A dumb argument

November 6th, 2013 at 11:15 am by David Farrar

Audrey Young reports:

Labour says it will reduce the dominance of overseas-owned insurers, keep profits in New Zealand, and bring competition, flexibility and choice to New Zealanders.

Cunliffe implied that National’s opposition to the policy is because it received big donations from the insurance industry in 2005 and attempted to table the Hollow Men documentary on the Nicky Hager book.

Please tell me you are joking? Did the Labour Leader really claim that National’s policy in 2013 is influenced by some donations made in 2005? That’s just desperate.

Finance Minister Bill English said the idea of a bank taking on more insurance risk “is about the dumbest proposal that could possibly be made in the light of events following the global financial crisis.”

“We have already got the bill for $7 billion of Earthquake Commission risk. Why would we take on more?”

It was glorious day outside but English was having none of that. “Having low-income people working in the rain, paying their PAYE and underwriting financial risk is as dumb an idea was you can have in the 2020s.”

, if it came to pass, would also be New Zealand 97th insurance company.

The other 96 are not good enough?

Key responded on KiwiBank. Yes it was a good little business.

“I might point out though this it has taken $860 million of taxpayers’ money and it has never paid a dividend in 10 years.”

It’s arguable that KiwiBank doesn’t even cover the cost of capital, and is effectively subsidized by the taxpayer.

He challenged Cunliffe to name another bank operating in New Zealand that had an insurance company, and offered insurance on the same property they were lending on.

“They do not do that.”

Cunliffe: “Is he aware that ASB Bank own Tower Insurance? If he is, why is he asking such a stupid question.”

Within minutes of Cunliffe’s comment, National’s research unit – or perhaps a few friends in the insurance industry – had got the message to Key that Cunliffe was wrong.

ASB did not own Tower. They sent the list of owners. Key tried to read through the list.

That’s a big fail.

Eventually Labour’s deputy, David Parker, and possibly the source of his leader’s error, did the honourable thing and acknowledged the error by asking Key: “Has he received any advice that ASB in fact own Sovereign Assurance?”

Key: “Yes it does own Sovereign and let us get to the better bit…Sovereign provides life insurance, and the way [Cunliffe] is going, he will need life insurance.”

I don’t think Labour are proposing a state owned insurer to provide life insurance. It is obviously targeted at property and contents insurance, the idea of having a bank own a property insurance company is a great way to have it go bankrupt.

 

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40 Responses to “A dumb argument”

  1. Manolo (13,828 comments) says:

    Guaranteed: the dinosaur Jim Anderton will be made Chairman of the Board of the KiwiAssure abomination.

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  2. Graeme Edgeler (3,289 comments) says:

    Sovereign provides life insurance, and the way [Cunliffe] is going, he will need life insurance.

    Is that a threat?

    :-)

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  3. labrator (1,850 comments) says:

    I’m looking forward to Labour crushing trademe too. The fees are too high and it’s just a giant corporate only worried about it’s shareholders. I’m sure everyone will switch to KiwiTrade to keep them honest.

    Same goes with Xero. A billion dollar company once again only pleasing its shareholders. KiwiAccounts is another great business Labour could get in to.

    Come to mention it, McDonalds is just taking all it’s money overseas. KiwiBurger is something real everyday New Zealanders could afford! And they could pay a living wage too.

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  4. flipper (4,077 comments) says:

    There is a story here… but perhaps it would be best if it were to emerge via DPF. :-)

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  5. BeeJay (72 comments) says:

    Cunliffe & Co are seriously clutching at straws and digging deeper and deeper holes every time they open their mouths. John Key and his team will be laughing all the way to the Government benches in 2014!

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  6. Cato (1,095 comments) says:

    And, in fairness, all countries we trade with should set up state subsdised businesses to compete with our exporters. If it’s not fair for others to profit from us then surely it’s not fair for us to profit from them?

