like a leftie troll.
November 20th, 2008 at 12:34 pm
I don’t know what model of capitalism you’re following but it’s the wrong one. Capitalism doesn’t guarantee endless ups. The most powerful part of capitalism is what is referred to as “creative destruction”. The constant government interferance in things they don’t really understand is the real problem and lead to the massive credit bubble in the first place.
November 20th, 2008 at 12:34 pm
LOL, more like it’s already fallen. Fortunately not on me. But I am a capitalist myself, and I know the system we have when the shit settles will still be capitalism. My comment about it failing is a reference to it’s current failure to provide a stable platform for growth and peace. It’s only a relative failure, compared to what it could have been if more regulation on the instruments that have led to the crisis were in place. Which would have been called ‘socialism’. I probably should have been more specific, and said ‘Laissez faire capitalism’.
I understand your belief that markets value things exactly. It’s a definitional belief – you believe the value IS what the market says, so it is not possible to prove you wrong. My point is simply to caricature one outcome of this, that the value of something as colossal as the American stockmarket can rise and fall in real value by such huge amounts so fast. There’s something just not right about using the word ‘underlying value’ to describe such movements. You have to be indoctrinated to it to not feel weird. Personally I like to think there is actually something which you could call the ‘real value’ around which the market fluctuates, often extremely wildly. Like now.
Which of your substantial points haven’t I addressed?
November 20th, 2008 at 12:36 pm
This kind of follows up with your warped idea of capitalism. Value is what ever people are willing to pay for something. People are buying and selling at that rate and setting the value, that’s exactly how transparent markets are supposed to work. If you think you know better either short sell or buy some shares, don’t tell me that this is an example of the market not working.
November 20th, 2008 at 12:40 pm
You still don’t get it. Most people already have borrowed a lot of money to buy a house and if they can offset those payments against paying tax then that is the smart thing to do and encourages people to buy a house if they haven’t already. Do you see how the government has encouraged people to buy houses through legislation yet?
November 20th, 2008 at 12:43 pm
labrator, I don’t even know what you mean by ‘following’ a model of capitalism. I live in a capitalist world, with systems that can be improved upon hugely, bounded only by human imagination. I find it hard to subscribe to a belief that suggests the system, as it works now, is perfect. Or that it could be made more perfect by dismantling the controls within it, or the goods that it has accomplished for the society it embraces.
November 20th, 2008 at 12:51 pm
So now you’re saying what we’ve got is capitalism and it’s failing? I say what we’ve got is not capitalism but a crippled partial implementation but atleast we’re in agreement that it can be hugely improved upon. Calling what we’ve got capitalism and saying it has failed is about as accurate as calling what we’ve got communism and saying it has succeeded.
November 20th, 2008 at 12:54 pm
I fully see how ALL governments have done that for the last 50 years, yes. I just don’t see how Clarkist Labour has done it any more than anyone else. In a nutshell I guess I disagree that high taxation is a particularly important factor in driving people into the property market. Low interest rates would seem far more likely.
For instance, I lived in Australia in the 1990s and I used to pay 47.5% income tax on my top marginal rate (somewhere around that anyway, it’s been a while). But property speculation was not particularly rife at that time in Australia, despite all the same access to write-offs. Why? Because most people understand that losing money is still losing money. But when in the new Millenium debt started becoming incredibly cheap and easy to get, then property started looking really good. So they’ve had exactly the same bubble, despite having dropped income tax quite a lot.
If I follow your line of thought, then the Australian government having dropped tax heaps encouraged a property bubble there. But I don’t follow it because I don’t think taxation is the driver.
The bubble was driven by a massive consensus on the wisdom of allowing untold credit to accumulate on property. Hopefully we can finally get a massive consensus on how unwise that really was.
November 20th, 2008 at 1:05 pm
We agree on this.
I’m not blaming anyone for anything, I’m saying the government of the last 9 years has sat on some of the best times and in a predicted bubble did nothing to change any of the legislation that was encouraging it and hasn’t saved for the rainy days that always follow these good times. I remember articles in the 90′s saying the RBA was a really bad idea, I think Bob Jones wrote on it also. This act encouraged even cheaper credit than the rest of the world was exposed to by our high interest rate encouraging carry trades wildly over valuing our dollar. Another byproduct of this was making consumer goods cheaper and making home owners feel rich.
A tougher, smarter, less self-interested government would’ve seen this and changed a few things, even if it was subtley. Labour didn’t, as happy consumers and rich feeling house owners are happy voters who are unlikely to change and if all you’re interested in is staying in power, then why rock the cradle?
