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2014 – Ongoing jobless tally

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Unemployment logo

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Continued from: 2013 – Ongoing jobless tally

So by the numbers, for this year,

January

February

March

April

May

June

July

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*

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See also

Reported Job Losses

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*

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Current unemployment statistics

 

December 2013 Quarter

December 2013 quarter Quarterly change Annual change
(000) (Percent)
Employed* 2,297 +1.1 +3.0
Unemployed    147  -1.3  -8.9
Not in the labour force 1,103  -0.5  -1.0
Working-age population 3,547 +0.5 +1.2
(Percent) (Percentage points)
Employment rate  64.7 +0.3  +1.1
Unemployment rate    6.0  -0.2   -0.8
Labour force participation rate  68.9 +0.3  +0.7

All figures are seasonally adjusted. Source: Statistics New Zealand

* Employed: Includes people who worked one hour (or more) per week, whether paid or unpaid.

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March 2014 Quarter

March 2014 quarter Quarterly change Annual change
(000) (Percent)
Employed 2,318 +0.9 +3.7
Unemployed    147   0.0  -1.1
Not in the labour force 1,093   -0.9  -2.9
Working-age population 3,559 +0.3 +1.4
(Percent) (Percentage points)
Employment rate  65.1 +0.4  +1.4
Unemployment rate    6.0   0.0   -0.2
Labour force participation rate  69.3 +0.4  +1.4

 

All figures are seasonally adjusted. Source: Statistics New Zealand

* Employed: Includes people who worked one hour (or more) per week, whether paid or unpaid.

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Additional statistics

Officially unemployed stats;

In the March 2014 quarter compared with the December 2013 quarter:

  • The number of people employed increased by 22,000 people.
  • The employment rate rose 0.4 percentage points, to 65.1 percent.
  • The number of people unemployed was unchanged.
  • The unemployment rate remained unchanged at 6.0 percent.
  • The labour force participation rate increased 0.4 percentage points, to 69.3 percent.

Official unemployment: unchanged

The  under-employment stats;

Over the year, the total number of under-employed people increased by 27,200 to 122,600. As a result, the under-employment rate increased 1.0 percentage points to 5.3 percent.

Official under-employment: up

 

Source

Definitions

Jobless: people who are either officially unemployed, available but not seeking work, or actively seeking but not available for work. The ‘available but not seeking work’ category is made up of the ‘seeking through newspaper only’, ‘discouraged’, and ‘other’ categories.

Under-employment: employed people who work part time (ie usually work less than 30 hours in all jobs) and are willing and available to work more hours than they usually do.

Employed: people in the working-age population who, during the reference week, did one of the following:

  • worked for one hour or more for pay or profit in the context of an employee/employer relationship or self-employment 

  • worked without pay for one hour or more in work which contributed directly to the operation of a farm, business, or professional practice owned or operated by a relative 

  • had a job but were not at work due to: own illness or injury, personal or family responsibilities, bad weather or mechanical breakdown, direct involvement in an industrial dispute, or leave or holiday.

Source

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[To  be periodically up-dated]

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Questionable assumptions ‘bad for small democracies’

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smells like media bullshit

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This item in Fairfax’s Dominion Post caught my eye a few days ago;

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Labour governments bad for small business

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In this story, author John Anthony is reporting on a study by two  academics –  Massey University economics and finance senior lecturer Dr Chris Malone, and associate professor, Hamish Anderson. They came to the astonishing conclusion;

Small listed companies have performed significantly worse under Labour governments over the past 40 years because of major policy changes, a report says.

[...]

“The smaller firms have done abysmally poor during Labour terms of office.”

Funny thing about this article – it’s mostly rubbish. The Labour government in the mid/late 1980s was hardly a traditional left-wing administration as it implemented neo-liberal, free market policies at breakneck speed. It was the government that gave us the term “Rogernomics“.

In essence, it was a Labour government in name only, having been hijacked by future-ACT MPs and neo-liberal cadres. It was a foretaste of how Brash seized power in 2011 after a putsch overthrew Rodney Hide as ACT’s leader.

Yet the heading of the article is utterly misleading;

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Labour governments ‘bad for small business’

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Indeed, anyone glancing at the story would come away with entirely the wrong impression until their attention was caught by this bit;

The main reasons for poor performance in small firms during Labour governments included market under-performance, periods of falling inflation, harsh default-risk and credit conditions and the introduction of deregulation in 1984 that opened up firms to increased foreign competition and exchange rate pressures.

Notable features were the two Labour governments of the 1980s under Prime Minister David Lange.

In the first term from 1984 to 1987 the mean returns were amongst the highest in the sample but in the second term the smaller firms had a mean monthly return of minus 7.2 per cent.

Roger Douglas’s neo-liberal “free” market reforms truly kicked in during Labour’s second term in office (1987-1989) and the academic’s report is not very flattering;

“…in the second term the smaller firms had a mean monthly return of minus 7.2 per cent”.

It is interesting to note that overseas ratings agencies (Standard & Poors, Moodies, and Fitch) also seem to have a somewhat dim view of right-wing governments. Note the credit rating movements during right-wing Labour/National governments compared to the Clark-led Labour government;

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new-zealands-foreign-currency-credit-rating-history2

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Note the credit downgrades (red underlined) in the chart above and detailed belowed;

  1. Standard & Poors: From AA+ in April 1983,  to AA in  December 1986  (Rogernomics Labour)
  2. Standard & Poors: From AA in  December 1986, to AA- in January 1991 (National)
  3. Moodys: From Aa1 Stable Outlook, February 1996, to Aa1 Negative Outlook on 30 January 1998 (National)
  4. Standard & Poors: From AA+ Stable Outlook in January 1996, to AA+ Negative Outlook on 10 September 1998 (National)
  5. Moodys: From Aa1 On Review for Possible Downgrade  on 5 June 1998, to Aa2 Stable Outlook on 24 September 1998 (National)
  6. Fitch: From AA+ Stable Outlook on 28 November 2008, to Aa+ Negative Outlook Reaffirmed on 16 July 2009 (National)
  7. Fitch: From Aa+ Negative Outlook Reaffirmed on 16 July 2009  to AA Stable Outlook on 24 September 2011 (National)
  8. Standard & Poors: From AA+ Negative Outlook Reaffirmed on 22 November 2010 to AA Stable Outlook on 30 September 2011  (National)

Eight credit down-grades under two Right-wing governments.

By contrast, during Clark’s more left-wing Labour administration,  from 2000 to 2008;

  1. Standard & Poors: From AA+ Negative Outlook on 27 March 2000, improved to AA+ Stable Outlook on 7 March  2001
  2. Fitch: From AA on 27 March 2002, improved to AA+ on 16 August 2003
  3. Moodys: From AA2 Stable Outlook on 24 September 1998, improved to Aaa on 21 October 2002
  4. Fitch: From AA on 27 March 2002, improved to AA+ on 16 August 2003

Eight years, four credit upgrades.

As Labour’s economic development spokesperson,  Grant Robertson, stated in the same article,

“The last Labour government ran nine surpluses in a row while having the highest average growth rate of any government for 40 years.”

He’s right. Under Labour’s administration of the economy,

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New Zealand New Zealand Government Debt To GDP 2000-2014

Graph

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New Zealand unemployment rate 2000-2014

Graph

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New Zealand Building Permits 2000-2014

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  • The NZ stock market showed a steady rise, until the 2007/08 Global Financial Crisis;

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New Zealand Stock Market (NZX 50) 2000-2014

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New Zealand GDP 2000-2014

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  • Consumer Confidence vs Business Confidence – showed conflicting results, with consumer confidence staying bouyant whilst business confidence appeared to fall. (It seems bizarre that whilst customers were happy to open their wallets/purses to spend – businesses remained gloomy until nearly two years after the initial effects of the GFC   were felt and the Recession was biting hard. Masochistic tendencies appear at play here?)

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New Zealand business - consumer confidence To GDP 2000-2014

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It seems farcical in the extreme that two academics – with the willing assistance of an uncritical  journalist – have presented “research” which brands the Labour Party as “bad for small business” when the 1984-89 Lange-led administration was an undemocratic aberration that was closer to the ACT Party than the Kirk or Clark governments.

In essence, Malone and Anderson have passed judgement on  governments implementing right wing, neo-liberal economic policies and, rather unsurprisingly,  given them a *fail* mark. But you wouldn’t think it with the headline “Labour governments ‘bad for small business’” and the statement that “smaller firms have done abysmally poor during Labour terms of office”.

But at least this has given  right-wing bloggers some joy – even if those same bloggers have been less than honest at what Malone and Anderson have actually written. But that’s the right wing for you; never let inconvenient truths get in the way of a good propaganda moment.

 

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References

Fairfax media: Labour governments ‘bad for small business’

New Zealand Debt Management Office: New Zealand Sovereign Credit Ratings

New Zealand Debt Management Office: Summary of Direct Public Debt

Trading Economics: New Zealand Government Debt To GDP

National Party: What about the workers?

Statistics NZ: Unemployment Rate Falls to 3.4 Percent

Trading Economics: New Zealand Unemployment Rate

Ministry of Business, Innovation, & Employment: Previous minimum wage rates

Trading Economics: New Zealand Stock Market (NZX 50)

Trading Economics: New Zealand Building Permits

Trading Economics: New Zealand GDP

NZ Treasury: Recent Economic Performance and Outlook

Trading Economics: New Zealand Consumer Confidence

Trading Economics: New Zealand Business Confidence

Kiwiblog: Labour bad for small business


 

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National dance to corporate interests

Above image acknowledgment: Francis Owen/Lurch Left Memes

This blogpost was first published on The Daily Blog on 30 May 2014.

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National spins BS to undermine Labour’s Capital Gains Tax

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bull shit

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The Nats have been at it again; spinning their misleading bullshit to discredit Labour policy.

This time, Revenue Minister Todd McClay, has been busy issuing media statements that there is no need for Labour’s proposed Capital Gains Tax because, well, evidently, we already have one.

On Sunday 25 May, McClay was quoted as stating,

“Where somebody buys a property or buys shares with an intention of the capital gains being accrued … if their intention is to make a gain from the capital, their normal income tax rules apply, and therefore there is a capital gain.”

Earlier in the month, McClay had made the same assertion,

“When people say New Zealand doesn’t have a capital gains tax on property it’s not true – we do have a capital gains tax, and it applies to speculators.”

Which is strange, because when Labour first released it’s CGT (capital gains tax) policy in  2011,  the following were in favour;

The Dominion Post
NBR
Herald on Sunday
Gisborne Herald
Waikato Times
The Greens
The IMF
The OECD
and columnists and commentators,

Paul Little
Mike Hosking
Gordon Campbell
Anthony Hubbard
Patrick Smellie
Vernon Small
Corin Dann
Andrea Vance
John Hartvell
Matthew Hooten
John Roughan
Duncan Garner
John Armstrong
Bernard Hickey
Gareth Morgan

plus 
Academics,  tax experts, economists, and Treasury.

Those opposed to a CGT were National, ACT, and Landlords.  Unsurprisingly, really, when you think about it. National, ACT, and Landlords represent the capitalists and speculators in our society and they would welcome a tax on capital gains like turkeys look forward to Christmas.

So if we already have a Capital Gains Tax – why were so many in favour of introducing a law specifically for it?

This blogger would  hazard a guess that National and ACT oppose a CGT because it would make up for the seven tax cuts since 1986. These seven tax cuts have seriously reduced government revenue and constrained center-left governments from implementing social policies that would return this country to being a decent social democracy.

Imagine if a CGT in five or ten years would deliver sufficient revenue to fully fund a free tertiary education system in this country. It would drive another nail into the coffin of the neo-liberal policy of user-pays.

Hence why National and ACT absolutely loathe Labour’s policy.

If a CGT was introduced, the catch-cry of right wingers – “but where will the money come from!?!?” – will be muted – if not silenced forever.

But is McClay correct? Do we currently have a Capital Gains Tax?

The answer is, ‘Yes’. And ‘No’.

The current taxation policy on capital gains is haphazard; ill-defined; and open to interpretation. This IRD web-page  illustrates how vague the law is on this issue,

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Residential property Whare nohoanga

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Mistaking property dealing for property investment

Property investor is a collective term for property speculators, dealers and investors. However, they are each treated very differently under tax law.

  • Factors to consider when determining your status
  • What is an investor, a speculator and a dealer?
  • If you are not clear on your intentions for buying a property
  • How long do I need to hold the property to make it a capital gain?
  • How many properties can I sell before it is considered taxable?

Factors to consider when determining your status

Three main factors can determine your status as a property buyer for tax purposes:

  • your intention when you buy a property
  • the patterns of your previous property transactions
  • your association to a builder, property dealer or developer.

The category you fall into isn’t determined by what the property is called or how the activity is described. For example, it may be marketed as a “rental investment” with strong “capital gain” potential, but your firm intention or prior pattern is the factor that determines its tax treatment or if you’re involved in or associated with someone in the business of building, dealing, developing or dealing with land.

If you’re an investor you buy a property to use it to generate ongoing rental income and not with any firm intent of resale. The property is a capital asset and any later profit or loss from selling the property is capital and isn’t taxable (apart from clawing back any depreciation, which is now recoverable).

The rules may be different if you’ve been associated with a person or entity involved in the business of building, dealing, developing or sub-dividing land.  

If you buy a property intending to:

  • resell it, or
  • you intend to sell it after making improvements to it

you’re likely to be a speculator or a dealer. Renting your property temporarily doesn’t change your tax treatment either – you’re still a speculator or a dealer.

What is an investor, a speculator and a dealer?

Investor

If you’re an investor you buy a property to use it to generate ongoing rental income and not with any firm intent of resale. The property is a capital asset and any later profit or loss from selling the property is capital and isn’t taxable (apart from clawing back any depreciation, which is now recoverable).

Property investors sometimes refer to a “buy and hold” strategy. This approach is most likely to mean you are a property investor for tax purposes.

Investors will investigate and analyse future revenue streams, and any gain made on the sale of the property is incidental. Their investment is soundly based on a return from the rental income.

Investors pay income tax on their net rental income but generally not on the eventual sale proceeds of the property.

Note

The rules may be different if you’ve been associated with a person or entity involved in the business of building, dealing, developing or sub-dividing land.

Find out about special tax rules for associated persons.

Speculator

You might think profits from selling property are always capital gains so you don’t have to pay tax on them.  But, this isn’t always true. If one of your reasons for buying a property is to resell it, whether you live in it or rent it out, you’re speculating in property and your profit is likely to be taxable. And, if you sell that property at a loss, the loss may be tax-deductible.

If you’re a speculator you buy a property always intending to sell it. The property is treated like “trading stock” and your profit or loss from selling the property is taxable. Speculating can be a one-off purchase and sale of a property.  Speculators may also receive rental income from the property before they sell it.  

Property dealers or speculators will try to determine and analyse the property’s future price movements because that’s what the deal rests on. Any rental income is secondary.

To be a speculator, you need buy only one property with the firm intent of resale.
Dealers and speculators must pay income tax on any gain they make from reselling their property. If they declare a loss, it may be tax-deductible. They must also pay tax on rental income they may earn from the properties.

Dealer

If you’re a dealer you are similar to a speculator buying properties for resale, but you have established a regular pattern of buying and selling. This includes rental properties.

Some property buyers refer to a “buy and flick” strategy. This approach is most likely to mean you are a property speculator or dealer for tax purposes.

Dealers and speculators must pay income tax on any gain they make from reselling their property. If they declare a loss, it may be tax-deductible. They must also pay tax on rental income they may earn from the properties.

If you are not clear on your intentions for buying a property

Read our guide Buying and selling residential property (IR313)

If you’re buying and selling property other than a private family home, we recommend you get advice from a tax advisor with expertise in this area.

How long do I need to hold the property to make it a capital gain?

There is no time limit. If you buy a property with the firm intention of resale, it doesn’t matter how long you hold it – the gain on resale will be taxable (and any loss may be tax-deductible).

Example

You buy a property with a firm plan to resell it for a profit. The property market falls and you decide to hold onto it instead. You rent it out for 15 years and then sell it when the prices are again rising rapidly. Any gain on that sale 15 years later is likely to be taxable.

How many properties can I sell before it is considered taxable?

There is no set number of properties you can have before they become taxable. In some cases the first property bought and sold may be taxable if you bought it for resale. In other cases there could be a number of factors to take into consideration, such as having a regular pattern of buying and selling property, before a property is taxable.

The factors that may be looked at will vary because each taxpayer’s circumstances are different. For example, buying one property every two years may be considered a regular pattern for one individual and not another.

Find out more about what tax you should be paying

 

Date published: 30 Jul 2010

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Note the difference between Investor, Speculator, and Dealer;

  • Speculators and Dealers  are liable to pay tax on gains made from selling property.
  • But an Investor is not liable to pay tax on realised gains.

The difference is open to interpretation, behaviour, and intent. Though how an IRD official can know the intent of someone purchasing a  property remains a mystery. Telepathy? Time travel? A hot-line to one of our gods?

The issue is not made any clearer on another IRD web page;

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Selling property

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The things you need to consider when selling your investment property, selling your rental property or selling the family home.

What happens when you sell your family home

Selling a family/private home usually has no tax consequence. However there are some circumstances where you may have to pay tax.

What happens when you sell your investment property

Generally, you don’t need to pay tax when you sell your investment property except for any depreciation recovered. However, each time you sell a property it is important to consider if you are still a residential investor or are now a dealer.

What happens when you sell your rental property

Generally, you don’t need to pay tax when you sell your rental property except for any depreciation recovered. However, each time you sell a rental property it is important to consider if you are still a residential rental investor or are now a dealer.

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Obviously, there is no one-law-for-all.  (Something which the ACT Party might like to consider, in it’s “one-law-for-all” policy, as it insists on dumping  Treaty of Waitangi  settlement claims.)

When John Key gave justification to amend statutes governing the GCSB, and extended the spy agency’s powers so it could spy on all New Zealanders and Permanent residents, he claimed that the original  Government Communications Security Bureau Act 2003 was “not fit for purpose“.

When a tax law is so ill-defined that it is open to interpretation of “behaviour” and “intent”, then I submit that the current law on capital gains is “not fit for purpose”.

The National government can squeal all it likes, but the time has come for a capital gains tax and to close the Homer Tunnel-sized loop-holes that bedevil  the current law.

After all, if we already have a Capital Gains Tax as Revenue Minister Todd McClay insists – then he won’t mind terribly much if the law is tightened up. We’d be formalising what McClay says already exists.

Right?

That’s making it “fit for purpose”.

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References

Radio NZ:  Parties at odds over capital gains tax

MSN News: IRD targets `high end’ tax dodgers

Tumeke: John Key’s dagger and his 4 Horsemen of the Capital Gains Tax

IRD: Residential Property – Mistaking property dealing for property investment

IRD: Residential Property – Selling property

National Party: Draft intelligence community legislation released

 

Previous related blogpost

A Capital Gains Tax?  (14 July 2011)

ACT intending a “serious assault”?  (17 July 2011)

 


 

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Skipping voting is not rebellion its surrender

Above image acknowledgment: Francis Owen/Lurch Left Memes

This blogpost was first published on The Daily Blog on 26 May 2014.

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Budget 2014 – Why we will soon owe $70 billion under this government…

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NZ Government overseas debt 1993 to 2012

Graphic courtesy of The Daily Blog

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A few reasons why our debt skyrocketed from 2008 onwards…

1. The Global Financial Crisis, which reduced corporate turnover and export receipts, thereby lowering the company tax take;

2. Two tax cuts (2009 and 2010) reduced government revenue, thereby necessitating borrowing more from offshore  to make up the difference. In essence, we borrowed from other peoples’ saving to put more money in our (mostly top incomer earners) pockets.

Using Parliament Library information, the Greens have estimated that this involved borrowing an extra couple of billion each year.

3. National could have kept Debt down by investing in job creation. Key’s cycleway project was promised to create 4,500 new jobs  – it failed spectacularly.

Instead, job creation was largely left to “the market”, which itself was having to engage in mass redundancies for businesses to survive the economic downturn.

This meant more expenditure on unemployed which went from 3.4% in 2008 to 7.3% by 2012 (currently sitting at 6% for the last two Quarters).

Ironically, part of our current economic “boom” is predicated on the Christchurch re-build – evidence that had National engaged in a mass housing construction programme in 2009, after it held it’s mostly ineffectual “Jobs Summit”, we would have;

A. Maintained higher employment,

B. Paid out less in welfare,

C. Persuaded more New Zealanders to stay home and not go to Australia to find work,

D. Addressed the current housing crisis we now have.

As usual, National’s short-sightedness; irresponsible 2008 election year tax-cut bribes; and misguided reliance on market forces resulted in New Zealand borrowing more than we really needed to.

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References

NZ Herald: Govt borrowing $380m a week

Scoop media: Govt’s 2010 tax cuts costing $2 billion and counting

NZ Parliament: Government Proposals—Cycleway and Nine-day Working Fortnight

NZ Herald: Cycleway jobs fall short

Statistics NZ: Employment and Unemployment – March 2008 Quarter

Statistics NZ: Household Labour Force Survey: September 2012 quarter

Fairfax NZ: Jobs summit ‘fails to deliver’

TVNZ News: OECD report shows housing crisis in NZ – Labour

TVNZ News: Christchurch rental crisis ‘best left to market’ – Govt

Additional

Fairfax media: Public debt climbs by $27m a day

Fairfax media: Budget 2014: The essential guide

Previous related blogposts

Can we do it? Bloody oath we can!

 

 


 

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The Cost of Living

Above image acknowledgment: Francis Owen/Lurch Left Memes

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Budget 2014 – How has National exposed itself in Election Year?

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2014 election

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Right Wing blogger and National Party apparatchik, David Farrar, wrote in the Dominion Post on the day after the Budget,

“By contrast I expect debate on the New Zealand Budget to be over by Monday morning.”

Really?!

Don’t you believe it, sunshine.

National’s sixth budget contained spending on;

  • $171.8 million to extend paid parental leave (PPL):
    • Additional four weeks, starting with a two-week extension from 1 April 2015, and another two weeks from 1 April 2016.
    • Extend eligibility of paid parental leave to caregivers other than parents (for example, “Home for Life” caregivers), and to extend parental leave payments to people in less-regular jobs or who recently changed jobs.
  • $42.3 million to increase the parental tax credit (PTC) from $150 a week to $220 a week, and increase the payment period from eight to 10 weeks, from 1 April 2015.
  • $155.7 million to help early childhood centres remain affordable and increase participation towards the 98 per cent target.
  • $33.2 million in 2014/15 to help vulnerable children, including eight new Children’s Teams to identify and work with at-risk children, screening of people who work with children, and additional resources to support children in care.
  • $90 million to provide free GP visits and prescriptions for children aged under 13, starting on 1 July 2015.

(Source: Treasury)

 

It was perhaps the last item – free healthcare for Under 13s – that took the media, public, and Opposition by surprise. As others have stated, it was a policy lifted straight from the policy pages of Labour, Greens, or Mana.

Other increases in  funding included increased funding ($10.4 million) for sexual violence services

Sexual violence services have been critically under-funded since 2012 and many were forced to cut back on staffing as funding dried up in Wellington, Auckland, and elsewhere. It is fairly evident that funding increases for child healthcare, parental leave,  and sexual violence services have all been left for 2014.

Which conveniently also happens to be election year.

As far as cynical self-interest goes, these Budget funding-measures are an obvious – if utterly crude – attempt at  currying public favour as Election Day bears down on this government.

Why was funding for sexual violence community groups not made available earlier, so that full staffing levels and services for survivors could be maintained? $10.4 million dollars out of a Government revenue of $64.1 billion is not massive by any standard. In fact, it is just a shade under one year’s worth of Ministerial travel, at $11 million.

By comparison, National gave a  tax-payer funded bail-out of $30 million to the Rio Tinto  aluminium smelter last August – three times what was eventually budgetted for sexual violence services.

Even the $2 million of taxpayer’s money paid  by National to a Golf Tournament over the last three years would have assisted these much-needed groups  keep their services intact and skilled counsellors employed,  until this month’s Budget.

Leaving critical funding till Election Year is tantamount to abusing the victims of sexual violence all over again.

The same could be said of funding free healthcare for Under 13s. If it is a good idea now – why was it not a good idea two years ago?