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  7. freethinker (691 comments) says:

    There is an underlying point and that is why is Government and its minister Brownlee failing to ensure EQC does a good and timely job and consider legislation to encourage or force insurers to handle claims in accordance with policy terms and in a timely fashion. EQC & Southern response are both state owned and at least anecdotally are the worst performing and most difficult to deal with. After 3 years and the low level of substantial repairs or rebuilds completed a lack of resources is no longer credible and the spin issued by Tim Grafton of the Insurance Council is of dubious accuracy and has be challenged in much detail on the Christchurch Fiasco website. Continuing apologies from Ian Simpson and misinformation from Tim Grafton together with continously missed time lines and stonewalling of reasonable criticism should alert government to the very real anger and frustration of the thousands still living in damaged properties that may well turn into political revenge come next election leaving NZ with an even worse and less competent government.

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  8. queenstfarmer (782 comments) says:

    What a FAIL by Cunliffe & Labour.

    What’s sad is that Cunliffe is smart enough to realise how stupid his proposal is, but knows that most of his colleagues are not so smart, so he just promises to do it anyway.

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  9. Samuel Smith (276 comments) says:

    It’s hard to believe anyone except the Far Right would criticize Kiwibank.

    It has saved New Zealanders hundreds of millions of dollars.

    Labour should bring-on more progressive economic polices.

    It is interesting that many of us have met David Cunliffe. Has anyone met this mythical creature “The Market”? No, I thought so.

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  10. PaulL (5,987 comments) says:

    @Samuel Smith: How has Kiwibank saved NZers hundreds of millions of dollars?

    If it has an $830M capital base and returns no dividend, then that means the govt has borrowed $830M and is paying the interest on that. So it’s costing taxpayers (i.e. NZers) $33M per annum if the govt is paying 4%. So any “savings” would need to be at least $33M per annum just to break even, let alone be genuine savings to NZers.

    Kiwibank might be charging NZers lower fees than the other banks, although I’m not sure about that. At last look Kiwibank predominately had customers who were unprofitable at the previous banks, and I think the govt shifted lots of their internal govt banking to Kiwibank at rates that were above market (i.e. hidden subsidy).

    So ignore the govt banking portion, and deal with just the real customers that moved across. These customers used to be subsidised by the big (foreign and NZ owned) banks, now they aren’t, so those banks make bigger profits. These customers are instead subsidised by the taxpayer, and get presumably lower fees than they otherwise would. Let’s assume there are 300,000 of those customers, and they’re each saving $100 per annum. That makes $30M of “savings” per annum, which would pretty much exactly match the amount the govt (taxpayer) is subsidising Kiwibank by.

    To put it another way, we’ve moved from foreign-owned banks subsidising these customers to the taxpayer subsidising them. This increases profits of foreign owned banks, and is effectively a hidden income transfer from taxpayers (generally wealthier NZers) to low income NZers (those who are mostly Kiwibank customers). In short, the taxpayer is getting ripped off, it’s an inefficient way to do an income transfer, and it only works because NZers are too stupid to follow the money.

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  11. Cato (1,095 comments) says:

    @PaulL but, but, but … Banksters! John Key’s rich mates! Corporations!

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  12. PaulL (5,987 comments) says:

    And, seeing your edit. This mythical creature, the market, is each of us. So yes, I’ve met it, because it’s me, it’s you and it’s everyone else individually making decisions. When someone says “the market reduced interest rate expectations today” what they actually mean is that the collective decisions of all individual NZers, having regard to their own best interests, was that people stopped buying fixed income assets because individually there were fewer people keen to buy than those keen to sell, and therefore in aggregate “the Market” otherwise known as “NZers” think that fixed income investments are less attractive.

    It’s not that hard. I realise that many on the left like to demonise “the Market” and pretend it’s some magic economist fairy tale, but most of them are quite happy to go to “the markets” and buy fresh produce or random knick-knacks. There’s a reason they’re both called “the market” – they’re the same thing.

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  13. queenstfarmer (782 comments) says:

    It’s hard to believe anyone except the Far Right would criticize Kiwibank.

    It has saved New Zealanders hundreds of millions of dollars.

    I know you’re not really a “facts” and “evidence” guy, but citation please?

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  14. Ashley Schaeffer (487 comments) says:

    Wow, better run off back to the Stranded Samuel and put some ointment on those burns.

