Prime Minister John Key says a capital gains tax is one of the “third rails” of politics in New Zealand – and anyone who touches it will, in political terms, be killed instantly.

This week Labour touched that rail and received only an invigorating tingle rather than the shock of their lives.

That may be a premature call.

The debate is welcome, but Labour could have done much better and should be trumpeting how such a tax would shift investment into more productive export industries and create higher-wage jobs to keep young New Zealanders here.

Instead, it has watered down that message by proposing a capital gains tax that is full of exemptions and then used the revenues to shuffle tax from the very rich to the poorest. …

The exemptions for the family home, for residences in family trusts, for Maori land, collectibles and gambling winnings will be welcomed with open arms by budding tax accountants and lawyers.

These will be high-paid jobs, but they’re not the sort we want.

The exemption for gambling is interesting. If you take a chance by investing in the (initially) unproven company Xero, and make a capital gain you’ll be taxed on it. But if you take a chance at a casino and win the same amount of money, you’re exempt from tax.

A land tax would have been much more efficient, simple and lucrative.

The idea put forward to the Tax Working Group in late 2009 by Motu economist Arthur Grimes for a 0.5 per cent land tax with a $50,000 a hectare tax-free threshold and the ability to defer payment until sale would have raised about $2 billion a year.

I support a land tax, so long as income tax rates are cut to compensate.

BNZ Economist Stephen Toplis compiled some figures showing New Zealand’s GDP is still 1.5 per cent below its previous peak in late 2007 and is down 4.2 per cent on a per capita basis from the peak because of the migration and natural population growth we’ve had recently.

This is the truly shocking result from the recession and the debt-fuelled growth that preceded it. Per capita GDP in New Zealand is now back at the levels it was at in the June quarter of 2004.

Think about that for a moment. The “stronger for longer” economic growth bragged about by Helen Clark and Michael Cullen from 2000 to 2008 was a fraud.

It was growth built on debt and now New Zealanders are having to consolidate and repay that debt, and doing it on lower incomes.

After the housing boom and years of spending, New Zealanders have seen their per capita GDP fall, but total debt rise $97.5 billion to $246.5 billion in the last six years.

No wonder this recovery feels more like a hangover.

And this isn’t just because of inflation or because we’ve invested heavily overseas.

Our net international investment position, which includes debt and equity owned and owed by New Zealanders here and overseas, deteriorated by $55.4 billion to a deficit of $163.7 billion.

Household debt as a percentage of disposable income rose to 154 per cent from 127.5 per cent in that six-year period.

So what was the point? Now we produce less per person than we did in 2004. And now we have to repay a much bigger debt.

It wasn’t even a wasted six years. We went backwards.

The 2010 budget should help with the re-balancing economists talk about – greater incentives to invest and save, and less of an incentive to borrow and spend.

Dear Allan Hubbard:

Please say sorry and thanks.

Please say sorry to the taxpayers of New Zealand and investors in South Canterbury Finance who now have to bear the burden of cleaning up your mess.

Please say thanks to the Finance Minister Bill English, Prime Minister John Key and the millions of taxpayers who are now having to pay for your mistakes.

Please say sorry to the South Canterbury Finance preference share holders who have lost all of the NZ$120 million they invested with you on the strength of your reputation.

Please take responsibilty for the mess created by the boom and now bust of the South Island’s largest financial institution.

Please appear in public yourself to answer questions about what happened at South Canterbury Finance.

Please don’t leave it up to your wife Jean, your PR advisors and your supporters to defend you in public. Please understand the scale of the damage done or your role in it.

Please be the humble man who does not shirk responsibility and cares deeply about your community that you are reputed to be.

Please don’t publicly attack the government, the Statutory Manager, your fellow directors and anyone else who criticises you and then refuse to answer questions in public.

Please show some humility and some concern for the wider community. Please don’t be more worried about your reputation than the impact on the business community or the public accounts of the nation. …

Please explain why you chose to repeatedly lend to related parties of other companies and interests that you either personally owned or controlled.

Please explain why you represented an equity injection in 2009 as a real injection of fresh money when it was nothing more than a merry-go-round of assets for shares.

Please explain why you refused to be interviewed or engage with the financial press in any meaningful way for years.