It’s not as if John Key did not acknowledge the growing under-class in this country only three years ago;

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Key admits underclass still growing

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And a year later, this staggering headline appeared in the media – a story few of us would ever believe would happen here, in Gods Own;

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Hungry kids scavenge pig slops

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Little wonder then, that Dr Nikki Turner, from the  Child Poverty Action Group, was less than impressed by National’s sudden transformation into a quasi-social democratic party with a newly-cloned heart, and a belated attempt to improve children’s health;

A child lobby group says free doctors’ visits and prescriptions will make little difference to reducing child poverty without also improving the incomes and the housing conditions of the very poor.

“Without adequate income, without adequate warmth and housing, we’re not going to (make) a lot of difference at this stage to our children’s health.”

Indeed. Without addressing the core causes of poverty-related diseases, National’s free health-care plan is simply a  multi-million dollar band-aid. The root causes of those diseases will still be present in many households up and down the country.

If Key and English thought that their band-aid solutions would be gratefully accepted by an uncritical, compliant media and public, they were mistaken.

An un-named author of an editorial in the Dominion Post on 16 May stated,

“This is a deliberately bland and even boring Budget. The Government has clearly decided that grey and safe is its best hope in election year. The only surprise was free doctors’ visits for under-13-year-olds. Middle New Zealand will welcome it, as it will many of the other, carefully telegraphed, handouts. More paid parental leave: who could object? A bit more help with childcare costs: why not?”

The same editorial went on,

“The other glaring black hole in the Budget is the housing crisis. More and more New Zealanders cannot afford a house, and the Government’s response is muted and inadequate. The Budget promises to remove tariffs on building supplies, a sensible step following revelations about the high price of such materials here compared with Australia. But the change will cut only a few thousand dollars from the price of a house.

Much bolder moves will be needed, including a capital gains tax. But National’s caution here is a drawback, not an advantage. Sometimes problems are serious and need action. National seems to believe it will be enough to cut red tape and remove some of the planning obstacles in the way of housing. It won’t.”

This is where John Key and Bill English have mis-calculated badly, and which no one (?) has picked up.

After all, if a problem with children’s health was not critical, why would a fiscally conservative government fund free doctor’s visits to the tune of $90 million? Indeed, as Trevor McGlinchey for the NZ Council of  Christian Social Services said, on 16 May,

“In providing $500 million of support for children and families over four years the Government has recognised many of our families are suffering.”

The key-word here is “recognised“.

In funding free healthcare, National has admitted to anyone who will take notice that a problem of some magnitude exists in this country. They can no longer hide behind platitudes.

As the above editorial went on to state,

“At present there is little rage about poverty, inequality and the housing crisis. These problems are raw and real but voters are patient and only a minority of voters now seem to actually hate National. It will probably take another term before a majority is truly fed up with Key and his band. In the meantime, this bland document may be a document for the times.”

The author of that piece is being optimistic. By acknowledging that a problem exists; by acknowledging that state funding is required; and by acknowledging that a “radical” (for National, this is radical stuff) solution is required – they have left themselves wide open in this election campaign.

A campaign manager with a posse of motivated, clued-up, and capable strategists, will be able to use this in the up-coming election campaign. Like a game of chess, in trying to show how “clever” they were in manipulating public perception, National have left their “social policy flank” exposed and vulnerable.

So much for Kiwiblogger Mr Farrar’s misplaced optimism that “I expect debate on the New Zealand Budget to be over by Monday morning”.

Quite the contrary, David.

By shining a bright, $90 million spotlight on this problem, they can no longer deny that it exists or is “improving”.

It’s only just begun.

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Postscript #1

The cost of financing this country’s $59 billion debt is shown in this Dominion Post graphic;

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Revenue and expenses 2014 budget new zealand government

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The cost of financing our debt is shown to to $3.9 billion, per year.

Two years ago, the Green Party used Parliamentary Library information to estimate the cost of the 2009 and 2010 tax cuts;

“The Green Party has today revealed that the National Government has so far had to borrow an additional $2 billion dollars to fund their 2010 tax cut package for upper income earners.

New information prepared for the Green Party by the Parliamentary Library show that the estimated lost tax revenues from National’s 2010 tax cut package are between $1.6–$2.2 billion. The lost revenue calculation includes company and personal income tax revenues offset by increases in GST.”

The cost of those tax cuts is  roughly the equivalent of what we are now paying to service our overall debt.

So much for National’s “prudent fiscal managing” of the government’s books.

Postscript#2

Someone at the Dominion Post seems to have a rather shocking memory. At the bottom of Page A4, in their 16 May edition, this item was published;

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Past budgets 2009 - Dominion Post - 16 May 2014

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Promised tax-cuts in 2009 were not “axed”. As this IRD page explained;

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IRD technical tax area 2009 

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Key even made this helpful suggestion to those who did not want their tax cuts to donate them to charity,

“I am just as sure there are many who are in a position to donate some of that extra income”.

Which would make it hard to donate non-existent tax cuts, as the author of the Dominion Post article claimed.

Postscript #3

This graph from Treasury (with a minor enhancement by this blogger) shows our borrowings from 2003 to 2013, with subsequent estimations.

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Treasury New Zealand debt

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According to the graph, we can see how Labour paid down the country’s sovereign debt, leaving New  Zealand well-placed to weather the on-coming Global Financial Crisis and resulting recession. Something even Key and English have had to admit on occasion;

“The level of public debt in New Zealand was $8 billion when National came into office in 2008. It’s now $53 billion, and it’s forecast to rise to $72 billion in 2016. Without selling minority shares in five companies, it would rise to $78 billion. Our total investment liabilities, which cover both public and private liabilities, are $150 billion – one of the worst in the world because of the high levels of private debt in New Zealand.”

Indeed.

 

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References

Dominion Post: English spreads the lolly far and wide

NZ Treasury:  Key Facts for Taxpayers (Part 1)

NZ Herald: Budget 2014 – Building products tariffs lifted temporarily

Manawatu Standard: Boost for rape crisis services welcomed

Fairfax media:  Rape crisis line forced to cut staff

Dominion Post: Wellington rape centre forced to cut hours

NZ Treasury: Government Revenue

Fairfax media: MPs’ travel costs rise

NZ Herald: PM defends $30m payout to Rio Tinto

NZ Herald: Golf event tots up $2m in Govt aid

NZ Herald:  Key admits underclass still growing

Fairfax media: Hungry kids scavenge pig slops

Radio NZ: Child lobby sceptical of budget moves

Dominion Post: Editorial – The crowd goes mild at Budget

Parliament: Inequality—Assets and Income

Scoop media: Govt’s 2010 tax cuts costing $2 billion and counting

Dominion Post: Child poverty still not being corrected

IRD: [2009] Tax cuts for individuals

Otago Daily Times: Key says donate tax cuts to charity

NZ Treasury:  Net debt peaks as a share of GDP in 2014/15

National.co.nz: Mixed Ownership

Previous related blogposts

Letter to the Editor: playing politics with rape victims, National-style

Letter to the Editor: $3000 offer to the Unemployed is a joke – and not a very funny one!

Letter to Radio NZ: $3000 offer to the Unemployed is a joke – and not a very funny one (v.2)

 

 

 


 

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Skipping voting is not rebellion its surrender

Above image acknowledgment: Francis Owen/Lurch Left Memes

This blogpost was first published on The Daily Blog on 18 May 2014.

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National, The Economy, and coming Speed Wobbles – March Update

23 March 2014 2 comments

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The Nationalmobile

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On 1 March, in a previous blogpost, I raised the following issues;

1. The Reserve Bank has indicated that  it will begin to increase the OCR (Official Cash Rate) this year. Most economists  are expecting the OCR to rise a quarter of a percentage point on March 13.

Confirmed. True to it’s word and as clearly signalled, on 13 March the Reserve Bank  raised the Official Cash Rate (OCR) from 2.5% to 2.75%.

2. An increase in the OCR will inevitably flow through to mortgage rates, increasing repayments.  As mortgaged home owners pay more in repayments, this will impact on discretionary spending; reducing consumer activity, and flow through to lower business turn-over.

Confirmed. The ANZ Bank  has already  announced it will increase its floating and flexible home loan rates .25 percentage points to 5.99% on 17 March. Expect other banks to follow suit. Other bank rate rises will be signalled here.

This will inevitably dampen consumer spending and reduce economic activity.

3. An increase in the OCR will inevitably also mean a higher dollar, as currency speculators rush to buy the Kiwi. Whilst this may be good for importers – it is not so good for exporters.

Confirmed, as the NZ Herald reported;

The New Zealand dollar jumped to a five-month high after the Reserve Bank raised the benchmark interest rate as expected and signalled further hikes are on the way.

The kiwi rose as high as 85.26 US cents, from 84.73 cents immediately before the Reserve Bank’s 9am statement. The local currency recently traded at 85.20 cents.”

And in another Herald story,

By raising rates, the Reserve Bank aims to tame both inflationary pressures and house price increases but also runs the risk of elevating an exchange rate it already considers too high, making exports less competitive.”

For a nation that bases it’s economy on exporting, a rising Kiwi Dollar will bring inevitable problems of higher debt and greater trade imbalance. It means we are not paying our way in the world and inevitably there will be a “Crunch Day” of tragi-Greek proportions.

On that day, the public will blame politicians.

Politicians will blame each other.

And the Left will shake it’s head in exasperation – it’s admonitions that this was all predictable as a natural consequence of unconstrained consumerism coupled with rampant capitalism –  lost in the shrill clamour of pointless blame-gaming.

As BERL economist, Ganesh Nana, said on The Nation on 15 March, we’ve been down this road before and not learned a single lesson  from these experiences.

4. As economic activity and consumer demand falls, expect businesses not to hire more staff and for fresh  redundancies to add to the unemployment rate. Unemployment will either stay steady later this year, or even increase.

On-going…

5. As interest rates rise, in tandem with the Reserve Bank’s policy on restricting low-home deposits, expect home ownership to fall even further. This will increase demand for rentals, which, in turn will push up rents. Higher rents will also dampen consumer spending.

Confirmed. The Reserve Bank  has reported that there has “been some moderation in the housing market. Restrictions on high loan-to-value ratio mortgage lending are starting to ease pressure, and rising interest rates will have a further moderating influence...”

Expect home ownership levels to fall even further as interest rates rise further; rents increase (thereby making it harder for low income families to save); and mortgagee sales to rise as well.

Interestingly, when in Opposition, National Party leader, John Key lambasted the Labour Government for a high OCR leading to high interest rates. In a desk-thumping speech, on 29 January 2008, he railed,

Why, after eight years of Labour, are we paying the second-highest interest rates in the developed world?

[...]

Why can’t our hardworking kids afford to buy their own house?…

[...]

Mortgage rates are rocketing upwards…

[...]

We know Kiwis are suffocating under the burden of rising mortgage payments and interest rates…”

It seems that Mr Key should now begin to be answering his own questions.

6. As the global economy picks up and demand for oil increases, expect petrol prices to increase. This will have a flow-through effect within our local economy; higher fuel prices will lead to higher prices for consumer goods and services. This, in turn, will force the Reserve Bank to ratchet up interest rates (the OCR) even further.

Whilst fuel prices remained steady during the worst of the GFC, they have begun edging upward again as the global economy improves and demand for energy grows.

Our high Kiwi Dollar will mitigate the worst of rising crude-oil prices – but only temporarily. Once other Central Banks begin to rise their OCRs, expect the value of the Kiwi Dollar to fall as speculators sell the Kiwi in preference to harder currencies.

This will be good for exporters.

But will be a negative impact on imports – such as oil. Prices will rise as the Kiwi Dollar falls. Count on it.

7. As businesses face ongoing pressures (described above), there will be continuing  pressure to dampen down wage increases (except for a minority of job skills, in the Christchurch area). For many businesses, the choice they offer their staff will be stark; pay rise or redundancies?

Data suggests that wages are not keeping pace with GDP Growth;

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Wages

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NZ average hourly wages 2012 - 2014

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GDP

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NZ GDP Growth Rate 2012 - 2014

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8. Expect one or more credit rating agencies (Fitch, Moodies, Standard and Poors) to put New Zealand on a negative credit watch.

On-going…

9. According to a recent (21 February) Roy Morgan poll, 42%  of respondents still considered the economy their main priority of concern. 21% considered social issues as their main concern.This should serve as a stark warning to National that people will “vote with their hip wallets or purses” and if a significant number of voters believe that they are not benefitting from any supposed economic recovery, they will be grumpy voters that walk into the ballot booth.

There is no reason to think otherwise on this issue. Voters who are spending more on mortgage or rent are less inclined to be happy consumers.Especially as mortgage rates are expected to rise even further, according to Bernard Hickey’s assessment of Governor Graeme Wheeler’s statement,

Wheeler said in early December he expected to raise the OCR by 2.25% by early 2016, which would lift variable mortgage rates to around 8% by then. The bank forecast interest rate rises of around 1% this year and a similar amount next year.”

Home owners paying 7% to 8% on their mortgage will not be happy-chappies and chapettes. They will be grumpy. The 2009 and 2010 tax cuts will be a dim memory and any attempt by Key to remind voters of those cuts will not be warmly received. Especially as any minute gain for workers was more than swallowed up by the rise in GST, ACC, government user-pays charges, and now their mortgages and rents.

If only a small percentage of grumpy voters change their voting away from National (or stay home) – that will mean a critical drop in support for a right-wing bloc. One or two percentage points is all that is required to change the government.

10. National has predicated its reputation as a “prudent fiscal manager”  on returning the government’s books to surplus by 2014/15. As Bill English stated  just late last year,

We remain on track to surplus in 2014/15, although it will still be a challenge to actually reach surplus in that financial year.”

[...]

On top of which is the $61 billion dollar Elephant in the room; the government debt racked up by National since taking office in 2008. As Brian Fallow wrote in the Herald in 2011,

The concern about government debt is not so much about its level, but the pace at which it is increasing. In June 2008 net government debt was $10 billion, or 5.6 per cent of GDP, and gross debt $31 billon, or 17.2 per cent of GDP.”

A lower tax-take, reported by Treasury on 11 March puts serious doubt on National’s ability to return to “remain on track to surplus in 2014/15″;

  • Total unconsolidated tax receipts for the seven months ended January 2014,  $143 million (0.4%) below the 2013 Half Year Economic and Fiscal Update (2013 HYEFU) forecast…
  • Total unconsolidated tax revenue for the seven months ended January 2014,  $459 million (1.1%) below the 2013 Half Year Economic and Fiscal Update (2013 HYEFU) forecast…
  • GST $250 million below forecast,
  • Net individuals’ taxes $191 million below forecast,
  • Customs and excise duties $156 million below forecast

The March Treasury report follows from a February report showing a similar “smaller than forecast tax take across the board“,

The Crown’s operating balance before gains and losses (obegal) was a deficit of $1.79 billion in the six months ended December 31, $380 million wider than forecast in its Dec. 17 half-year economic and fiscal update, and down from a shortfall of $3.19 billion a year earlier. Core tax revenue was $602 million below forecast at $29.18 billion.

[...]

The smaller tax take was across the board, with GST 2.3 per cent below forecast at $7.5 billion, source deductions for personal income tax 1.2 per cent below forecast at $11.71 billion, and total corporate tax 4.9 per cent below expectations at $3.56 billion.

As I wrote on 1 March, should National fail in that single-minded obsession, the public will not take kindly to any excuses from Key, English, et al. Not when tax payer’s money has been sprayed around with largesse by way of corporate welfarism. Throwing millions at Rio Tinto, Warner Bros, China Southern Airlines, Canterbury Finance, etc, will be hard to justify when National has to borrow further to balance the books.

Any economic “recovery” is fragile; dependent on overseas factors; and will bring new problems. Little wonder that Key brought the election date forward by two months. Mortgage rates by the end of the year will be nudging 7%.

Not much of a Christmas present for New Zealanders.

As such, Labour must begin to attack Key’s government in this area. This will be a grand opportunity for the Left to finally drive a stake through the “heart” of National’s undeserved reputation as  being a “responsible economic manager”.

National remains utterly vulnerable during this year’s election.

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References

Interest.co.nz:  Bernard Hickey looks at what the Reserve Bank’s OCR decision means for mortgage rates and house prices

Radio NZ: Reserve Bank warns of more interest rate rises

Interest.co.nz: Mortgages

NZ Herald: Dollar jumps on OCR hike + video

NZ Herald: New Zealand raises interest rate to 2.75 percent

Reserve Bank: Reserve Bank raises OCR to 2.75 percent

John Key: SPEECH: 2008: A Fresh Start for New Zealand

Interest.co.nz: Oil and Petrol

tradingeconomics.com: Wages

tradingeconomics.com: GDP

Roy Morgan: Economic Issues down but still easily the most important problems facing New Zealand (42%) and facing the World (36%) according to New Zealanders

NBR: Govt sees wider deficit in 2014 on ACC levy cut, lower SOE profits

Fairfax media: Public debt climbs by $27m a day

NZ Herald: Govt debt – it’s the trend that’s the worry

NZ Treasury: Tax Outturn Data

NZ Herald: Govt deficit bigger than expected as tax trickles in

Previous related blogposts

TV3 Polling and some crystal-ball gazing

National, The Economy, and coming Speed Wobbles

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http://fmacskasy.files.wordpress.com/2014/02/the-cost-of-living1.jpg?w=722&h=510

Above image acknowledgment: Francis Owen

This blogpost was first published on The Daily Blog on 16 March 2014.

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A Tale of Two Track Records: Labour vs National #1: New Zealand GDP

12 March 2014 3 comments

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party-logos - which

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As the election campaign for 2014 heats up, citizens can expect a deluge of dis-information, distortions, and  lies from the enemies of the progressive Left. Their constant repetition will be that Labour left the economy is a shocking state in 2008, with the most pernicious  outright lie that the Clark-Cullen government left New Zealand with a “decade of deficits”.

None of it is true. It is part of a meme-construction by the Right, with zealous followers who are willing and able to spread their mis-information on the internet.

Spreading lies is easy.

Discovering the truth is that much harder – you need to know where to look.

This series of reports will hopefully make things easier for those who want a clearer picture of events over the last two or three decades.

Those who cannot remember the past are condemned to repeat it.” – George Santayana

  • Introduction

Most graphed information is taken from Trading Economics, a US-based, on-line, economics-information website.

Trading Economics provides its users with accurate information for 196 countries including historical data for more than 300.000 economic indicators, exchange rates, stock market indexes, government bond yields and commodity prices. Our data is based on official sources, not third party data providers, and our facts are regularly checked for inconsistencies. TradingEconomics.com has received more than 100 million page views from more than 200 countries.

In turn, the site uses information from Statistics New Zealand, the World Bank, NZ Treasury, etc.

The reader can set dates for specific time-parameters  (indicated with red arrows) to search the site’s data-banks by years. It is extremely user-friendly and informative.

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field parameter searches

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Other sources for data will be clearly referenced.

National governance is marked with a blue line.

Labour governance is marked with a red line.

  • New Zealand GDP

“The gross domestic product (GDP) measures of national income and output for a given country’s economy. The gross domestic product (GDP) is equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time.”

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New Zealand GDP

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In the 1990s, under National and Ruth Richardson’s (1990-1993) economic stewardship, GDP dropped from $43.9 to $40.3 billion and unemployment skyrocketed to 11.2%. For much of the 1990s, GDP see-sawed up and down, peaking at $67.9 billion in 1997 before falling away again.

Note: National implemented two tax cuts, in 1 July 1996 and 1 July 1998. Neither seemed to help grow GDP, and many public services were cut back in the late 1990s.

For Labour, except for a dip in 2001, GDP rose every year from 2002 to 2008. The rise in percentage terms is outlined below.

From 2009 to 2013, despite the GFC, GDP increased from $117.8 to $169.6 billion, though the rise in percentage terms, outlined below, was not so encouraging. GDP growth, per capita, was also lack-lustre, as demonstrated below.

  • New Zealand GDP per capita

“The GDP per capita is obtained by dividing the country’s gross domestic product, adjusted by inflation, by the total population.”

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New Zealand GDP per capita

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Except for two recessionary periods (early 1990s and 2007/08 Global Financial Crisis and recession), New Zealand’s GDP, per head of capita, has grown every year, until the GFC/recession, when it dropped from$28,168.1 per capita in 2008 to $27,383.8 in 2009.

Curiously,  the 2009 and 2010 tax cuts did not seem to contribute greatly to per capita GDP.

  • New Zealand Real GDP

Real Gross Domestic Product (real GDP) is a macroeconomic measure of the value of economic output adjusted for price changes (i.e., inflation or deflation). This adjustment transforms the money-value measure, nominal GDP, into an index for quantity of total output. GDP is the sum of consumer Spending, Investment made by industry, Excess of Exports over Imports and Government Spending. Due to inflation GDP increases and does not actually reflects the true growth in economy. That is why inflation rate must be subtracted from the GDP to get the real growth percentage called the real GDP.

The raw data for the Reserve Bank  graph (see below) is available in an XLS spreadsheet containing all key figures.

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reserve bank of nz real gross domestic product 1990_2013

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  • Main Stats
  1. Average GDP, 1990 to 1999:     2.4%
  2. Average GDP, 2000 to 2008:   3.5%
  3. Average GDP, 2009 to 2013*:  1.2%

* 2013 figure averaged over three Quarters only.

(Calculations based on RBNZ raw data spread sheet)

  • Impactors on GDP growth
  1. Recession, 1987/91
  2. Ruth Richardson’s “Mother of all Budgets” in 1991, which deepened the recession,
  3. Recession, 1997/98
  4. GFC/recession, from 2007/08 onward.
  • Conclusion
  1. Whilst GDP figures “bounce” around, Labour’s stewardship of the economy between 2000 and late 2008 has been more consistant in GDP growth and with less extremes shown in the 1990s and post-2008.
  2. GDP dipped into negative growth in the early 1990s and post-2008
  3. GDP remained in positive growth between 2000 to 2008
  4. Allegations that the economy did not perform well under Labour are clearly wrong, and the evidence does not sustain those claims.
This blogpost was first published on The Daily Blog on 5 March 2014.

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References

Trading Economics:  About Us

Trading Economics: New Zealand GDP

Trading Economics: New Zealand GDP per capita

Wikipedia: Real Gross Domestic Product (definition)

Reserve Bank of NZ: Real GDP

Reserve Bank of NZ: Real GDP Raw Data spreadsheet

NZ Treasury: New Zealand Economic Growth: An analysis of performance and policy

NZ Treasury: Recent Economic Performance and Outlook

Te Ara: The ‘mother of all budgets’

Ministry of Business, Innovation, & Employment/Dept of Labour:  How bad is the Current Recession? Labour Market Downturns since the 1960s

Colin James: Ruth amid the alien corn

Previous related blogposts

Labour: the Economic Record 2000 – 2008

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The trouble with capitalism is that you run out of money

There, fixed it.

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National, The Economy, and coming Speed Wobbles

1 March 2014 4 comments

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The Nationalmobile

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For a while, the news seemed dire for the Left, and impressively positive for National;

  • A recent Fairfax Media-Ipsos poll put National on 49.4%  versus  31.8% and 10% respectively for  Labour and the Greens.
  • The latest Roy Morgan Poll had National at 48%, compared to 30% and 12% for Labour and the Greens respectively.
  • Annual average economic growth  was 2.6% to September 2013.
  • The Household Labour Force Survey for the December 2013 Quarter showed a drop in unemployment, from 6.2% to 6%.
  • Dairy prices (and thusly export reciepts) continued to rise.
  • The trade deficit continued to slowly improve.
  • And there was just enough ambiguity around recent child poverty statistics to allow National, and its drooling sycophants,  to claim that it was no longer a  growing problem (it was simply a constant problem).

However, is everything as it really seems? Is the news all rosy and are we rushing head-first toward the “promised land“, the much heralded, Neo-liberal Nirvana?

Or, are dark clouds beginning to appear on the horizon?

New Zealand’s economic recovery is predicated mostly on the Christchurch re-build, and piggy-backing on the global economic situation picking up. As Treasury reported in 2012;

The Canterbury rebuild is expected to be a significant driver of economic growth over the next five to ten years. The timing and speed of the rebuild is uncertain, in part due to ongoing aftershocks, but the New Zealand Treasury expects it to commence around mid-to-late 2012.