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  15. Colville (2,269 comments) says:

    Sovereign provides life insurance, and the way [Cunliffe] is going, he will need life insurance.

    Is that a threat?

    What Silent T is going to need is income protection insurance which is something Sovereign also provide :-)

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  16. Rich Prick (1,705 comments) says:

    Don’t hold your breath queenstfarmer. Like other lefties, our mate Samuel only has “feelings” about Kiwibank. It “feels” good because it is state owned and subsidised. Similarly, a state owned and subsidised insurance company “feels” good to him and his fellow travellers.

    He won’t provide facts nor evidence, because neither are there to be had.

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  17. burt (8,275 comments) says:

    Well if ACC is a valid model for workplace insurance then surely it’s valid for all insurance.

    It’s obvious we need state monopolies for life, house & contents, car and probably even pet insurance.

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  18. Rich Prick (1,705 comments) says:

    “Has anyone met this mythical creature “The Market”? No, I thought so.”

    So when I trade shares on the mythical creatures called the NYSE, ASX, LSE or NZX, the money that arrives in my bank account is just make believe? It sure works as well as other money. Where does the left find these people?

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  19. BlueDevil (92 comments) says:

    Going by the Kiwibank Accounts as at 31/6/13
    http://www.kiwibank.co.nz/about-us/legal-docs/#

    The equity was 709m of which 360m is issued shares ie actual capital contributed by the government
    The after tax profit was 97m.

    349m of the equity is retained earnings that the govt has decided to reinvest in the bank to expand the business.
    The return of 97m on 598m (previous years equity) gives a 16% return after tax.

    You can debate the principle of the govt owning a bank but the return is positive against the funding costs.

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  20. PaulL (5,987 comments) says:

    @BlueDevil: not quite correct. The govt has invested money, and currently has no return. It does, however, have an asset, so arguably the retained earnings are contributing to the asset valuation. Of course that asset would only be useful if you could sell it or it returned dividends, and it would appear that neither is possible.

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  21. burt (8,275 comments) says:

    PaulL

    You can’t be serious – you are using facts rather than carefully managed PR material – stop it !

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  22. Paulus (2,631 comments) says:

    Since inception Kiwibank has “taken” $860,000,000 from NZ Post regularly to support it’s solvency margins, and never paid any back, or paid a dividend.

    Good Business ?

    If it so good let any Government sell 49% and see what result you get – zilch – it is a bummer.

    Overseas Reinsurers are/have paid around $20,000,000,000 towards the Christchurch rebuild.

    Where is KiwiAssure going to find enough capital to support even a part of such a claim.

    Inadequate Capital, poor business plan, as reinsurance so costly, no Standard & Poors/Moodys credit rating – no licence from Reserve bank.

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  23. PaulL (5,987 comments) says:

    @burt: to be fair, I’m making assumptions then applying maths to it. That’s not the same thing as facts. Strictly speaking @BlueDevil would be using facts, since s/he bothered to go and read the annual report.

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  24. In Vino Veritas (139 comments) says:

    Samuel, you claim to have met David Cunliffe. Which one was that? On meeting the market, the market is not a creature or a sentient being. It is a system that allows parties to engage in exchange. No wonder you have such problems with economics.
    Oh, and using the words “progressive economic policies” and “Labour” in the same sentence is an oxymoron.

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  25. PaulL (5,987 comments) says:

    But since we’re doing facts, I’ve had a quick look at the Kiwibank financial statement and the TSB financial statement (http://www.tsbbank.co.nz/Assets/PDF/Annual_Reports/TSB_Annual_Report_2013_WEB_FINAL.pdf). Both are banks owned in NZ.

    I see some interesting differences. TSB, for example, had (gross) interest income of $277M, and other income (presumably fees) of $21M. It paid a dividend to shareholders. Kiwibank had (gross) interest income of $794M and fees and other income of $171M. TSB’s ratio of fees to interest is 7%, which is lower than Kiwibank’s ratio of 21%. So arguably (at least on the face of it) people would have been better to take their business to TSB than Kiwibank, since TSB is charging lower fees.

