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Capitalism and the price of chocolate

1 March 2015 1 comment

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From a previous blogpost published on 4 July 2013, in The Daily Blog

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The Price of Cocoa (2013)

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Three cans of cocoa tell an interesting story.

Can A is the oldest, with an expiry date of April 2011. The can measures 110mm (H) x 75mm (D). It contained 200g net dry cocoa powder.

We purchased Can B sometime  in 2011 (?). The expiry date was March 2012, so it’s the second oldest can.

Interestingly, it also contained 200g net dry cocoa powder. However,   whilst the contents remained the same as Can A – the dimensions of the can inexplicably increased; 130mm (H) x 75mm (D). Same diameter as Can A – but 20mm taller. Contents remain the same net weight.

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KONICA MINOLTA DIGITAL CAMERA

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A month ago we purchased Can C (expiry date, March 2015). The dimensions of this can is the same as Can B: 130mm (H) x 75mm (D). But this time, the contents decreased from 200 to 190g net dry cocoa powder. Ten grams less.

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KONICA MINOLTA DIGITAL CAMERA

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So the up-shot? The can-sizes have gotten bigger – whilst the contents has reduced by 5%.

On 9 June, I emailed Nestle to find out what was going on,

Kia ora,

It has recently come to my attention that two cans of Nestle Baking Cocoa measure 110mm X 75mm, whilst the other measures 130mm x 75mm.

Both contain 200g net  cocoa powder.

The smaller can measuring 110 x 75 has a “best before” date April 2011.

The larger can, 130×75 has a “best before” date March 2012.

It appears that you have increased the SIZE of the can, whilst the contents remain the same.

Is there a reason why the size of the cans  was increased, by 20mm in height?

And can you confirm that the price stayed the same; increased; or reduced; when the change was made from a 110mm height to 130mm height?

(The email was sent prior to purchasing Can C.)

Perhaps not surprisingly, I received no reply from Nestle. [Blogger’s note: I never received any reply from Nestle.]

Unfortunately, I never retained the receipts for Cans A and B, otherwise I could compare prices. But what’s the bet that the retail price probably increased?

And thus it came to pass…

“As short a time ago as February, the Ministry of Plenty had issued a promise (a “categorical pledge” were the official words) that there would be no reduction of the chocolate ration during 1984. Actually, as Winston was aware, the chocolate ration was to be reduced from thirty grams to twenty at the end of the present week. All that was needed was to substitute for the original promise a warning that it would probably be necessary to reduce the ration at some time in April.” – George Orwell,  ‘1984’

Doubleplusgood!

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The Price of Chocolate (2015)

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A recent story in the media caught my attention;

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Cadbury blocks get the chop

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The unattributed Fairfax article further stated,

Amanda Banfield, managing director of Australasia for Mondelez International, the parent company that owns Cadbury, said she expected a backlash.

[…]

She pointed to rising packaging costs and a lift in the price of raw materials.

The main ingredients are cocoa, sugar and milk.

So let’s have a look at the prices of raw ingredients.

Sugar.

This commodity dropped in price from NZ$0.22  per pound, in July 2014, to NZ$0.20 per pound, by January of this year, according to IndexMundi.com;

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price of sugar - 7 months

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Over the last year, the price of sugar increased, peaking in July last year, before falling back;

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price of sugar - 12 months

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But taken over a five year period, look at how the price of sugar has dropped dramatically;

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price of sugar - 5 years

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So the rationale for Cadbury’s decision to de facto increase their prices cannot be blamed on sugar, which is cheaper now than it was, five years ago.

Let’s have a look at cocoa (beans) – and a similar story unfolds;

Six months – a 3.95% increase;

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price of cocoa beans - 6 months

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Twelve months – a 12.26% increase;

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price of cocoa beans - 12 months

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However – over 5 years – a 21.06% drop in price;

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price of cocoa beans - 5 years

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It would be interesting to note if when the price of cocoa beans collapsed to NZ$2,601.96 per metric ton, in March 2013, did the price of a Cadbury’s bar of chocolate increase in size? Or fall in price?