As predicted,  the ASB/Main Report Regional Economic Scoreboard recently revealed that Canterbury had over-taken Auckland as the country’s main center for economic growth.

Meanwhile, the same report outlines that Auckland’s “growth” is predicated on rising house prices. Economic “growth” based on property speculation is not growth – it is a bubble waiting to burst.

The other causal factor for our recovery is international. The IMF reported only last month;

Global activity strengthened during the second half of 2013, as anticipated in the October 2013 World Economic Outlook (WEO). Activity is expected to improve further in 2014–15, largely on account of recovery in the advanced economies. Global growth is now projected to be slightly higher in 2014, at around 3.7 percent, rising to 3.9 percent in 2015, a broadly unchanged outlook from the October 2013 WEO. But downward revisions to growth forecasts in some economies highlight continued fragilities, and downside risks remain...

Being  mostly an exporter of commodities (meat, dairy products, unprocessed timber, etc), New Zealand cannot but help ride the wave of an upturn in the global economy as increasing economic activity creates a demand for our products.

Any economic recovery, as such, has little to do with the incumbent government – just as the incumbent governments in 2008 and 2009 had little to do with the  GFC and resulting recession (though National’s tax cuts in 2009 and 2010 were irresponsible in the extreme, reliant as they were on heavy borrowings from overseas). We are simply “riding the economic wave”.

As the global up-turn generates growth in New Zealand’s economy, paradoxically that leaves us vulnerable to new, negative, economic factors;

1. The Reserve Bank has indicated that  it will begin to increase the OCR (Official Cash Rate) this year.

Most economists  are expecting the OCR to rise a quarter of a percentage point on March 13. As Bernard Hickey reported in Interest.co.nz;

Wheeler said in early December he expected to raise the OCR by 2.25% by early 2016, which would lift variable mortgage rates to around 8% by then. The bank forecast interest rate rises of around 1% this year and a similar amount next year.

2. An increase in the OCR will inevitably flow through to mortgage rates, increasing repayments.

As mortgaged home owners pay more in repayments, this will impact on discretionary spending; reducing consumer activity, and flow through to lower business turn-over.

Even the fear-threat of higher mortgage interest rates may already be pushing home owners to lock-in fixed mortgages. Kiwibank for example, currently has a Fixed Five year rate at 6.9%. ANZ has a five year rate at 7.2%. Expect these rates to rise after March.

If home owners are already fixing their mortgages at these higher rates, this may explain the fall in consumer confidence, as the Herald wrote on 20 February,

New Zealand consumer confidence fell from its highest level in seven years this month, while remaining elevated, amid a pickup in inflation expectations and the prospect of interest rate increases.

It may also explain, in part, this curious anomaly which recently featured in the news cycle,

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Govt deficit bigger than expected as tax trickles in

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The Herald report goes on to state,

The smaller tax take was across the board, with GST 2.3 per cent below forecast at $7.5 billion, source deductions for personal income tax 1.2 per cent below forecast at $11.71 billion, and total corporate tax 4.9 per cent below expectations at $3.56 billion.

Treasury officials said some of the lower GST take was due to earthquake related refunds, and that the shortfall in Pay As You Earn might be short-lived. The corporate tax take shortfall was smaller than in the previous month…

  • A drop in GST would be utterly predictable if consumer spending was falling.
  • Personal income tax would be falling if employers were cutting back on part-time work available. Which indeed seems to be the case, according to the latest Household Labour Force Survey (HLFS) Poll on unemployment,

Over the year, the total number of under-employed people increased by 27,200 to 122,600. As a result, the under-employment rate increased 1.0 percentage points to 5.3 percent.

Less wages equals less spent in the economy and less PAYE and GST collected by the government.

  • This would also account for the drop in corporate tax take falling by  4.9%.

The effect of the Reserve Bank’s decision to begin raising interest rates will be to dampen economic activity and consumer demand. This will be bad news for National.

3. An increase in the OCR will inevitably also mean a higher dollar, as currency speculators rush to buy the Kiwi. Whilst this may be good for importers – it is not so good for exporters. If we cannot pay our way in the world through exports, that will worsen our Balance of Trade; in turn risking our international credit rating; which in turn can  impact negatively on the cost of borrowing from off-shore (the lower our credit-rating, the higher interest we pay to borrow, as we are considered a higher lending risk).

This, too, will affect what we pay for our mortgages and capital for business investment.

4. As economic activity and consumer demand falls, expect businesses not to hire more staff and for fresh  redundancies to add to the unemployment rate. Unemployment will either stay steady later this year, or even increase.

Less people employed or a reduction on work hours for part-time employees will also result in a lower tax take.

5. As interest rates rise, in tandem with the Reserve Bank’s policy on restricting low-home deposits, expect home ownership to fall even further. This will increase demand for rentals, which, in turn will push up rents. Higher rents will also dampen consumer spending.

6. As the global economy picks up and demand for oil increases, expect petrol prices to increase. This will have a flow-through effect within our local economy; higher fuel prices will lead to higher prices for consumer goods and services. This, in turn, will force the Reserve Bank to ratchet up interest rates (the OCR) even further.

7. As businesses face ongoing pressures (described above), there will be continuing  pressure to dampen down wage increases (except for a minority of job skills, in the Christchurch area). For many businesses, the choice they offer their staff will be stark; pay rise or redundancies?

8. Expect one or more credit rating agencies (Fitch, Moodies, Standard and Poors) to put New Zealand on a negative credit watch.

9. According to a recent (21 February) Roy Morgan poll, 42%  of respondents still considered the economy their main priority of concern. 21% considered social issues as their main concern.This should serve as a stark warning to National that people will “vote with their hip wallets or purses” and if a significant number of voters believe that they are not benefitting from any supposed economic recovery, they will be grumpy voters that walk into the ballot booth.

Interestingly, the “Economy” category also included the social issue of “Poverty / The gap between the rich and the poor”.  16% believed that “Poverty / The gap between the rich and the poor”was a major factor within the economic situation – a significant sub-set of the 42%.

Add that 16% to the 21% considering social issues to be the number one priority, and we see the number of respondents in this category increasing to 37%. That is core Labour/Green/Mana territory.

10. National has predicated its reputation as a “prudent fiscal manager”  on returning the government’s books to surplus by 2014/15. As Bill English stated just late last year,

“We remain on track to surplus in 2014/15, although it will still be a challenge to actually reach surplus in that financial year.”

Should National fail in that single-minded obsession, the public will not take kindly to any excuses from Key, English, et al. Not when tax payer’s money has been sprayed around with largesse by way of corporate welfarism. Throwing millions at Rio Tinto, Warner Bros, China Southern Airlines, Canterbury Finance, etc, will be hard to justify when National has to borrow further to balance the books.

On top of which is the $61 billion dollar Elephant in the room; the government debt racked up by National since taking office in 2008. As Brian Fallow wrote in the Herald in 2011,

The concern about government debt is not so much about its level, but the pace at which it is increasing. In June 2008 net government debt was $10 billion, or 5.6 per cent of GDP, and gross debt $31 billon, or 17.2 per cent of GDP.

Since 2008, New Zealand’s sovereign debt has increased six-fold – made worse in part by two ill-conceived and ultimately unaffordable tax cuts.  Those tax cuts were, in essence, electoral bribes made by John Key to win the 2008 general election. (Labour’s paying down of massive debts it had inherited from National in the 1990s, plus posting nine consecutive surpluses, had come around to bite Cullen on his bum. Taxpayers were demanding “a slice the action” by way of tax cuts.)

That debt will eventually have to be repaid. Especially if, as some believe, another global financial shock is possible – even inevitable. With a $60 billion dollar debt hanging over our heads, we are not well-placed to weather another global economic shock. In fact, coupled with private debt, New Zealand is badly exposed in this area (as the OECD stated, in the quote below).

So the “good news” currently hitting the headlines is not so “good” after all, and many of the positive indicators have a nasty ‘sting in the tail’. As the OECD  recently reported,

The New Zealand economy is beginning to gain some momentum, with post‑earthquake reconstruction, business investment and household spending gathering pace.Risks to growth remain, however, stemming from high private debt levels, weak foreign demand, large external imbalances, volatile terms of trade, a severe drought and an exchange rate that appears overvalued. The main structural challenge will be to create the conditions that encourage resources to shift towards more sustainable sources of prosperity. Incomes per head are well below the OECD average, and productivity growth has been sluggish for a long time. Lifting living standards sustainably and equitably will require structural reforms to improve productivity performance and the quality of human capital.

As the election campaign heats up, expect the following;

  1. Greater media scrutiny on National’s track record,
  2. The public to become more disenchanted with Key’s governance as economic indicators worsen and impact on their wallets and purses,
  3. National (and its sycophantic supporters) continue to blame welfare beneficiaries; the previous Labour government; the GFC and resulting recession; and other “external factors” for their lack-lustre performance,
  4. Key and various business  figures to become more strident in their attacks on Labour and the Greens,
  5. A dirty election campaign , including a well-known extremist right-wing blogger releasing personal information on political opponants, which will backfire badly on National,
  6. National to fall in the polls; NZ First will cross the 5% threshold; and Labour/Greens/Mana to form the next government, with Peters either sitting on the cross benches, or taking on a ministerial portfolio outside Cabinet.

So it’s not the Left that should be worried.

National is on shakier ground than many realise.

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References

Fairfax Media: National on wave of optimism – poll

Roy Morgan: National (48%) increases lead over Labour/ Greens (42%) – biggest lead for National since July 2013

NZ Herald: Economic growth hits 4-year high

Statistics NZ: Household Labour Force Survey: December 2013 quarter

Fairfax Media: Dairy prices squash trade deficit

NZ Herald: NZ’s trade deficit remains despite better terms

Fairfax Media: Inequality: Is it growing or not?

NZ Treasury: Recent Economic Performance and Outlook

Fairfax media: Canterbury overtakes Auckland in economic survey

IMF: World Economic Outlook (WEO) Update

Reserve Bank:  Price stability promotes a sustainable expansion

Interest.co.nz:  Bernard Hickey looks at what the Reserve Bank’s OCR decision means for mortgage rates and house prices

NZ Herald: Consumer confidence slips as rates increase looms

NZ Herald:  Govt deficit bigger than expected as tax trickles in

Statistics NZ:  Unemployment December 2013 Quarter

Roy Morgan: Economic Issues down but still easily the most important problems facing New Zealand (42%) and facing the World (36%) according to New Zealanders

NBR:  Govt sees wider deficit in 2014 on ACC levy cut, lower SOE profits

Fairfax media:  Public debt climbs by $27m a day

NZ Herald: Govt debt – it’s the trend that’s the worry

NZ Herald: Cullen – Tax cuts but strict conditions

OECD: Economic Survey of New Zealand 2013

Previous related blogposts

TV3 Polling and some crystal-ball gazing

Other blogposts

The Daily Blog: Latest Roy Morgan Poll shows the Labour funk

The Daily Blog: Canaries In A Coal Mine: Has The Daily Blog Poll anticipated Labour’s Collapse?

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The Cost of Living

Above image acknowledgment: Francis Owen

This blogpost was first published on The Daily Blog on 23 February 2014.

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Tiwai Point – An exercise in National’s “prudent fiscal management”?

26 February 2014 Leave a comment

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corporate welfare 1

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Timeline

3 October 2007: Meridian and NZAS/Rio Tinto sign agreement for the continuous supply of 572 megawatts of power to the Tiwai Point smelter for 2013 to 2030.

30 October 2011: National government announces partial asset sales, of Genesis, Meridian, Mighty River Power, Solid Energy, and a further sell-down of Air New Zealand.

9 August 2012: Meridian Energy (electricity supplier to Rio Tinto) announces that Rio Tinto/Pacific Aluminium is demanding to renegotiate its electricity supply contract between the Tiwai Point aluminium smelter and Meridian.

10 August 2012: Rio Tinto CEO, Tom Albanese, warns that the smelter will be closed “if they cannot be viable, we have difficult decisions to make”.

7 September 2012:  Rio Tinto/New Zealand Aluminium Smelters  announces it will  make 100 workers redundant by November 2012.

7 August 2013: Rio Tinto/New Zealand Aluminium Smelters  announces 30 maintenance workers to be made redundant at the Tiwai Point smelter.

8 August 2013: National government announces agreement to give cash subsidy of  $30 million  to Rio Tinto, and Meridian Energy to supply the smelter with cheaper (price undisclosed) electricity than agreed in 2007.

9 August 2013: Bill English confirms that he has not sought a guarantee from Rio Tinto that jobs will not be lost at the smelter.

20 August 2013: National government announces details to sell 49% of Meridian Energy.

14/15 February 2014: Rio Tinto announces a   $4.43 billion ($US3.7 billion) annual after-tax profit. Rio Tinto shareholders recieve a 15% increase in dividends.

An exercise in National’s “prudent fiscal management”?

We were conned.

There is no other way to describe events between October 2007 and February this year; we were conned by a multi-national mining/metals giant that exploited National’s core-policies, for their own gain.

How else to describe the above events?

Once National announced their intention to partially-privatise Meridian Energy and float it on the New Zealand  (and Australian) stock exchanges – Rio Tinto realised that the price of Meridian shares would be determined by the income they derived from selling electricity.

As Green Party co-leader, Russel Norman stated,

”Rio Tinto took advantage of Mr Key’s obsession with asset sales by threatening to derail the sale of Meridian by closing the Tiwai smelter, so Mr Key gave them $30 million of public money.”

Rio Tinto was Meridian’s biggest customer, supplying  Tiwai Point  with approximately 15% of New Zealand’s total  electricity output. As such, Rio Tinto had Meridian  (and by proxy, the National Government) by the balls. And on 7 September 2012 and 7 August 2013, Rio Tinto squeezed.

By making  130 workers redundant, it sent National, and it’s compliant  leader, a clear message; “Don’t f**k with us, Johnny-boy. These 130 plebes are an example of what we can do to screw you over“.

Had Rio Tinto followed through on it’s threats (and make no mistake – they were threats), it would have brought down the government. That would have ended Key’s career and his reputation would have been in tatters. No Knighthood or beersies for Johnny-boy!

Key had no choice but to capitulate. Key admitted as such when he said on 14 February,

“At the end of the day I think the Government took a modest step to ensure there was a smooth potential transition there – that we didn’t have a glut of electricity we couldn’t use or that thousands and thousands of Southland jobs are out at risk.”

The resulting loss of 700 jobs at the smelter,  and a further 2,500 downstream throughout Southland, would certainly have been embarrassing for Key and damaging to National .  But this is a government that has overseen the sacking of approximately 3,000 state sector workers (up to August 2012) and 29,472 few jobs in the manufacturing sector, since 2006 (2013 Census results), so unemployment per se is not a problem that overly concerns right-wing government ministers.

What really threatened this government was Key’s reference to a “glut of electricity” – note the words. A glut of electricity would have de-railed the entire asset sales programme. Result; end of National; end of asset sales programme (and the neo-liberal agenda on the whole), and the end of Key’s career.

This shabby, self-serving, politically-expedient exercise, has cost us – the tax-payer – $30 million, plus an even cheaper electricity deal than probably anyone else in this country gets. No wonder the contract price is even more uber secret than the goings-on at the GCSB – the public would erupt in fury if they came to know what our electricity was being sold for, whilst the rest of us have mounting power prices, year after year after year.

Meanwhile, the lowest paid workers in New Zealand’s rest homes are paid just barely above the minimum wage;

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Resthome spy hails saint-like workers

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To which our well-heeled Prime Minister responded thusly,

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PM  No money for aged care workers

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To quote Dear Leader,

“It’s one of those things we’d love to do if we had the cash. As the country moves back to surplus it’s one of the areas we can look at but I think most people would accept this isn’t the time we have lots of extra cash.”

Interesting. Key and his Cabinet cronies found $30 million to throw at a multi-national corporation – which only six months later posted a $4.43 billion ($US3.7 billion) annual after-tax profit.

But no money for the lowest paid, hardest-working people (predominantly women) in our community. Key responded to Russell Norman’s criticism of the $30 million welfare handout,

“If Tiwai Point had closed straight away then hundreds and hundreds and hundreds of jobs would have disappeared and the Greens would have said the Government doesn’t care about those workers and is turning their back on them so they really can’t have it both ways.”

If only we could believe Key. But considering that thousands  lost their jobs since the Global Financial Crisis, and National has not bailed out any other company, the Prime Minister’s protestations ring hollow.

In fact, it’s fairly well obvious that the taxpayer-funded payout to Rio Tinto had nothing to do with jobs or the Southland economy – and everything to do with the state assets sales. As David Hargreaves wrote on Interest.co.nz,

“So, it will cost you, I and him and her a combined NZ$30 million of our hard-earned to keep the Tiwai Point aluminium smelter open just long enough so that the Government can flog off 49% of Meridian Energy.

That’s about the size of the deal struck between Meridian and the company controlled by global giant Rio Tinto, with additional sugar coating supplied by the Government, courtesy of us.

From the point the Government first stepped in earlier this year in an attempt to ‘help out’ it was always obvious tax payers were going to be forced to front up with some readies for the pleasure of keeping the always controversial smelter running for a while longer.

I have no doubt that the smelter will be closed in 2017, which is now when the owners get the first chance to pull the plug.”

The most asinine aspect to this deal (and there are many) is that Finance Minister,  Bill English, told Radio New Zealand on 9 August 2013 that “ensuring the safety of those jobs was not part of the deal and no undertakings were sought on the operation of the company”.

No guarantee for preserving jobs?!

Question: So what, precisely, did $30 million buy?

Answer: Rio Tinto not rocking the boat and upsetting National’s asset-sales programme.

This was a most odious, repugnant deal.

Every New Zealander contributed some of their hard-earned cash, which ended up in Rio Tinto’s shareholder’s pockets.

All done to achieve the sale of state assets which we own.

John Key gave away our money; which ended up in shareholder’s pockets; to sell assets we own; to other share investors.

This is the crazy side of National’s economic policy. This is  corporate welfare and crony capitalism rolled into one. Which begs the question to National’s supporters; is this what they see as “prudent fiscal management”?

How “prudent” is it to pay a subsidy to a multi-national corporation, that posted a multi-billion dollar after-tax profit,  that will most likely close the smelter regardless in some near future date (2017?)?

And why was that $30 million not invested in other job creation industries in Southland, so that a multi-national corporation could not hold this country to ransom? After Rio Tinto and Warner Bros – who is next to hold a gun to our collective head demanding a taxpayer subsidy/payout?

This was an odious, repugnant and wasteful deal.

This should not be allowed to be forgotten this election.

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John Key says I'd like to raise wages but I can't

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References

NZ Herald:  Meridian boss hails deal with smelter

Radio NZ: Details of Meridian share offer announced

Radio NZ: National announces plans for asset sale profits

TV3: Rio Tinto seeks new Bluff smelter terms

TV3: Rio Tinto eyeing smelter closures

Australia Mining: Rio Tinto’s New Zealand smelter to axe jobs

Fairfax Media: More jobs to go in smelter revamp

Interest.co.nz: Govt pays NZ$30 mln to smelter owners in a deal that will clear the way for the float of Meridian Energy

Radio NZ: No job guarantees sought in smelter deal

Otago Daily Times: Rio Tinto profit more than $4.4b

NZ Herald: PM defends $30m payout to Rio Tinto

NZ Statistics: 2013 Census QuickStats about national highlights

Dominion Post: 555 jobs gone from public sector

Fairfax media: Resthome spy hails saint-like workers

Fairfax media: PM – No money for aged care workers

Interest.co.nz:  Opinion: There was a certain inevitability the long-suffering taxpayer would be ‘invited’ to cough up for the pleasure of keeping the Tiwai Point smelter open

Previous related blogposts

John Key’s track record on raising wages – 4. Rest Home Workers

“It’s one of those things we’d love to do if we had the cash”

2013 – Ongoing jobless talley

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The Cost of Living

Above image acknowledgment: Francis Owen

This blogpost was first published on The Daily Blog on 18 February 2014.

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When the Rich Whinge about paying tax

17 February 2014 1 comment

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I can't afford this and pay my tax

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It seems that after seven tax cuts since 1986, the rich still aren’t satisfied;

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taxation rich poor

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The matriarch of the Horton family – the 41st richest family in New Zealand according to the 2012 NBR Rich List and worth an estimated $220 million – Dame Rosie Horton, is complaining that “increasing the rate on the wealthy to provide services for lower income New Zealanders would just discourage hard work” and claims that “the country is already overtaxed and demanding an even greater take from the wealthy would only put people off working hard“.

New Zealand?! “Over-taxed”?!

After two tax cuts (2009 and 2010) which saw the wealthiest and top income earners benefit the most, Horton is still insisting that New Zealand is “over-taxed”?

Well, let’s put that to the test and compare New Zealand to Australia, via the KMPG on-line tax rates indicator;

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KPMG - individual tax rates

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Verdict: New Zealand’s highest individual tax rate (33%) is lower than Australia’s (45%) and lower than the Oceania average (37.75%).

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KPMG - corporate tax rates

Verdict: New Zealand’s corporate tax rate (28%) is lower than Australia’s (30%) – though marginally higher than the Oceania average (27%).

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KPMG - indirect tax rates

Verdict: New Zealand’s indirect tax rates, GST, is higher (15%)  than the Australian rate (10%) or the Oceania average (12.92%).

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The only tax rate higher than Australia or the Oceania average is GST. That tax is recoverable by companies (through their GST Return), and does not impact on rich families (who can also avoid it with some skillful accounting) unlike poorer or middle class families.

So let’s compare New Zealand globally. Where do we stand on taxation rankings? In 2006 the US-based Tax Foundation positioned New Zealand at number 22 out of 30,  in terms of high-to-low taxation ranking;

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Tax Foundation: Top Marginal Combined Individual Income Tax Rates in the OECD
2000 and 2006

Country

Top Combined Marginal Individual Income Tax Rate in 2000a

Rank

Top Combined Marginal Individual Income Tax Rate in 2006a

Rank

Percentage Reduction in Marginal Rate
(2000-2006)

Denmark

59.70%

3

59.74%

1

0.06%

Sweden

55.38%

4

56.60%

2

2.20%

France

53.25%

6

55.85%

3

4.88%

Belgium

63.90%

1

53.50%

4

-16.27%

Netherlands

60.00%

2

52.00%

5

-13.33%

Finland

48.67%

8

50.90%

6

4.58%

Austria

45.00%

17

50.00%

7

11.11%

Japan

50.00%

7

50.00%

7

0.00%

Australia

48.50%

9

48.50%

9

0.00%

Canada

46.41%

13

46.41%

10

0.00%

Germany

53.81%

5

45.37%

11

-15.67%

Spain

48.00%

10

45.00%

12

-6.25%

Italy

46.40%

14

44.10%

13

-4.96%

Switzerland

43.23%

21

42.06%

14

-2.71%

Portugal

35.00%

28

42.00%

15

20.00%

Ireland

44.00%

20

42.00%

16

-4.55%

Poland

40.00%

23

40.00%

17

0.00%

Greece

45.00%

18

40.00%

18

-11.11%

United Kingdom

40.00%

24

40.00%

19

0.00%

Norway

47.50%

11

40.00%

20

-15.79%

United States

46.09%

15

39.76%

21

-13.74%

New Zealand

39.00%

26

39.00%

22

0.00%

Luxembourg

47.15%

12

38.95%

23

-17.39%

Korea

44.00%

19

38.50%

24

-12.50%

Iceland

45.37%

16

36.72%

25

-19.07%

Hungary

40.00%

25

36.00%

26

-10.00%

Turkey

35.60%

27

35.60%

27

0.00%

Czech Republic

32.00%

30

32.00%

28

0.00%

Mexico

40.00%

22

29.00%

29

-27.50%

Slovak Republic

35.00%

29

19.00%

30

-45.71%

Average

45.93%

  

42.95%

  

-6.46%

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Note that the Ranking chart above is dated 2006 - three years before National’s tax cut in 2009, and a further year before the 2010 tax cut.  Our marginal tax rate is now at 33%, putting us even further down the Chart, just above the Czech Republic. That would put New Zealand at number 28 out of 30.