Please explain why you thought making interest free loans to young farmers to buy overpriced land was a prudent way to run a business.

Please explain why you chose to run so many businesses yourself without any outside scrutiny. A search of Companies Office records show you were or are a director and/or shareholder in 552 companies. The attached spreadsheet shows there are 1,690 companies registered from your offices at 39 George St, Timaru.

Please say sorry for saying repeatedly that South Canterbury Finance was a ‘heartland’ financier of rural businesses when it actually lent more than NZ$100 million to a luxury Auckland hotel redevelopment, the building of townhouses on Paritai Drive in Auckland, as well as to bars in the Viaduct. Please explain why you thought lending money to property developers in Queenstown who were unable to find funding was a good idea.

Please explain why there was so much related party lending between your companies and South Canterbury Finance and why you thought this was OK.

Please explain why you allocated NZ$13 million in shares to investors in Hubbard Management Funds that Grant Thornton has found in its second report did not exist.

Please explain why you reported to investors in Hubbard Management Funds that you had NZ$6 million in cash on hand when Grant Thornton said you actually had NZ$350,000 in cash.

Please explain why in March this year you had to mortgage your own assets to ensure you had enough cash to pay the interest on investments in Aorangi Securities. Please explain why you thought this was a legitimate thing to do and why you thought you should have been allowed to continue to do it for the entire group without outside scrutiny. …

Please explain why you believe you could say this in June this year and believe it: “I don’t believe in the history of New Zealand that any person has acted more honourably than myself”

Most of all Mr Hubbard. Please acknowledge the pain you have caused your investors and the taxpayers of New Zealand.

Please say sorry and thank you.

Regards

Bernard Hickey

I’ve said it before. Good intentions are not enough. Bernard has forcefully summarised the many unanswered questions, and how all we get in response is attacks on others.

But now the government faces an urgent decision between putting South Canterbury into receivership now, or putting in yet more taxpayers money in the hope it can survive and then thrive past the end of the government guarantee.

The choice is a difficult one. The immediate pain from a receivership would be substantial.

Receivership would trigger a payout to investors under the government guarantee of around NZ$1.7 billion. Some believe that shock to the government’s finances would be enough to trigger a review of New Zealand’s sovereign credit rating downgrade by Standard and Poor’s and/or Moody’s.

I don’t believe it would be enough to justify a rating review, but if it did that would immediately increase wholesale interest rates, which would eventually flow through to the entire economy. There is also the fallout on the South Island rural economy.

Any receiver would force through sales of farms, property developments and small businesses, many of whom are not paying the interest on the loans received from South Canterbury Finance. Dairy farm prices in the South Island could potentially take a big hit. Some believe this could send a new chill through the South Island that eventually cost jobs and stunt any recovery of economic growth. That’s because the Australian-owned banks are unlikely to step in to take over the loans.

This is the potential cost of letting it fail. It may be quite huge. It’s easy to just say “let them fail”, but that will mean a large payout by the Government, and a hit to the South Island economy.

South Canterbury Finance does not have a future beyond the end of the Deposit Guarantee. To have such a future, it would need to substantially increase its credit rating, find a new funder and convince already sceptical investors to go naked in backing the finance company without a deposit guarantee. They will also have to do it without their talisman Allan Hubbard, who will be long gone as owner and maestro.

At some point New Zealand’s dairy farming sector, particularly in the South Island, will have to reduce its debt.

When that happens it will be painful.

But as many investors in finance companies such as Strategic, St Laurence, Hanover and Dominion would attest, giving finance companies more time to ‘work it out’ and wait for the ‘market to bounce back’ is often worse than pulling the plug immediately. The New Zealand government faces a bail out decision in the same way Hanover Finance investors did 8 months ago and 12 months before that.

This is the crucial test – can SCF survive in the future if bailed out. Some compare it to Air NZ, which has thrived after a bail out. But there is a major difference between deciding to fly on an airline, or lend money to a finance company.

David Hillary also argues SCF should not be bailed out:

SCF is not a successful business, and it does not have a successful ‘good bank’ to salvage. The damage to SCF’s brand is total, SCF has been selling its best loans, and encouraging its best customers to re-finance elsewhere for probably a year now, leaving it with few good assets left. Its asset origination and management systems and personnel are the problem, and it is what needs to be closed down, not saved. …

SCF’s governance, leadership, culture and practices have been and are so bad that the company’s problems are pervasive, and this means that its liquidation value is likely to be higher than trying to keep it as a going concern.