Only if they had the equivalent of LAQCs and had their high tax rates set to cover a large proportion of the income earners in Australia ie That, through legislative mechanisms encouraged housing investment over other sorts of investment. The situation that encouraged over investment in houses in NZ has many inputs, the government could’ve adjusted many of them but chose not to. Inaction is still an action and I’m damning the inaction.
November 20th, 2008 at 1:07 pm
Wot, no Fox News?
(Still, Michael Bassett manages to find nothing good to say about an outgoing left PM, that’s similar enough!)
November 20th, 2008 at 1:21 pm
Can I ask again what you think they should have done? My memory was that interest rates were being put up and up the more the property market heated up, which led to a high dollar, which meant unfavorable terms of trade. Rock and hard place really, either strategy would have been bad. Perhaps you’re saying that Labour should have changed the law to make writing off interest against tax impossible? That’s a bold suggestion, I’d really like to hear National suggest that right now. Imagine what would happen to the property market then?
I think you missed the point. Australia dropped taxes hugely, and across the board. When I was there, I was taxed waaaay more than here. Now I would not be. Same goes for average Joe Sixpack. And yet they still had a big housing bubble. Their stockmarket has still crashed. The bubble was never driven by government action. It was driven by the foolish notion that you can run an economy with only one lever, interest rates, and that you should always keep them down. Which is a government INaction, really. Led by the US government, which had the biggest lever, held down the hardest, for the longest.
November 20th, 2008 at 1:57 pm
Change the RMA, introduce capital gains tax on second properties, not introduce capital gains tax on shares outside of australasia, reduce the upper tax rate to 33% or lower, introduce flat tax rates? The list is quite long on things they could have done.
You’re right, I read it as they put tax up as that would’ve been consistent with your argument. Dropping taxes encourages people to do what ever they want to do with their money and what they want to do with their money depends on the person and what activities are the most rewarding. This is often dictated by the government. Look at the number of people who signed up for kiwisaver or got interest free student loans. When you give away stuff for free, people often take it, governments influence this, you seem to think otherwise.
It’s interesting that you think that capitalism is failing and as such needs new regulations but the only institution that can introduce them is the government and yet the government of the last 9 years has done nothing wrong and in fact every thing was perfect. How do you reconcile these polar opposites?
November 20th, 2008 at 4:39 pm
labrator, introducing capital gains tax would certainly have cooled the property market. In fact it would have crashed it immediately. Not that I think it’s a bad idea. I’m just surprised to hear you say it – nothing of the kind is being touted by National, you see.
BTW, in Australia they do have capital gains tax on investment properties, but that did not stop the bubble there. Because, once again, tax is not the driving concern.
Lowering the income taxes? I think I’ve addressed the idea that the top tax rate has a lot to do with property investment. As for the idea that lowering tax is stimulatory, well that one does seem to be quite ideological. No point arguing about it, the Nats are going to do it, and we will see if it helps. I’m not counting on it. Personally I’m going to save the extra income that I get.
I don’t know where I said that things offered for free will not be taken. But there’s nothing free about either Kiwisaver or Student Loans. I took a student loan out back in the day when National first promised me there would be no interest, just CPI increases. I even have the contract in my files still, and pull it out for laughs every now and then, to show people who are keen on believing that you really can actually make a contract with the government. I’ve since paid the loan off, though. And Kiwisaver ties your money up for a loooong time. That’s not ‘free’ at all.
I do not thing everything that Labour did was right. I’m just trying to inject a tiny bit of realism into a thread that wants to land the global economic crisis squarely on Helen Clark’s shoulders.
As for capitalism failing, that was a throwaway comment, which you keep coming back to. I’ve since clarified my position, which is “Laissez Faire Capitalism” has failed (again), by advocating the kind of freedom of capital movements that has landed the world in the current mess. OK? I’m talking about a much more specific brand of capitalism than just ‘any system in which ownership of property is possible’. Personally I quite like capitalism, so long as it’s very well controlled. I don’t see that as an oxymoron, just a raised finger to the ideas of the man who coined the word, Karl Marx. He thought the whole thing had to come crashing down under a Red Revolution. I don’t see that, and I don’t want it. I’d rather capitalism just changed itself so that such a disastrous thing never needs to happen. So far, in the West, it has. In other places, it didn’t, and those places suffered quite a bit under communism, a system I’m no fan of at all (although I recognize that it does have some very impressive strengths).
November 20th, 2008 at 4:54 pm
Well done, Chthoniid, Labrator, Glubbster, Turpin. That is one whole lot of good sense.