The following chart is a comparison of corporate tax rates;

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United States 39.10%
Japan 37.00%
France 34.40%
Belgium 34.00%
Weighted Average (by GDP) 32.50%
Portugal 31.50%
Germany 30.20%
Spain 30.00%
Mexico 30.00%
Australia 30.00%
Luxembourg 29.20%
New Zealand 28.00%
Norway 28.00%
Italy 27.50%
Canada 26.10%
Greece 26.00%
Simple Average 25.50%
Denmark 25.00%
Austria 25.00%
Netherlands 25.00%
Israel 25.00%
Finland 24.50%
Korea 24.20%
United Kingdom 23.00%
Slovak Republic 23.00%
Sweden 22.00%
Switzerland 21.10%
Estonia 21.00%
Chile 20.00%
Turkey 20.00%
Iceland 20.00%
Czech Republic 19.00%
Hungary 19.00%
Poland 19.00%
Slovenia 17.00%
Ireland 12.50%

Source: OECD Tax Database
PART II. Taxation of Corporate and Capital Income. Table II.1. Corporate income tax rate: Combined Central and Subcentral (column 4):
http://www.oecd.org/tax/taxpolicyanalysis/oecdtaxdatabase.htm

(Via The Tax Foundation – http://taxfoundation.org/article/oecd-corporate-income-tax-rates-1981-2013)

Whilst New Zealand ranks above the Simple Average, at number 11 (equal with Norway) we are still considerably below the Weighted Average (by GDP) and well below our major trading partners, Australia and the United States (figures not shown for China).

Another ranking is the Marginal Effective Tax Rate on Capital Investment, OECD Countries, 2005-2013. On this scale, New Zealand ranks 13th out of 34 nations. At a rate of 21.6%, we are well under the weighted average of 28.5%, though marginally above the unweighted figure of 19.6%. Australia, Japan, and the US rank well above us in higher marginal effective tax rates on capital investment.

So is New Zealand “over-taxed”?

Or are we hearing the remonstrations of a woman with considerable wealth, enjoying a life of luxury and privilege that 99% of New Zealanders could only imagine.

That’s 99% of us.

Horton belongs to the remaining 1%.

Which, in that context explains why she is bleating about having to pay anything resembling her fair share of taxation.

This blogger acknowledges that Horton may well contribute to charities. If so, good for her.

But contributing to charities is no substitution for taxation which ensures that State resources are fairly shared out, according to need, priorities, and maximising benefit for the country as a whole.

However Horton decides to prioritise her philantropy is her choice. But left to the random vaguaries of personal  philantropy, some will always miss out. Goodwill is important, but is no substitute for ensuring the widest, and optimally organised  distribution of resources to health, education, roading, public transport, the justice system, environmental conservation, etc, etc, etc, etc – all the things which New Zealanders enjoy and take for granted every day of their lives.

Why is it that with all their considerable wealth, the rich still feel the need to complain? With a dollar value of $220 million, Horton and her family will never have to worry about paying the mortgage of rent on time; whether their power bill will be higher yet again this winter; if they can afford to pay their children’s uniforms and “voluntary” school fees; and how much they’ll be able to afford to spend on groceries.

The infra-structure of this country did not materialise out of thin air; built up over-night by pixies. It was built by people paying taxes, and the State (the people’s collective will)  building everything from scratch.

When Horton switches on her light-switch tonight, I hope she spares a thought for the tax-dollars that went to pay for the dams; the access roads; the transmission lines; and the workers’ wages who built this incredible asset.

Rather than complain about taxation, Horton should count herself lucky, and give thanks to whatever deity she worships, that she was born in New Zealand.

It could easily have been Somalia.

They have little or no taxation.

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References

Radio NZ:  Philanthropist dismisses ‘rich tax’

NBR: The Rich List at a Glance (Wealth order)

NBR: HORTON family

Tax Foundation: Top Marginal Combined Individual Income Tax Rates in the OECD 2000 and 2006

Tax Foundation: Marginal Effective Tax Rate on Capital Investment, OECD Countries, 2005-2013

News.Com: Tax collecting a deadly job in Somalia, five taxmen killed this year

Previous related blogpost

Greed is good? (28 August 2011)

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election 2014

Above image acknowledgment: Francis Owen

This blogpost was first published on The Daily Blog on 10 February 2014.

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A lesson in free market economics for ex-National MP, Katherine Rich

12 February 2014 4 comments

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Milo's Week Invisible Hand

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It seems that our Aussie cuzzies are taking matters in hand and implementing their own “Buy Local” policies. A few overly-zealous supermarket operators have even taken to removing New Zealand-made products from their shelves,

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Supermarket stoush sours CER

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According to Tracy Watkins’ story in the Dominion Post, Key will raise the problem when he meets Australian PM, Tony Abbott in Sydney, later this week.

Raise what, precisely?

This is capitalism/free market/whatever at work. Supermarket owners can stock whatever goods they like. If an owner took it upon him/herself to stock goods only from Outer Mongolia – that’s his/her call in a free market.

In fact, like the Scottish Shop in Dunedin, some retailers are very specific in what they stock.

Food and Grocery council CEO,  Katherine Rich, complains that this policy “undermined the spirit of CER and risked a backlash in New Zealand as well”,

‘‘It’s an issue we’re watching closely because both major supermarkets, Coles and Woolworths, have come out with a very pro-Australia stance. There have been some high profile delistings of some New Zealand brands for no other reason than that they are not Australian.’’

Which is supremely ironic as Ms Rich was a one time member and National Party minister from 1999 to 2008.

So she should know how the free market, capitalist system works. It’s a bit too late in the day to start whinging that another nation’s private companies have adopted their own, specific retail policies.

After all, this is something the “invisible hand of the free market” will work out. According to neo-liberal dogma, if consumers want to purchase New Zealand goods, they will go elsewhere, to other retailers. Or buy via the internet. Or hop on a flight to do their grocery shopping here in New Zealand, at a Pak N Save.

That is how the Free Market works, right?

In fact, as Ms Watkins correctly reported, CER binds governments – not private companies;

One option would be for the Government to lodge a formal objection but sources say the situation is complicated by the fact that CER is a government-to-government agreement, and it is not ‘‘straight forward’’ whether supermarkets are captured by that process.

Very astute.

After all, wouldn’t it be a form of “communism” to bind private companies to buy certain goods?!

On the other hand, free trade agreements such as the CER, or the China-NZ FTA, or the impending TPPA, do bind governments in the way they must purchase goods and services.

A New Zealand government wanting to implement a procurement policy that favours locally produced goods and/or services would immediatly be sued by other nations or foreign corporations, via the World Trade Organisation. (In fact, New Zealand sued Australia at the WTO, over the latter’s refusal to allow New Zealand applies into that country. We won.)

So free trade agreements bind governments – but not private companies (those Kiwi apples can be exported to Australia – but no law can force an Aussie retailer or chain-stores to stock them).

This is something that New Zealanders might consider as the issue of the TPPA nears resolution; signatory governments – like our government – would be bound by a TPPA. But private companies would not (or only in peripheral ways) be bound.

As for Katherine Rich?

Tough luck, lady. This is the capitalist system at work.

Suck it up.

Welcome to  the corporatisation of human civilisation.

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References

TV1: Sweet success after bitter battle over NZ apples

Fairfax media: Supermarket stoush sours CER

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Why I am a Leftie

Above image acknowledgment: Francis Owen

This blogpost was first published on The Daily Blog on 5 February 2014.

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Mark this date: 31 January 2014

9 February 2014 3 comments

First, a bit of a history re-fresher. This from Dear Leader Key, on 29 January 2008,

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template

“Why, after eight years of Labour, are we paying the second-highest interest rates in the developed world?
[...]
Why can’t our hardworking kids afford to buy their own house?
[...]
Mortgage rates are rocketing upwards…
[...]
We know Kiwis are suffocating under the burden of rising mortgage payments and interest rates…”

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The latest from the Reserve Bank of NZ, as reported on Radio NZ,

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Reserve Bank governor confirms rate rise

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From TV3,

The Reserve Bank Governor also confirmed that he expects to increase interest rates “soon”, to ensure growth is sustainable in the face of increasing inflationary pressure and an expanding economy.

[...]

“In such an environment, there is a need to return interest rates to more normal levels and the Bank expects to begin this adjustment soon.”

In its December Monetary Policy Statement, the bank suggested the Official Cash Rate will need to rise about 2 percentage points over the next two years.

From TV1,

Wheeler kept the OCR at a record-low 2.5 percent yesterday, while signalling an increase would come soon to damp down building inflation over the next two years.

Today, he said the complexity of the current inflation environment was increased by 40-year high terms of trade, the elevated exchange rate, the reallocation of resources for construction in Christchurch and Auckland, rising consumer demand, increased net migration and the US Federal Reserve’s scaling back of its quantitative easing.

From the NZ Herald,

A rise in the official cash rate in March is nearly certain – barring some meltdown in the global economy – after the Reserve Bank left it on hold at 2.5 per cent yesterday but its accompanying statement displayed all the talons, beak and plumage of a hawk.“There is a need to return interest rates to more normal levels,” governor Graeme Wheeler said. “The bank expects to start this adjustment soon.”

It expects economic growth to continue at a rate of around 3.5 per cent over the coming year, an upward revision from around 3 per cent in its December forecasts, propelled by “very high” export commodity prices and a “rapid” rise in net immigration, on top of increasing construction activity in Canterbury and Auckland.

While a strong dollar has helped moderate inflation, the bank reiterated its view that the exchange rate is higher than is sustainable in the long run.

It expects inflation pressure to increase over the next two years, citing surveyed pricing intentions by firms and rising construction costs.

It is “committed” to increasing the OCR – a semantic upgrade from plain “will” six weeks ago – as needed to keep future average inflation near the 2 per cent mid-point of its target band.

Point #1: As of 31 January 2014,  the RBNZ announced it will be raising interest rates in March this year (barring a catastrophic international financial meltdown).

Point #2: The current government is National, led by Dear Leader John Key..

Point #3: There is likely to be a change in government later this year.

Question: How long will it be before the first right wing blogger, media, commentator, and Uncle Tom Cobbly, blames the new, incoming Labour-led government for interest rates climbing to an expected 7.5% to 8%?

Mark my words; the Right will attempt to shift blame for high interest rates on the next government.

Unless the next government is still National.

In which case, they’ll blame it on the previous Labour government.  This is called “Playing the Blame-Game“, according to right-wing rules.

Are we clear on this?

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References

John Key website:  SPEECH: 2008: A Fresh Start for New Zealand

Interest.co.nz: Bernard Hickey looks at what the Reserve Bank’s Monetary Policy Statement means for mortgage rates and house prices

NZ Herald: OCR stays at 2.5pc – hikes coming soon

Radio NZ: Reserve Bank governor confirms rate rise

Dominion Post: Growth, inflation greater than expected

TV1: Inflationary pressures an important risk – Wheeler

TV3: Economy, inflation growing faster than predicted

Previous related blogposts

Mark this date: 31 January 2014

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Unemployed and Voting in 2014

Above image acknowledgment: Francis Owen

This blogpost was first published on The Daily Blog on 1 February 2014.

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Radio NZ: Nine to Noon – Brian Easton – 7 February 2013

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- Nine To Noon -

 

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- Friday 7 February 2014  -

 

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- Kathryn Ryan & Brian Easton -

 

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Income inequality in New Zealand is set to become a central election issue, but is it really getting worse?

Brian Easton offers a solution how to address income inequality. Listen and find out what he suggests.

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Radio NZ logo -  nine to noon with Brian Easton

 

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Click to listen: Brian Easton, Economist ( 13′ 37″ )

 

 

 

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Acknowledgement: Radio NZ

(Hat tip: Murray Simmonds)

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Journalists encouraging irresponsible government policy?

6 January 2014 2 comments

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John Armstrong - Cutting tax tempting for National

Source

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Sorry, John, but precisely WHO is talking about tax cuts?

Because so far, all I’m hearing is a couple of journos putting the question to Dear Leader and his faithful little side-kick, Lassie Bill English. No one else is seriously contemplating cutting taxes – not when New Zealand’s sovereign debt is now $60 billion as at 9 November this year – and  increasing by $27 million every day since Key’s hopelessly  incompetent government came to power in 2008.

According to Hamish Rutherford, writing for Fairfax Media, this equates to $13,000 for every man, woman, and child in New Zealand – and expected to increase by another $10 billion by 2017.

We need to address this problem – not fuel it by increasing consumption of imported goods, thereby worsening our balance of payments.

For god sakes, stop encouraging National to engage in any further irresponsible slashing of revenue.  National’s two previous tax cuts in 2009 and 2010 did nothing to  help stem the growth in our sovereign debt. Not when revenue fell by up to $4 billion after those tax cuts.

We have other priorities.

For example, why is the Wellington City Mission short of $2 million to carry out it’s valuable work to assist the poorest in our society? It is obscene that the Mission will have to consider reducing some services, as Chief executive Michelle Branney recently suggested.

Why are New Zealand’s poorest families unable to afford basic  medicines since this government-for-the-rich increased prescription charges in January 2013? When National cut taxes, it attempted to make up for the revenue shortfall by raising GST (despite promising in 2008 not to) and increasing government charges such as for prescriptions, Court fees, etc.

Why are New Zealanders needlessly suffering from rare diseases because PHARMAC cannot afford life-giving medication?

Why are poverty-related diseases making a come-back with such a vengeance?

Children’s Commissioner Dr Russell Wills…

… report is expected to reveal a 12 per cent rise from 2007 to 2011 in hospital admissions for poverty-related illnesses such as acute bronchiolitis, gastroenteritis, asthma, acute upper respiratory infections and skin infections.

“Most New Zealanders will find the numbers of children affected by disease shocking,” Wills told the Herald on Sunday, “but for those of us working clinically with families in poverty it is not surprising.”

Wills also works as a paediatrician in Hawke’s Bay. He said hospital wards were now full of poor, sick children every month of the year – not just in winter. There was no longer a “summer lull” in diseases.

English found himself so cash-strapped after their tax cut profligacy that, by 2012, he was even reaching into the meagre pay-packets of newspaper delivery boys and girls to grab extra tax revenue.

Instead of frittering away taxes, we need to be looking at the real problems confronting us;

  • Address child poverty problems

When children go to school hungry because families cannot afford sufficient food after paying high rents, electricity bills, etc. then there is something seriously wrong with our country.

Especially when we are now seeing children eating out of rubbish bins because there is no food at home for them. I refuse to believe that most New Zealanders want this kind of society for their children.

This is not the New Zealand I grew up in.

The next Prime Minister must make this a #1 priority, and begin with taking on the role of Minister for Children and implementing a comprehensive Food In Schools programme (not the shonkey half-measures undertaken by National earlier this year).

Next on the agenda; returning welfare payments to pre-1991-slash levels (inflation indexed); reduce prescription prices for medicine;  and implement a massive job creation programme.

  • Pay down debt

From 2000 to 2008, Clark’s administration not only paid down debt, but also posted Budget surpluses,

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Government Debt

New Zealand Government Debt To GDP

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Government Budgets

New Zealand Government Budget

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To be fair, Labour’s Finance Minister, Michael Cullen did not have the Global Financial Crisis to contend with. But by exercising fiscal prudence –  instead of  tax-cut lolly-scrambles demanded by the then-National opposition – he left the country in a fit state to weather the on-coming financial storm that was about to envelope the planet.

By the time National came to power in 2008, the global financial crisis was well and truly upon us, with the collapse of Lehman Bros on 15 September 2008. The GFC had started earlier, and signs were apparent to all but the most intransigent optimist that dark storm clouds were on the horizon.

As unemployment rose and economic activity slowed, National persevered stubbornly with it’s tax-cut programme – a move that would further indebt this country and put our government’s books back into the red again. At one stage, National was  borrowing $380 million  a week to make up for the shortfall.

This despite the fact that it was common knowledge that we were facing a dire crisis, as Tracy Watkin and Vernon Small reported on 23 April 2009,

The recession was expected to blow a $50b hole in the economy during the next three years, plunging the Government further into the red as costs climb and tax revenues fall.

“That’s $50 billion we will not recover as a nation, and $50 billion that cannot be taxed by the Government,” Mr English told a business audience in Auckland.

And yet, despite his own candid admission, English went ahead with tax cuts that we could ill afford, and had to make up with massive borrowings; cuts to government services; increased user-pays; mass sackings of state sector worker, and eventual partial asset sales. Even welfare was targetted for “reforms” (read; cost cutting) to claw back government spending.

Little wonder that by September 2011, credit rating agencies Fitch and Standard & Poors had downgraded us.

  • Invest in upskilling the unemployed

Why are we importing tradespeople from overseas when we have 7.1% (153,210) unemployment in this country?

National’s response to the skills shortage was this ideological fob-off from Bill English, in June 2011,

In the first place, it is the responsibility of the companies that expect to rebuild Christchurch to ensure that they have the skills.

And to ensure that everyone understood that National was maintaining it’s long-held tradition of shirking responsibility, he added,

Of course it will be tight, because they are competing with very, very large salaries, particularly those in Western Australia where something like $250 billion worth of capital projects are in the pipeline.”

IBID

That’s the problem with a government that places it’s faith in a free market solution to everything (except corporate welfare) – nothing happens.

Wouldn’t it have made more sense to offer free skills training to every unemployed person in New Zealand, along with subsidised accomodation in Christchurch for workers moving from other towns and cities to take up work offers?

There would have been a cost, to be certain. But that would have been off-set by (a) reduced welfare payments; (b) upskilled workers who would continue to use their new training for subsequent building projects; (c) more taxes paid by more employed workers;  and (d) a flow-on effect to other businesses as income-earning workers spent their wages.

The $4 billion frittered away in tax cuts would have made a considerable dent in our unemployment and given a much needed boost to our economy. And by providing work to the unemployed, the government would have saved millions in welfare.

But by sitting on it’s hands and doing nothing, National has maintained the status quo; 160,000 unemployed wasting their time, and requiring more of our taxes to be paid for the dole.

Is this crazy or what?

Hopefully an incoming Labour-Green-Mana(-NZ First?)  will have more sensible policies than what we’ve seen thus far from National. (Which won’t be hard to achieve.)

And other areas which desperately require State intervention,

  • A fairer taxation system, including reducing (or even eliminating) GST; introducing a comprehensive Capital Gains Tax;  looking at a Financial Transactions Tax (or “Robin Hood” tax, as Mana refers to it); making the first $20,000 tax free; and increasing tax for the top 1%.
  • A sensible pricing system for electricity especially for low/fixed-income earners.
  • Increase funding for early childhood education.
  • More state housing, so our fellow New Zealanders have a decent roof  over their heads.
  • Invest in public transport, especially in Auckland, before the city grinds to a stop.

Those are the things we need to look at. Not cutting taxes for the well off (which is usually what the Nats end up doing).

These should be the priorities of a sensible government. Anything, everything,  else is grossly irresponsible.

Otherwise, what the hell are we leaving our children?

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debt-mountain-cartoon.

May I have some food, a home, parents

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Postscript

Armstrong’s article on tax cuts features a large image of a smiling David Cunliffe. Note; Cunliffe. Not English, nor John Key.

Is there a subtle sub-text being conveyed here that I’m missing? Perhaps I’m getting the wrong ‘message’ from Armstrong’s piece, especially when he finishes with this intriguing comment,

Overall, English will not want to tie himself to future tax cuts without more solid evidence they can be sustained.”

My… that almost sounds like a veiled warning, doesn’t it?

This blogpost was first published on The Daily Blog on 30 December 2013.

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References

Bill English: Dr Cullen maintains tradition of tax-cut denial

Wikipedia: Bankruptcy of Lehman Brothers

NZ Herald: Govt borrowing $380m a week

Fairfax media: $50b hole in economy

TV3 News: Double credit downgrade a double blow for NZ economy

Fairfax media: Key ‘no GST rise’ video emerges

NZ Herald: Food parcel families made poor choices, says Key

The Press: Irish rush for quake jobs

NBR: Chch rebuild companies will have to find skilled workers – English

TV1 News: Rise in prescription charges ‘not fair’ – Labour

NZ Herald: Tax cuts: High earners set to benefit most

NZ Herald: Budget 2012: ‘Paper boy tax’ on small earnings stuns Labour

Fairfax media: $4b in tax cuts coming

Dominion Post: Bennett expects welfare reform to save $1.6b

Fairfax media: Public debt climbs by $27m a day

Radio NZ: Pharmacies ‘carry cost’ of increases

NZ Herald: Child poverty ills rising

Fairfax media: Hungry kids scavenge pig slops

Fairfax media: Mum Not Prepared To Wait And Die

Radio NZ: PM defends record of helping poor families

Radio NZ: 5th year in deficit at City Mission

Radio NZ: Funding declined for housing project

NZ Herald: John Armstrong: Cutting tax tempting for National

The Atlantic: Tax Cuts Don’t Lead to Economic Growth, a New 65-Year Study Finds

Sources

Trading Economics:  New Zealand Government Debt To GDP

Trading Economics: New Zealand Government Budget

Statistics NZ: Household Labour Force Survey: September 2013 quarter (6 Nov 2013)

Roy Morgan: New Zealand real unemployment down 0.3% to 8.5% and a further 8.6% (down 1%) of workforce are under-employed (5 Dec 2013)

Statistics NZ: 2006 Census

Statistics NZ: 2013 Census

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Employers and Manufacturers Association – wishing for cheaper power is not enough

1 January 2014 5 comments

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HeraldCartoon3413

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Recently, EMA CEO, Kim Campbell, issued a media statement condemning the current high power prices and promises of a “price freeze” by Mighty River Power as inadequate. Campbell’s own words were that the so-called price freeze is  “simply not enough”.

By the way, I refer to MRP’s price freeze as “so called” because, as CEO,  Doug Heffernan stated,

We are now confirming that for our customers there will be no increase in our energy prices for a further 15 months. However, there will likely be changes in customer pricing from April 1 due to variables over which we have no control that we pass through on our bills – such as transmission and distribution charges and any increases in metering costs due to regulatory requirements.”

Source

Unfortunately, the Employers and Manufacturers Association – whilst calling for a drop in power prices – offers nothing constructive in making it happen.

Indeed, in May 2013, soon after the combined LabourGreen announcement on the creation of a single-buyer desk called NZ Power, the EMA (and others) roundly condemned the move.

The EMA was a co-signatory to an open letter  on 2 May, from BusinessNZ and the heads of several chambers of commerce. The letter said, that the policy would harm jobs, growth and investment, causing interest rates to rise, reducing KiwiSaver retirement savings and making people less well off (source).

The associated media release stated,

The signatories to the letter offer to work with the Labour and Green parties to help increase public understanding of the operation of the electricity market and in ensuring consumers have better choice as the electricity market becomes more competitive.”

IBID

BusinessNZ Chief Executive Phil O’Reilly, stated,

More price competition – rather than damaging price controls – is needed to drive down electricity prices.”

IBID

Well, that “price competition” has worked so amazingly well that seven and a half months later, on 16 December, one of the signatories to that letter condemning NZ Power wrote,

With power supply clearly outstripping demand, electricity prices are now too high and should come down, the Employers and Manufacturers Association says.

“New Zealand clearly now has an excess of installed electricity capacity,” said Kim Campbell, EMA’s chief executive.

“Demand for power is well below the country’s generation capacity and its price should reduce to help stimulate New Zealand’s economic recovery and offset inflationary pressures forecast in other parts of the economy.

“At present projections the savings available to business and residential consumers would be at least $67 million a year, but we suspect it could be much more.

“Stating as Mighty River Power has, that they will not increase the electricity price for three years is simply not enough.

“The Major Electricity Users Group notes the futures price for wholesale power for the year from 1st April 2014 is 7.14 c/kWh, down 0.17 c/kWh for the year. In a competitive market this reduction would be reflected in wholesale costs which would be passed through to retail customers.

“MEUG calculates that an average household using 8,000 kWh per year would save at least $13.80 per year or $23 million for all households.

“For all businesses and residences the potential cost reductions amount to $67 million in 2014/15.

“To maximise competitiveness our electricity market structures need to ensure the lowest possible power price while signalling the right time to invest in future generation and transmission.

Source

Unfortunately, Campbell then shoots himself in the proverbial foot by adding,

The Labour/Greens electricity proposal to underprice our existing power assets is no answer.

