Ng on Labour’s fiscals
November 4th, 2011 at 4:55 pm by David FarrarKeith Ng blogs:
Here’s the simple truth about asset sales and the Super Fund: In the short-term, it’s just moving money around. It doesn’t spend it, it doesn’t earn it. It’s effect on our net position in the short-term is bugger-all. Anyone who’s telling you that it’ll significantly change our position in the next few years is, at best, pulling some kind of accounting trick.
The real difference is in the long-term, and it depends entirely on interest rates, SOE performance, Super Fund management, etc. Labour’s making a pretty modest argument for restarting contributions to the Super Fund, saying that it’ll earn 0.5% above the cost of capital. It’s such a mundane claim, I don’t see how it can be reasonably challenged. And on the SOE front, National’s argument has always been about the wider economic impact – on the sharemarket, etc. – not that the government will see a fiscal gain.
Keith is basically right here. He does miss one aspect though – it is also about risk. Borrowing to invest in the Super Fund is a risk. Is an extra 0.5% above risk free bonds worth it? Since May, the Super Fund has lost $2.6 billion dollars. If the Super Fund has been used to pay off debt, then it would have reduced interest payments by $1b or so.
Now of course over time the Fund may do better than the risk free rate of return. But hell in eight years it has only managed 0.5% better. And with world financial markets still gloomy, is this the time to start borrowing billions more to invest on international sharemarkets? The days of the massive growth in equities may be over.
Keith is right that on the fiscal side of the mixed ownership model, there won’t be a lot of difference either way. The reduced dividends will approximately equal the reduced interest on debt.Labour’s projections for dividends and capital look hugely optimistic according to one commentator. I’ll check them out over the weekend.
There’s also some strange spin going on. David Parker said that KiwiSaver changes is the biggest item of new “spending”. Which is technically true, since tax cuts are cutting revenue, rather than increasing spending. But Labour’s tax cuts (tax-free threshold, GST changes, R&D tax credits) are actually bigger than the KiwiSaver changes. In fact, it’s bigger than all of Labour’s new spending combined, including the ones which haven’t been announced yet.
It’s like they are petrified of talking about it because fiscally responsible is the new black. Unfortunately for them, it’s also the biggest, most expensive goddamn thing in their policy.
Keith correctly identifies Labour’s tax cuts for all as their largest commitment. ACT are not promising tax cuts until we get back to surplus (which they would do quicker by spending cuts(. National are not promising tax cuts at this election. Labour however is promising income tax cuts for everyone earning up to $150,000. 40 of the 43 Labour MPs will get a tax cut.
Their tax cuts for all is their fiscal albatross.
Tags: Keith Ng, Labour
November 4th, 2011 at 5:26 pm
I know times have changed and so on. But there is a delicious irony in listening to the same people (DPF this is not aimed at you personally) who spent 9 years demanding that Labour introduce tax cuts for everyone now slagging them off for offering tax cuts for everyone. Particularly if the same people are still insisting the Gov’t's tax adjustments were “revenue neutral”.
Vote:November 4th, 2011 at 5:27 pm
The pursuit of surpluses is purely ideological stupidity being forced upon New Zealand by all the mainstream parties.
The New Zealand government is not a currency user; it is a currency issuer. If the government runs surpluses they by definition are taxing more than they are spending therefore they are withdrawing New Zealand dollars from the private sector. What happens when they have paid off all the bonds and all the cash liabilities? No New Zealand dollars left which means no New Zealand economy! This stupidity has to stop…..
Vote:November 4th, 2011 at 5:35 pm
Its funny that now Labour are out of power, they are finally championing tax cuts.
Vote:Pity for them now the country really can’t afford them – at least not combined with Labour’s other bribes.
November 4th, 2011 at 5:37 pm
@ Bevan – we couldn’t afford National’s tax cuts either. But we got them anyway.
Vote:November 4th, 2011 at 5:49 pm
To be precise, anyone earning below $158,750 gets a tax cut.
Labour should borrow and invest in Greek debt. The return on that junk is 16% p.a. last time I checked.
Vote:November 4th, 2011 at 5:54 pm
@Nick, true – but they have been promising all through while the times were good and made them an election promise.
Vote:November 4th, 2011 at 6:16 pm
The best way to get a return from the SOE’s is to hold 100% ownership of them because they will be worth way more than they are now in 20 years time.
The cost of carbon will be increasing and thus renewable energy assets will rise in value.
