Kiwiblog

The forced release of substance of National’s KiwiSaver policy is a mess. It comes at a time when Labour have got some momentum from the budget, and National needs to be error free.

I said a few weeks ago that I no longer think Labour can win the election, but that National can still lose it. That still holds true in my opinion. Now this episode by itself is not an election loser, but timing is everything in politics. If the TV stations are polling this week (and they probably are based on their normal cycles) then it may not National back a wee bit, and then you get stories about how the race is back on, and that continues to give Labour the momentum they badly need.

One can only feel some sympathy for Kate Wilkinson, even if tempered with some annoyance. Some MPs are known to be prone to speaking before thinking, but Kate isn’t one of them. It was an uncharacteristic mistake, but it really shows the importance of being very very guarded with speculation on policy – especially when Trevor Mallard is in the room! Trevor hasn’t looked this happy since he biffed Tau

The somewhat ironic thing is that it is a no brainer that eventually National would announce it would keep compulsory employer contributions to KiwiSaver. regardless of whether one approves of the policy, you can’t change it once 600,000 people have made investment decisions based on it. If you were going to not keep the contributions, you would have to have said so almost immediately so that people signing up would be aware that a change in Government would lead to no compulsory employer contribution.

National could have come out and said this at an earlier stage. But it presumably is looking at having some minor differences, and wanted to release a full policy on a timetable of its making. There are in fact two related but different issues with regards to the employer contribution. The first is whether it will be compulsory, and at what rate. The second is what subsidy the Government will pay employers as partial compensation.

John Armstrong makes a fair point:

The more obvious it appears that National is heading into Government and the longer it holds out on clarifying its stance on major policy matters, the more not-so-experienced MPs like Wilkinson are going to come under pressure at such meetings to spell out what the party would do differently.

Vernon Small also makes a similiar point:

But in “clarifying” her blunder National has announced what amounted to a $2 billion spending commitment over four years to a policy which is proving very popular – with 600,000 already signed up – and rather than doing it at a time of their choosing they have been forced to scramble out an announcement as a political save.

I guess that’s what happens in a policy vacuum;  there are just too many things you can’t say and too many things you might say.

To be fair, the budget was only a couple of working days ago, and there is a lot of work to be done on having a balanced alternative budget. So I suspect we will see a focus on policies with relatively minor costs (policy rather than spending) in the immediate future, and then some more of the bigger costing items once the sums are done.

Tags: John Armstrong, Kate Wilkinson, KiwiSaver, National, Vernon Small

Vernon Small from the Dom Post blogs his speculation that Dr Cullen may do what he did in 1999, and bring in a new top tax rate, to help pay for tax cuts elsewhere.

How does he stop the highest paid getting the most? Well a threshold movement is better than a rate cut in that regard. Given that all those above any new threshold will get the maximum benefit, it is still limited. For example, if you lift the top threshold from $60,000 to $70,000 then everyone earning more than $70,000 gets 6c X $10,000 a year = $600. Between $60K and $70k they get lesser amounts. Compare that with a cut to the top rate of 39c where the more you earn the more you benefit.

If you want to cut the rates, then the only ways to limit that effect is to cut a rate further down the progressive scale – either the 33c rate that starts at $38,000 or the 21c (effective) rate below that threshold.

Or – and here’s a bit of speculation to send a chill through the blood of the very well paid. Remember that comment about redistribution and the imposition of the 39c rate in 1999?

What if he introduced a new top rate, to apply after the election of course, say 40c or 42c on income above a new threshold? A threshold of $150,000 might do it, and would annoy precious few voters. That would cap the benefit and even start to claw some tax revenue back. National could fulminate, but might look like protecting “its rich mates” – a trap Cullen is constantly baiting for John Key and Bill English.

There are those who would argue the top personal and company rates should be aligned, but with business tax at 30c and two personal rates higher than that now, the roof hasn’t fallen in. So “why not be hung for a sheep as a lamb?” as my mother would say.

This certainly can not be ruled out. Cullen hates rich pricks, and the thought of taxing them even more is not impossible. He did the same in 1999.

Cullen knows he will probably never get their votes, so you do some wedge politics and take more off the “rich pricks” so you can reduce tax for people who might still vote for you.

Tags: Michael Cullen, tax cuts, tax increases, tax rates, Vernon Small

My God. The January Crown Accounts had a $600 million error in them. IRD failed to update the provisional tax take, which is why tax revenue was around $700 million below forecast.

Vernon Small blogs that Cullen is furious. I would be also. This is not a minor error. And the fact that the tax figures were below forecast for the first time ever, is all the more reason why it should have been triple-checked.

