RT @OECD: "People should be at the centre of policies" - #ChampionMayors commit to #Seoul Implementation Agenda https://t.co/7OUNmAZCON (PD…
21/10/2017 12:49 AM
@GaneshAhirao You are right - courage to confront the doomsayers is key.
21/10/2017 12:46 AM
@GaneshAhirao @NZMorningReport Worries always overblown - take currency range over past year last days = nothing si… https://t.co/7SOCTB8oMR
21/10/2017 12:44 AM
RT @stujanderson: Amazing how few understand this. Nothing suddenly happened to supply 20 yrs ago - but lenders did start dishing out 7 x e…
16/10/2017 11:04 PM
RT @spexyone: Are you of a certain age ? https://t.co/lVlkwuH5jD
16/10/2017 9:22 AM
RT @paulkrugman: Zombie ideas are claims that have been proved false but just keep shambling along. GOP tax plans are totally infested. A p…
16/10/2017 9:09 AM
RT @HarvardBiz: Understanding the science of innovation could make all the difference in your ability to compete https://t.co/3r21BXPJKE
16/10/2017 8:58 AM
https://t.co/iO6E5xPqQZ
16/10/2017 8:48 AM
RT @TheMFGnetwork: Event Reminder 16/10 @bernardchickey workshop: Connection between Govt economic policies& manufacturers’ bottom line htt…
14/10/2017 8:18 AM
RT @Adherium: Scott Fleming, Sr. Vice President at @Adherium accepting the award for Best Implementation of Digital Healthcare at the OBN A…
14/10/2017 8:18 AM
Recent Post Comments
I am sorry but this comment section has been disabled due to spam. My contact details are easy to find, please contact me if you want to comment or discuss anything on this blog.

Print-friendly
16
FEB 11

State of the Nation speeches lack vision




Selling assets and taxing the rich were the headlines from John Key and Phil Goff’s State of the Nation speeches. The focus of both was the distribution and reallocation of existing wealth. What both lacked was a plan for growing New Zealand’s productive economy.

Despite all the talk since the global downturn about rebalancing the economy there has been little change. We still have an overvalued and volatile dollar which discourages investment in exports and a tax system which incentivises investment in assets rather than productive economic activity.

John Key mentioned in his speech that in the past economic cycle, “High interest rates in turn led to an over-valued exchange rate which smothered the internationally-competitive sectors of the economy, like agriculture, horticulture and manufacturing”, and went on to say, “Our exporters found it hard to sell their products at competitive prices overseas because of the high value of the dollar.”

These comments are spot on but for one thing, there is no past tense, unfortunately the conditions John Key referred to are still in place. Nothing has been done to address the underlying policy distortions that create them. Our interest rates are still among the highest in the developed world, our banks are borrowing offshore and importing the loose monetary policy of others, and the NZ dollar remains the clear favourite of the speculators; all this undermines our export performance and competitiveness. Changes to monetary policy are needed to fix this.

Phil Goff reiterated Labour’s intention to reform monetary policy to include economic growth and employment as considerations for the Reserve Bank. It is unclear exactly what affect this would have considering that the RBNZ seems fairly resistant to change, but this shift at least provides a step in the right direction.

Labour also announced a clamp down on the rental property tax loophole and broader avoidance which is long overdue. As Goff mentioned it is unfathomable that a $200 billion dollar sector operates tax free. However, there was no detail on how this would be done.

There was also no move from either party on tax imbalances. Despite Labour’s desire to clamp down on the property market there was no mention of a capital gains or land tax. Moving the top personal tax rate up will again incentivise tax avoidance (something they were looking to avoid by clamping down on rental property).

For National’s part a focus on savings and investment is fairly empty without a look at the property tax harbour. The major reason we have a low savings rate at the moment is that borrowing on a property is by far the most tax advantaged way of building wealth. This method of growing wealth also increases our foreign borrowing (as the banking sector chases the lowest cost of funds, and in the process overvalues our currency) and starves our productive economy of capital and margin which would otherwise be available.

The Tax Working Group has identified this problem and the Savings Working Group more or less said so despite any work in that area being placed outside the terms of reference. It is time that both parties stopped hiding on this issue.

Overall the speeches were once again predictable, heavy in rhetoric but light in policy detail. Phrases like ‘savings and investment’, and ‘tax fairness’ are fairly meaningless unless backed up by action.
 


tags: state of the nation, exchange rate, asset sales, tax balance, rbnz
I am sorry but this comment section has been disabled due to spam. My contact details are easy to find, please contact me if you want to comment or discuss anything on this blog.