“To spur on market competition businesses should seek out the best power deals at www.whatsmynumber.org.nz/mybusiness

As I said, hasn’t that worked out well?!

So, if I understand Campbell’s stance on this problem; the LabourGreen proposal for NZ Power “is no answer“.

Instead, begging the power companies to drop their prices is Campbell’s only solution?!

Pathetic.

His “solution” is a do-nothing, beg-for-the-best, whilst New Zealanders are having to pay for higher and higher power prices.

To remind Campbell and his fellow businessmen and women; the more that we consumers pay for electricity -

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MED Prices-httpwww.med.govt.nzsectors-industriesenergyenergy-modellingdataprices

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- the less disposable income we consumers have to spend on their goods and services.

Without drawing a bright, pretty, picture with crayons, I can’t make that simple truism any clearer to understand.

Which is why, when the EMA joined BusinessNZ in an ideological vendetta against the LabourGreen proposal, they were not only doing consumers a grave disservice – but also slitting their own financial throats.

The. More. We. Spend. On. Power, The. Less. We. Have. To. Spend. On. Other. Goods. And. Services.

Perhaps Campbell and his supposedly astute business colleagues should re-visit their position on NZ Power?

Who knows – it might actually be good for business!

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This blogpost was first published on The Daily Blog on 25 December 2013.

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References

Otago Daily Times: Lower power prices coming says Bradford (3 June 1999)

MoBIE: Power prices

Statistics New Zealand: The history of electricity reform

NZ Herald: Labour, Greens make power promise

Scoop media: Open Letter to Labour, Greens: Please Withdraw Your Policy

TV3: Mighty River Power promises price freeze until April 2015

Scoop media: Electricity prices should come down

Fairfax media: Business urges Opposition to dump power plans

Previous related blogposts

The Politics of Power and a Very Clear Choice – Part Tahi

The Politics of Power and a Very Clear Choice – Part Rua

The Politics of Power and a Very Clear Choice – Part Toru

The Politics of Power and a Very Clear Choice – Part Wha

It’s Official, The Sky Will Fall – Phil O’Reilly

Labour, Greens, NZ First, & Mana – A Bright Idea with electricity!

History Lesson – Tahi – Electricity Sector “reforms”

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Confirmed: National welcomes low-wage economy

28 December 2013 2 comments

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From the mouth of our Dear Leader, Prime Minister John Key;

We think Kiwis deserve higher wages and lower taxes during their working lives, as well as a good retirement.” – John Key, 27 May 2007

We will be unrelenting in our quest to lift our economic growth rate and raise wage rates.” – John Key, 29 January 2008

We want to make New Zealand an attractive place for our children and grandchildren to live – including those who are currently living in Australia, the UK, or elsewhere. To stem that flow so we must ensure Kiwis can receive competitive after-tax wages in New Zealand.”   – John Key, 6 September 2008

I don’t want our talented young people leaving permanently for Australia, the US, Europe, or Asia, because they feel they have to go overseas to better themselves.” – John Key, 15 July 2009

Science and innovation are important. They’re one of the keys to growing our economy, raising wages, and providing the world-class public services that Kiwi families need.” – John Key, 12 March 2010

We will also continue our work to increase the incomes New Zealanders earn. That is a fundamental objective of our plan to build a stronger economy.” – John Key, 8 February 2011

The driving goal of my Government is to build a more competitive and internationally-focused economy with less debt, more  jobs and higher incomes.” – John Key, 21 December 2011

We want to increase the level of earnings and the level of incomes of the average New Zealander and we think we have a quality product with which we can do that.” –  John Key, 19 April 2012

Since 2007, Key has been explicit in his pronouncements; his policy is to see wages rise for New Zealanders. He has made those utterance every year.

Then, on  10 April 2011, on TVNZ’s Q+A, Guyon Espiner interviewed  Bill English and we heard this extraordinary admission from the Finance Minister;

GUYON Can I talk about the real economy for people?  They see the cost of living keep going up.  They see wages really not- if not quite keeping pace with that, certainly not outstripping it much.  I mean, you said at the weekend to the Australia New Zealand Leadership Forum that one of our advantages over Australia was that our wages were 30% cheaper.  I mean, is that an advantage now?

BILL Well, it’s a way of competing, isn’t it?  I mean, if we want to grow this economy, we need the capital – more capital per worker – and we’re competing for people as well.
 
GUYON So it’s part of our strategy to have wages 30% below Australia?

BILL Well, they are, and we need to get on with competing for Australia.  So if you take an area like tourism, we are competing with Australia.  We’re trying to get Australians here instead of spending their tourist dollar in Australia.

GUYON But is it a good thing?

BILL Well, it is a good thing if we can attract the capital, and the fact is Australians- Australian companies should be looking at bringing activities to New Zealand because we are so much more competitive than most of the Australian economy.

GUYON So let’s get this straight – it’s a good thing for New Zealand that our wages are 30% below Australia?

BILL No, it’s not a good thing, but it is a fact.  We want to close that gap up, and one way to close that gap up is to compete, just like our sports teams are doing.  This weekend we’ve had rugby league, netball, basketball teams, and rugby teams out there competing with Australia.  That’s lifting the standard.  They’re closing up the gap.

GUYON But you said it was an advantage, Minister.

BILL Well, at the moment, if I go to Australia and talk to Australians, I want to put to them a positive case for investment in New Zealand, because while we are saving more, we’re not saving more fast enough to get the capital that we need to close the gap with Australia.  So Australia already has 40 billion of investment in New Zealand.  If we could attract more Australian companies, activities here, that would help us create the jobs and lift incomes.

Source

Key responded in his typical fashion that we are all familiar with by now; he blamed the previous Labour government;

We inherited a mess from Labour and a real recession. We have a plan.”

Source

Considering that the previous Labour government had posted eight straight budget surpluses in a row, and paid down most of the country’s sovereign debt – it is unclear just what “mess” Key was referring to.

But as we all know by now, Key has zero hesitation in blaming others – especially the previous government – to avoid taking responsibility for any of his own shortcomings (which, by now, are legion).

So was English correct? Is it deliberate National Party policy to suppress wages in this country?

One might have accepted that English’s comments on Q+A were “mis-interpreted”.

However, two years later, National Party backbench MP, John Hayes, wrote this on his website,

Australian workers will get a 2.6 per cent rise to $A622.20 a week or $NZ750.50 at the prevailing exchange rate. That’s $A16.37 ($NZ19.75) an hour for Aussies’ 38-hour working week compared with $NZ13.75 an hour or $NZ550 for Kiwis’ 40-hour working week. I note that the Labour Party spokesperson on Labour issues is wringing her hands in despair at this news. I think we should celebrate because a rise in the minimum wage in Australia makes our labour force more competitive and will be helpful in attracting investment and jobs to New Zealand. About 18 months ago CHB Mayor Peter Butler and I approached Australian based food processors with the suggestion of moving across the Tasman to establish plants in New Zealand to process food produced under newly irrigated areas. We established that Australian food processors are interested to do this when our new irrigation is in place. A driver from the Australian perspective is that the New Zealand labour force is well educated, more productive and less unionised than their Australian counterparts.” – John Hayes, National MP, 5 June 2013

Bill English’s contention, that lower wages are a desirable means by which to be “so much more competitive” than Australian workers,was no mistake. It has been confirmed as covert National Party policy.

This is further backed up by National’s recent introduction of legislation to “reform” our labour laws.

Firstly, National reintroduced youth rates, euphemistically called the “Starting Out Wage” to young workers. Taking effect on 1 May 2013, the new youth rate cut wages  for  16-to-19-year-olds to  80% of the minimum wage.

National further disempowered workers and undermined their ability to negotiate by implementing the 90 Day “Trial Period”. First introduced in 2009 for small business of up to 20 employees, it was extended to all companies in 2011.

Unsurprisingly, the introduction of the 90 Day Trial Period had no appreciable effect on creating jobs,

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Source

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One of the most far-reaching aspects of National’s covert agenda to make the country’s workforce  “more flexible” (translation; more exploitable)  is their stated intention to remove Part 6A  of the Employment Relations Act (ERA),  which continues (or transfers under similar conditions and pay) the employment of  low-paid employees such as caretakers, cleaners, catering workers, hospital orderlies and laundry workers,  after a business is restructured or sold.

See: Part 6A – Continuity of employment if employees’ work affected by restructuring

Part 6A gives vulnerable, low-paid workers, the right to keep their jobs on the same terms of employment when  transferred to the new contractor.

See: Labour law changes announced

Then-Labour Minister Kate Wilkinson had assured the public that this law-change would apply only to  small and medium-sized businesses with less than 20 employees.

Which was precisely the same tactic used to implement the 90 Day Trial Period law, by degree,

Trial employment periods for up to 90 days for workplaces with fewer than 20 employees will be available from April 2009.” – Kate Wilkinson,  11 December 2008

See: National policy – 90-day trial period to provide job opportunities

Once National’s so-called “reforms” were bedded in, they changed it, implementing the real policy  they had wanted all along,

The 90-day trial period is to be extended to enable all employers and new employees to have the chance to benefit from it.” – Kate Wilkinson,  18 July 2010

Once Part 6A is removed from the lawbooks, the lowest-paid workers in our communities will be vulnerable. A new employer will  be able to re-write their contracts at whim; reduce  their pay; change their conditions, or dismiss them altogether. There are many such small business and the impact on their workers could be severe (Source).

Green Party industrial-relations spokeswoman, Denise Roche, was 100% on-the nose when she described these – and other “reforms” as,

This decision is straight from the Bill Birch era of industrial relations.”

Source

This is indeed a return to the Employment Contracts Act – by stealth. National is too gutless to present such radical plans to the voting public at election time.

This is indeed what National MP, John Hayes was referring to when he stated, 

…A driver from the Australian perspective is that the New Zealand labour force is well educated, more productive and less unionised than their Australian counterparts.”

And if National MP (Botany) Jamie Lee-Ross gets his way with his even more extreme Bill,  employers would be able to legally hire scab labour to replace striking workers .

Quite brazen in his actions, Jami-Lee Ross  admitted that he had colluded with POAL (Ports of Auckland Ltd) bosses to draft his proposed  strike-breaking amendment, the Employment Relations (Continuity of Labour) Amendment Bill.

On TV3′s The Nation on 22 June 2013, Ross confirmed that he had been in talks with employers during the height of the industrial dispute between the POAL and MUNZ (Maritime Union).  (source)

Ross’s hatred for Unions is on public record,

Up until recently, cool heads and rational people sitting around negotiating tables have meant that little focus has been placed on the role that unions play in society. However, with the bare-faced mockery that the Maritime Union is making of civilised negotiations New Zealanders will soon begin to question what position unions should hold in the modern Kiwi workplace.

Source

None, it would seem, according to Ross.

Though this radical move may be  a step too far, even for the

Make no mistake, National’s secret agenda is for a low wage economy, with minimal collective protections for workers, and as much power in the hands of employers as they can digest.

National has no other means by which to create jobs.

They intend to rely solely on the “market place”, and to do that, this country’s labour must become “more competitive”.

Translation; our wages must be driven down by any and every means possible.

Just ask Messrs English and Hayes.

Postscript

21 February 2013 MEDIA STATEMENT

AUS-NZ Wage Gap Now $180, More Than A Kiwi’s Daily Pay

How To Work A Four-Day Week? Move To Australia

The wage gap with Australia is now so large that Kiwis across the ditch earn a New Zealander’s weekly pay in just four days, says Labour’s Finance spokesperson David Parker

“The median weekly wage gap with Australia has ballooned by $60 to $180 per week under John Key’s leadership, despite National’s promise to close the gap.

“In Australia the median wage is $1067, in New Zealand it’s $887, according to the latest statistics[1]. To make up the difference Kiwis need to work another full day and another hour on top of that. It’s no surprise 182,000 Kiwis have left under National.

Source

National’s Grand Plan is a roaring success;  in July 2010 the wage gap was $22.36.

Source

This blogpost was first published on The Daily Blog on 24 December 2013.

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References

TVNZ Q+A: Bill English

TV3: Key blames Labour for his Govt’s wage gap failings

John  Hayes MP for Wairarapa: From the House: 5 June 2013

ODT: Labour law changes announced

Scoop media: Balloted Bill possibly a bridge too far

Green Party: Vulnerable workers’ rights go under National

Scoop media:  Union biting the hand that feeds – Jamie Lee-Ross

Scoop media: AUS-NZ Wage Gap Now $180, More Than A Kiwi’s Daily Pay

Previous related blogposts

Key’s broken promise on raising wages

Johnny’s Report Card – National Standards Assessment y/e 2012 – incomes

National MP admits collusion with bosses to set up strike-breaking law!!

Hat Tip

Paula Fern

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That was Then, This is Now #19 – A “Decade of Deficits”

27 December 2013 4 comments

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19. decade of deficits

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This blogpost was first published on The Daily Blog on 20 December 2013.

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Previous related blogpost

That was Then, This is Now #18

References

Fairfax media: Nats blame Labour for ‘decade of deficits’

TVNZ: Breakfast Show

National: Government Share Offer

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2013 – Ongoing jobless tally

23 December 2013 23 comments

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Unemployment logo

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Continued from: 2013 – More redundancies…

So by the numbers, for this year,

January

February

March

April

May

June

July

August

September

October

November

December

See also

Reported Job Losses

(Nice to see Interest.Co.Nz following my lead in recording job losses around the country!)

Current unemployment statistics

June 2013 Quarter

June 2013 quarter Quarterly change Annual change
(000) (Percent)
Employed 2,242 +0.4 +0.7
Unemployed 153 +3.7 -5.1
Not in the labour force 1,127 0.0 +2.2
Working-age population 3,523 +0.4 +0.9
(Percent) (Percentage points)
Employment rate 63.6 -0.1 -0.2
Unemployment rate 6.4 +0.2 -0.4
Labour force participation rate 68.0 +0.1 -0.4

All figures are seasonally adjusted.  Source: Statistics New Zealand

September 2013 Quarter

September 2013 quarter Quarterly change Annual change
(000) (Percent)
Employed 2,272 +1.2 +2.4
Unemployed 150 -2.6 -13.1
Not in the labour force 1,109 -1.5 +0.5
Working-age population 3,531 +0.2 +1.1
(Percent) (Percentage points)
Employment rate 64.4 +0.7 +0.9
Unemployment rate 6.2 -0.2 -1.0
Labour force participation rate 68.6 +0.5 +0.2

All figures are seasonally adjusted.  Source: Statistics New Zealand

 

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A positive indicator for NZ Post…?

16 December 2013 6 comments

Taken in a shopping mall in the Hutt Valley today;

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Image0612

 

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A posting box over-flowing with mail? Could this be a turn-around for NZ Post and a sign of increased business?

As we are all shareholders in the company – let’s hope so!

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Letter to the Editor: National squanders our super fund!

13 December 2013 2 comments

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government urged to scrap tax on super fund - 13.12.13

Source

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FROM:     “f.macskasy”
SUBJECT: Letters to the editor
DATE:     Fri, 13 Dec 2013 13:46:03 +1300
TO:     Dominion Post <letters@dompost.co.nz>

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The Editor
Dominion Post

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The Commission for Financial Literacy and Retirement Income is calling for tax-free status for the NZ Superannuation Fund (aka “Cullen Fund”) set up by the previous Labour Government to fund baby boomer’ retirement.

Investment contributions were “suspended” by the incoming National Government in May 2009, costing us an estimated $40 billion in lost investment returns by 2040, according to investment analyst, Bernard Hickey.

Worse still, National has taken $3 billion in tax from the Superannuation Fund.

Government accounts have been in dire straits  since the 2009 and 2010 tax cuts, with at least $4 billion lost in revenue. This has forced National to borrow heavily from overseas and partial asset sales to fund the revenue short-fall.

All so the Nats could fund tax cuts (mostly for top income earners) we could ill afford.

Leeching $3 billion from the NZ Super Fund should be seen in the same light; scrambling by National to make up for the drop in tax revenue.

This is how National presents itself as a “prudent fiscal manager of the economy”; by making economic decisions for short-term benefit (for a select few) at the expense of long-term planning (for the majority).

As always, it will be up to our children to pay for this mess.

Frank Macskasy

(Address and phone number supplied)

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Previous related blogposts

National guts Kiwisaver

Regret at dumping compulsory super – only 37 years too late

References

Beehive: New Zealand Super Fund – fact sheet

Interest.co.nz: Bernard Hickey says the National Govt’s decision to suspend contributions to the NZ Super Fund will have cost about NZ$40 bln in lost investment returns by 2040

Radio NZ: Government urged to scrap tax on super fund

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Taiwan FTA – Confirmation by TVNZ of China pressuring the Beehive?

17 July 2013 2 comments

On 24 May, I blogged about an apparent trade crisis between New Zealand and China, as our meat shipments were held up at  Chinese borders – ostensibly  for “incorrect” paperwork;

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whats-the-beef-guv-blogpost-frank-macskasy-frankly-speaking

See previous blogpost:  What’s the beef, guv?

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Minister for Food Safety, Nikki Kaye said,

We’ve got MFAT officials and MPI officials working around the clock to resolve this,” says Minister for Food Safety Nikki Kaye. “We’ve been providing technical documentation through to Chinese authorities and we remain confident that this will be resolved in the near future.”

Acknowledgment: TV3 –  Meat held up in China costing NZ industry

It’s interesting that TV3 report stated,

The problem is believed to have arisen after the Ministry of Agriculture and Fisheries recently became the Ministry of Primary Industries and Chinese border controls aren’t recognising the new names and logos on the export certificates.”

Acknowledgment:  IBID

Other media also repeated the official government line – that this was a bureacratic “paper work problem”. Ministers were even muttering  dark threats at disciplining MPI staff  who might have been responsible for this  “incorrect paperwork” mess.

However, I found this excuse to be weak and unbelievable. Why?

Because as I wrote on 24 May, the  MAF (Ministry of Agriculture & Fisheries)  became the MPI (Ministry of Primary Industries,  well over a year ago.

So why had this crisis arisen only now?

My contention is that the meat export problem was politically motivated. A free trade agreement was in the process of being negotiated between Taiwan and New Zealand,

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NZ close to Taiwan free trade agreement

Acknowledgment: Fairfax Media – NZ close to Taiwan free trade agreement

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China was flexing it’s political muscle over a free trade agreement being negotiated between New Zealand and Taiwan – a state which China regards as a “renegade province”.

China was reminding  New Zealand  “who’s boss”.

On 10 June, TV1 News reported that the free trade agreement with Taiwan had been concluded and signed.

However, the news story was curiously reported from  two different angles. The TVNZ website reported a purely trade-driven story,

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NZ signs trade agreement with Taiwan

Acknowledgment: TVNZ – NZ signs trade agreement with Taiwan

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There was no mention of any political dimension in the about report. China (mainland) was not even mentioned, even in passing.

Contrast that to the evening news story on the same day; July 10,

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NZ signs trade agreement with Taiwan - tv report

Acknowledgment: TVNZ – NZ signs trade agreement with Taiwan – TV Broadcast Report

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The relevant story starts at 5:20.

The newsreader, Melissa Stokes opened with this introduction,

New Zealand has signed a free trade agreement with Taiwan. It’s likely to save our exporters at least $75 million a year, but it’s China’s influence  on the agreement that’s raising questions.

It was pointed out that no government Minister attended the signing of the Taiwan-New Zealand Agreement – a marked contrast to the much-hyped signing of the China-New Zealand FTA in 2008. Or National’s signing of an FTA with Malaysia in 2009,

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PM hails signing of Malaysian deal

Acknowledgment: Fairfax Media:  PM hails signing of Malaysian deal

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The journalist covering the signing, Brian Boswell, asked the Taiwan representative an obvious question,

Brian Boswell:  “Would you like a Government minister [to be] here?

Elliott Charng (Taipei Economic and Cultural Office) replied:   “Yes. Of course.

Indeed he would.

But this blogger believes that China made it abundantly clear to the Beehive that any agreement signed with it’s “renegade province” had to be a ‘low-level’ event,  without the presence of any government Ministers or MPs present.

As Boswell remarked,  “ But there were none. This agreement was kept under wraps until the last minute despite Taiwan being our eight largest export market.”

Stephen Payton – from the NZ Commerce and Industry Office – appeared to be the most senior representative of the New Zealand government present at the signing.  His comments were illuminating,

This agreement is signed in terms of New Zealand’s One China policy. And so we have to observe certain contraints around how we deal with Chinese Taipei.”

Indeed!

To drive the point home to viewers, Boswell added,

China doesn’t recognise Taiwan as being independent and pressures other countries to do the same.”

“Pressures”?

Such as blockading millions of dollars of our meat exports at Chinese ports?

Green MP, Kennedy Graham, a former diplomat, said,

Credit as it sees it and some economic progress out of this deal. But at the same time it’s genuflecting politically to one of the world’s superpowers,  and probably being orchestrated behind the scenes by the same super power.”

Boswell finished his report with this remarkable comment,

It’s taken more than a year of negotiations. Sources have told One News that China was extensively briefed about the deal and told about the signing.”

This story puts the May blockade of our exports into context and sheds new light on what really transpired.

It now appears that negotiations with Taiwan originally excluded China – which put a few noses out of joint in Beijing – and which provoked a hidden diplomatic incident. This incident was carefully masked by both Beijing and Wellington as a “bureacratic mix up”, as it served neither government’s interests that this become public.

After all, it had been over  year that the new MPI documentation had been in use, so it is inconceivable that all of a sudden such a trivial issue could interfere with millions of dollars of  trade.

This blogger posits the following;

  • Beijing noted the free trade agreement being negotiated between Wellington and Taiwan.
  • Beijing demanded that it be consulted and “certain contraints around how we deal with Chinese Taipei”  observed.
  • Someone at MFAT disregarded China’s demands.
  • China insisted.
  • MFAT ignored it – or fobbed them off.
  • Big mistake on our part.
  • Beijing reacted with a partial blockade of our exports.
  • Ministers – who had been kept out of the loop, or fed minimal information – were caught out in surprise.
  • The Beehive failed to react quickly enough, as Ministers tried to figure out what was going on.
  • Beijing tightened the screws.
  • The Beehive tried to negotiate.
  • No negotiations, responded Beijing, and insisted it’s demands be met.
  • As our exports languished at Chinese ports, pressure mounted on Key’s ministers – who eventually capitulated.
  • Upshot: any agreement with Taiwan would be at a  low-level; with minimal governmental recognition; Beijing would be kept fully appraised; and diplomatic recognition would not be permitted.

It was a stern lesson in super-power muscle-flexing  delivered to the Beehive in a way that no New Zealand politician would ever be likely to forget  in a hurry.

Meanwhile, as I predicted in May,

On Radio NZ, Primary Industries minister, Nathan Guy stated,

“I’m very disappointed in my officials – issuing export certification is really their core business. And I’m disappointed in how this issue has come to bear. Normally, we have a very strong system and this is very unusual.”

However speaking on Radio New Zealand’s Checkpoint programme, Nathan Guy refused to be drawn on whether any disciplinary action will be taken against staff for the blunder.

Mr Guy said that was a matter for MPI director-general Wayne McNee.

“By and large, MPI do fantastic work and we’ve had an issue here, and I’ve asked the director-general to get to the bottom of it.”

What’s the bet that this entire issue sinks quietly out of sight and nothing is ever heard about it again?

Has anyone heard “whether any disciplinary action was be taken against staff for the blunder “?

Nope.

It kind of  sank quietly out of sight.

This blogpost was first published on The Daily Blog on 13 July 2013.

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Joyce on manufacturing

21 June 2013 1 comment

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In January this year,  Labour, Green, NZ  First, and Mana parties held an  inquiry (after the Parliamentary Finance Select committee rejected a request for a similar investigation) into the loss of  40,000 jobs  from the manufacturing sector in the past four years.

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Exporters tell inquiry of threat from high dollar

Acknowledgement: Radio NZ – Exporters tell inquiry of threat from high dollar

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In case anyone believes National’s claim that this was a “political stunt” (see: Opposition determined to manufacture a crisis), the comments from manufacturers who participated in  the Inquiry took it deadly seriously. Whilst politicians like Joyce suckle on the tax-payer’s teat, exporters and manufacturers actually have to earn a living.