As for the price of packaging, this would be based on a local commodity (paper and ink) and if  New Zealand’s low inflation is anything to go by (an average of 2.7% pa since 2000), would not be much of a factor in pricing. With the exception of four Quarters around late 2010 to mid-2011, inflation has remained at or below 2%, a fallout from the 2008 Global Financial Crisis and ongoing recessionary/low-growth influences;

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trading economics - inflation 2010 - 2014 nz

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So with commodity prices for sugar and cocoa beans lower now than five years ago, and with low inflation, what other cause  could there be for the de facto price price of Cadbury’s chocolate bars?

Perhaps the answer lies with Kraft’s acquisition of Cadburys  for  £11.5 billion (US$18.9 billion) in 2010. Kraft financed the take-over deal by  borrowing a massive  £7 billion (US$11.5 billion) to finance the deal.

However, the New Zealand branch of Cadbury’s did not return a profit to it’s parent company (Mondelez International) until three years later, when it paid a dividend of NZ$40 million to its parent company, Mondelez.

According to  statements, Cadbury NZ’s profit  tripled to $11.6 million, from $3.5 million a year earlier, even as costs fell by  2.3%.

So despite falling costs, and increased profits, Cadbury NZ was struggling to make dividend payments to it’s parent company, and meanwhile Kraft was committed to servicing a £7 billion (US$11.5 billion) loan which had financed the acquisition in 2010.

The reduction in Cadbury’s chocolate bars can therefore be attributed to Kraft’s indebtedness rather than the official company line of increased costs. Unless Cadbury is lying in it’s financial statements, their costs have actually fallen, not increased.

As with many corporate takeovers, the benefits do not necessarily accrue to the public. The number one beneficiary is almost always shareholders, and consumers come a poor second (or third, or fourth…).

In this case, reducing the size of Cadbury chocolate bars by 20% is equivalent to a price increase, and Kraft’s shareholders will reap the rewards of increased profits.

Not exactly a sweet deal for New Zealand consumers.

Postscript

On 15 February, I contacted Statistics NZ, to enquire how SNZ views reduction in product sizes, whilst retail prices remain the same, in it’s calculation of the Consumer Price Index (CPI).

Dave Lum, from Statistics NZ replied;

The CPI measures price change in a “fixed” basket of goods and services, which means that we aim to measure price change based on quality being constant. In an instance where the quality (in your example, the weight/size) of an item changes, we show a price adjustment to account for the fact that the quality of the item has changed.

 As an example, if the size of a can of beans goes from 300g to 330g for the same price, this is shown as a price decrease for that item in the CPI. Likewise, if the can of beans went from 300g to 250g for the same price, it would be represented as a price increase.

So according to Mr Lum, Cadbury’s “switcheroo” with product sizes, will not materially distort CPI price measures.

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References

Fairfax media:  Cadbury blocks get the chop

IndexMundi.com: Sugar Futures End of Day Settlement Price (6 months)

IndexMundi.com: Sugar Futures End of Day Settlement Price (12 months)

IndexMundi.com: Sugar Futures End of Day Settlement Price (5 years)

IndexMundi.com: Cocoa beans Monthly Price – New Zealand Dollar per Metric Ton (6 months)

IndexMundi.com: Cocoa beans Monthly Price – New Zealand Dollar per Metric Ton (12 months)

IndexMundi.com: Cocoa beans Monthly Price – New Zealand Dollar per Metric Ton (5 years)

Reserve Bank: Inflation 1990-2014

Trading Economics: Inflation 2010 – 2015

NBR: Kraft Foods (NZ) pays $40m dividend to parent Mondelez

Wikipedia: Acquisition by Kraft Foods

This blogpost was first published on The Daily Blog on 24 February 2015.

