OnPoint: Election 2011: GO!
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Jim said:
CGT exists in Australia and other Western countries. It hasn't prevented property bubbles.
This is most certainly true and, as Ben's said, simply introducing a CGT won't resolve NZ's private debt problem. A CGT and a better form of super might, particularly if, additionally, more strict prudential regulation limits banks lending practices.
Ben said:
Innovation is OK, but it's also way too much of a buzzword for my liking. You can have good solid growth doing something quite unoriginal, like raising sheep, or putting down railways, or growing trees. Innovative is usually synonymous with "risky".
Innovation is a buzz word agreed, but there's substance to the concept. I had some experience in the seafood industry before leaving NZ and there innovation is a real boost to productivity and export earnings. Simple stuff like training for process workers, filleting wet and dry fish, was critical to transforming some species from stock feed sold at a few $NZD per kilo to "meal solutions" sold at seven quid per 300 grams at M&S. The acquaculture industry is dependent on innovation too.
There's no magic bullet, but investing in labour and capital productivity, R&D etc can and has enabled firms to innovate and export... which brings us full circle to encouraging savings and discouraging debt-financed investments in tax credit generating rental properties.
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BenWilson, in reply to
I know what innovation means, it's a constant ongoing process in every business. But when it's used with a capital I, it seems to mean "investment in highly risky cutting edge businesses". I'm not confident in the government's ability to pick winners. It could, however, pick broad classes of R&D that have synergy with some of our existing specializations. It's still socializing the losses of R&D that will usually put profits in private hands if successful, but you don't do it forever, just long enough to kickstart an industry.
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Matthew Poole, in reply to
If we’re going to sell shares in our state-owned businesses, it should be to people who will hold onto those shares for a long period of time.
Kind of like bonds, you mean?
The difference with bonds is that they impute no ownership interest. The financial return is a simple monetary transaction, payment for services, and the bond-holders get no say in the running of the company provided that the company keeps on making the correct payments at the correct times.
I wouldn't be thrilled about Aussie or Chinese investors hoovering up bonds in our SOEs, but at least they wouldn't be buying an ownership stake that gave them power to vote on the company's direction and directorship. -
Paul Williams, in reply to
It could, however, pick broad classes of R&D that have synergy with some of our existing specializations.
Which was the logic of the 5th Labour government's growth and innovation strategy... I can't comment on the implementation...
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Sacha, in reply to
Despite pretence of a hands-off approach, the current government is clearly pinning most of its economic hopes on the farming sector - with targeted research funding (replacing broader R&D proposals), massive ETS subsidies, resource consent and regional governance changes, and now the suggestion of publicly-funded irrigation schemes as advocated by Conor English and chums. Real champions of private enterprise.
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The farming sector is so underdeveloped in NZ it really needs a leg up.
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(back from hols).
One point I would make on this is that all of these companies operate in a space where it's hard to increase profits through operational innovation (AirNZ is trying, and some of its strategies even don't screw the workers and consumers, but in general, it's a very mature market).
So the obvious temptation for managers is to increase return on investment through financial leverage - using as much of the gross profits as possible to service increased borrowings). This doesn't improve the business, but it can turn a small bit of growth into a big return for the owners. If it works that is - in the recent case of Yellow Pages, it spectacularly didn't.
There are two problems with this. Firstly, it increases private debt (which is what we have a problem with in NZ, not sovereign debt).
Secondly, if it does go wrong, the firm goes bust. NZ couldn't tolerate Huntly shutting down, or 2/3 of our airline connections being cancelled. So the government would be forced to perform a bailout. Privatisation of return, nationalisation of risk.
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Treasury media statement from this morning.
Contains a few interesting nuggets.
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One point I would make on this is that all of these companies operate in a space where it’s hard to increase profits through operational innovation
That's not very ambitious. Surely if we privatise, companies will find other ways to make electrons fly through time and space? Tesla coils!
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Kumara Republic, in reply to
Despite pretence of a hands-off approach, the current government is clearly pinning most of its economic hopes on the farming sector - with targeted research funding (replacing broader R&D proposals), massive ETS subsidies, resource consent and regional governance changes, and now the suggestion of publicly-funded irrigation schemes as advocated by Conor English and chums. Real champions of private enterprise.
Or to put it succinctly, the Agriculture-Industrial Complex.
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Paul Williams, in reply to
Despite pretence of a hands-off approach, the current government is clearly pinning most of its economic hopes on the farming sector - with targeted research funding (replacing broader R&D proposals), massive ETS subsidies, resource consent and regional governance changes, and now the suggestion of publicly-funded irrigation schemes as advocated by Conor English and chums. Real champions of private enterprise.
Indeed. And if you replace the words "farming sector" with the words "resource sector" you could equally describe Australia's economic strategy too...
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BenWilson, in reply to
What I don't get is why being "downgraded" is such a horrid outcome for NZ. Keith? Anyone? Surely it just tightens how much debt we can take, which is exactly what we're trying to control in the first place.
Sudden events over which we have no control could cause a dramatic and damaging fall to the economy.
Newsflash. That already happened. What's next?
The SWG does not recommend compulsory KiwiSaver at this time, partly because there is considerable scope for improvement without taking that step.
What would be so bad about it? They're talking about a crisis, surely that demands action, and preferably something way less stupid than selling off money-making assets.