They were not impressed and made their feelings known;

Mike Eggers;

We’re told to get smarter and I find that irritating and insulting. I’m about as smart as they get in my little field. How the hell do these people get smarter? For a politician to tell somebody else to get smarter – he’s risking his life.”

A W Fraser;

We know that – we’ve known that for a very, very long time. Of course we get efficient, of course we try and work as hard as we can to be efficient – it’s the only way we can exist. It drives me insane when people say, ‘Get efficient’. What do you think we are – idiots? We’re not.”

Acknowledgement: IBID

The Inquiry made its findings known;

Recommendation 1:  The government adopt macroeconomic settings that are
supportive of manufacturing and exporting, including:

  • a fairer and less volatile exchange rate through reforms to monetary

policy;

  • refocusing capital investment into the productive economy, rather

than housing speculation;

  • and lowering structural costs in the economy, such as electricity prices.

Recommendation 2: New Zealand businesses are encouraged to innovate.
Research and Development tax credits, with a stronger emphasis on
development, should be introduced as part of a package for innovative
manufacturing, supporting exports and quality jobs.

Recommendation 3: The Government adopt a national procurement policy
that favours Kiwi-made and ensures that New Zealand manufacturers enjoy
the same advantages as their international competitors.

Recommendation 4: The tax system is used to boost investment in new
technology and machinery. An accelerated depreciation regime should be
implemented for the manufacturing sector.

Recommendation 5: A wide range of funding is available for manufacturers to
invest in their business and employees. Measures to encourage the availability
of venture capital and mezzanine funding should be continued, including
government funds through commercial-managers.

Recommendation 6: Businesses are supported to achieve 21st Century
organisation and practices. Policies such as NZTE’s focus on Lean
Management, and the work of the High Performance Work Initiative should
be extended. Apprenticeship training support for the sector should be
reviewed immediately.

Recommendation 7: Manufacturers are given a voice in FTA negotiations.
From the outset of FTA negotiations the interests of manufacturing must be
explicitly addressed. Negotiating teams must keep the sector informed.

Recommendation 8: Measures to encourage foreign direct investment in
manufacturers should be consistent with the strategic direction of New
Zealand’s manufacturing and exports.

Recommendation 9: Government should lower compliance costs wherever
they can be consistent with maintaining New Zealand’s values including
workers’ rights, environmental standards, and product quality assurance.

Recommendation 10: Manufacturing’s ability to create jobs and boost exports
should be recognised in national, regional and industry policies.

Recommendation 11: Taskforces of government local government,
businesses and unions, be established to assess and act on new business
and job opportunities in the wake of major closures or restructuring in the
manufacturing sector.

For full details of each Recommendation, read the full report.

Source: Manufacturing Inquiry Report

Joyce’s response? There was no crisis.

Labour, the Greens, New Zealand First and Mana are determined to manufacture a crisis in manufacturing. The massive problem for them is that while individual firms face real challenges at different times, no crisis exists.

Acknowledgement: Scoop – Opposition determined to manufacture a crisis

Dear Leader also made the same astounding assertion,

Quite honestly there is no manufacturing crisis in New Zealand; there are challenges for some manufacturers.

Acknowledgement: Fairfax Media – Opposition manufacturing inquiry report released

There we have it: no crisis exists.

40,000 jobs lost since 2008 – but Key and Joyce insist, no crisis exists.

It is the measure of this shonkey, incompetant, self-serving  government that National ministers can deny the existence of a crisis when companies are folding and 40,000 people have lost their jobs.

I wonder if Key and Joyce’s attitude would be different if Labour were in power and 40,000 jobs had been lost in the last four years under theitr watch?  Would they still insist there was  no crisis exists ?

I think we all know the answer to that question.

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Shafting our own children’s future? Hell yeah, why not!

15 June 2013 4 comments

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student debt

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We’ve all seen the headlines; heard and seen the media stories; house prices in New Zealand are going through the roof and becoming more expensive with each passing day. A recent Herald story stated,

Experts say there is no sign of the market slowing soon, and one commentator forecasts the average price in Auckland could hit $1 million within three to four years.

Acknowledgement: NZ Herald – House prices soar as average forecast to hit $1m

Aside from being a total failure of the so-called “free” market, what else is causing prices to skyrocket?

National says that local bodies are holding up consents.

Some blame it on immigration and/or overseas investors buying up houses and pushing up prices.

Others blame it on investors and speculators exploiting the lack of a Capital Gains Tax to buy up properties, which reduces availability, and pushes up prices.

Others blame central government for not investing enough in tradespeople, to build new houses.

This blogger will add one more component into the ‘mix'; easy availability of capital.

Prior to 1984, housing prices were contained by limited, local availability of funds which banks could on-lend to house buyers. New Zealanders’ savings were poor pre-1984, and Muldoon’s scrapping of Labour’s compulsory super fund in 1975 did not help matters.

As the graph below shows, housing prices up till 1972 were steady. People usually had 10% deposit; borrowed perhaps 60% to 70% as a first mortage from a friendly bank manager; and the balance was financed by what was known then as “Vendor’s Finance” – the seller agreed to 20% to 30% as a Second Mortgage for the buyer. The latter incurred much higher interest rates.

Overall house prices were therefore ‘capped’ by the limited availability of  money, from banks and vendors. Banks acquired their funding from local depositors.

In  1972 and 1980, two international oil shocks resulted in massive inflaton inflation in the country, sending house prices surging.

Post 1984, Roger Douglas de-regulated the country’s financial laws and banks were able to borrow vast amounts from overseas lenders. There was no longer a shortage of funds for mortgages. The concept of  “Vendor’s Finance” and second mortgages disappeared almost over-night.

Purchasers could now borrow 80%, 90%, even 100% to buy a house.

As money became easily available, peoples’ expectations for bigger and bigger returns also rose. If Buyer X could borrow $200,000 to buy a house that Vendor Y had purchased last year for only $150,000, then there was nothing stopping the vendor from demanding the top dollar; $200,000. Maybe more, if Buyer Z could afford to service a $300,000 price.

The sky was literally the limit.

And as the graph shows, that is where house prices were going; skyward.

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Acknowledgement: Interest.co.nz

This has created big problems for us.

Firstly, housing prices are no longer affordable for young New Zealanders. As more and more properties are locked up by their parents’ generation (often referred to as  “Baby Boomers”), the availability of new and existing houses becomes less and less.

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Acknowledgement: Interest.co.nz

Secondly, as we borrow more and more money from overseas to invest in ever-increasing priced housing – our private debt is now approaching Greece-like proportions.

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nz-overseas-debt-1993-to-2010

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So we have fewer houses, being sought by more buyers, for higher prices, creating more overseas debt…

Anything wrong with that picture?!

Yes, plenty.

For the past fourty years, this country has borrowed vast sums – billions – to finance our property speculation. Every time a vendor made a tax-free profit, it was financed by borrowing money from other countries. We were – and still are borrowing our way to “wealth”.

It is neither sustainable nor common sense. And very soon, the bubble will burst; politicians will blame but themselves; and the public -as usual – will be left wondering what the hell went wrong.

Labour has proposed a Capital Gains Tax on housing (except for the family home) as part of  the solution. National – in a display of unmitigated stupidity – opposes any such tax.

The Reserve Bank has come up with their own “solution”,

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Mortgage rule move will force buyers out

Acknowledgement: Dominion Post –  Mortgage rule move will force buyers out

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The Reserve Bank’s suggestion of limiting lending to 80% of a property’s value is wrong for two reasons;

1. House buyer’s will simply return to the days of second mortgages from lenders other than banks (usually through lawyers or secondary finance companies). The second mortgage will have a highrer interest rate. Home buyers will simply end up paying more in outgoings to service not one, but two, mortages.

This will not help first home buyers.

2. Unless they are part of the privileged few – the One Percenters – first home buyers will find it next to impossible to pay rent and save for a deposit on a house. Factor in other financial burdens such as student loan repayments, and life just got immeasureably harder for young New Zealanders.

The upshot of the Reserve Banks “solution” is that it does not address the problem of rising house prices.

It merely penalises young New zealanders.

Meanwhile, the Baby Boomer generation buys and sells properties, tax free, pocketing big gains, financed by offshore borrowings.

This is madness, and make no mistake – we will end up paying for this insanity in a big way.

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Solid Energy – A solid drama of facts, fibs, and fall-guys

14 June 2013 4 comments

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Cast of Charachters

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Clayton Cosgrove, Labour Spokesperson on State Owned Enterprises

Clayton Cosgrove, MP, Opposition  Labour Spokesperson on State Owned Enterprises

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Don Elder, CEO, Solid Energy, May 2000 – February 2013

Don Elder, CEO, Solid Energy, 2000 – 2013; avid gardener

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Bill English, MP, Deputy Prime Minister, Minister of Finance and Minister for Infrastructure,  Ministerial Shareholder of Solid Energy

Bill English, MP, Deputy Prime Minister, Minister of Finance and Minister for Infrastructure, Ministerial Shareholder in Solid Energy

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Mark Ford, current chairman of Solid Energy

Mark Ford, current chairman of Solid Energy

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John Palmer, CEO Solid Energy, 2006 -

John Palmer, former Chairman of  Solid Energy, 2006 – 2012

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Simon Power, former MP; former Minister for State-Owned Enterprises, 19 November 2008 – April 2011

Simon Power, former MP; former Minister for State-Owned Enterprises, 19 November 2008 – April 2011

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Tony Ryall, MP, Minister for Health; current Minister for SOEs; Ministerial shareholder in Solid Energy

Tony Ryall, MP, Minister for Health; current Minister for SOEs; Ministerial shareholder in Solid Energy

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Dear Leader, Minister for Funny Hats, Minister for Truth

Dear Leader, Minister for Funny Hats, Minister for Truth

~

The story, thus far

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30 June 2008

Nil dividend paid to government, for year ending 30 June 2008.

Source: 2008 Annual Report

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8 November 2008

General Election

National-led government elected.  John Key becomes  New Zealand’s Prime Minister; Simon Power is Minister for State Owned Enterprises; Bill English becomes Minister for Finance.

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May 2009

“The Government, in its first term, looked at SOE [state owned enterprise] balance sheets and decided many of them could carry more debt… it made a decision to allow Solid Energy to take on more debt,” Mr English said.

Mr English acknowledged that in 2009 he signed a letter to Solid Energy approving a higher debt level.

Source:  Solid Energy was allowed to increase debt

The letter, as follows,

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letter from Simon Power to solid energy may 2009

Source: CCMAU & Treasury

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Thus was set in motion a decision that would have serious consequences four years later; the near collapse of an efficient and highly profitable State Owned Enterprise.

Not only did Minister Power demand higher dividends from Solid Energy, and instructed the SOE to borrow heavily  to achieve that goal, Power also demanded that Solid Energy “release all surplus capital to the shareholder as special dividends“.

In case the reader is wondering that that means, in plain english, National Ministers wanted all spare cash to be handed over to the government.

They were looting SOEs.

Accordingly, Solid Energy’s gearing ratio rose from 13.8% cent in 2009 to 41.7% by 2012. National’s demands had been met (see: Ministers pressured Solid Energy, Parliament told ).

Mission accomplished – the pillaging of Solid Energy (and other SOEs)  had begun.

Note: On 26 February 2013, John Key would try to insist that Solid Energy was “out of control” and was borrowing wildly.

He would say, “the Government was worried about Solid Energy’s ambitious investment plans and rosy view of coal prices as far back as 2009 but was unable to order the company to steer a safer course.”

So not only did SOE Minister Simon Power direct Solid Energy to borrow more; pay higher dividends; and hand over all spare cash – but four years later, Key would blame the coal company for the consequences;  it’s inevitable financial melt-down,

The causes of the financial crisis at Solid Energy are the usual suspects in failing businesses – too much debt, unsuccessful investments and no reserves to weather a slump in coal prices.

Prime Minister John Key’s comments yesterday indicated these problems and pointed the finger at an imprudent amount of debt and investments that have not returned any cash yet.

Key said the debt had climbed to $389 million when “typically coal companies do not have a lot of debt on their balance sheets”.

Source: State miner to return to coalface

Powers’ letter also put the lie to National ministers claiming that they were powerless to intervene in Solid Energy’s activities. As Simon Powers’ letter clearly demonstrated, Ministers were  exhibiting a total hands-on control over SOE’s finances, borrowings, investments, and dividend payments.

As Key himself claimed (without evidence) on 25 February 2013,

The government blocked proposals in 2009 from its coal mining company Solid Energy for a billion dollar capital injection to allow it to become “the Petrobras of this country,” Prime Minister John Key says.

National ministers had control alright, no two ways about it.

Power might as well have been sitting in Solid Energy’s Christchurch head office, in the CEO’s chair, with  his fingers in the cash register till.

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30 June 2009

$59.9 million dividend paid to government, for year ending 30 June 2009.

Source: 2009 Annual Report

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30 June 2010

$54 million dividend paid to government, for year ending 30 June 2010.

Solid Energy paid a dividend of $24 million on 30 September 2009. In accordance with the company’s dividend policy, the Board is proposing a dividend of $30 million to be paid by the end of March 2010 bringing total cash dividends paid during the current financial year to $54 million.

Source: Small half year loss for Solid Energy

Source: 2010 Annual Report

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27 August 2010

Treasury Report shoots down Solid Energy National Resource Company’s expansion  proposal

To: Bill English, Gerry Brownlee, Simon Power, Steven Joyce

5. In order for SEL to develop into a NRC, SEL has sought the following:

[...]

• indicative approval for total capital investment (including dividends and cash flow)
of $2-3 billion per annum with cumulative investment of $27 billion…

Source: Treasury Report: Solid Energy National Resource Company Response

Note the figure referred above: $27 billion.  Two and a half years later, Key would refer to that figure.

The question is, does the statement – “SEL [Solid Energy Ltd] has sought the following: indicative approval for total capital investment (including dividends and cash flow) of $2-3 billion per annum with cumulative investment of $27 billionactually state where the $27 billion would be sought from?

Answer: no.

And yet, by 15 March 2013, Key would insist that the Solid Energy chairman, John Palmer, sought $27 billion from the government.

See: Key says Solid Energy papers show $27b plan

John Key’s flexibility with truth is now legendary.

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8 September 2010

Then-SOE Minister Simon Power writes to Solid Energy – states support for developing resources –

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Office of Simon Power
MP for Rangitikei
Minister for Justice
Minister for State Owned Enterprises
Minister of Commerce
Minister Responsibilble for vthe Law Commission
Associate Minister of Finance
Deputy Leader of the House

08 SEP 2010

Mr John Palmer
Chair
Solid Energy New Zealand Ltd
PO Box 1303
CHRISTCHURCH 8140

Dear Mr Palmer

National Resource Company (NRC) Proposal

I would like to thank you and your Chief Executive, Don Elder, for meeting me
on 31 August 2010 to discuss the Government’s response to the Solid Energy
Ltd (Solid Energy) NRC proposal.

Ministers are encouraged by the vision of Solid Energy in developing the NRC
proposal. We also appreciate the efforts of the Solid Energy Board,
management and staff that have gone into preparing  the proposal.

Shareholding Ministers have carefully considered the proposal and at this stage
do not support the development of a single NRC to maximise the value of New
Zealand mineral resources.

Shareholding Mnisters are, however, supportive of Solid Energy developing its
current natural resources, including lignite and unconventional gas. As
discussed with you, we expect that Solid Energy will develop resources on a
project by project basis.

We also expect to be consulted on significant projects, and have the opportunity
to discuss the proposals with you. The proposals should be supported by a
business case and assessed against standard business case investment
criteria.

Yours sincerely

Hon Simon Power
Minister for State Owned Enterprises

cc: Don Elder, Chief Executive Officer, Solid Energy

Source: Letter from Simon Power to John Palmer (NZ Herald website)

Interesting…  The Minister, Simon Power,  was;

A. Supportive of Solid Energy “developing its current natural resources, including lignite and unconventional gas. As discussed with you, we expect that Solid Energy will develop resources on a project by project basis”. No reference whatsoever of the Minister directing Solid Energy not to invest  “developing its current natural resources“.

B. Insisting that he be kept advised  “on significant projects“.  It would be interesting to know if Solid Energy advised National ministers of all projects? Including the ones that have been heavily criticised by Key, English, and Ryall.

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3 June 2011

Key endorses Solid Energy expansion plans

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Prime Minister John Key speaks at the opening of the WHK building in Invercargill.

Prime Minister John Key speaks at the opening of the WHK building in Invercargill.

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“At the moment companies like Solid Energy are growth companies and we want them to expand in areas like lignite conversion,” Mr Key said.

[...]

“We know there is lots of resource there and we know they potentially have the capability [to convert lignite to urea or diesel] and so we will see how that progresses, but the briquette plant is a good starting point.”

Source: PM backs mining south’s lignite

Key is stating  with crystal clarity;  “we want them to expand in areas like lignite conversion” and “…so we will see how that progresses, but the briquette plant is a good starting point“.

Which would be in stark contrast to Key’s statements nearly two years later, when  on 23 February 2013, he condemns Solid Energy’s “… unsuccessful investments” and  ” and pointed the finger at an imprudent amount of debt and investments that have not returned any cash yet”.

Two days later, on 25 February 2013, Keywould again condemn Solid Energy – this time specifically distancing himself from the SOE’s expansion plans,

The government blocked proposals in 2009 from its coal mining company Solid Energy for a billion dollar capital injection to allow it to become “the Petrobras of this country,” Prime Minister John Key says.

It’s hard to keep up with a Prime Minister like John Key.

You have to wonder what his views will be in three, six, or twelve months time?

Key also said  at his  Invercargill speech,

However, Mr Key said companies were controlled by Government regulations and so there were always environmental obligations that needed to be met.

Which, again, totally contradicts what he said on 26 February 2013,

The Government was worried about Solid Energy’s ambitious investment plans and rosy view of coal prices as far back as 2009 but was unable to order the company to steer a safer course, Prime Minister John Key says.

Stories, eh? They’re so hard to keep straight sometimes.

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30 June 2011

$20 million dividend paid to government, for year ending 30 June 2011.

Source: 2011 Annual Report

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9 September 2011

Bill English – Don Elder – Opening new Mataura briquette plant

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Solid Energy chief executive, Don Elder and Hon Bill English at MatauraThe first sod has been turned in the construction of Solid Energy’s demonstration briquette plant near Mataura in Southland. This was undertaken on Friday September 9 by local MP, Bill English who is also Deputy-Prime Minister and Minister of Finance. (source)

Solid Energy chief executive, Don Elder and Hon Bill English at Mataura
The first sod has been turned in the construction of Solid Energy’s demonstration briquette plant near Mataura in Southland. This was undertaken on Friday September 9 by local MP, Bill English who is also Deputy-Prime Minister and Minister of Finance. (source)

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The Hon Bill English, MP for Clutha-Southland and Minister of Finance, today marked the official start of work at Solid Energy’s Mataura Briquette Plant, by “turning the first sod” at a small event on site with neighbours, local authorities, and other guests.The $25 million Mataura briquette plant is planned to start production by June 2012. It will produce up to 90,000 tonnes a year of low-moisture and higher-energy briquettes from about 150,000 tonnes of lignite mined from Solid Energy’s New Vale Opencast Mine and trucked to the Craig Road site. The plant will use technology developed in the USA by GTL Energy.

Source: Solid Energy starts work at Mataura Briquette Plant

Which demonstrated to anyone (if demonstration was needed) that National was in no doubt about Solid Energy’s expansionary plans.

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4 November 2011

Treasury Scoping study reveals Solid Energy’s financial problems to Government Ministers

Ministers were  officially  made aware of Solid Energy’s severe financial problems. This would not become public knowledge until  two years later,  on  21 February 2013.

See: Treasury Report T2011/2373: Solid Energy New Zealand Scoping Study Report

The Scoping Study is noteworthy on these points,

  1. The considerable  number of redacted items which the reader has no way of knowing what they refer to. They could be sensitive commercial data. Or they could refer to political matters.
  2. In Paragraph 36, the Report states, “The scoping study also recommends that Solid Energy should have no debt at the time of IPO.”
  3. In Paragraph 46, fourth item, the Report states, “Indentified that the company’s free cash flow has been reinvested in the business, particularly the Renewable Energy and New Developments. As a result  dividend payments to the government have been funded by increasing debt.”

In two sentences, Treasury has just confirmed what all the evidence has pointed to; “dividend payments to the government have been funded by increasing debt“.

The very same increased debt demanded by SOE Minister Simon Powers in his letter in May 2009.

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17 February 2012

Bill English – Asset Sales – Proceeds “just a guess”

Finance Minister Bill English is attracting political flak over suggestions that some figures in yesterday’s budget policy statement for the proceeds of share floats of state-owned enterprises were “a guess”.

The Government has long estimated that the sale of up to 49 per cent of five SOEs would collect between $5 billion and $7 billion.

[...]

Mr English said the Treasury “had to pick a number” so they picked the mid-point of the range.

“If we did get $6 billion, that would be a gain of sale [of $800 million] which is just a product of the accounting.

“I just want to emphasise that it is not our best guess; it’s just a guess. It’s just to put some numbers in that look like they might be roughly right for forecasting purposes.

Source: English admits his SOE figures just a guess

Well. Now we know why it was “just a guess”.

Because by now, the Treasury scoping study on Solid Energy had revealed to National Ministers that the SOE’s finances were a mess. There was no way English could’ve responded to journalist’s queries without either telling the truth – or outright lying (which they do anyway, but he would’ve been caught out on this particular ‘porky’).

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18 May 2012

Subsidy on bio-diesel canned – Biodiesel New Zealand – Price increase for bio-diesel

National removed it’s subsidy on bio-diesel – which Solid Energy was producing through one of it’s subsidiaries, as part of it’s   expansion plans.

Biodiesel prices in Queenstown are likely to rise after a Government subsidy to develop production of the fuel was scrapped.

The subsidy, worth 42.5 cents a litre, was introduced by the National-led Government in 2008, but was not renewed in this year’s Budget.

The Queenstown Biodiesel Consortium has more than 20 companies running more than 70 commercial vehicles on the fuel.

The consortium’s provider, Allied Petroleum, is supplied by Biodiesel New Zealand, a Solid Energy subsidiary that makes the fuel out of canola seed and used cooking oil, in Christchurch.

Source: Biodiesel loses subsidy, prices to rise

This thoroughly  undermined Solid Energy’s business projections for income and profits, as they could no longer rely on the subsidy to produce bio-diesel on a viable basis.

So not only were National ministers stripping Solid Energy of it’s cash reserves and demanding higher and higher dividends – they were now tying it’s hands and undermining potentially profitable ventures.

A year later, on 22 February 2013, English (as well as Key and Ryall) would be blaming Solid Energy’s financial collapse on, “… a drop in world coal prices, and spen[ding] too much investigating other sources of energy”.

It would be safe to say that undermining a company’s commercial venture, by moving the goal posts half-way through, and changing rules,  is also not particularly helpful.

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23 June 2012

Solid Energy Chairperson, John Palmer resigns

John Palmer is quitting as chairman of state-owned Solid Energy because at the age of 65 he is unwilling to stay on and see it through to partial privatisation.

Mr Palmer, who is also chairman of Air New Zealand, took up a strong public position in calling for the partial privatisation of state-owned companies and he welcomed the government’s plan to sell down stakes in electricity companies and Solid Energy.

Source:  Solid Energy chairman quits over asset sales

Palmer  resigned some 18 months before his contract was due to expire. The question, as always, is,

Was he pushed?

Or did he jump?

Writing on 16 March 2013, Tracey Watkins suggested a Great Big Shove helped Mr Palmer on his merry way,

There is, of course, nothing unusual about SOE chairmen and chief executives being subjected to a lengthy interrogation. But it is rare for committees to offer a platform to SOE bosses who have been manoeuvred out of their jobs by the Government.

See: Solid questions still remain unanswered

I tend to agree with her. This has all the makings of a politically-inspired, fall-quietly-on-your-sword, exit.

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SOE Minister, Tony Ryall comments on Palmer’s resignation – Acknowledges company’s developments

State Owned Enterprises Minister Tony Ryall announced Mr Palmer’s departure from Solid Energy on Friday.