 

 

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2015 – Ongoing jobless tally

16 February 2015 Leave a comment

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Unemployment logo

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Continued from: 2014 – Ongoing jobless tally

So by the numbers, for this year;

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Actual

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January

February

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Statistics

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New Zealand Unemployment Rate - January 2014 - January 2015

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September 2014 quarter – Employment & Unemployment

In the September 2014 quarter compared with the June 2014 quarter:

  • The number of people employed increased by 18,000.
  • The employment rate increased 0.2 percentage points, to 65.2 percent. This came as employment growth outpaced population growth.
  • The unemployment rate fell 0.2 percentage points to 5.4 percent.
  • The number of people unemployed decreased by 4,000.
  • The labour force participation rate increased 0.1 percentage points, to 69.0 percent.
September 2014 quarter Quarterly change Annual change
(000) (Percent)
Employed 2,346 +0.8 +3.2
Unemployed    134  -2.8 -9.6
Not in the labour force 1,116  +0.1  +0.6
Working-age population 3,595 +0.4 +1.8
(Percent) (Percentage points)
Employment rate  65.2 +0.2  +0.8
Unemployment rate    5.4 -0.2   -0.7
Labour force participation rate  69.0 +0.1  +0.4

Notes:

1. All figures are seasonally adjusted. Source: Statistics New Zealand

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

Source

December 2014 quarter – Employment & Unemployment

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Employment at a glance
Dec 2014 quarter Quarterly change Annual change
(000) Percent
Employed 2,375 +1.2 +3.5
Unemployed    143 +5.8 -2.6
Filled jobs 1,800 +0.1 +2.5
Percent Percentage points
Employment rate  65.7 +0.4 +1.0
Unemployment rate 5.7 +0.3 -0.3
Labour force participation rate 69.7 +0.7 +0.9

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Notes:

1. All figures are seasonally adjusted. Data source: Household Labour Force Survey: December 2014 quarter

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

3. Statistics NZ  has combined the Household Labour Force Survey (HLFS), Quarterly Employment Survey (QES), and Labour Cost Index (LCI) information  into one combined Labour Market Statistics release.

Source

Analysis – Unemployment rising

Unemployment jumped from 5.4% to  5.7% in the December 2014 quarter. That translates into 8,000 more people being unemployed over the intervening quarter.

Data for March 2015 quarter will be released  6 May 2015.

Additional Information

The  under-employment stats;

People who are underemployed are those who work part-time, would prefer to work more hours, and are available to do so. In unadjusted terms, the number of underemployed grew by 12 percent over the year. While the number of part-time workers increased over the year, the ratio of people underemployed to employed part-time also rose – from 17.1 percent in June 2013 to 18.7 percent this quarter.

Official under-employment: up

 

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

Other Sources

Statistics NZ:  Household Labour Force Survey

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[To  be periodically up-dated]

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2014 – Ongoing jobless tally

25 December 2014 16 comments

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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

August

September

October

November

December

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*

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See also

Reported Job Losses

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*

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Current unemployment statistics

 

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.

June 2014 quarter

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June 2014 quarter Quarterly change Annual change
(000) (Percent)
Employed 2,328 +0.4 +3.7
Unemployed    137  -6.3 -10.9
Not in the labour force 1,114  +1.7  -0.9
Working-age population 3,579 +0.6 +1.6
(Percent) (Percentage points)
Employment rate  65.0 -0.1  +1.3
Unemployment rate    5.6 -0.3   -0.8
Labour force participation rate  68.9 -0.3  +0.8

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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 June 2014 quarter compared with the March 2014 quarter:

  • The number of people employed increased by 10,000 people.
  • The employment rate fell 0.1 percentage points, to 65.0 percent.
  • The number of people unemployed decreased by 9,000 people.
  • The unemployment rate fell 0.3 percentage points to 5.6 percent.
  • The labour force participation rate decreased 0.3 percentage points, to 68.9 percent.

Official unemployment: down

The  under-employment stats;

People who are underemployed are those who work part-time, would prefer to work more hours, and are available to do so. In unadjusted terms, the number of underemployed grew by 12 percent over the year. While the number of part-time workers increased over the year, the ratio of people underemployed to employed part-time also rose – from 17.1 percent in June 2013 to 18.7 percent this quarter.

Official under-employment: up

 

The Household Labour Force Survey for the  September 2014 quarter will be released on 5 November 2014.

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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