Whatever the Government decides is going to be pretty unpopular.

Floating an idea that you don’t really believe in is never a good idea.

Goff has suggested this lame GST exemption idea, knowing it will be knocked back by any tax policy adviser worth his spreadsheet. It opens loopholes to drive trucks through and would destroy one the last great things left in New Zealand’s tax system – a clean, broad and simple GST.

Goff’s economic ideas are all about veering to the left. They are

1. Tax rich pricks more
2. Spend more and borrow more
3. Destroy the simplicity of GST
4. Abandon consensus on monetary policy

I disagree with Goff’s plan to reverse the income tax cuts and simply increase the thresholds. I think he is focusing too much of slicing up the pie than expanding the pie.

Exactly. The tax changes in the budget are about growing the pie. Labour’s sole focus seems to be making sure rich pricks get less of the pie.

Allowing politicians to dictate to central bankers that they should release the inflation lever to inflate away the debts they’d like to run up would be a big mistake in this day and age. Just ask the Americans and the Germans.

Goff’s rhetoric is painfully conflicted. At one moment he is lamenting the government’s various moves to increase taxes and inflation. In the next sentence he wants to relax the Reserve Bank’s focus on controlling inflation and reverse income tax cuts.

Goff appears lost in voteless wilderness, throwing out policies and words that he thinks might be popular, but not really knowing what to believe or having any overarching strategy or new thinking.

I look for any changes to what Labour did last time in Government. All the changes seem to be swings to the left.

Phil Goff was there also, so I said I looked forward to him quoting me more often in future . Actually had an interesting chat generally on economic stuff, such as land tax. If Labour are bold they could consider proposing a land tax (tied to income tax reductions) for 2011. That could attract some support from economic reformers.

General consensus I got from pundits there was that there was definitely some good stuff in the Government’s work plan – in fact more detailed plans that most Governments announce in the PMs statement.

But what may trip the Government up is they misplayed the expectations game. Building the statement up as the “most important” one ever was a mistake, as was talking about it being a “step change”. Again, there is some good stuff there that certainly will help lift economic growth. But will the announcements alone close the gap with Australia? Of course not. But the rhetoric leading up to it, got expectations artificially high.

With the benefit of hindsight, it would have been better to have positioned the statement as a typical PMs statement – a general overview of the Government’s achievements and workplan, and then surprise the media and opposition when it turns out to have close to 30 specific initiatives in it.

As I said yesterday, I welcome the focus on growing the economic cake, not just how to split it up, and look forward to more details in the budget.

Reaction from others:

• John Armstrong – 4/10 for economic boldness
• Fran O’Sullivan – John Key deserves an A- for intent. But a mere D for the dreadful prime ministerial statement that buried a coherent economic agenda in a mass of confusion.
• Tax Working Group members seem happy
• NZ Herald editorial calls it a stutter not a step-change
• Bernard Hickey hits new levels of hyperbole
• Canterbury Employers call the package welcome but light
• Solid Energy is excited
• Colin Espiner gives it a pass, but with much more to do
• Tracy Watkins looks at the risks
• The Press editorial says it was lacking boldness
• The Dom Post editorial says it was a welcome focus on growth, not slogans

I’m beginning to lose faith in John Key’s willingness to truly reform this economy so his grandkids and my grandkids have an economic future that will keep them (and us) here.

I’ve listened for the last year to John Key’s comments about wanting to catch up with Australia by 2025 and about making changes to improve productivity and real wages so that we remain an attractive destination for our very mobile labour force. But will he actually do anything? Will he take some tough decisions and show some leadership?

All we’ve heard so far is what John Key won’t do. He won’t put up the retirement age from 65, despite everyone in officialdom saying the current threshold for entry into our universal pension scheme cannot be sustained. He won’t change the pension from its current 66% of the average way, again despite everyone saying it’s unsustainable. He won’t entertain even the idea of a capital gains tax.

The superannuation decision is just a political reality. Key promised before the election he would resign as both PM and an MP if he changed the age or floor for super. It is naive to keep lobbying on an issue after that. If he did what Bernard said, he would be finished in politics.