“While it is disappointing to lose such a senior director, I wish to recognise Mr Palmer’s commitment to the company since his appointment in 2006, and the developments the company has made under his leadership,” Mr Ryall said.

Source:  IBID

Two months later, Bill English would be announcing that Solid Energy had  “…some fairly substantial issues” and would not be saleable.

Another six months after that, and the sh*t would be hitting the Big Fan. “Fortuitously”, Palmer would have been long-gone by the time English announced that Solid Energy was insolvent and  $389 million in debt.

Palmer would return, however on 14 March 2013,  for an encore performance before the Commerce Select Committee, to answer some hard questions.

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30 June 2012

$ 30 million dividend paid to government, for year ending 30 June 2012.

Source: 2012 Annual Report

Note that two months before English announced that  “Solid Energy faced “a number of commercial issues” and was “rethinking its business”, National ministers were  still taking dividends from Solid Energy.

Did English, Ryall, and Key not read the  2012 Annual Report which listed Solid Energy  posting a Net Profit after Taxation (NPAT) of  a  $40.2 million loss – on Page 2, under bold headlines, “FINANCIAL PERFORMANCE“???

Even though he maintains that “we wouldn’t be planning to float it any time soon”, they were still taking money out of what would prove to be a financially stricken company. This alone indicated that English and Ryall were being financially irresponsible in their role as Ministerial shareholders. As such,  Key was either ignorant of what was happening under his nose, or was irresponsible in not taking action.

Perhaps his adopted affectation as a “typical, non-political kiwi-bloke” who didn’t get his hands dirty with politics; grinned and shrugged off problems; and left matters to his sub-ordinates – had become a dangerous vulnerability for him? (See Tim Selwyn’s blogpost on John Key’s political/management style:  Rudderless Within The Great Game)

Either way, 30 June 2012 is an important date. This is when National Ministers should’ve known that something was seriously amiss.

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21 August 2012

English announces “issues” with Solid Energy

In August 2012, Bill English announced that Solid Energy had  “…some fairly substantial issues” and was not ready for sale.

Solid Energy “certainly isn’t” in shape for a partial sell-down, Finance Minister Bill English says.

English today said Solid Energy faced “a number of commercial issues” and was “rethinking its business”.

“We would only take any of these companies to the market if they are in good shape for investment and Solid Energy right now certainly isn’t. It’s got some fairly substantial issues that they have signalled. Whether it ends up being able to be floated would depend on whether they can get in suitable shape for public investors,” English said.

“We wouldn’t be planning to float it any time soon.

[...]

English said Solid Energy needed to be in “considerably better shape than it is now” before it could be floated.”

Source: English: Solid Energy not ready for sale

Perhaps National Ministers should have keep their fingers out of  Solid Energy’s petty cash box?

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9 September 2012

Coalminers redundancies – $200 million revenue shortfall – first mention of a ‘bailout’

Steven Joyce says Government capital for Solid Energy has not been ruled out.

The minister met with the company’s group manager of coal on Friday to discuss the situation. Mr Joyce says he has not promised a bailout, but if Solid Energy has a good business plan there may be funding options.

“Ministers get approached by state-owned enterprises to invest capital at different times. The thing that they would be interested in would be what’s the reason for doing it and what’s the opportunity.

“There’s a number of things that are up in the air with Solid Energy’s business plan at the moment that they need to work through with the new chair.”

Source: No decision on Spring Creek workers – Solid Energy

If National bailed out Solid Energy, they would  – in effect – simply be returning the dividends and spare cash that Simon Powers demanded way back in May 2009.

It would not be “new” money. It would be giving back what was looted from Solid Energy’s coffers, as National desperately tried to balance the government’s books, and return to surplus by 2014/15.

This entire sad, incompetant, wasteful,  exercise has provided no  benefit to anyone. National Ministers have ended up looking inept, manipulative, deceitful, and grasping. All for what?

The sole outcome has been to damage the reputations of businessmen who were hired for their business acumen (and who had been successful in their own fields), and destroy the name of Solid Energy.

In a bizarre twist, by sending Solid Energy into near-bankruptcy, National successfully delayed the partial privatisation of that SOE. Something that asset-sale opponants would welcome with delight.

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21 February 2013

Solid Energy in crisis – debt revealed to the public

The depth of Solid Energy’s financial woes have been laid bare with the Government confirming the company is in talks with bankers over its debt levels.

[...]

State-owned Enterprises Minister Tony Ryall said a number of factors had weighed against the company, in particular world coal prices dropping by 40 per cent.

“It is facing very serious financial challenges,” Ryall said.

Ryall declined to say whether Don Elder received a payout on his departure as chief executive on February 4.

Solid Energy’s debt stands at $389 million and its interim result, which is due shortly, will show additional losses.

Earlier this week Prime Minister John Key said it was very unlikely Solid Energy would be sold in the near future.

Source: Solid Energy in debt crisis talks

Time to duck – the poo has hit the fan.

Watch Ministers scurry for cover; invent fictitious tales; and blame anyone/anything they can think of. John Key’s fingers will be moving at supersonic speeds, pointing at others, to apportion blame.

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22 February 2013

English blames Solid Energy management, bonuses, coal price fall, and expansion projects

Mr English said Solid Energy’s woes have two primary causes: it failed to predict – and adjust to – a drop in world coal prices, and spent too much investigating other sources of energy.

“Four or five years ago they set out on a big programme of expenditure on alternative energy, including researching into lignite down south to coal gasification and other research-based speculation, and that hasn’t turned out the way they thought.”

Source:  No more bonuses at Solid Energy – English

And yet, English and former SOE Minister, Simon Power had actively encouraged Solid Energy to expand. (see comments 8 September 2010 and 3 June 2011)

But if there was a cause for Solid Energy’s financial woes, a $389 million debt most certainly accounted for most of it.

Even the most profitable, efficient, well-managed company will collapse if it is over-geared (borrowed too much) and too much capital is  extracted in dividends (as well as tax).

Therefore, when English blames Solid Energy’s problems on “world coal prices, and spen[ding] too much investigating other sources of energy”; and when Key and Ryall blame Labour; massive debt; bonuses; mis-management; etc – the facts  show otherwise.

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23 February 2013

Key blames too much debt and unsuccessful investments

The causes of the financial crisis at Solid Energy are the usual suspects in failing businesses – too much debt, unsuccessful investments and no reserves to weather a slump in coal prices.

Prime Minister John Key’s comments yesterday indicated these problems and pointed the finger at an imprudent amount of debt and investments that have not returned any cash yet.

Key said the debt had climbed to $389 million when “typically coal companies do not have a lot of debt on their balance sheets”.

Which is  supreme irony – as nineteen days later, a letter will emerge showing that the former SOE minister, Simon Power,  instructed Solid Energy to borrow heavily and pay huge dividends to the National government. National was intent on using Solid Energy as a ‘cash cow’.

Source: State miner to return to coalface

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25 February 2013

Prime Minister discloses Treasury scoping study of Solid Energy

The PM was asked when the government first became aware Solid Energy was accruing big debts, given that such businesses were not normally expected to take on large amounts of debt.

He replied that the government had undertaken a “scoping study” when they were preparing the formulation of the Mixed Ownership Model and that their examination of Solid Energy’s accounts at that time indicated a degree of poor investment, over-valuation of the expected price of coal–which neither the industry nor government agreed with—and related financial problems stemming from this.

Source: PM Press Conference Dominated by Solid Energy Debacle

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Key claims Solid Energy wanted $1 billion cash injection

The government blocked proposals in 2009 from its coal mining company Solid Energy for a billion dollar capital injection to allow it to become “the Petrobras of this country,” Prime Minister John Key says.

Source: Govt blocked grandiose Solid Energy plans in 2009

Key’s claim is later rejected by ex-Chairman, John Palmer.

Documents released by Key – in an attempt to back up his claims – wound up shooting the Prime Minister in his foot. The documents do not show that Solid Energy (or it’s CEO or Board) asked National ministers for anything.  The documents show only that the government was informed that Solid Energy would have to borrow from somewhere.

As usual, Key had been bending facts to suit himself. (And he thought no one would notice?!?!)

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26 February 2013

Ryall confirms Treasury  scoping study

Tony Ryall confirmed that the scoping study was carried out in “late 2011″,

Hon TONY RYALL: The member can repeat whatever he likes. The simple fact of the matter is when Ministers became aware of the issues raised in the scoping study at the end of 2011 we took the appropriate steps to address the issues that were raised. As the member knows, the company now has a new chair and new board, and we are currently dealing with the banks to resolve those issues.

Source: Parliament Hansards – State-owned Enterprises—Commercial Expertise

Despite that Treasury scoping study on 4 November 2011, National was still extracting dividends from Solid Energy, right up to 30 June 2012 ($ 30 million).

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Key blames Labour

He said his support for the project in 2011 came four months before a scoping study revealed the true state of Solid Energy’s financial woes, and the former Labour government needed to take some responsibility for the situation.

“They can’t wash their hands that from 2003 on they were intimately involved when they purchased the land for lignite,” Key said.

Source: Govt forced to defend handling of Solid Energy

2003?

How far back does this man want to go in history as he tries to deflect responsibility for his government’s incompetance? It seems strange, but one gets the distinct feeling that John Key never learned how to take personal responsibility as a child.

Continually blaming others is not the mark of a mature individual. After a while, the public begins to notice.

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Key blames Solid Energy’s expansion plans

Mr Key says his Government was cautious about Solid Energy’s expansion and said it could “take some baby steps”.

Really? Key’s government was “cautious”?

Funny, that’s not how it looked on 8 September 2010, when then-SOE Minister, Simon Power, endorsed Solid Energy’s expansion plans in a letter, stating,

Shareholding Mnisters are, however, supportive of Solid Energy developing its
current natural resources, including lignite and unconventional gas. As
discussed with you, we expect that Solid Energy will develop resources on a
project by project basis.

Or on 3 June 2011, when John Key supported Solid Energy’s expansion, when he gave a speech in Invercargill,

“At the moment companies like Solid Energy are growth companies and we want them to expand in areas like lignite conversion.

We know there is lots of resource there and we know they potentially have the capability [to convert lignite to urea or diesel] and so we will see how that progresses, but the briquette plant is a good starting point.”

Or on 9 September 2011, when,

The Hon Bill English, MP for Clutha-Southland and Minister of Finance, today marked the official start of work at Solid Energy’s Mataura Briquette Plant, by “turning the first sod” at a small event on site with neighbours, local authorities, and other guests.

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Key blames inability to control Solid Energy

The Government was worried about Solid Energy’s ambitious investment plans and rosy view of coal prices as far back as 2009 but was unable to order the company to steer a safer course, Prime Minister John Key says.

[...]

But after getting advice on the company’s plan, Mr Key said his Government rejected it, “but of course under the SOE Act the company had the right to draw down debt and make investments and could do that without reference to the shareholder”.

Source: Govt worried about Solid Energy in 2009

Two things jump out about that statement,

A.  If  National ministers were so “worried about Solid Energy’s ambitious investment plans ” – why did they not change the Board of Directors? Or issue a new Ministerial Directive?

After all, Simon Power did just that in a letter dated 8 September 2010 (see above), when he issued an instruction to Solid Energy’s Chairman, John Palmer, not to proceed with a specific expansion plan,

Shareholding Ministers have carefully considered the proposal and at this stage
do not support the development of a single NRC to maximise the value of New
Zealand mineral resources.

B. Why did Tony Ryall acknowledge “Mr Palmer’s commitment to the company since his appointment in 2006, and the developments the company has made under his leadership” on 23 June 2012, when John Palmer stood down as Solid Energy’s chairperson – if  “Government was worried about Solid Energy’s ambitious investment plans and rosy view of coal prices as far back as 2009…“?

C.  How can Key state that “the Government was … unable to order the company to steer a safer course” - when legislation states otherwise? As the Crown Ownership Monitoring Unit (COMU) states,

Most SOEs are subject to ministerial direction in relation to the content of certain aspects of the company’s Statement of Corporate Intent and the level of dividend payable to the Crown. Shareholding Ministers may remove board members by shareholder resolution under the Companies Act 1993. Under the Companies Act 1993, an alternative process may be followed if allowed by the company’s constitution.

Source: COMU: State-Owned Enterprises

As stated above, then-SOE Minister Simon Power did just that: issued a Ministerial Directive.

Of course, “steering the company to a safer course” should have included reducing National Minister’s demands for hefty dividends.

That might have helped.

Either Key is grossly ignorant about SOEs and their ministerial oversight – or once again he’s deliberately misleading the public to suit himself.

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Key Blames Solid Energy

At that point, the company approached his Government seeking a capital injection “in the order of about a billion dollars to turn this company into the [Brazilian state-owned energy company] Petrobras equivalent in New Zealand”, Mr Key said.

Source: IBID

As a 27 August 2010 Treasury report – released on 15 March 2013 – showed,  Key’s claim that Solid Energy approached the government for “a billion dollars to turn this company into the [Brazilian state-owned energy company] Petrobras ” would prove to be false.

As ex Chairman John Palmer was to tell the Select Committee on 14 March,

“Were we talking to the Government about the possibility of capital and receiving that from the Crown? The answer is no.”

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14 March 2013

Former chairman John Palmer  and CEO, Don Elder appear before Commerce Select Committee

Now we start to hear the “other side” of the story – and much of it conflicts with what we’ve been hearing from English, Key, and Ryall.

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National confirms big dividends paid out

For the first time it is publicly acknowledged – Solid Energy has been used as a cash cow by National, to extract big dividends from 2009 onward,

The government concedes the pressure it put on Solid Energy to increase its debt is partly to blame for the company’s financial failures.

The state-owned coal mining company owes $389 million in debt, and is negotiating a rescue package with Treasury and banks.

Government documents reveal that in May 2009, then-State Owned Enterprises Minister Simon Power wrote to Solid Energy’s then-chair, John Palmer, saying he was disappointed its profitability and dividends were forecast to drop over the next three years.

At the same time, the government wanted the company to increase its gearing (debt to equity) levels to 40 per cent and its dividends to 65 per cent of operating cash flow.

A ministerial briefing paper shows Solid Energy’s gearing level in March 2009 was 10 per cent, and was forecast to reach 27 per cent in June 2010, while its dividend was 50 per cent.

Parliamentary Library figures show Solid Energy’s gearing leapt from 9.4 per cent in June 2008 to 34.4 per cent in 2010, dropping back to 29.6 per cent in 2011 and jumping again to 41.7 per cent in 2012 as coal prices began to slump.

Finance Minister Bill English admits the government pressure was perhaps too strong.

Source:  Govt pressure on Solid Energy revealed

National had to come clean, as ex-CEO Don Elder appeared before the Commerce Select Committee to explain what went horribly wrong at Solid Energy. National’s ministers knew that the truth was coming out, and had to pre-empt any public disclosures of massive borrowings and payments of dividends,

Mr English says there was a pushback against the debt increase from Solid Energy, which he expected Mr Palmer and former chief executive Don Elder to explain when they fronted a select committee later on Thursday.

Labour leader David Shearer says the documents show ministers had a greater degree of involvement in Solid Energy’s failure than they were publicly letting on.

Source: IBID

Push back against debt“? By now we all understand that English is lying his arse off to Heaven and back. There was no push back.

The only “push” was to increase dividend payments and gearing up to 40%.

The only reason politicians tell such howling lies is because they do not expect people to remember all the facts; to connect the dots; or for an under-resourced media to tell the whole story as a continuous narrative. Politicians expect people to forget; not hear all the facts; or become confused with too much non-contextual facts and testimony from the main players.

That’s how they get away with it; we’re not paying close enough attention.

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Don Elder appears before Commerce Select Committee – Confirmation of Govt wanting Solid Energy to increase debt – endorsed expansion

Firstly,  former Solid Energy chairman, John Palmer,  publicly confirmed that the National Government,

  • wanted Solid Energy to borrow more, and pay higher dividends to government coffers,
  • endorsed Solid Energy’s expansion plans

Labour’s finance spokesman David Parker asked whether the company was in any doubt that the Government wanted them to expand production, increase debt and dividends.

Palmer said it was “self evident” that increased gearing meant increased debt.

The Government was supportive of plans to expand, including into lignite.

Palmer’s comments contradicted Bill English’s comments on 22 February 2013 and John Key’s comments reported on 23 February, 2013, where both politicians lambasted Solid Energy for high debt and expansion plans.

According to Palmer, neither English nor Key were worried about Solid Energy’s expansion programme.

Next,

Palmer said that in late 2011 or early 2012, when it was clear what was going to happen, he spoke to minister Tony Ryall about a $200m revenue hole (twice the annual profits), which would have a dramatic effect on the balance sheet.

Which ties in with Bill English’s announcement on 21 August 2012, that Solid Energy had  “some fairly substantial issues… We wouldn’t be planning to float it any time soon”.

Now we know what he was referring to: Solid Energy was broke. He knew it then, but did not disclose the full nature of Solid Energy’s status until forced  by officials.

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Ex-CEO rejects Key’s assertion of Solid Energy requesting a $1 billion cash injection

“Were we talking to the Government about the possibility of capital and receiving that from the Crown? The answer is no,” Mr Palmer said.

“A specific $1 billion capital injection, I’m reasonably sure we did not ask for it in exactly those terms.”

However he said the company did have discussions with the Crown about potential large investment in lignite processing but it was also talking to potential overseas partners, “because it made no sense to us to think that Crown as the sole shareholder should finance that”.

He also said the company discussed with the Crown a national resource strategy that would have required large investment.

“My recollection is there was no dollars attached to that proposal.”

Source: Solid Energy opposed Government’s debt plan

.

Curious case of politicians and executives receiving identical media-coaching

Meanwhile, National’s taxpayer funded media-staff had been busy coaching politicians and company executives;

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Don Elder – Blame,  “Perfect Storm”

This was the perfect storm.”

Source: Palmer: Elder deserves applause

Tony Ryall –  “Perfect Storm” – blames downturn in coal prices – blames wrong investments

“State owned enterprises minister Tony Ryall blames the distressed financial state of Solid Energy on a “perfect storm” of events.

Mr Ryall says a wrong choice of investments, along with a worldwide collapse in coal prices, led to the coal mining company’s current state.”

“A wrong choice in investments, together with the most significant collapse in world coal prices in 2012 led to a perfect storm. The perfect storm has created the situation this company is currently in,” Mr Ryall says.

Source: Ryall blames ‘perfect storm’ for Solid Energy’s crisis

Bill English  – “Perfect Storm”

On TVNZ’s Q+A, on 17 March, English refers – not once, but twice! – to the “perfect storm”,

“That’s right. Look, in retrospect, they would have been better off with lower levels of debt, but as I think Don Elder and John Palmer said at the Select Committee, the board is there to make the decisions about what the actual levels of debt are. Bear in mind, in 2011 their debt had peaked and was declining, and then they got hit by the perfect storm in 2012.”

And a moment later, again,

“…And in 2011 their debt levels were actually declining from that, and then they got hit by the perfect storm…”

Source: TVNZ Q+A

Lotsa ‘stormy weather’ around? I thought we were experiencing a drought.

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15 March 2013

Palmer says  Solid Energy did not want to take on high level of debt suggested by the Treasury

 Prime Minister John Key is facing claims he misled the public after former Solid Energy chairman John Palmer said the company resisted Government pressure to take on more debt – the very thing the Prime Minister said caused the company’s problems.

[...]

Appearing the day after Labour revealed former State-Owned Enterprises Minister Simon Power told the company to take on more debt and pay higher dividends, Mr Palmer said the company opposed that request.

The debt levels or gearing suggested by Mr Power and Treasury officials were higher than “we thought was an appropriate level of gearing given the nature of the industry we were involved in”, Mr Palmer said.

Source: Key under fire over Solid Energy claims

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Key claims Solid Energy wanted $27 billion

Prime Minister John Key this morning released documents detailing Solid Energy’s ambitious expansion plans which would have required capital investment of $2-3 billion a year until 2021 or a total of up to $27 billion.

Key released the papers in response to Labour’s claims he misled the public about Solid Energy approaching his Government about a $1 billion investment to become the “Petrobras” of New Zealand, a request he says his Government turned down.

[...]

Key this morning said the documents showed the proposal “absolutely required, as Treasury pointed out, somewhere between two and three billion dollars of Government money”.

Source: Key says Solid Energy papers show $27b plan

Remember the Treasury report, dated 27 August 2010, referred above? Key is saying that the Solid Energy proposals would have required “between two and three billion dollars of Government money”.

Yet the 27 August 2010 Treasury report said nothing of the sort. Solid Energy could have obtained that money from the same commercial sources  it was already borrowing from.

And don’t forget, Solid Energy had already been borrowing significant amounts – pushing it’s ‘gearing‘ (debt to equity ratio) up:

Solid Energy’s gearing ratio [borrowings] was 13.8 per cent in 2009, but that rose to 34.4 per cent in 2010 and 41.7 per cent last year.

Source: Ministers pressured Solid Energy, Parliament told

To this day, Key continues to mis-represent the truth.

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Key – Solid Energy wanted foreign investment and shareholders

“Key this morning said the documents showed the proposal “absolutely required, as Treasury pointed out, somewhere between two and three billion dollars of Government money”.

He said Palmer proposed selling a stake in Solid Energy to an offshore cornerstone investor “and that would involve taking more than 10 per cent of the company and not putting mums and dads first.”.

“I made it quite clear to him that we had campaigned on a mixed ownership model which didn’t involve someone having more than 10 per cent in the company”.

Solid Energy’s proposal “didn’t involve a situation where kiwi mums and dads would be first and so the only way to get that money was through the Government.”

Source: Key says Solid Energy papers show $27b plan

Now this is yet another contradiction from Key. First he tells us that Solid Energy executives wanted $1 billion (or was it $27 billion?) from Government.

But in the next breath – on the same day – he say Solid Energy wanted foreign investors/shareholders to buy 10% stakes in the SOE.

So which was it Dear Leader?! Government funding? Foreign investors/shareholders? Pixies at the bottom of the garden?

One can only conclude that former CEO, John Palmer, was correct, when he rejected any assertions that Solid Energy was looking to borrow money from government,

“I cannot recall that we have ever asked him explicitly for $1 billion dollars.”

Source: Key Must Front Up With $1 Billion Evidence

It was also interesting to note that Key derided Solid Energy’s plans for 10% foreign investors/shareholders blocks by stating that it contravened National’s policy of putting “kiwi mums and dads would be first“.

Which contradicts a statement that John Key made in a speech in 2005, on 4 March, where a private partner was something that National would welcome,

“In respect of Solid Energy, if an opportunity arose to introduce a private sector partner, we would consider that seriously.”

Source: John Key Speech: State Sector Under National

And how does Key reconcile that with other Public Private Partnerships (PPPs) such as Wiri Prison,

Corrections Minister Anne Tolley says a contract has been signed allowing the SecureFuture consortium to design, finance, build, operate and maintain the new 960-bed public-private partnership (PPP) prison at Wiri, South Auckland.

The new prison will deliver value for taxpayers and support the Government in reaching the target of a 25 per cent reduction in reoffending by 2017.

The 25 year contract is worth approximately $840 million, which is 17 per cent less than if the prison was procured through conventional means, representing a $170 million saving for taxpayers.

Fletcher Construction will build the new facility which will be operated by Serco and maintained by Spotless Facility Services. Construction will begin soon, with the prison set to open in 2015.

“The PPP will allow Corrections to draw on the experience and expertise of SecureFuture’s international partners,” says Mrs Tolley.

Source: Beehive – Contract signed for new PPP prison at Wiri

How many “mums and dads” invested in Wiri Prison?

There are many more PPPs of this nature where “mums and dads” have nil investments, and instead are the sole preserve of corporate investors – many from offshore.

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Palmer denies Solid Energy wanted to borrow $1 billion from government

“Were we talking to the Government about the possibility of capital and receiving that from the Crown? The answer is no,” Mr Palmer said.

“A specific $1 billion capital injection, I’m reasonably sure we did not ask for it in exactly those terms.”

Source: IBID

Palmer is correct. According to the 27 August 2010 Treasury Report (referred to above),  Solid Energy did not ask Government for that money. The money could have been borrowed from any source – just as Solid Energy had already been doing.

This was also confirmed by a spokesperson for Bill English,

“We told them all to improve their performance and that, if they wanted to expand, they had to pay for it off their own balance sheet, rather than asking the cash-strapped taxpayers for money.”