Sorry I’m so late coming in here. I’d just like to add to Labrator above, what we should have done. The changes to the RMA should have included specific provisions to forbid restrictions on overall supply of land by local authorities. Germany is 15% urbanised versus NZ’s 1.6%, but they have development frameworks in place that ensure that new housing is continually coming onto the market at a price of around 3 times average annual wage.
COMPANY tax should have been abolished altogether, and always should be. Profits are taxed anyway when they are distributed as income, taxing profits BEFORE that point is a tax on economic growth, pure and simple. It is the worst kind of spite tax that is costing democracies the most dearly of any of their spite taxes.
November 20th, 2008 at 5:06 pm
PhilBest,
There’s quite a lot of property in NZ only worth 3 times the average annual wage too. It’s just not very nice.
Re company taxes, would a compromise to your (quite correct) issue of double taxation be dividend imputations like they use in Australia?
If we are getting bitter on taxation, I have to say the tax I most hate (being a company owner) is actually Provisional Tax. That one really gives me the shits, the idea that you pay tax on profits that you haven’t even yet taken, just because you probably will (according to a completely arbitrary formula). Company tax just seems fair enough, otherwise you just have a loophole for avoiding income tax (make yourself a company, keep the money in there). It’s hardly a spite tax. It’s just a practical tax.
November 20th, 2008 at 5:19 pm
Thanks for coming back, Ben Wilson.
The point is that in NZ, an average property is worth 6.3 years average wage. In Germany, the figure is 3.0.
They are 15% urbanised, we are 1.6% urbanised.
We are in effect paying a hefty financial tribute to the Gaia god who might be wroth if we allowed more ground to have houses built on it.
You made a point about Capital Gains Tax earlier. Actually, another effect of this tax, is to increase the cost of land that is first developed for housing in the first place. This effect largely offsets the overall effect on house prices.
You miss my point about Company Tax. Make yourself a company, keep the money in there……..to avoid paying income tax? Look, the minute you want to buy yourself a mansion in Herne Bay, or a Holiday Cruise, or a restaurant meal or even the grocery bill, how do you leave the money to pay for those things in your business? You take it out, PINGGGG!!!! ….you pay tax on that money.
Do you not see my point that a tax on profits that are left in a company to grow that company, provide jobs and wage increases, purchase capital, improve productivity; THAT tax, is a tax on economic growth.
I have never seen a plausible explanation for this tax other than the appeal to spite and ignorance on the part of the greater number of voters.
November 20th, 2008 at 5:21 pm
I actually said THIS in response to Grumpy Old Hori on the later thread before I revisited this thread, and it is appropriate here although other commentators have made some of the points in more detail:
GrumpyOldHori, why are “each man,women, and child in Iceland up for US $250,000 of debt caused by wide boys known as bankers……”???????
Are all citizens of Iceland shareholders in these banks?
Sounds more to me like the hazards of “the people”, who don’t know what they’re doing, owning banks and/or expecting their politicians to nationalise them in tough times. BIIIIIIIIIIG mistake.
Fortunately for NZ taxpayers, our banks (except Kiwibank) are all owned by private shareholders, most of whom are offshore. We can thank Rogernomics and Ruthonomics for that.
You can bet that Kiwibank will be costing the taxpayer squillions in the years to come. So will KiwiRail and Air New Zealand. This is what Socialism does, hangs money-losing enterprises round taxpayers necks.
Excuse me, the people in NZ, myself included, who DO chant the “no regulation” mantra, are not idiots. WE are the lonely few who insist that the government NOT use OUR money to bail out the idiots who did the things you say.
Socialism is not just “bad until the well paid need it”, socialism is at its WORST when “bailing out” the well paid. The well paid who want bailing out are just human. They KNOW they don’t deserve it and if they are intelligent enough, they will KNOW it is the worst thing even for the countries economic future for them to be bailed out. But after decades of rising expectations of Nanny Statism, ANYTHING is worth “trying on”.
I still say that this whole debacle is illustrative of the hazards of ignorant socialist politicians trying to run economies. Michael Cullen was the master of this countries money supply and interest rates these last 9 years; AND Labour’s Local Government Act in tandem with the RMA, is what strangled the supply of housing and forced prices up and caused a “bubble”. Huge amounts of Japanese investment money nearly doubled NZ’s money supply, and all the pressures flowed into house prices instead of house BUILDING or capital investment or productive activity. There is no-one to blame for this other than Michael Cullen and Labour, for the distorted fiscal incentives that had this effect. We SHOULD have had an economy humming along with massive investment in business activity driving up productivity and employment. Now we not only don’t have that, we STILL have massively overpriced houses, along with a housing SHORTAGE; building sector wiped out, and finance sources dried up. This could not be more WRONG or distorted, according to every principle of markets.