I wrote to Bill English when he came into office that he should transfer the assets into the Cullen Fund (continue the Cullen Fund savings on a non cash basis) and plan to on-sell them to Kiwi Saver funds when the government wanted the money to subsidise the cost of tax paid super from 2029.
Thus moms and dads had their tax paid super secure and any on sale would be to local funds keeping the revenue flows for the benefit of all Kiwis.
Guess his idea is to flog them off cheap to those with top rate tax cuts spare cash and allow them to make CG tax free by on-selling to forei gners. Then all the CG (rising asset value) is lost to the government and much also lost to us Kiwis as well and we have no security for tax paid super.
Vote:November 4th, 2011 at 6:25 pm
A reasonable argument can be mounted that Labour ‘s borrowing to feed the superfund is harmless borrowing because the debt is matched by assets. I do not necessarily agree, but it is at least arguable.
But the claim that this is not, therefore, borrowing at all is bonkers. I am flabbergasted that Labour is trying to say this with a straight face. Black is white. War is peace. Labour will grow the economy.
Vote:November 4th, 2011 at 6:33 pm
A reasonable argument can be mounted that Labour ‘s borrowing to feed the superfund is harmless borrowing because the debt is matched by assets. I do not necessarily agree, but it is at least arguable.
Go down to your bank and ask them for $100k to invest in managed funds while you’ve already got a large mortgage and see what response you get. Whether it can be justified by future returns or not, the risk is extremely high. What would happen to the funds Goff is expecting to invest the money into if GFC Part2 – working title “this time you’re really fucked” – hits?
If that happens we wont be retaining 51% of any asset.
Vote:November 4th, 2011 at 6:34 pm
I can’t believe the double standard being applied.
Borrowing for the Cullen fund is OK.
Selling assets to buy other capital is not OK.
What’s the difference?!
Vote:November 4th, 2011 at 6:36 pm
The best way to get a return from the SOE’s is to hold 100% ownership of them because they will be worth way more than they are now in 20 years time.
So, how much yearly return did Telecom provide when it was 100% owned?
Vote:November 4th, 2011 at 6:39 pm
Bevan it’s more a case that a homeowner with a mortgage cannot borrow to invest on the market, but ccan borrow to buy a rental – because it is lower risk than the sharemarket and so the bank will finance you.
Vote:November 4th, 2011 at 6:40 pm
Bevan I specifically referred to the renewable energy companies and I explained why they would rise in value.
Vote:November 4th, 2011 at 7:06 pm
Irrespective of whether or not the Super Fund ultimately makes a return greater than the debt and accumulated interest on the $6bn+ borrowings Labour use to help fund it, the $6bn+ is counted in net debt and cannot be offset by a current or future value of the Super Fund [their own words, from 2008 while still in govt.]
The equation is very simple – Labour’s proposal to borrow $6bn+ to put into the Super Fund would increase debt by that $6bn+ amount. They can twist and squirm and try to refer to ‘net debt’ as if it is some saving grace, but they are hoist with their own petard.
[By the way, I don't think Phil Goff has yet responded on his about turn with power co dividends - forgoing them to reduce consumer prices - nor how in July 2011 he claimed that increasing the age for superannuation was unnecessary...]
Vote:November 4th, 2011 at 7:10 pm
Cullen Fund assets are by definition there to secure tax paid super and thus are not available for the government to pay off public debt.
Vote:November 4th, 2011 at 7:14 pm
I have said it before and I will say it again – the Fund requires either a transofer of assets in lieu of budget surplus cash transfers – and that failing either we need dedicated contributions.
Instead of 2% from employees and 7% from employers into the Kiwi Sver accounts it should be 2% from employees and 2% from employers into Kiwi Saver and 2% from employees and 2% from employers into the Cullen Fund. It’s 8% of savings not 9% but it at least ensures tax paid super.
Vote:November 4th, 2011 at 7:45 pm
The best way to get a return from the SOE’s is to hold 100% ownership of them because they will be worth way more than they are now in 20 years time.
SPC, IMO what the Nats should be doing with
state asset salesthe mixed ownership model, is what Thatcher did in the UK in the 80′s. Instead of selling the shares by tender to the highest bidder, she distributed them to the people.When Thatcher did that, she gained whole swathes of former Labour voters. Now wouldn’t that be more equitable than what their current highest-bidder for 49% policy? Just imagine if the Nats were in power for the next twelve or so years? How much more equitable could it possibly be?
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