Source: Ministers pressured Solid Energy, Parliament told

So it has becoming apparent that our Dear Leader Key is attempting to re-write recent history to suit his own agenda by shifting the blame elsewhere…

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Key attempts to spin Assumption into “Fact”

“I think it is pretty self explanatory that when you come to the Government with such a very large proposal, we’re the 100% owner, that’s what’s required.”

Source: Details of Solid Energy’s expansion bid released

So let’s get this straight…

(i)  Solid Energy management presented  an expansion plan to National Ministers

(ii) The plan includes figures for said-expansion.

(iii) National Ministers had been encouraging of Solid Energy’s expansion plans (see comments 8 September 2010 and 3 June 2011)

(iv) There was no mention made of where borrowings would be made from – though up till now, Solid Energy had borrowed from private sources, and not the Crown. (See comments 27 August 2010)

(v) And from all that, the Prime Minister suggested that “ it is pretty self explanatory that when you come to the Government with such a very large proposal ” that Solid Energy expected finance from the  Crown?

I have one question: how on Earth did Key manage to amass a personal wealth of $50-$55 million when he  makes up  such fancifuul  “leaps of logic”?!?!

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And the cover-up starts?

The head of the committee that grilled Solid Energy’s former bosses says he is unconvinced a full inquiry is needed.

Opposition MPs are pressuring for a full inquiry into the collapse of the state-owned coalminer, which is now reliant on government support to manage its $389 million debt pile.

Commerce select committee chairman Jonathan Young allowed yesterday’s appearance by former Solid Energy chairman John Palmer and former chief executive Don Elder to run for an hour longer than was originally expected.

Young, the National MP for New Plymouth, said this morning that he believed the committee now had “a very clear picture” of what had happened to Solid Energy, which was hit by falling coal prices, a strong New Zealand dollar and poor investment decisions.

In recent days it has emerged that the Government leaned on the company to take on more debt, after it warned it may pay less dividends.

Young said that “in hindsight we can look back and see if they didn’t have debt they would be in a better situation”.

Despite this, Young said he was yet to be convinced that a full select committee inquiry was needed into the collapse, saying there were “multiple levels of inquiry” already under way, with the company talking to its financiers, and the Government “looking at all of the issues”.

He told TV3′s Firstline: “I am personally yet to be convinced that we are going to uncover anything new or different that wouldn’t be uncovered” anyway.

Source: Solid Energy probe call rejected

“…the National MP for New Plymouth, said this morning that he believed the committee now had “a very clear picture” of what had happened to Solid Energy…”

That statement boggles the mind; drops the jaw to the ground; and is so, so, wrong on many levels. But wholly expected from a National member of Parliament; chairing a Select Committee; stacked with five National MPs out of nine committee members (see: Commerce Select Committee members); supposedly ‘investigating’ wrong-doing/ineptitude by National ministers.

Let’s see… what part of that is wrong? A government investigating itself and coming up with a verdict of nothing-to-see-here-folks-move-along-please? How is Young’s assertion that the Government was “looking at all of the issues” supposed to reassure us?! By what measure of common notions of justice is a  Government  “looking at all of the issues” supposed to be a non-partisan, transparent, and objective investigation into this issue?

It would be like directors of failed companies (many of whom are either in jail or waiting to be tried in Court or sentenced) investigating their own actions and coming up with the same comments as Young made,

“In hindsight we can look back and see if they didn’t have debt they would be in a better situation…”

Directors are “looking at all of the issues”.

“We are  personally yet to be convinced that we are going to uncover anything new or different that wouldn’t be uncovered”

Yeah, right, Mr Young. You can stop putting lipstick on that pig.

Listening to  the main players – especially John Key, Bill English, and Tony Ryall – there are too many conflicting statements to believe that an Inquiry is not needed. National ministers are simply unable to get their stories straight and have contradicted each other (and themselves) on numerous occassions.

Young asserts that the committee now had “a very clear picture” of what had happened.

Bollocks.

The only thing even remotely “clear” about all this is that remains remain to be asked – and answered.

As Tracey Watkins wrote on 16 March 2013,

“But something clearly went seriously wrong if those talks were not enough to stop the collapse of an SOE on an unprecedented scale.

Beneath the flurry of claims and counter claims that is the question which has still not been properly answered.”

See: Solid questions still remain unanswered

Indeed.

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17 March 2013

Bill English – TVNZ Q+A

The following is a transcript from  Corin Dann interviewing Finance Minister (and half shareholder in Solid Energy) on 17 March 2013,

CORIN

All right, if we could move on to Solid Energy. Can you give us an update on where things are at with the banks? When will we know whether the government is going to have to bail out Solid Energy?

BILL

Well, that will be some months yet. There’s discussions going on with the banks now about stabilising Solid Energy. Some of the information around its cash flows is a bit more positive than we might have expected. But we will get a period of two to three months through to the end of June where we can look at all the options for recovering value for the taxpayer in the first place and, secondly, to decide whether there is an on-going viable business in the middle of this-

CORIN

Are you saying it’s making a bit more money than you thought now and that it might be able to get itself out of trouble?

BILL

Well, I wouldn’t go that far. All I’m saying is the cash flow numbers are just a bit more positive than we expected. I mean, if you look back, Solid Energy made some very substantial investments in some of its mines. Some of those worked out, such as in Stockton; some of them didn’t, such as in Spring Creek. But where they have invested, they’ve got capacity for production and for value, and if coal prices are at some kind of reasonable level, then there is a business there.

“All I’m saying is the cash flow numbers are just a bit more positive than we expected. ” – In which case, Mr English, keep your sticky hands of that cash.

I sincerely hope that if National Ministers attempt to gouge SOEs again, that Board Directors resign on masse and publicly disclose political attempts at such interference.

The public is entitled to be reassured that politicians will not use SOEs as “cash cows” simply to balance their books.  Especially after two unaffordable tax cuts – a glorified ‘lolly scramble’ – left a gaping hole in government accounts.

CORIN

Do you want the banks to take some of the heat on this?

BILL

Yes, I think that’s really important. They’ve lent money, and as lenders, they take risks. And if they lend to a company that’s affected by a very sharp downturn in coal prices and then loss of a quarter of their export sales, they’ve got the same risks as banks who leant to resource companies all around the world that have got in trouble.

CORIN

You can see the irony in that, though, because you told them to borrow more.

BILL

Well, and you were talking about it as a revelation. We did a press conference back in 2009 about the need for our SOEs to take on-

And it took Labour to advise the public, Mr English. Bill English, Key, and Ryall were more than happy to keep that 2009 letter from Simon Power under wraps.

That was part of National’s ‘spin’ that the massive borrowings and  debt were a ‘creature’ of Don Elder’s and John Palmer’s making. But as Corin Dann pointed out;

CORIN

But you know that timing is everything with these things, and that was a revelation coming at this time, given your government had tried to distance itself from this issue. You even blamed Labour for it, for what they said in 2007.

BILL

No, I don’t agree with that. In 2009, the government was facing a decade of deficits because of the Labour Party and the recession. And we quite reasonably said that our taxpayer-owned companies should contribute more cash to the coffers. That’s the point of owning them. And Solid Energy had paid barely- had paid almost no dividends for the previous five or six years, and they had very low levels of debt compared to their asset value. So, look, in retrospect-

Here we go again; more blame-gaming,

In 2009, the government was facing a decade of deficits because of the Labour Party and the recession.

English blames the recession?

In which case why did National Ministers extract 163.9 million in dividends from Solid Energy, during the worst recession since the 1920s/30s?

Is this what National calls “prudent fiscal management”?

Notice also that  English lied by  blaming “ a decade of deficits because of the Labour Party” – even though Cullen was posting surpluses from 2002-08 Labour-led period?! And paid down sovereign debt from 33.4% of  GDP to 17.4% GDP? (See previous blofpost:  Bill English – do you remember Colin Morrison?)

This is symptomatic of a National-led government that is desperate to avoid all responsibility.

CORIN

But there was a good reason for that, wasn’t there? Because they were a coal company.

BILL

That’s right. Look, in retrospect, they would have been better off with lower levels of debt, but as I think Don Elder and John Palmer said at the Select Committee, the board is there to make the decisions about what the actual levels of debt are. Bear in mind, in 2011 their debt had peaked and was declining, and then they got hit by the perfect storm in 2012.

Look, in retrospect, they would have been better off with lower levels of debt“…   “In retrospect“?!?! Little wonder that Solid Energy’s board and management resisted National’s demands for higher and higher dividends (as English concedes in his next statement).

That statement – ”Look, in retrospect, they would have been better off with lower levels of debt“  – totally destroys the argument put forward by Key, English, and Ryall that Solid Energy’s debt and subsequent crisis was of it’s own making.

Quite simply, National was desperate for cash to pay for the 2009 and 2010 taxcuts, and were prepared to bleed SOEs dry to get it’s hand on their money. Even if those SOEs had to borrow to do it.

This is ministerial incompetance at best – or outright economic sabotage at worst. (No wonder ACT and Libertarians maintain that politicians can’t run businesses. Correction: National politicians can’t run businesses.)

CORIN

But you were telling all SOEs to raise their debt to a 40% gearing, and Solid Energy told you they were not comfortable with that, and there was a good reason: because they were a volatile coal company. Surely that was too much pressure you were applying to them.

BILL

Well, clearly not, because their debt peaked at under 35%, which was the level the board set, which was lower than what the government was expecting. And in 2011 their debt levels were actually declining from that, and then they got hit by the perfect storm. So, yes, would they have been better off with no debt? Yes, just like lots of businesses and households would be better off with no debt. Then they got hit by these circumstances which may well have put the company into trouble even if it had no debt.

Yes Mr English, Solid Energy did get hit by “a perfect storm”. A storm largely made up of rapacious politicians.

It appears that by not gearing up to the full 40% demanded by National, that Don Elder and John Palmer may have done their best to prevent the collapse of Solid Energy.

CORIN

The issue also, of course, has been around their investments. Now, your government must take some responsibility, surely, for the oversight of what they were investing in. You were the one down in Southland turning the first sod with the lignite plant. You knew what they were up to.

BILL

Well, and it’s yet to be seen just whether that particular investment has on-going potential or not. Clearly, some of them don’t. Some of them may do. That’s what’ll happen over the next two to three months. But what you’ve got to keep in mind here is that under the SOE model, politicians are not there to run the companies. We do not make the investment decisions. The boards make the investment decisions, and the weakness in the model is that there’s no market scrutiny of those board decisions, and that is why the partial sell-down of the electricity companies will help with the monitoring and the performance of those companies.

But what you’ve got to keep in mind here is that under the SOE model, politicians are not there to run the companies. We do not make the investment decisions. ” – Really, Mr English? And yet Simon Power felt he had the ministerial authority to write to Solid Energy demanding higher dividends.

In reality, under the State-Owned Enterprises Act 1986, shareholding Ministers can and do issue directives to SOE Boards. So English is being disingenuous when he tries to indicate that Ministers are powerless. They are not powerless,

13.  Powers of shareholding Ministers in respect of new State enterprises
  • (1) Notwithstanding any other provision of this Act or the rules of any company,—

    • (a) the shareholding Ministers may from time to time, by written notice to the board, direct the board of a company named in Schedule 2 to include in, or omit from, a statement of corporate intent for that company any provision or provisions of a kind referred to in paragraphs (a) to (h) of section 14(2); and

    • (b) the shareholding Ministers may, by written notice to the board, determine the amount of dividend payable by any company named in Schedule 2 in respect of any financial year or years,—

    and any board to whom such a notice is given shall comply with the notice.

    (2) Before giving any notice under this section, the shareholding Ministers shall—

    • (a) have regard to Part 1; and

    • (b) consult the board concerned as to the matters to be referred to in the notice.

    (3) Within 12 sitting days after a notice is given to a board pursuant to this section, the responsible Minister for the company concerned shall lay a copy of the notice before the House of Representatives.

Source: State-Owned Enterprises Act 1986 – Section 13

They have the power.

It’s the responsibility for their stuff-ups that seems to elude them.

CORIN

And are you confident there will be much better decision-making, that these MOM companies, in general, are going to have better board making decisions?

BILL

I think mixed-ownership companies will, but there’s a real challenge for government with the lessons from Solid Energy. When you look ahead, the companies that the government will own all have their challenges – NZ Post with the shrinking postal market, TVNZ and the digital media environment, a coal company if there is still a coal company. And we are going to have to change the way we work with these companies to ensure that we don’t lose taxpayers’ money. Because the taxpayers’ money in these companies doesn’t come out of the sky; it comes from the PAYE and the GST paid by NZ households. And we have a strong responsibility for the stewardship of that money.

Source: TVNZ Q+A

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22 March 2013

The NZ Herald reported that “seven years’ worth of documents about Solid Energy have been released by Treasury… It has been released after a number of Official Information Act request centred around how much the Government knew about the financial troubles the state owned coal miner was in“.

Source:  Big Solid Energy document dump from Treasury

[Note: This blogger has viewed only a fraction of documents. There's no telling what other revelations and incriminating evidence is contained therein. Perhaps something to be re-visited on a quiet, wintry evening?]

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25 March 2013

Papers confirm Govt pressure on Solid Energy

A week after English’s attempt to ‘spin’ the collapse of Solid Energy and blame everyone under the sun, Radio NZ reported,

Official papers confirm the Government put pressure on Solid Energy to increase its debt and then appeared later to criticise it for borrowing too heavily as it got into difficulty.

The state-owned coal company is in debt to the tune of $390 million.

The papers released on Friday also show that despite strongly disagreeing with the company’s business plan, the Government left it late to act.

In 2009 the then State-Owned Enterprises Minister, Simon Power, wrote to Solid Energy chair John Palmer recommending the company raise its gearing ratio – a measure of debt – to 40%.

By June 2012, when it was clear the company was in trouble, the ratio had risen to 37% and, according to the Treasury, Solid Energy had taken on significant debt.

It was only at that point, after arguing with the company for three to four years about its business plan, that the Government decided to make changes.

Source: Papers confirm Govt pressure on Solid Energy

By  this time, public attention and media focus had waned. There were other issues and problems to deal with, and National ministers could breath a sigh of relief. They were “off the hook”.

Let us recall that Treasury’s scoping report, released on 4 November 2011, confirmed everyone’s suspicions that National had cash-stripped Solid Energy;

 ”…dividend payments to the government have been funded by increasing debt“.

Source: Treasury Report T2011/2373: Solid Energy New Zealand Scoping Study Report

The ‘up-shot’ of all this?

  • A billion dollar state own enterprise had been milked as a “cash cow” and left to collapse.
  • English, Ryall, Key, et al – off the hook.
  • There would be no ministerial accountability; no resignations; no one held to account.

And for good measure,

  • Blame Labour for everything.

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8 May 2013

Bill English preps public for Solid Energy’s write-off?

In a Radio NZ story (see: English questions viability of Solid Energy), Bill English contradicted his earlier assertion that Solid Energy would not be allowed into receivership,

“We’re not going to keep propping up businesses where we don’t think there’s a long term future. Where we think there there is, we put strong support in. So Kiwirail would be a good example.Where the government’s  already invested around a billion in them in the last 3 or 4 years and they will… all of their,um, surpluses will be reinvested in the business, probably for the next decade. So the taxpayer won’t take anything out of them. But there may be… it’s possible that there’s other businesses, as has been revealed say in the  Solid Energy case where their particular mix may not be viable so we have to look at  whether they can be restructured or whether in the long run there’s a viable proposition there. But at the moment Solid Energy is the only business where that’s in question.”

Listen RNZ interview: Bill English on Morning Report

By questioning the viability of Solid Energy, English is preparing the public for the day when National announces the demise of the company.

Having gutted it of cash and forced it to borrow millions for unsustainable dividends, National is now ready to administer the coup de grâce to finish it off. (If the Nats could eliminate all witnesses to their bare-faced thieving, I bet you they’d be considering it…)

Meanwhile, a week later…

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14 May 2013

$1 billion for KiwiRail

Radio NZ revealed that KiwiRail was receiving government funding to keep operating,

Overall the Government has committed about $1 billion to the effort, and Finance Minister Bill English has said the Government is unlikely to take a dividend for the next decade so KiwiRail can reinvest any profits in the rail service.

Source:  Solid Energy problems pose risk for KiwiRail

See also: Beehive.govt.nz: Next steps in KiwiRail’s Turnaround Plan

How is it that Solid Energy,  a once viable company – earning millions in revenue from overseas exports of coal (admittedly not a very environmentally-friendly product) – may be allowed to go into receivership?

Meanwhile, National is quite happy to keep investing in KiwiRail, which has never generated a profit in modern times. (Though admittedly, KiwiRail is  an environmentally-friendly transport enterprise with a positive future, as we pass the oil peak.)

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A message to businesspeople:

National Ministers are attempting to sheet blame for Solid Energy’s financial crisis to it’s former Chairperson, John Palmer, and CEO, Don Elder.

Key, English, and Ryall  have  resorted to mis-presentation of facts; omission of facts;  exageration; and in some instances, outright lies.

This should serve as a clear warning to businesspeople. Think carefully before accepting managerial or Board positions during a National-led government.

Because if things go wrong – even if caused by political interference – then they will have no hesitation to smear your reputation.  They will hang you out to dry, whether you are at fault or not.

A message to Voters:

National has a reputation as “prudent fiscal managers”.

For the life of me, I cannot understand how they have earned that reputation.

To allow a billion dollar SOE to crash and burn; run into the ground; and now   facing bankruptcy suggests to me that Key, English, Ryall, Brownlee, Joyce, Collins could not run a corner Dairy without getting into financial trouble.

I don’t think these clowns could run a sausage sizzle without losing money by the end of the day.

Perhaps, as a test,  those voters who are disbelieving should keep voting National? Let’s see what other SOE will collapse on their watch, eh?

What the hell. After all, it’s only our property. And tax dollars.

This blogpost was first published on The Daily Blog on 17 May 2013.

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References

Solid Energy: Annual Reports Index

Crown Ownership Monitoring Unit – SOE Disclosures

Treasury: SOE/Solid Energy Disclosures

Previous related blogposts

That was Then, This is Now #18 (24 Feb 2013)

National caught out over Solid Energy – changes story on coal prices, debt, and other matters (13 March 2013

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John Key advocates theft by banks?

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too big to fail to big to jail

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Recent events in Cyprus have once again brought the global financial sector into sharp public consciousness. This time, as well as a bailout, there was a serious – and ominous –  demand from the EU that Cyprus make a “one off” levy (or tax) on the savings of Cypriots and others living in that country.

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Hard EU bailout terms anger Cypriot savers

Acknowledgement: NZ Herald – Hard EU bailout terms anger Cypriot savers

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Deposits up to and over   €100,000 ($158,000) would be levied with a  9.9% tax whilst below that threshold would be  pay a ‘lower’ portion of  6.75%.

Unsurprisingly, the proposed tax resulted in a run on cash withdrawals at ATMS (see:  Cypriots asked to surrender up to 10 percent of bank balances in return for EU bailout); banks closed their doors (see:  Fury as banks closed to avert run); global sharemarkets were affected (see:  Stock Markets Fall Amid Fears Of New Eurozone Crisis);  and the British government was forced to fly in one million euros to pay military personnel (see: One Million Euros Heading To Island For British Military Personnel ).

Pressure on the Cypriot government was such that in the last 48 hours, the Savings Tax was dumped (see:  Rejection of Deposit Tax Scuttles Deal on Bailout for Cyprus). The Cypriot Parliament voted  thirtysix against, with nineteen abstaining. It is noteworthy that not one politician risked his/her life by voting for the proposal.

Europeans. They know how to put pressure on their elected representatives.

Meanwhile, back home, in the Land of the Long White Cloud and several million sheep…

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bank bailouts - bailout - new zealand banks - john ley

Acknowledgement: Radio NZ – NZ bank bailout scheme is last resort, says PM

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Key’s statement here is chilling,

“At the end of the day we’re talking about emergency provisions. These banks are heavily regulated, they have significant oversight and lender of last resort facilities at the Reserve Bank.

This is really in the event that a bank got itself in such a terrible mess that it fell over and had to restart again.”

Acknowledgement: IBID

If that is supposed to be reassuring – it is not. In fact, if anything, this is a clear warning to every single New Zealander that if a bank gets into trouble – or if there is even a hint of trouble – to get in quickly and withdraw every cent that a depositor might have.

If a bank gets in trouble, and has a crippling run on deposits, it will be as a direct consequence  to Key’s plan to dip into people’s savings to bail out that institution,

The Reserve Bank’s Open Bank Resolution (OBR) plan, due to come into effect at the end of June, would mean a partial loss on all deposits if a bank failed in New Zealand, in order to fund the bank’s bailout.

Acknowledgement: Fairfax media – Reserve Bank scheme news knocks kiwi

Ironically, this is where Libertarians – who consider all taxation as theft – may have a point.

Taxation is one thing. We pay it so we can enjoy the benefits of a modern society and economy. Roads, bridges, schools, hospitals, police, etc, do not materialise out of thin air.

Dipping into people’s savings accounts – which has already been taxed one way or another – is not a tax. It is expropriation.

Expropriatiion – that dreaded word which National and it’s supporters levy against the Left when we talk about re-nationalising State assets. But which evidently is ok if a bank goes bust and has to be bailed out?

If this principal is to be applied across all sectors of society and the economy, then one could imagine that employees and sub-contractors of Mainzeal should have been taxed to bail out that company. Why should a bank be different to a construction company? Is there a difference?

If this expropriation of deposits was ever to happen, do the depositors gain any benefit? Do they gain shares in the Bank as compensation? Or, if not, does that mean that shareholders gain the benefit of other people’s money being used to prop up their investments?

One could imagine  an invalid on a WINZ benefit having his/her meagre savings “taxed” to bail out a bank – to preserve an investor’s shareholding that may be worth millions of dollars. This isn’t justice or common sense, this is nasty, medieval,   “robber Baron” stuff.

The biggest irony here is that, according to the principals of the free market, this is a kind of subsidy to a business – a subsidy enforced by the State, against the will of people who are not even shareholders in a particular bank.

Even marxists would balk at such extreme State power to seize people’s money. They’d simply nationalise the bank and be done with it. Depositors would still have their modest savings left intact and untouched.

Key’s proposal is not just crazy from almost every perspective – it is an insult to our intelligence. Especially when banks are doing very well with their profits,

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bank profits headlines collage

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When profits for New Zealand’s four largest banks are at a staggering   $3.5 billion (for 2011/12) – an increase of 22% – then that must raise serious questions why Dear Leader is even considering making depositors pay for any potential future bailout.

Shouldn’t the banks be looking at a deposit insurance scheme of some sort? You’d think so, wouldn’t you?

Perhaps, though, an event like this is what might be required to jolt New Zealanders out of their collective complacency. It’s only when the middle classes are hit hard in their wallets, that they stop being passive consumers and start to reassert themselves as active citizens.

Because, my fellow Kiwis, you can bet your last dollar (before the banks seize it) that John Key’s $50 million will be somewhere else – probably safe in some Swiss Bank account.

The people of Cyprus (and Iceland) have shown us the way.

Addendum

Remember the so-called “Light Bulb” and “Shower Heads” affairs, in 2008, where National slammed the then-Labour Government as engaging in  “Nanny State” politics? (see: Showers latest target of Labour’s nanny state ) National’s Nick Smith said,

People should be free to use as much water as they like when showering, provided they don’t expect others to pay for their profligacy. User-pays is a far better approach than nanny state.”

So using eco lightbulbs and smaller shower flows, to conserve electricity and water is nasty  “Nanny Statism”.

But going into people’s savings accounts; stealing their money; and handing it over to banks – is all hunky dory? Well, I’m glad that’s settled.

(Cue theme music to ‘Monty Python’s Flying Circus’.)

This blogpost was first published on The Daily Blog on 22 March 2013.

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References

Banking profits up 13.6 percent

ASB Bank cash profit rises 7pc

ANZ profits up 17pc to $1.26b

BNZ first-half profit jumps 36pc

$3.5b profits for big four banks

Westpac profit increases 22pc

Outcry at big banks’ mega-profits

Additional

Reserve Bank scheme news knocks kiwi

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