Don’t try and kid me that this was “the free market” and “deregulation” in action. This kind of ignorance is going to cost us our whole future.
November 20th, 2008 at 5:53 pm
Oh, it is also revealing that on many of the fundamentals such as the ratio of house prices to incomes, average mortgage period, average household indebtedness, overseas borrowing per capita; we are WORSE than the USA.
And yes, there is a global crisis, but NZ’s Labour Govt of the last 9 years stands squarely to blame for things being THIS BAD in NZ.
November 20th, 2008 at 6:25 pm
It has nothing to do with obligation, and everything to do with linkages.
Both households and the public sector depend on the export sector to generate foreign currency. Neither households nor the public sector ‘earn’ foreign currency. The lynchpin of this system is the export sector. Whether the forex is demanded by the households or the government is immaterial to determining our ability to service this deficit.
If we cannot borrow $10bn next year to cover our trade deficits- both household and government spending will have to drop by $10bn. The government also relies on the export sector to generate forex to pay for the petrol it uses on ministerial limousines, and pay for imported items- aircraft parts for Air NZ, frigates for the navy, compuer systems for the police etc.
Sucking $10bn out of the NZ economy next year, would have a dramatic effect on many households, businesses and the Government’s tax take. It’s not the fact that we have a trade deficit that’s the issue, it’s the fact that it’s got so bloody large.
A more balanced fiscal stance would basically mean that if the economy grew 0% the government’s accounts would be roughly balanced. Taxes would be generally equal to spending. As this is not the case, the domestic sector is overheated, and the corrective monetary policy means the export sector gets screwed. In short, we get a very unbalanced economy.
What are you talking about? Are you trolling or being obtuse? If the price of foreign currency is cheap, we demand more of it in aggregate. That’s why we have a trade deficit. It doesn’t matter what you have done, it matters what in aggregate people do.
Yes, the market sets it taking into account the combination of monetary policy and fiscal policy we have. Loose fiscal plus tight monetary inevitably and patently led to higher interest rates and exchange rates.
More prudent fiscal policy would lead to lower interest rates and a lower exchange rate.
Lower interest rates would have cut off the supply of funds from say, Japanese households to our banking system to lend.
So, we would have had a credit (supply) constraint on loan money. Lower interest rates would also have meant we could make money planting trees again, rather than only being able to make money by speculating in housing. So less switching of capital to unproductive investment would have occurred.
Similarly, if we had maintained productivity growth rates and export performances of the late 90s through the Cullen years, we’d have been a lot richer and better situated to deal with the oncoming maelstrom.
November 20th, 2008 at 6:34 pm
I actually agree on Phil with the company tax thing.
All company earnings eventually get paid as income to someone (wages, rent, or profits as dividends). All of these revenue points get taxed.
Similarly, with consumption taxes around, any time the income gets spent it gets taxed.
Personally, I like the idea of shifting taxes onto ‘bads’ (like inputs that cause pollution) away from taxes on ‘goods’ (profits).
November 20th, 2008 at 8:09 pm
PhilBest
Germany is also only 30% larger than NZ, but has 20 times the population, so their average land usage per head is actually quite a lot lower. Which tallies with my observation when I last went there (5 years ago) that they live in quite small houses. Which, quite obviously, are worth a lot less than bigger ones. My house and section dwarfed my in-laws’ one, by their standards I live in palatial luxury. Yet it cost the same amount of money. I’m not just talking about the in-laws in inner city apartments either. The ones who lived in the suburbs of small towns also had quite small places by comparison, despite being quite a lot richer than me.
So if our property is expensive, it is because we want it that way, not because of some shocking disparity in compliance costs, or money supply, or whatever it is you are driving at.
Wrt Company tax, if company tax were dropped, the tax take would drop, and income tax would have to be put up to compensate. Shareholders would have to take more profits to pay for the same things, which would cost the company the same. Seriously, dude, it’s just a practical thing. Not ideological. It’s easier to just tax companies.
There’s not much point discussing the idea further. You have an ideological problem with it, so it wouldn’t matter what reasons I came up with. You would still consider it theft. Nothing more to say than “I disagree, like almost everyone else does”.
Chthoniid
You’re still trying to place the blame for irresponsible consumer debt on the government, every way you cut it. Yeah, NZers spent more than they earned, when our dollar was high. Yeah, they will have to cut it out now our money isn’t worth much. The government didn’t force any of it. Furthermore, the money spent was not *lost*. It was *used*. We bought stuff with it, stuff we now *have*. Or we did things we wanted to. At the time, that was pretty bloody sweet.