Tags: Crown Accounts, fuck-ups, IRD, Michael Cullen, Vernon Small

Lots written on Auckland Airport today. I’ll divide it up into the legal, political, and economic. First of all look at this story by Audrey Young:

On Monday night, after the Australian sharemarket closed, the Government changed overseas investment rules ensuring that if even the Overseas Investment Commission approved the sale, the two ministers with the final say, Clayton Cosgrove and David Parker, would be able to say “no” and withstand judicial review.

I would not be so confident about it withstanding judicial review. Despite attempts to isolate the two decision making Ministers, it is obvious that the issue has been pre-determined for them. And as Chris Carter found out with the Whangamata marina, the Courts do not like Ministers pre-determining issues.

On the political side, Vernon Small blogs:

Labour is cock-a-hoop today over the Auckland Airport (we-won’t-let-it-be-bought-by-a-Canadian-pension-fund-but-don’t-want-to-say-it-that-blatantly) regulation change.

Just a day after Prime Minister Helen Clark predicted the ‘fun would begin’ once National started debating policy John Key has looked surprisingly leaden-footed in response to the change – a popular move with the electorate, I would imagine, but one which National would instinctively reject.

National’s response hasn’t been particularly well-targeted it seems to me. The issues I would focus on are:

• One shouldn’t change the rules at the last second – moves like that destroy investment and jobs and push up interest rates
• The rules should be clear as to what is and is not allowed, and this change means no one will be sure now what the ground rules are

Tracy Watkins has an article in the Dom Post, with the headline being “Nats will not ban airport sale”. Now please bear in mind Tracy does not write the headline even though it is her story. The headline though is a misleading one as it suggests Labour is banning the sale, and they are not. They are changing the rules, but they are not banning it.

On the economic front NZ Herald economic editor Brian Fallow looks at the dangers:

The Government is running risks with New Zealand’s reputation as an investment destination by suddenly turning Overseas Investment Office approval, long a rubber stamp, into a serious hurdle for the Canadian bid for Auckland Airport.

It has changed the rules in the closing minutes of the game.

And it does this reckless thing at the worst possible time.

The country has for 20 years enthusiastically taken advantage of the opportunities globalisation provides to access foreign capital.

Had we not, had we relied on what we ourselves are prepared to save and invest, the economy would be a lot smaller than it is.

Indeed.

Fran O’Sullivan counts the cost:

Helen Clark’s Government has wiped hundreds of millions of dollars off Auckland Airport’s value in a vainglorious move to exert “local control” over an asset that passed into majority private ownership more than a decade ago. …

The upshot is that New Zealand’s hard-won reputation as a “fair dealer” that welcomes foreign investment has now been carelessly hammered by a Government which is bent on milking the Auckland International Airport takeover for political advantage.

What Helen Clark and Finance Minister Michael Cullen forget as they blatantly ramp up the foreign investment bogey during election year is that the 50,000 retail shareholders in Auckland Airport also have votes.

The NZ Herald Editorial labels the move xenophobia:

This is populist politicking, pure and simple. An administration reeling in the polls has stooped to courting xenophobia. Only that explains the timing of the intervention. If the Government genuinely viewed this as the right policy, it could have acted when the airport first attracted overseas interest.

Andrew James in the Dom Post reports:

More than $300 million was wiped off Auckland International Airport’s market value after the Government introduced a late rule change …

$300 million wiped out.

And The Press editorial weighs things up:

… But it is doubtful if it is much more amenable to the national interest — whatever that is — under its present ownership than under Canadian ownership. Both owners would be subject to the same laws and regulations, and liable to the same pressures from governments local and national. Both owners would seek to maximise their profits and returns to shareholders. Materially, the only difference to occur under Canadian ownership would be a larger flow of profits offshore.

New Zealand does not have the capital or human resources to fuel its development, but it does not like the large foreign inflow of people and finance that development needs. The way to solve the conundrum is not to pass regulations but to upskill New Zealanders and make them more wealthy. Then they could own and manage their assets.

The Press gets it somewhat wrong with saying more profits would flow overseas. Because the domestic money freed up from any sale could well result in more money flowing to NZ from overseas.

The Visible Hand  in Economics deals with this and other economic issues. Gives a nice list of benefits and costs of foreign investment.

Tags: Andrew James, Auckland Airport, Brian Fallow, foreign investment, Fran O'Sullivan, NZ Herald, The Press, Tracy Watkins, TVHE, Vernon Small