Hat Tip: Whale Oil

My column at nzherald.co.nz welcomes Labour’s reported new approach to focus on how to grow the economy more, rather than oppose all spending cuts. An extract:

Even more pleasing Labour have said that they wish to focus on measures to lift New Zealand’s economic game. This is excellent. This is what the debate between the parties should be about – how to increase the size of the cake, rather than how to slice the cake up.

It was quite tough doing four seperate columns on the Budget, as each had to be quite different to the other. One was for Kiwiblog and one for Stuff.co.nz. Plus a print column for Dominion Post and a column today for nzherald.co.nz.

Danyl at Dim-Post has blogged on Singapore. His argument is:

Singapore is the darling of free-market, right-wing parties. Which is strange, because Singapore is the world’s ultimate nanny-state: not just culturally in the sense that the government controls the media and all forms of entertainment, but in the sense that it’s essentially a massive socialist state in which the government micro-manages the whole economy.

Danyl gives four examples which I want to discuss and partially rebut. Danyl is correct that Singapore is no libertarian pure capitalist society. But neither do I think it is a massiviely socialist state.

The right likes Singapore because they enjoy a low corporate tax rate. It’s currently at 17%. Pretty low. In New Zealand it’s 28%. But in Singapore the government owns the Ports of Singapore, the busiest port in the world, which is the key income earner for the entire economy. Our economy could be ‘like Singapore’ if we nationalised Fonterra and all of our dairy farms, because this would provide a revenue stream comparable to that of Singapore’s port. Then we could have a really low corporate tax rate and finance the government through the revenue from its capital assets, like they do.

Danyl way over-states the importance of the port to the Government’s books. The port has a Net Profit After Tax of S$1.2b – around 2% of total Government revenue, and 0.5% of GDP.

Even Temasek Holdings overall has a mere $4.6b NPAT. Have a look at the NZ SOEs combined NPAT and they are not an order of magnitude different.

Danyl has a point that the Government has a diverse revenue base, beyond taxation. But he overlooks how massively low the tax rates are. he mentions the 17% corporate tax rate but neglected to mention that personal tax rates are even lower. If you earn S$100,000 your tax is only $5,650, so under 6%. Yes 6%!! I’d effing allow the Government to own a couple of ports if it meant my tax rate was 6%.

Singapore also has low income taxes. But Singapore ALSO has a compulsory savings scheme in which you pay 20% of your income into a private savings account, and your employers are compelled to pay 15%. This pays for your healthcare and retirement. It’s not a tax in the technical sense in that you don’t pay it to the government – but you can classify it as such for net income purposes, and if you do then taxation in Singapore is higher than it is for the majority of New Zealanders.

Danyl misses the point entirely here. The money you have to pay into a compulsory savings scheme remains your money!! This is not the Government taking money off you to spend on everyone else. This is forcing you to save to pay for your own health costs, retirements costs etc. This is absolutely what many on the right want. The difference in incentives is absolutely everything. Having 35% of my salary go into my private savings is not at all a disincentive to working. It is the opposite – the more I work and earn the more I get to have to cover my health and retirement costs.

Next right-wing canard: there’s no welfare in Singapore, therefore unemployment is very low. Welfare in Singapore is pretty basic. And unemployment IS low. There are a few reasons for this: the state pays employers a retention bonus not to lay people off. And if someone does lose their job they go into a mandatory job-placement and re-training scheme. And if overall unemployment increases then the government launches a new development and soaks up the jobless. There isn’t a lot of free-market magic operating in there – it’s all intensive micro-management by the state.

Again Danyl misses the point here. It is about culture. It is shameful to rely on others before your own family. THe retention bonus not to lay people off was a temporary thing, and the level of state invovlement is not that major. Danyl overlooks that in NZ we had 200,000+ people on welfare even when unemployment was the lowest in the world. I’d take the Singapore system over the NZ system anyday.

There’s a lot of other non-free market aspects to Singapore’s economy – like the fact that almost all business and residential property is owned by the state, either directly or via its sovereign wealth fund, or that you have to pay the state about $16,000 for a permit to buy a car, and then a daily congestion tax to use it.

Here Danyl is on stronger ground. The permit to buy a car is bizarre. The congestion tax though is just sensible user pays. But the overall point is that the Singapore Government is not a pure free market Government. Absolutely.

