Speaker: The Voyage: Dutch Disease – Fatal to Innovation
39 Responses
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What would we need to do to start transitioning to a more logical economic situation?
Well, we could start with a Financial Transactions Tax on speculative foreign exchange transactions.
Printing money would undermine the value of the $kiwi too.
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Dike Ottomanny...
aah!
That Dutch Disease,
I thought it was going to be that
earlier commodities madness - Tulips!
Commodity dell'arte indeed... -
Land taxes combined with reduced income taxes. Broad based and universally applied (ie few exceptions)
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Kumara Republic, in reply to
Well, we could start with a Financial Transactions Tax on speculative foreign exchange transactions.
Indeed. It'll work a lot more effectively with G8/G20 backing, though.
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Kumara Republic, in reply to
Land taxes combined with reduced income taxes. Broad based and universally applied (ie few exceptions)
Four Horsemen explored that path, suggesting shifting the tax burden from capital and labour, to consumption, speculation and pollution among other things.
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Farming in New Zealand has become more of a property development game; production is a secondary issue, there to service debt up to the point that the current owner cashes out to the next tax-free.
Since 2009 rural property values have fallen by 15 - 25%.
New Zealand’s macroeconomic settings support low revenue to asset ratios activities like those found in dairy farming,
Macroeconomic "support" to farming is such that farming asset values have fallen by 20% in 3 years.
What would we need to do to start transitioning to a more logical economic situation?
Acknowledge reality, perhaps. How do farmers farm for capital gain and make a "tax-free" profit when farm capital values decline by 20%?
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Matthew Poole, in reply to
How do farmers farm for capital gain and make a "tax-free" profit when farm capital values decline by 20%?
For the saps who bought right before the drop, they suffer. For most of the rest, they hang in there for a couple more years and wait for the market to resume its climb. You're talking as though there hadn't been huge gains in value over the preceding years, gains that are only blunted by a 20% drop in value.
Your logic is up there with saying that the plateau in residential property prices in much of the country has ceased to make owning rental properties primarily for capital gain an attractive proposition.
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Angus Robertson, in reply to
For most of the rest, they hang in there for a couple more years and wait for the market to resume its climb.
It will resume climbing?
The Crafar Farms were sold to the Chinese at about twice as much as the next highest bidder was willing to pay. Property has crashed in Japan and America and Britain and Spain and France and Italy and its probably about to fall over in China.
But in New Zealand you think property can only go up.
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Matthew Poole, in reply to
But in New Zealand you think property can only go up.
In the absence of a fundamental change in how we address property sale transactions, yes. You point to Crafar, and it’s those kinds of transactions that drive up the prices for everyone else. The other bidders were looking to pay a fair value for the properties, not to win the bidding at any cost, but now that someone’s set a new benchmark (no matter how ludicrous) it feeds through to the rest of the market.
For starters, banks are still much more willing to lend on property than on anything else. Want to start a business? GLWT. I’ve got friends who had to go begging on fucking Facebook to get a few grand (literally. All they wanted was $5k) in lending because their bank didn’t want to know. Want to buy property? Hey, how much can we lend you? And farms generate revenue, they’re not just somewhere to live.
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Which is why land taxes are the answer. Changes economics of what you do with land in favour of capital investment and away from low value use or seeking capital gains.
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Kumara Republic, in reply to
For starters, banks are still much more willing to lend on property than on anything else. Want to start a business? GLWT. I’ve got friends who had to go begging on fucking Facebook to get a few grand (literally. All they wanted was $5k) in lending because their bank didn’t want to know.
Not much has changed since the DFC/BNZ debacle of the late 1980s. To a certain extent, the VIF and people like Peter Thiel have filled the void, but there remains a large degree of economic cringe.
And I've said it before, but the property bubble seems to be NZ's equivalent of the Common Agricultural Policy.
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a Financial Transactions Tax
A bad idea for several reasons:
- easily avoidable. You're taxing an activity that can morph into something else (like a contract for differences) and move offshore at the click of a key. Compare this with a land tax, which, if government controls the land registry, is unavoidable - you just don't get your title transferred if you owe tax.- results in unwanted effects, like a currency that takes a dive because Air NZ bought a new plane. If you're going to have the current system of freely traded currencies (and it's hard to invent an alternative) then you have to have an effective and liquid system of price formation.
- produces negligible revenue (which was the experience in Sweden, where revenues never got far into seven figures)
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Rich of Observationz, in reply to
I’ve got friends who had to go begging on fucking Facebook to get a few grand
Did their businesses succeed?
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Matthew Poole, in reply to
This was only a few weeks ago, so I doubt they've yet had time to get it going properly.