The capital gains tax is a more fair criticism. While Key has not ruled it out entirely, I think it is unhelpful he has been so dismissive of the possibility, while the tax working group does its stuff.

And now he won’t allow the cabinet to think about a flat tax, despite National saying in its election campaign that it aspired to flat (corporate/income/trust) tax rate of 30%.

Now here Bernard is being naughty. National did not in any way say it aspired to a flat tax. Even ACT did not campaign on a flat tax.

National said it aspired to a top tax rate of 30% for individuals, companies and trusts. And that is a laudable goal. But that is not a flat tax. Under the 30c tax rate you have a 15c tax rate and a 21c tax rate.

Maybe John Key is playing a clever long game where he plays everything down until the very moment he announces it, possibly before the next election. Or somehow he has left himself enough wiggle room to announce reforms that haven’t already been ruled out.

While disagreeing with Bernard on a couple of the specifics, I do think he has highlighted that the Government does have a real challenge ahead of it. The gap with Australia will not close without significant reforms, and the more reforms that get ruled out, the harder it is to be credible about closing that gap. Expectations are high for the 2010 budget.

Over on Kiwiblog Dave Farrar reports on an interesting idea from the redoubtable Herald columnist Fran O’Sullivan who talked at a recent Rural Women NZ conference about expanding NZ On Air funding to cover all media, not just broadcasting.

Fran has a good point. Why should what is effectively a government subsidy to ensure there will remain a New Zealand voice in the media be reserved solely for radio and television?

She argues that NZ On Air (or NZ On Media) funding should be made available to worthy local content whether it is broadcast, in print or on the internet. …

Currently NZOA funding is contestable, both public and private broadcasters can dip into it. What’s wrong with private sector publishers and bloggers having access to it also?

Back in the day, when Maurice Williamson was broadcasting minister, the whole idea of contestable NZOA funding was that it was needed for all broadcasters to provide NZ content because otherwise commercial pressure on the channels would mean cheaper imported foreign product would overwhelm locally produced material.

This effect is now being felt not just in broadcasting but all media. So, open up the fund!

Yep. NZ on Air used to be funded by the TV license fee. But ow it is funded out of general taxation, the rationale for broadcast only is weakened.

Frankly, it will eventually have to happen because of media convergence anyway.

Once that wonderful high speed broadband to the home rolls out and the broadcasters start pumping more TV programmes and video into your computer, what’s the difference between a TV channel and, say, a newspaper site like nzherald.co.nz or stuff.co.nz that screens news videos?

And the newspaper sites are putting up considerable video content.

If anyone doubts internet sites lack journalistic nous and quality check on interest.co.nz and Bernard Hickey’s recent great yarn about how this country’s biggest privately owned dairying operation (they own 22 farms) is allowing dozens of calves to starve to death on one of it’s farms in the central North Island.

Hickey’s story comes complete with a whistleblower, graphic video footage and a MAF investigation that oddly seems to have come to nothing in terms of the animals’ welfare. …

Hickey produced a scoop that was eagerly followed by TV ONE’s Close up and RNZ National’s Morning Report, the NZ Herald and others.

Perhaps the most interesting part is that Bernard Hickey has long been regarded with suspicion and resentment by some in the mainstream media, who curl their upper lip at what they see as his self-promotion and entrepreneurial approach to the news business.

Oh Bernard is a media whore of such excellence, he is the Princess Diana of media whores, and everyone else is at the Jade Goody level. Bernard appears on Tv several times a week, and never fails to get the magic words “interest.co.nz” into his dialogue at least twice. I swear he will have the domain name on the coffin at his funeral

Unlike some though, I don’t see this as a bad thing. I think it is great Bernard has abandoned safe employment within the traditional media, to work online only and turn it into a commercial success. He is in this to make money, and good on him for making sure he consistently gets the brand across. And it has allowed him to do investigations such as the Crafer one, which has been hugely beneficial.

I find it highly amusing that that avowed right wing capitalist has fully exposed the practices of NZ’s biggest farmer, rather than the environmental left movement. Not totally surpised, as people on the right can be very harsh on those who “let the side down”. That is one reason I hate “scummy employers” who are exploitative. They are the reason we get all these rules and regulations on the other 98% of employers.