But let me tell you I’d take their economic “bad” with their economic “good” anyday. And if we did, we’d be a lot better off.

Stuff has a Budget Quiz. I got 13.15 after correctly guessing Bill English’s tie colour.

A macro shot this morning of one of our smaller native longhorn beetles.

Click for higher res image

Hope everyone has a good Friday.

Seemed to be hard work here making it to the end of the week… coffee consumption is on the rise 🙂

No words are needed.

Mark Hansen has put together a nice wee site called “Where are my taxes“. Click on a pie graph to bring up a vote, and it then also gives you the breakdown per capita of spending in that vote. Did you know we spend $4 per person on weather forecasting?

Mark blogs about his site here. It’s a great wee resource.

UPDATE: Also check out a really cool visulation by Keith Ng at Public Address. It shows trends and all.

Stuff now have online a column I did for them on the budget. A couple of extracts:

The borrowing the Government does is effectively on behalf of the 1.2 million families in New Zealand. Its debt is their debt. So when the Government borrows $380m a week, that means it is effectively borrowing just over $300 per family per week. 

It was clearly unsustainable. How nervous would your bank manager be if you were borrowing $300 a week to pay the bills?

Such high debt also becomes a high expense. Every week you borrow $300, your annual interest charge increases by $18, so by year end you have $900 less money to spend and $15,000 more debt. What household would want to put up with that for long?

And I conclude:

2014/15 will fall in part after the 2014 election. A lot can happen in that time. In 2014 New Zealand may elect a Government with John Minto as Minister of Finance. You don’t want the books to still be in deficit then.

So my challenge to the Government is to not sit back and say the hard work is done. Aim to turn that $700m deficit forecast for 2013/14 into a surplus, so Kiwi taxpayers are not facing higher debt and higher interest charges longer than they need to.

You can comment on my column over at Stuff. They also have a column from John Pagani.

On the fiscal side the news is pretty good. The Government almost returns to surplus in 2013/14 (a modest $700m deficit) and from 2014/15 onwards surpluses are projected. This is a huge turnaround from the fiscal outlook Treasury revealed in December 2008 which was for at least a decade of deficits – in fact for deficits to continue beyond 2023.

This is probably the first time in 70 years that a Government has actually cut spending in election year. They were planning to spend an extra $4 billion or so over the next three years, and instead will be spending around $1 billion less.

The Government is putting $5.5b into a Canterbury Earthquake Recovery Fund, and over the next three years has reduced spending in other areas by $5.6b. The key difference is the spending savings are not one off, but will remain (if the Government does not change).

The Earthquake Fund is in addition to the $3.3 billion EQC is expected to pay out, bringing the total Government contribution to $8.8b. This will go on repairing local and national infrastructure in Canterbury plus welfare support  and a contingency for AMI Insurance.

The changes to KiwiSaver are three-fold.

1. Employees will get $10 a week instead of $20
2. The minimum employee contribution rate will increase in 2013 from 2% to 3%
3. The employer contribution will also rise to 3% in 2013, and from 2012 any employers contributions will be subject to tax at the employees PAYE rate

KiwiSaver funds are projected to still reach $60b in 10 years time.  And someone on the minimum wage who joins KiwiSaver at 18 will have $195,000 when they retire which would provide an additional pension of $11,500.

The changes to WFF are minor – reducing the cost from $2.8b/year to $2.6b a year. Over seven years to 2018, the abatement rate will increase from 20% to 25% for those earning over $35,000 a year. This will produce higher effective marginal tax rates for those on WFF.

I asked the Minister if he was concerned that it lifts the effective marginal tax rate for those of WFF to 58%. He responded that it was a trade off, and that as there have been tax cuts in past years, most WFF recipients will still have a lower EMTR, but acknowledges some may be higher.

I also asked if the savings from the WFF changes were worthwhile, especially as they streatch out to 2018 for full implementation. His reply was that over time they add up to making the scheme more sustainable.

The abatement rates will increase at the same time as WFF payments are inflation adjusted so a family on $40,000 will still get an increase in nominal terms. A solo parent on $90,000 a year with two kids will have his WFF reduced from $19/week to $7/week.  A two income family on $61,000 with two kids will go from $116 a week to $112 a week in April 2012.