Your debt is something for you to watch. You. Not me. Not the government. The exchange rate will certainly influence people’s decisions, but ultimately the decision to overspend is a personal one. Or a company one. It’s not always a bad thing to do, either. A company may have spent up buying equipment. Households may have bought cars, which they won’t need to do again for 5-10 years. That is why I’m not anywhere near as concerned about the balance of payments as I would be about actual government debt.
The ‘loose fiscal policy’ had bugger all to do with it, as far as I can see. It wouldn’t matter if you were Scrooge McDuck with government funds, or the world’s biggest wastrel, the interest rates are still set by the Reserve Bank, and exchange rates are floating around on what returns foreigners can get for holding NZD. They don’t give a snot how much social welfare NZ is paying out. We care, for obvious reasons, because government funds are spent or not spent on things that matter to us, but it has jack shit to do with our exchange rates.
That’s all IF I buy that fiscal policy was loose. I’m not entirely sure what that is meant to mean. Do you mean “money was spent on things that were not infrastructure”? Like education, health, social welfare? Give me a clue here, I hear the term bandied around a lot, but not much to indicate what was ‘loose’ about it. It just seems to be spending with different priorities in mind, like getting the population educated, healthy, and protecting the unlucky from destitution.
November 21st, 2008 at 6:47 am
Hi Ben,
A couple of points:
>> if property is expensive etc
I agree, but its not “us” its “them” driving the property market – the building industry and the banks and the govt, they, on the whole are the ones who have driven and benefited from this property boom malarkey. Comparisons between NZ and the GDR are not helpful although do illustrate different housing cultures.
>> Tax etc
Lets hope that we can see the relative % tax burden on the tax payer reduce eh, especially wrt halfarse expenditure made famous under the previous gummint.
>> money spent etc
I kindof agree however do disagree on the implied topic of value. The value of NZD has been artificially high, driven by a need to service a high national debt that has driven a need for a high OCR and pushed a high dollar. Gummint does defn have a place to play here, they set the reserve bank rules.
November 21st, 2008 at 7:11 am
How can you be sure that fiscal policy doesn’t affect our trade balance if you don’t know what a fiscal stance is?
Actually, I believe that I have been talking about the trade deficit, not consumer debt. Please try to keep up. Consumer debt had more to do with the housing bubble.
What you are arguing is that even though we know that if Got does A, that this will cause B, the Government isn’t responsible for B. E.g. Idi Amin wasn’t responsible for hyperinflation in Uganda when he flooded the country with banknotes. It was the decision of shop-owners to put up prices. You are quite welcome to adopt a very narrow definition of responsible if you like, but when both theory and evidence says that loose fiscal policy is a cause of trade deficits, you’re not going to get many converts. It’s just a re-run of the mid-1990s, especially after Peters got into Govt and decided the best way to improve our savings rate was a $5bn spend up.
The economy is a giant feedback system- once you start messing with prices or quantities- behaviour adjusts to accommodate that. In NZ exchange rates got messed up, giving us years of large and growing trade deficits.
November 21st, 2008 at 9:44 am
Oh, come ON, Ben Wilson, how well read are you on what has happened to the prices of houses in NZ versus the level of income, in the last few years, and how this is an utterly new and unique phenomenon compared to the previous decades? A classic “bubble” didn’t happen because of our longstanding traditional attitudes to house sizes compared to Europe. Our parents generation could buy sections on the edge of the city for a song. We happen to have an RMA and a Local Government Act and Urban Growth boundaries that we didn’t used to have. It is a fact that this phenomenon is an enormous hazard for the whole economy and should be avoided by responsible legislation on this basis alone. Restrict land supply, and make sure the most profitable investment use of money flooding into the country from Japan, is property speculation rather than nuts and bolts productive activity, and we have a recipe for an economic crash. The question is not “if”, but “when”. And it has happened, in the last year, and it started here completely independently of anything in the USA.
Your points about tax revenue are just part of the wider issue of short term spending versus long term thrift. There are certain sorts of revenue that impact on growth and the future size of the economy. We can have our company tax now, but it is at the cost of economic growth and a larger revenue base in years to come.
Can YOU point me to ONE other fundamental other than the profits businesses make and reinvest rather than distribute as earnings, that is as vital for a nation’s economic growth? Don’t kid us that it is better for the government to suck the money out of the system and decide where to allocate it – that is one of the wooliest thought processes afflicting politics today. It is like standing in a bucket and trying to pull yourself up by the handle (to quote Winston Churchill).
Read “Why Government Spending Does Not Stimulate Economic Growth” by Brian Riedl.