This is the kind of investigative story that would merit NZ On Media funding.

A good example.

A video of starving calves is above.

I recommend people go read the story, which is pretty shocking. Extracts:

New Zealand’s biggest privately held dairying operation allowed dozens of calves on one of its massive farms on North Island’s central plateau to slowly dehydrate to death earlier this month, triggering a MAF investigation but no prosecution. …

Poor management and the pressures of massive debts obtained during rapid expansion meant this farm was so poorly managed that none of the staff trained the calves to drink milk, allowing them to die of dehydration in a muddy pen even though their trough was often full.

The Crafers have been prosecuted numerous times on various issues such as releasing effluent into waterways.

After interest.co.nz obtained the video, producer Bryan Spondre and I visited the farm where the calves had been kept to find out more. When we drove up next to the calf shed we were confronted by farm manager Sam Webb. He told us to: “Get the f**k off this property. You have no right to be here.”

Bryan started taking photographs of the shed and Sam Webb manhandled him back into our car before swearing abuse and grabbing at Bryan’s camera.

“I’ll take both of you bastards out,” he yelled.

Webb then punched Bryan through the open window of the car door. The punch was so hard it dislodged Bryan’s contact lens. We drove off and the picture published to the left shows Webb yelling at us as we left: “F**k off you c**ts.”

Where’s the picture of the black eye?

Go read the full story, and the questions Bernard has for MAF and Fonterra.

An excellent piece of investigative journalism.

Here’s the problem: local government is growing at least five times faster than the rest of the economy. Those costs are being passed on directly to ratepayers in the form of rates, fees and fines that are growing at least four times faster than prices elsewhere in the economy.

The latest Local Authority Statistics released this week showed council spending nationwide rose 10 per cent to $6.21 billion in the year to June from the previous year.

Total revenues collected rose 6.8 per cent to $6.15 billion, which meant the collective council budget balance slumped into a deficit of $56 million. That will eventually be reflected in higher debt.

To put this growth in spending and rates into context, our economy contracted 1 per cent in the year to March in real terms and was flat in actual terms unadjusted for inflation. So how are all these revenues raised? General rates nationally rose 7.8 per cent to $3.33 billion in the year to June, while water rates rose 10.3 per cent to $263 million. Fees and fines rose 10 per cent to $376.6 million. Meanwhile the Consumer Price Index rose only 1.9 per cent in the year to June.

Generally rates should only increase in line with population growth and inflation in my opinion. When rates are growing faster than overall economic growth, the situation is not sustainable in the long term.

Everyone is kicking the big four Australian-owned banks because, it’s assumed, they’re profiteering on interest rates at the expense of farmers, homeowners, and businesses.

The big four are padding their profits by not passing on rate cuts, the argument goes. The other assumption is that the only “good” bank is Kiwibank, which is sacrificing profits by cutting rates.

The trouble is the free kickers are wrong on both counts. Our analysis of bank general disclosure statements (GDSs) to the end of December shows the net interest margins earned by the big four fell fast in the second half of last year.

Banks actually sacrificed $396 million of profit from interest rates on total assets of $329.5 billion.

Surprisingly, the big fours’ bank fees also fell, in total and as a percentage of assets. The only reason bottom-line profits didn’t fall as much is banks stripped out around $250 million of costs in the second half of last year.

That’s an analysis I’ve not seen elsewhere. Margins are down, but costs also down.

Our analysis also shows Kiwibank had the highest net interest margin in the second half of last year, compared to the only other bank reporting a six-month figure, which was ASB.

It’s hard to compare with the other banks, which reported three-month figures, but Kiwibank was the only bank not to see a contraction in its margin in the second half. The only thing making its net profit look less buoyant than the big four is that its operating costs (salaries, rents, advertising) are more than double those of its big four competitors as a proportion of total assets.

Again fascinating analysis. Bernard explains:

The best way to understand what is happening to interest margins and bank profits is to look at their GDSs, which detail their net interest income, expenses, fee incomes, bad debt charges and, ultimately, net profit.

The key number is net interest income, which nets off all interest receipts and all interest payments. This effectively calculates the profit from interest on mortgages, credit cards, business loans and consumer loans, minus the cost of everything in the funding melting pot, including term deposits, long bonds, interbank funding locally and foreign short-term funding.