Labour says the wealthy are not paying enough, but those deemed “rich pricks” by Labour in its last term of Government (earning over $60,000) are still forecast to pay 61% of gross income tax next financial year. I estimate that probably represents 85% to 90% of net personal income tax.

Part-sales of four SOEs expected to free up to $7b of capital , which will go towards acquiring $35b of new assets in the next five years. This will be a great boost to capital markets.

This budget reminds me of the 2009 budget – both were shaped primarily by external forces. There isn’t a lot you would sensibly do different. The 2010 budget remains for me the bold budget where some risks were taken and big changes made.

The budget is politically astute – it gets NZ back into surplus earlier and minimises the impact on most people. But it has not dealt with many of the issues raised by the Savings Working Group, such as the excellent idea to tax people only on their real returns from investments, not their nominal returns. The Minister said the idea is not yet ruled out, but is complex. Hopefully they might be saving that for their election manifesto.

Johm Armstrong writes in the Herald:

A case of jumping the Budget gun only to shoot yourself in the foot? David Cunliffe, Labour’s finance spokesman, found himself a laughing stock in Parliament yesterday after a poll asking families whether they were better off or worse off as a result of the Budget appeared on his website.

The poll was an embarrassment for Cunliffe for two reasons. First, the Budget has yet to be delivered. Second – and worse from Labour’s point of view – nearly 90 per cent of those responding said they were better off.

Those respondents must have known something about the Budget that the rest of us won’t until this afternoon.

More likely, National supporters organised enough votes to skew the findings in their party’s favour.

Actually it was fairly spontaneous. I blogged yesterday on Cunliffe’s premature poll, and I think blog readers just decided to have some fun.

Having ensured the poll was taken down from Cunliffe’s website, Labour was insisting the survey was one that appeared on the site after last year’s Budget. A computer glitch had resulted in the poll reappearing.

A computer glitch? Sometimes I have things *not* appear due to a glitch, but I’ve never had something appear by itself with no human involvement.

What was amusing in the House was thet the Speaker was at first reluctant to allow the website poll to be tabled, as he discourages tabling of stuff already in the public domain. However when it was pointed out Labour had removed the poll from the website, that meant it was then okay to table it.

Am in the Budget lockup today, so few stories until after 2 pm.

Stuff reports:

Inland Revenue Department figures provided to Labour revenue spokesman Stuart Nash show that, in the latest full year for which figures were available, the average tax paid by dairy farms was $1506 a year, despite an average Fonterra payout understood to be well over $500,000.

The 17,244 registered as being in the sector, including companies, trusts and individuals, paid only $26 million in tax.

This is such a bullshit story, I don’t know where to start. Here’s a few vital facts:

1. The tax data is from 2008/09 and the Fonterra payout figure is from 2011. Epic fail. As I understand it commodity prices in 2008/09 were much lower, and most farmers in that year made a loss.
2. The $500,000 is a revenue or turnover figure, not a profit figure. This is not comparing apples and oranges. A company can have a $500,000 turnover and a $30,000 profit. Turnover by itself is meaningless for tax purposes.
3. The $26m in tax paid in 2008/09 only relates to tax entities classified as dairy farmers. Many dairy farmers are in the unclassified category which paid an additional $1.5b in tax.
4. Labour and the Dom Post divided the $26m by the 17,244 tax entities registered as dairy farming. Many of these are defunct shelf companies etc. The actual number of dairy farms is thought to be around 11,500.

MAF have some data on the average dairy farm. In 2008/09 they found the average farm had $750,000 income, $529,000 expenses, $235,000 interest and depreciation resulting in a loss of $6,300. Their average tax bill was $18,600 so profit after tax was -$25k.

So the story is a total beatup. They commit two cardinal sins. One is comparing revenue from one year against tax of two years earlier. You’d be thrown of of accountancy school for that. Equally bad is comparing turnover to profit. A mistake that only people who have never worked in business would make.

Having said all that, I am a supporter of a land tax (subject to a reduction in income taxes to compensate). A land tax is near impossible to avoid, very simpleto calculate and provides an incentive for land to be out to good economic use.

If Labour are serious about closing tax loopholes, then they should propose a land tax. It would over time boost NZ’s economic growth as it encourages better economic use of land.