Part of the savings and debt problems may be due to high and variable rates of immigration and this needs further close assessment.
FFS they're a SAVINGS working group, not the NZ First Party.
This shock doctrine crap shits me off. They're manufacturing a crisis, to make sweeping ideological changes. Our private debt is high, but it's not at crisis levels. Even if it was, the only outcome would be lots of defaults on debts by private citizens. This would hardly fuck our economy because the debt is foreign so it won't drive any NZ banks under. Debt retirement would probably have a deflationary effect too.
I see this whole thing being driven by those interests, to be honest. They're the only people who stand to lose if NZers can't pay debts, and that was the risk they took in issuing those debts. If bankruptcies happen, they're probably warranted.
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Actually that's just got me thinking. Is the bulk of our foreign debt in property, because so few banks here are locally owned? That absolutely can be fixed.
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Not everyone working for Granny buys it.
Nicely spotted Ben - although the guy is actually a economics teacher at my old highschool, rather than a Herald employee by trade.
[Crossposted this to Herald thread too...]
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Matthew Poole, in reply to
What I don’t get is why being “downgraded” is such a horrid outcome for NZ. Keith? Anyone? Surely it just tightens how much debt we can take, which is exactly what we’re trying to control in the first place.
Increases the cost of sovereign borrowing. Lower rating=higher risk=higher rate of interest to compensate for perceived increase in likelihood of defaulting. And that's not just on new debt, it'll flow on to the roll-over of bonds in future years which means that projects carried out now will end up having a higher lifetime cost because the debt will be more expensive.
A sovereign rating downgrade is definitely a bad thing for an economy that's being run on the back of poor productivity, low savings rates, and expectations of high levels of public services.
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Does that apply to existing debt or new debt?
Edit gah, disregard, you just said. New debt and rollover debt.
It would be nice to know what the real chance of sovereign downgrade is, considering sovereign debt is so low.
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This article from the Economist points to a (presumably moderately near) future where "Chinese and Indians consume like Japanese and Germans and Americans". The upshot, it predicts is "a redistribution of economic activity away from resource-intensive goods and toward labour-intensive goods or free, virtual goods, the consequences of which would be increased labour demand in innovative and non-innovative areas alike, helping to absorb some unemployment. And second, it should spur a great deal of research and innovation into new technologies, needed to boost energy efficiency, food production, cleaner transportation, and so on."
Right now, NZ is not really working towards this innovative future in any great way. We're especially not working towards the resource-scarce future with a view to improving how we use our natural resources sustainably. The dairy industry, in particular, is being thoroughly insulated from the true costs of production, and that bodes poorly for a coming world of real resource scarcity where the ability to continue to milk (thank you, thank you) every last drop of productive capacity from a given hectare must be sustainable for decades.
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The debt downgrade narrative is part of the Big Con: "do as we say or we won't lend you more money".
In reality, most of the reason we need public borrowing is because wealthy individuals and multinational corporates aren't paying their share of taxes. Even with slightly higher taxes on these groups, Cullen had the budget in surplus and borrowings reducing.
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Sacha, in reply to
The SWG does not recommend compulsory KiwiSaver at this time, partly because there is considerable scope for improvement without taking that step.
But mainly because it is ideologically unacceptable to the hand-picked righties on the working group and their masters.
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Matthew Poole, in reply to
Even with slightly higher taxes on these groups, Cullen had the budget in surplus and borrowings reducing.
Cullen also didn't have a huge increase in transfer payments coupled with an unavoidable reduction in taxation income. Even without cutting taxes National were still going to be in for a world of hurt when the GFC really hit home and our unemployment rate ballooned. Their choices simply made it significantly worse, both from paying-for-it perspective and from an ending-it-quickly perspective.
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Dismal Soyanz, in reply to
Actually it can also apply to existing debt that is based off floating rates. Basically it will apply to any debt that is not currently fixed rate.
Estimating the chance of a sovereign downgrade is possible from historical data but given that the universe of sovereigns is a tiny fraction compared to the number of companies that get rated, it is probably a rather biased statistic.
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Sacha, in reply to
Right now, NZ is not really working towards this innovative future in any great way.
Here's the official glass half full response to that.
"Entrepreneurs are the life blood of New Zealand's economy. We have more than 470,000 small businesses run by smart, inspired Kiwis with mindsets that operate without boundaries," said Marta Mager, New Zealand Trade and Enterprise (NZTE), Regional Director, Americas. "New Zealand is one of the most innovative, creative, technologically advanced and internationally competitive countries in the world."
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Today's new entrant - the Ministry of Science and Innovation.
Perhaps someone could tell them that grey on grey breaches the government's web standards and makes their taxpayer-funded content hard to read.
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BenWilson, in reply to
:-) You signposted it better.
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Matthew Poole, in reply to
That's awesome and all, but how much of our trade dollar comes from these "470,000 small businesses run by smart, inspired Kiwis" rather than a handful of massive single-trading-desk agricultural entities? Fuck-all of a fraction of a polar bear's feathers? Yeah, that'd be about right. We certainly have some, but they're not getting a lot of support from central government and they don't have much to do with our primary industries.
We can have all the smart, inspired SMEs you can handle, but it doesn't change the nature of our majority export earners or their real commitment to innovating cleaner, more-sustainable business practices that don't have a multi-generational scorched-earth effect.
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