Simply looking at the bottom-line net profit numbers is misleading because they include all sorts of factors, including non-interest fee income, trading gains, cost reductions, bad debt charges and tax changes. It’s also best to compare apples with apples by measuring everything as a percentage of assets to make sure the numbers aren’t skewed by size.

It is nice to see business journalism that goes beyond someone reading a net profit amount and declaring it to be too high or too low!

Also a few days ago they had an interesting story about how John Key’s interview in the Wall Street Journal helped ANZ National secure $1 billionf of finance:

Last week ANZ National CEO Graham Hodges went to the United States for a roadshow to promote this US$1 billion bond issue. Its success was no sure thing.

Time and again, Hodges says, investors told him Key’s interview in the Wall St Journal had reassured them, despite the uncertainty of a potential credit rating downgrade. Sometimes it’s a struggle to get foreign investors to look past the shorthand of credit ratings and the headlines of research notes. Key’s interview made them sit up and take notice.

Hodges said it seemed to strike a chord.

It turns out the interview was a crucial factor in the success of the bond issue, the first long term issue by a New Zealand bank since July last year. It is likely to set the tone for more.

Stuff like this you just never see in most other media.

The first question people have, is what does Foo stand for.  Foo stands for Friends of O’Reilly – that being Tim O’Reilly of O’Reilly Media.

Kiwi Foo Camp is a local version organised by Nat Torkington (and his wife) who works for O’Reilly. It is for “technology industry people and policy makers”.

This was the first one I had been invited to – they are invite only, and I was thrilled to be invited and pleasantly surprised by how many people I knew there – and even more pleased to meet dozens of new people.

There are a number of great things about Foo Camp. The first is that there are no stupid people there. Yes, I know that sounds a bit wanky, but what I mean is everyone there was interesting, and interested. It is a retreat for those who are intellectually curious. You get to have a range of discussions that are stimulating, and fascinating. You also learn how much you don’t know.

The second great things is there is no agenda. It is an un-conference. What do I mean by that? Well when we get there on Friday, we work out the agenda by ourselves. And no not by sitting in a big circle – more like a human Wiki.

There are six classrooms available and around twelve slots on Saturday and Sunday morning. So they have up on the wall the 72 session slots. And any attendee who wants to speak on a subject just writes on a large sticky what their topic is in a sentence, and sticks it in a slot. And eventually you have all 72 slots filled.

But even better, you can change things around. For example there was a session on fibre to the home and on copyright laws at the same time in different rooms. So I just unilaterally moved one session to another time. And other people could and did move sessions about so they could attend the ones they want. And whatever we end up with by end of Friday night is the agenda, so to speak.

There were sessions on everything from highly geekly programming stuff, to digital photography to surviving the recession to ideas for Bill English to grow the economy etc etc.

On Saturday evening we had a great debate with Russell Brown, Rod Oram, Bernard Hickey and others debating “Is New Zealand fucked?”. The debate itself was funny enough, but at the end every audience member could also get up and speak for 30 seconds on their view – but they had to start with “Fucked” or “Not Fucked”. Apart from the hilarity of hearing the F word around 300 times, there was also some great insights into NZ.

I observed a great game of Werewolf, with around 30 participants on Saturday Night. Next time I’ll join in, now I know the rules.

Kiwi Foo Camp wasn’t just a talkfest. It is also where key people came together to further the anti S92A “guilt by accusation” campaign. We had a great session brainstorming ideas (such as the Blackout), and also had a session on the long term issues around copyright law internationally and domestically. Kiwi Foo Camp made a real difference to stopping S92A having come into effect last month.

The Kiwi Foo mailing list sort of got hijacked after the event to co-ordinate the campaign, and at its peak there were 200+ messages a day – almost impossible to keep up – but worth it.

So all in all, a great experience was Kiwi Foo Camp. And big kudos to not just the organisers such as Nate, Jenine and Russell – but also the wonderful catering squad who fed us so well.

Other blogs coming out of Foo Camp are this post by Lawrence Millar (NZ Govt CIO), The Strategist and Artifical Code.