Politics – the musical is only on at Circa for five days. I saw it last night, and if I could I’d go back for the next for nights to see it again, and see how different it is each night.

The show is put on by the Improvisers, and was introduced as a combination of the two professions great at making things up – improvisers and politics!

The audience get asked to decide key elements of the show. The music themes for the first half were country and Katy Perry and for the second half was opera and rap. Despite these challenging selections, they pulled it off.

The audience were asked what perk they would most like to have and subsidised travel won. Something which annoys them was a needless by-election. Alison Holst was chosen as most loved NZer, and they rolled a dice to decide which party would be featured, and it came up black for NZ First. Party names are not used for legal reasons, so the party colours are used instead.

When asked what would the Black Party most want to not have the public know about, I yelled out “The Spencer Trust”, and that actually ended up being the major focus of the performance.

I won’t describe the performance in detail as it will differ every time. What I will say is that the audience were laughing near non stop, and it was a great show. If you are a political junkie, you will not want to miss this show – go see it this week. One MP was there last night, having got leave.

The show basically had the Black Party wanting to deport all Asians from NZ. They then struck a deal with the secretive Spencer of Spencer Trust, not realising the shadowy trust was a front for another shadowy trust which was a front for another shadowy trust which was a front for the Elitist Brethren (They are elitist as they have 50″ TVs in their homes which they don’t watch).

The Elitist Brethren force the Black Party to campaign not only on deporting Asians, but also on deporting all sinners. Jesus appears a few times also. It is all very funny, and the ability of the cast to not just make the plot up as they go, but to also make songs up on the hoof is superb.

As I said, if you are into politics you should go and see this.

The 2001 register is here. Some extracts:

• Jim Anderton still has his Commonwealth Bank of Australia shares
• Jacinda Ardern got a trip to Sweden part-funded by the International Union of Socialist Youth, to their Congress which she chaired
• John Boscawen had the Heritage Foundation cover accomodation at a climate change conference
• Hilary Calvert is a director or controlling interest in 25 companies. She also owns 20+ properties
• John Key sold his mining shares in Feb 2010
• Key’s most amusing gift must be the decorated ostrich egg
• Wayne Mapp got a replica of a bronze chariot from the Vice-Chairman of the China Central Military Commission
• Phil Goff still owns his Mansfield Tower apartment hs said he would sell

I blogged back in March on the Telecommunications Bill going through Parliament, and some of the issues around it which were causing concern.

Steven Joyce has just announced:

Regulatory forbearance on wholesale prices for the ultra-fast broadband network will be replaced with contractual mechanisms that would apply if the Commerce Commission regulates prices lower than those contracted, Communications and Information Technology Minister Steven Joyce announced today.

In announcing the move, Mr Joyce says that he had listened carefully to industry concerns in regards to the plan for regulatory forbearance over the 8 ½ year build period of the contract.

“While I think their concerns are more theoretical than real, given that pretty much everybody has been happy with the very competitive prices announced by CFH to date, we have been able to find an alternative solution which will give the infrastructure builders confidence to stay committed to their low capped prices, and customers confidence that they are will continue to get the best prices over that 8½ year period.”

This is an excellent outcome, and congrats to the Minister for devising it. It retains price certainity for investors (which means we get more fibre laid for $1.5b) but also leaves in place the security of the Commerce Commission to ensure consumers are not being over-charged.

If for some reason the Commerce Commission found prices should be lower than contracturally agreed (which is unlikely but predicting the future is difficult in such a innovative industry), then the Government bears the risk as the entity that entered into the contracts with the local fibre companies.

The Minister get big kudos for making the decision. I think it is also worth handing out kudos to the various ICT groups and Opposition MPs who pressed for changes. Both Labour and ACT MPs on the Select Committee were very receptive to pushing for changes.

I had been concerned that all the good work the Government was doing in investing the $1.5b into fibre would get over-shadowed by the arguments over the proposed regulatory forbearance period. This decision means all eyes will now go to whom will get the contract for the 85% of areas not yet allocated.

That decision is due in a matter of days, maybe weeks. And after that then there’s going to be a lot of work for people in digging up roads, putting in trench, laying fibre etc. The combined public and private spend will probably be $4 to $5b over the next eight years or so.