    I’m also interested in the sheer volume of interest income, I’m assuming that’s mortgages. Kiwibank presumably borrows cheaper than any other NZ bank, as I notice that their credit rating section describes the credit rating of the NZ Govt. So they should have a much higher profitability than other banks, given the implicit guarantee that other banks don’t get. Interesting that they don’t pay a dividend but TSB does. I can only assume that their large mortgage portfolio (compared to TSB) means either that they are lending below market rates (through the implicit guarantee of the govt), or they’re taking loans other banks would consider risky. I don’t recall Kiwibank having lower rates than the other banks, so perhaps it’s the latter?

    As I argued at the time, NZ had a perfectly good NZ owned bank in TSB. If individual NZers felt the need to bank with a NZ bank, they could have. But instead all NZers were forced to fund a bank that performs less well than the perfectly good community and NZ owned bank we already had.

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  26. Akld Commercial Lawyer (165 comments) says:

    Um, Kiwibank was founded in May 2001 – and has recently announced that it has adopted a new business plan that sees it tempering expected growth, with the goal of being capital self-sustaining by 2016. In the meantime, the taxpayer will have endured 15 years of capital contribution to prop up the balance sheet – with each tranche of growth requiring more capital.

    Change to both financial reporting standards and prudential standards (now Basel II) have required further capital.

    Recently, Kiwibank escaped a credit downgrade from Standard & Poor’s – which has warned that both the bank and its parent company, NZ Post, could face a cut within the next two years (unless they bolster their balance sheets).

    This is on top of the retained earnings. And you need to read the fine print to get a better picture of the quality of those earnings – there are a lot of small depositors, and home-loan lending, largely a stable business but a low earner. Much of the non-home loan earnings are from related party transactions.

    All in, a gamble with the taxpayer’s dime – and a very long way from even providing the taxpayer with some relief for that investment. A recent series of announcements indicate that some of the proceeds of the asset sales program may need to be applied to the Kiwibank balance sheet.

    And this for a home loan lender – not an insurer (which is a somewhat riskier proposition – as recent events have shown yet again).

    We need a better opposition. Again, there are some interesting names being touted as would-be new Labour MPs. Let’s hope they get someone with some economic literacy and an unwillingness to tell whoppers. A fact-based debate about the real issues required to get this economy working, and a greater proportion of the workforce getting skills that are going to translate into careers that add value and put us in a position to face the challenges ahead is required. Not more negative carping and populist but ultimately un-sustainable spin. And it won’t come from the anti-growth, anti-science Greens.

    This isn’t a rationale debate – its just blinkered idealogy.

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  27. burt (8,275 comments) says:

    PaulL

    But instead all NZers were forced to fund a bank that performs less well than the perfectly good community and NZ owned bank we already had.

    Situation normal for socialism ….

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  28. Samuel Smith (276 comments) says:

    Kiwibank – Returns a dividend for the Government and saves New Zealanders hundreds of millions of dollars, whether they are Kiwibank customers or not.

    Sounds like a win-win-win.

    Pity you neolibs can’t see through your invisible hands.

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  29. Samuel Smith (276 comments) says:

    KiwiAssure minus the Tory-spin:

    “KiwiAssure

    A Labour government will set up a KiwiBank-style insurance company to provide a local alternative in an industry dominated by foreign-owned businesses.

    “Building on the success of KiwiBank, Labour will create a local insurance company called KiwiAssure which will work for all New Zealanders,” says Labour Leader David Cunliffe.

    “Kiwis are sick and tired of seeing their hard-fought for assets sold off to foreign interests.

    “KiwiBank was a breath of fresh air when launched by Labour and Jim Anderton in 2002. It gave New Zealanders, who were frustrated with big overseas players, a home-grown banking alternative.

    “The Christchurch earthquakes have left thousands of Cantabrians struggling to get their claims approved and huseholds throughout New Zealand face more restrictive cover for years to come.

    “Christchurch residents know their pay-outs have been slow and the services they’ve received have been patchy.