We should be bringing together all of these itsy, bitsy little provincial holidays into one national day so we can all have a day off. It would no doubt significantly improve productivity on all these itsy, bitsy days and ensure we all still get a day off.

We could call it National Provincial Day Off. After all, does anyone really care or know why today is Auckland Anniversary Day and last Monday was Wellington Anniversary Day?

I agree. The whole idea of public holidays is that most of the country is n holiday, so you can relax. Otherwise you’d abolish public holidays and just give everyone two week’s extra annual leave.

So having different holidays in each province is silly. Especially considering we no longer even have provinces!

The holiday should just be set for all of the country as the last Monday in January. It’s a good time for a break.

Plunging mortgage rates and another fall in house prices improved home loan affordability by a record amount in December to its best level in 4 years, the monthly Home Loan Affordability report from www.interest.co.nz shows. At current rates of improvement, housing is likely to be broadly affordable again for most home buyers towards the end of 2009.

In other words, back to sanity.

You can see the impact of both the fall in prices and of interest rates. And both should continue to fall. The tax cuts in October and again in APril will help also as they boost take-home pay.

40% is generally regarded as the maximum home owners should pay towards their accommodation. That’s probably unrealistic for many, but it would be good t get it below 50% anyway.

On the surface, the prosperity can be seen in the world-class infrastructure of roads and electric rail lines that Auckland in particular has not been able to achieve despite decades of talk; the very high standard of housing, commercial buildings and public facilities; the wages that really are stunningly higher than at home; the many job vacancies in the papers even on the Saturday after Boxing Day. Australia has not had a single quarter of negative growth this year while we have had three (though the Aussies fret about it and fear recession might still happen). I could go on.

MacDoctor shares some first hand experience of emergency clinics:

An article in the Weekend Herald (not yet online) entitled “High cost stopping Kiwis visiting the doctor” tells us that over two thirds of New Zealanders over 20 have avoided visiting a doctor because of the cost. I didn’t need any research to tell me this is true, because these people pitch up to emergency departments throughout the country with the line, “I couldn’t afford to go to my GP”  or it’s alternative “I owe my GP too much money”. …

I view these two excuses with a great deal of cynicism. Many who use these lines are drunk or have nicotine stains on their fingers (or both). They drive up in expensive cars and sport MP3 players (many are genuine iPods). They typically arrive not long after the GPs have all closed for the evening, or over the weekend. These are the “milkers of the system”  - They know how to work the health system to their advantage and they use Emergency Departments like a GP clinic. …

I suspect most of the two thirds of New Zealanders who said that they do not go to a doctor because of cost, are really saying that they would rather spend their time and money on something other than their health. It has nothing to to with lack of access and much to do with lack of interest. Until we, as a society, start to see that health is important and worthy of investment, this problem will not go away, regardless of the amount of money governments may throw at it.

Hear hear. I think all bar the very poorest should pay something towards their healthcare.

Bernard Hickey recommends a Kim Hill interview with JJ Joseph – a man who used to beat his wife. It’s a very moving interview that shows people can turn their lives about.

And finally Lynn Prentice at The Standard manages to link Bernie Madoff’s ponzi scheme to National’s planned repeal of the EFA. The hilarious part is:

based on recent experience of their autocratic, arrogant, and undemocratic behavior in the house, we will probably see some opaque, badly written, and badly thought through legislation pushed through under urgency.

What does he call the EFA if not badly written and badly thought through? And he ignores of course that unlike Labour, National has said it will consult all parties over the replacement legislation. It was Labour that tried to use bipartisan electoral law to screw over its enemies.

We now have a scheme that Rod Petricevic could (in theory) use to launch new government-guaranteed finance company to repurchase loans from the receivers for Bridgecorp. It could also be used by Doug Somers-Edgar to fire up the Money Managers empire again. Allan Hawkins could start raising money for his Budget Loans finance company and promise that it was backed by the government.

Not good. The problem with rushed solutions where the driving factor is being able to announce it in time for your political campaign launch, instead of have we got the policy right.

Every finance company wannabe will be licking their licks. They’ll be working on schemes and dreams about new developments or buying bankrupt holes in the ground as we speak. Just imgaine. They will be able to offer deposits at 10% with a government guarantee. If they’re quick enough they’ll be able to do their business before the two years runs out and leave an even bigger smoking hole in the ground for the government (ie the taxpayer) to clean up.