As we head towards fibe connected homes, I think we will see significant changes in society – many more professionals working from home, virtual offices for some firms, video-conferencing as common as TV,  movies and TV on demand etc, mass storage on the cloud etc. It’s an exciting future.

NZPA report:

Delays to the Urewera trial is denying defendants their access to justice, Labour leader Phil Goff says.

Last week it was reported that the trial of 15 people, arrested after police raids in 2007 at alleged training camps in the Urewera Ranges, appeared unlikely to go ahead as scheduled on May 30 and could be delayed until next year.

The Supreme Court granted leave to the accused to appeal earlier High Court and Court of Appeal rulings that their case be heard by a judge alone rather than a judge and jury, and over the admissibility of some evidence.

Last week the Supreme Court issued a minute which said it was not able to decide on the admissibility of evidence before the trial’s start date.

Prosecutor Ross Burns at the time said it was unlikely the trial, estimated to take three months, would be held before the end of the year.

I have five questions reating to the fact it may take five years for the case to go to trial.

1. How much of the five years delay is due to the prosecution not being ready to go to trial?
2. How much of the five years delay is due to the defence seeking rulings or appealing decisions?
3. How much of the five years delay is due to court scheduling?
4. Would any of the reforms implemented by Simon Power have sped up the time it takes to get to trial?
5. If yes to (4) how did Labour vote on them?

I don’t know the answer to these questions but my initial impression is that at least some of the delays is due to the defence appealing issues all the way to the Supreme Court. If so, then having the defendents complain about the time to go to trial seems like a plea that they should not be allowed so many appeals.

We had similiar with Ahmed Zaoui. Thousands protested how long it took for him to go to trial, overlooking the fact his very competent lawyer Deborah Manning caused all the delays.

I genuinely do not know what the answers to the questions above are. Possibly some of our resident lawyers can help.

Question 3 yesterday:

Dr Russel Norman: Why is he ignoring the advice of the OECD, the IMF, and the Savings Working Group, that have found that New Zealand is now an outlier in not having a comprehensive tax on capital gains, the absence of which seriously undermines Government revenue, and also directs capital into the non-productive sector, the housing sector?

Rt Hon JOHN KEY: I do not think this is the week to be looking closely at the IMF

Heh.

Neil Miller blogs:

New Zealand stars in tonight’s episode of the acclaimed Brew Masters series on the Discovery Channel. The show is hosted by Sam Caligione who is a unique combination of maverick brewer, beer ambassador, mad scientist and craft pin-up boy. As part of his global journey, he tours New Zealand to experience our craft scene and to brew a collaborative beer with Luke Nicholas from Epic Brewing Company.

The episode will air on the Discovery Channel tonight (Tuesday 17 May 2011) at 7:30pm in both Australia and New Zealand. The episode has already appeared in America and the official trailer is on-line as well as a review on the respected Brew Nation site.

Sounds like an episode worth watching – promoting NZ beer to the world with no Government funding.

Labour Finance Spokesperson David Cunliffe has a poll on his website asking “How did the National-Act Budget affect your family?”. 86% of respondents have already said they will be worse off.

Quite remarkable to do a poll on how the Budget has affected your family prior to the details of the Budget being known.

TVNZ has black-listed Throng from receiving media releases from them, because of a dispute over whether a press releases from TVNZ misled people by using “reach” instead of “average viewers”. I’ll come to the details of the issue shortly, but first want to focus on the big picture.

TVNZ is a state owned broadcaster, and has a news division which itself often reports news that others feel is unwelcome or unfair. It is vastly overkill to refuse to have an outlet on their media release list, just because you didn’t like one of their stories.

I would hope that TVNZ reporters and journalists will ask their colleagues in marketing and pr, whether they think it helps TVNZ’s brand to act in such a way, relaying on bullying and threats instead of reason.

First of all Throng, for those who don’t know it, is a website dedicated to New Zealand Television. It’s the work of a husband and wife team, who make their living from the Internet. They provide summaries, and feedback on all the major TV shows, plus general commentary on television issues. It’s the sort of site that a broadcaster should want to have a great relationship with. Sure it takes two to tango, but I know Regan and Rachel and I doubt you could find two more decent and honest people. Also as it happens Rachel got an A+ for Statistics at Auckland Uni, has lectured in Statistics and ironically helped write the materials for Stats 150 – “Lies, Damned Lies and Statistics”.