    “Many New Zealanders are concerned the sum insured changes have pushed up their premiums. They want the assurance of a service-focused state-owned company that has their best interests at heart.

    “KiwiAssure will offer New Zealand families a responsive and innovative insurance alternative they will share a stake in.

    “Subject to a business case, KiwiAssure will be a sister company of KiwiBank and will evolve out of the existing Kiwi Insurance Limited. It will offer home, contents and vehicle insurance, along with cover for small business plant and equipment.

    “With 90 per cent of the insurance sector owned by overseas interests, a Labour government will ensure Kiwis can choose to keep profits from this crucial industry in New Zealand,” David Cunliffe says.”

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  30. scrubone (3,099 comments) says:

    A always find it amusing that we’re told that Kiwibank is awesome and the Aussie owned banks are not.

    But few of the people who say these things seem to realise that Kiwibank actually contracts ASB to do a lot of what most people would consider a bank’s function.

    Blowed if I know how that works.

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  31. scrubone (3,099 comments) says:

    KiwiAssure minus the Tory-spin:

    Then proceeds to copy an paste a Labour party press release.

    That’s just sad man.

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  32. kiwi in america (2,454 comments) says:

    Samuel Smith
    Where’s your proof that Kiwibank has ever returned a dividend to the government or is there a mythical Annual Return circulating at The Standard that is the banking version of Platform 9 3/4s! The lower fees (debatable) are a transfer from all taxpayers to low income earners and is nothing more than a clumsy transfer payment. It would be far more efficient to offer low income earners a modest bank fee subsidy akin to an accommodation supplement and have Kiwibank operate properly and stop draining the tax payers with the constant capital injections that all NZers have contributed to – or will that come from Labour/Greens money printing press as well!

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  33. Rich Prick (1,705 comments) says:

    Samuel, please stop wasting 1’s and 0’s.

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  34. PaulL (5,987 comments) says:

    Yup, and no rebuttal of the actual analysis. So, please explain where Kiwibank returns a dividend for the government? Because their accounts say otherwise. Please explain where Kiwibank saves NZers hundreds of millions of dollars? Because that’s not really credible either – their total annual interest return is around $700 million, are they charging half the market rate? Where are these savings coming from?

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  35. Bad__Cat (140 comments) says:

    Samuel doesn’t include most of us here as real New Zealanders; we’re those mythical “rich pricks” because we work, earn money, pay tax and don’t get welfare. So when it’s pointed out to him that we prop up Kiwibank, we are not part of his equation.

    “Kiwibank gets money (from somewhere) and gives it to poor New Zealanders” so it must be good. QED.

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  36. burt (8,275 comments) says:

    If there is anyone who thinks KiwiAssure is an innovative solution to the problems of “nasty foreign owned insurance companies” then they should dig out the history of State Insurance.

    Oh, one more thing – will KiwiAssure underwrite it’s insurance with the same underwriters as other insurance companies or will us tax payers be required to fund that as well ?

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  37. ex-golfer (165 comments) says:

    @ Samuel Smith (prev known as Hamnida)
    Do you realise how dumb, illiterate and economically inept you make the whole Labour party movement look with your comments?
    Hang-on, I get it now. You are in fact a right-wing plant purposely showing how thick Labour followers are……thanks for the on-going confirmation.

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  38. flipper (4,077 comments) says:

    So, SS/Haminda….

    When are your Gods /Idols, Cun*liuffe and red melon wussell, going to charge John Key with a breach of parliamentary privilege for telling the House yesterday, that having put $860 million of taxpayer money into Kiwibank, it had yet, after 10 years, to pay a single dollar dividend ??????????.

    Ridicule of you and yours would be kind….

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  39. PaulL (5,987 comments) says:

    Ah. I thought I saw some similarity. Haminda. I’ll stop engaging.

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  40. burt (8,275 comments) says:

    You know that as soon as somebody starts parroting Dr Cullen, Jim Anderton or Winston First that pretty much everything they are saying is a complete fabrication. You can’t polish a turd, but you can roll it in glitter. Samuel Smith highlights the glitter in his analysis… Ignore him.

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