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Matthew Poole, in reply to
easily avoidable
In the absence of an international implementation, yes. However it's not beyond the realms of possibility that the G20 will agree to develop one, and if it happens at that level of economic activity it's effectively a global tax.
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Angus Robertson, in reply to
The other bidders were looking to pay a fair value for the properties, not to win the bidding at any cost, but now that someone’s set a new benchmark (no matter how ludicrous) it feeds through to the rest of the market.
It doesn't. The rural property bubble burst here in 2008 - 09, its not going back up. Chinese billionaires and Hollywood directors do not exist in sufficient numbers to drive up prices.
On the current (high) milk price a dairy farmer can make a reasonable return from farming at current land value. Farm values will rise and fall on the basis of profitability. Not on the basis of expected capital gain, because the rural property bubble is over.
And that 20% figure I was offering earlier, apparently I was being uncharacteristically optimistic. Real figure decline was closer to 40%.
Want to buy property? Hey, how much can we lend you?
Our housing bubble OTOH hasn't ended. The same shit lending practices occured in America and their bubble burst (covering the whole world). Same thing happened in Spain and in Ireland, those bubbles burst. It might possibly burst here?
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Angus Robertson, in reply to
And I've said it before, but the property bubble seems to be NZ's equivalent of the Common Agricultural Policy.
On the upside, until 2009 you were totally correct.
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Rich of Observationz, in reply to
Except that the CAP costs half of one percent of European GDP, and has a negligible effect on food prices (which are mostly *cheaper* than NZ's "globally determined" ones).
I think the property bubble has rather more of an impact on the NZ economy than that.
The CAP is in many ways the parks and gardens budget of the European Union.
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A land tax also has down-sides. Eg do you tax all land? Equally?
It’s not all equally productive. Much of NZ is marginal for farming at best.
Should every inch of land that’s not being used ‘productively’ be forced to become productive? Clearing scrub, taking out native gullies, pushing the sheep up steep slip-prone slopes?
Should land only be valued for its economic productivity? Might that not force landowners into some bad short-term decisions?
What about long-term vs short-term production? Forestry, for example, produces no return for at least 20 years (and often more). That’s a lot of tax to pay in advance.
I think a CGT is vastly better- a tax on real profit, at a time (payment) when there is money to pay it. Land tax is, imho, another way of commodifying what we stand on, and forcing every inch of our countryside into the productive economy- or the hands of the super-wealthy, who can afford to pay tax on unproductive properties- at a time when much production is already environmentally unsustainable.
(Disclaimer: I am not a disinterested party. I own some marginally productive land) -
I’ve always thought a land tax would be rated depending on the value of the land so highly productive land would be worth more and would attract a higher level of tax. The counter would be true for marginal land.
All tax systems have winners and losers. The current system’s winners are the rich and the losers those who work for an income.
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Scott Chris, in reply to
A bad idea for several reasons:
Maybe, maybe not. Depends how it’s implemented I guess.
That argument aside, a more radical notion would be to ‘un-float’ (I hesitate to use the word ‘sink’) the dollar and charge the reserve bank with the responsibility of setting its value relative to the TWI. I’d be curious to know your thoughts on why this would be a bad idea.
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Rob Stowell, in reply to
a land tax would be rated depending on the value of the land so highly productive land would be worth more
As opposed to a lovely native forest with beautiful views over a lake, say? Not highly productive, but highly desirable to a developer. Land value is dependent on a range of things, productivity is only one.
I tend to agree ‘the current systems winners’ are the wealthy. I don’t believe forcing anyone who is not wealthy off land they cannot crowbar into constant dollar-making would be the way to change this :) -
How much unproductive land does one person need (or should be allowed to monopolise)?
I do feel a little sympathy for those who may struggle to pay a land tax on desirable land through lack of sufficient income or other funds, but I feel more sorry for all those who can't even get a look in on the property ladder because of where it has got to.
In my view a modest but broad land tax would fund sufficient revenue to provide for a meaningful reduction in income taxes and allow an attempt at a 'different way' of chasing economic prosperity (as a nation) than the path we are currently on.
Anything else in my view is tinkering at the edges.
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Rob Stowell, in reply to
In my view a modest but broad land tax would fund sufficient revenue to provide for a meaningful reduction in income taxes and allow an attempt at a ‘different way’ of chasing economic prosperity (as a nation) than the path we are currently on.
How so?
To me it just shifts land-owning even more in the direction of the wealthy, and forces all land to become economically active- with no regard to environmental values, family/iwi values, or aesthetic values (and that’s a big part of tourism.)
I seem to remember it being touted by National- and thinking it another case of ‘nothing of value that isn’t a source of $’.
How is a land-tax better than a CGT? (I am genuinely puzzled!) -
Don't we already pay land tax ? Just that it's to local government, and it's called rates. How would your proposed land tax differ from that ?
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