On the 2nd of May they blogged about a press release from TVNZ which was putting the boot into 60 minutes ratings on TV3. Throng pointed out the stats were wrong. TVNZ agreed they made a mistake and said so. So this is not the post which caused the dispute, but I suspect is part of the reason why TVNZ is being hyper-sensitive.

A few days later Throng blogged:

Just a few days after TVNZ’s press release full of ratings blunders about TV3’s show 60 Minutes where they quote figures way lower than in reality, they’ve sent out another ratings press release which a number of people ended up being misled by.  

Using a statistical term such as “average” in that press release was ambiguous.  Many would take it to mean the most-quoted statistic of average audience, rather than what TVNZ had used and intended for people to understand: average reach. 

The two measures are very different and can lead one to very different conclusions about the popularity of a show.   

As a result, TVNZ has requested their publicity department ensure that in future all viewership figures are attributed to Nielsens and identified by their appropriate categories.

They went on to explain:

Cumulative Audience, also known as reach: 

Relates to the total number of different people within the selected demographic who tuned into the selected time period for 8 minutes or more (i.e. reached at least once by a specific schedule or advertisement). It is usually represented in thousands, but can be transferred into a percentage of the potential audience.

Average audience: 

The average number of people who tuned into the given time selected.

Now at the heart of the dispute is TVNZ is offended that Throng said their use of the “reach” was misleading. They say it is not misleading and a valid figure.

The comparison might be between a website which talks of the number of “hits” as oppossed to “page views” or even “visits”. They are all valid terms, but if you don’t label them precisely. What TVNZ said was:

In total, more than 2 million New Zealanders (all 5+) have tuned in to Go Girls this series, and on average 708,200 tune in each week (all 5+).

Now I think it is a fair criticism that people reading that could think it refers to average audience rather than average reach. It might not be deliberately misleading, but why have a lack of clarity? I think TVNZ itself has acknowledged this point by putting in place a policy where future releases will use precise descriptions such as reach or average audience.

Now it is because of that dispute, that TVNZ have decided to blacklist Throng and refuses to have them on the media release list. This is taking thin-skinned to new heights. And I think TVNZ are doing it because Throng are small and they think they can bully them. The NZ Herald often reports items very critical of TVNZ, but you don’t see TVNZ refusing to send press releases to the Herald do you?

Throng have talked to other media about the issue they face. They have been told they must remove the offending post or they will not be given co-operation again, or put on the media release list. They have approached other media about this, which resulted in a further e-mail from TVNZ which said:

I’ve had a call from the Dominion Post Regan, who have told me that you emailed them regarding our ratings figures.  You are certainly going the wrong way about getting any further cooperation from us.  I suggest you pull back from this exceptionally foolish position.

So now it is threats.

I’m amazed TVNZ is being so petty, rather than just doing the “we agree to disagree”. What really galls me is that they would not act so high handed with a more powerful organisation.

I could understand their position if Throng refused them to have their say on the site. to the contrary they run unedited all their press releases. Surely the solution is TVNZ issue a formal “right of reply” to Throng, which Throng would publish.

But really this is beating up a mountain from a molehill. The “sin” was saying that using reach instead of audience average was misleading. For this, they have instituted a boycott.

I hope that those in the news and editorial sections of TVNZ will defend freedom of the press, and ask their corporate colleagues to reconsider the damage they do to TVNZ’s brand by instituting a boycott against a site because of one critical blog post.

Throng are not asking to be given special access to anything – they just want to be put back on the press release list. The ball is in TVNZ’s court.

The “rescue” of Lieutenant-Colonel Ratu Tevita Uluilakeba Mara by Tonga is fascinating, as are the demands of the Commodore that he be returned. You would think he would be glad to have a dissident out of the country.

Mara is the son of the founding Prime Minister, Ratu Sir Kamisese Mara. He was very close to the Commodore and it is not known what has led to him to be charged with sedition, which led to him fleeing.

What I find most interesting is the suggestion that Mara was helped to flee by his brother-in-law Ratu Epeli Nailatikau. Nailatikau is the current Pesident of Fiji and nominally Commander-in-Chief. Is it possible the President could move against the Commodore?