One hopes this would not happen, but often solutions cause worse problems than the one they were tring to solve.

The second big truck sized gap in the scheme explicitly rules out bank deposits in other banks as being covered by the scheme.

This effectively means inter-bank lending is not covered. Why is this important? Currently more than a third of New Zealand bank lending is funded from international wholesale markets, which means our banks have borrowed from other banks overseas.

The scheme announced in Australia yesterday does provide a government guarantee for these inter-bank loans.  There is now a big risk that foreign banks will see they can be guaranteed if they pull their money out of New Zealand banks and put them into Australian banks.

Hopefully others will look beyond the press release and look at the details of how it might work.

It is the elephant in the room of New Zealand politics. Everyone knows it, yet our leaders refuse to address it, partly because they and their generation benefited personally through the massive house price inflation it created.

I’m talking about the abuse of the tax system by property investors that has allowed them to establish various types of trusts and loss attributing qualifying companies (LAQCs) that make losses on investment rental properties to reduce their personal income tax bills.

This was among the major reasons for the property investment frenzy of the past six years that drove house prices to unaffordable levels and has now created the conditions for a bursting of that bubble.

It would be good to see some hard data on how much of the price increases can be credited to the tax treatment, and how much to land supply etc.

The Department of the Prime Minister and Cabinet wrote a report on house prices and affordability in March. It showed landlord numbers rose more than 100,000 to 300,000 in the decade to 2006. The report estimates the $149 billion of rental property generates a tax benefit of at least $700 million for property investors, with the potential for up to $1.8b of tax benefits.

The Reserve Bank has asked the politicians to consider ring- fencing these investment property losses to remove some of the hot air pumping up the housing bubble.

But there isn’t a politician addressing the issue seriously.

Well I doubt anyone wants to lose the 300,000 votes such a move would result in.

Could such a change be grandfathered in? That would be inequitable but possibly the only way politically to do it.

Bernard Hickey complains (as I often have done) that we are paying $79 million into TVNZ6 and TVNZ7 yet they won’t make them available on Sky TV. He quotes former TVNZ Head of News Paul Norris in support – they have a reponsibility to make them widely available and could extend them with a flick of a switch to 700,000 households overnight.

Andrew Bolt has a fascinating exchange with an academic over the “stolen generation”. While there certainly is much in Australia’s past that was deplorable (as in NZ), it is apparent that certain portions of it such as the “stolen generation” have been over-hyped. He cites the example of one Aboriginal leader who claimed to be part of the “stolen” generation who was “taken from my family” but in fact was put up for adoption by her father who could not cope with five children.

Lindsay Perigo writes a moving account of his last face to face meal with Anna Woolf, who is dying of brain cancer. Even just reading his account makes the eyes water – I can’t imagine how hard it is for those who are close to Anna, let alone Anna herself.

The Telegraph points out that if Michael Phelps was a country, he would be coming 5th on the Olympic medal table – ahead of Italy, Russia, Australian and Great Britain.

Frog Blog joins Nick Smith on wondering why DOC is spending so much money on a new corporate brand, when it has just laid off 60 workers to save money.

Liberty Scott exposes Sue Kedgley’s scaremongering over cellphone towers. Good God, this debate was settled over a decade ago in terms of science. I’d be more inclined to take Sue’s campaign against the towers seriously if she’d give up her cellphone.

Lindsay Mitchell covers the launch of a second Maori based party. The Hapu Party is led by David Rankin, and three policies to date:

1. To have Maori eligible for the pension at age 56, because of the lower life-expectancy of Maori
2. To introduce a flat rate 18% personal tax and GST rate.
3. To immediately allocate all treaty settlement money directly to hapu and marae

They have me with policy No 2. Policy No 3 is between Iwi and Hapu to resolve in my opinion, and Policy No 1 has no chance. Worryingly for the Maori Party, Rankin also talks of financial irregularities with a Maori Party MP and a SFO complaint.

He finds that average wage in the public sector has increased a staggering 9% (hence high inflation and high interest rates) compared to 4.6% for all sectors.  He also finds the gap between public and private sectors wages has grown from $4 and hour to $8 an hour.