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Posts Tagged ‘Baby Boomers’

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

15 June 2013 6 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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Greed is Good? Part Deux

6 January 2012 8 comments

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Bryan Bruce’s eye-opening documentary, Inside NZ: Child Poverty,  was broadcast last year on TV3,  and finally brought out into the open what had only be barely acknowledged: New Zealand as a society was failing it’s children, especially in low-income families.

Radio New Zealand TV Reviewer, Simon Wilson, described the documentary as;  “Outstanding. The most significant piece of New Zealand Television in years” – for good reason.

Bruce’s  doco raised public awareness, for sure. But I think it’s done more than that. Along with the “Occupy Movement”, I think we are finally seeing a new realisation that the last 27 years in New Zealand has not produced the “trickle down” benefits.

When 150 Rich Listers increase their wealth by 20%; when tax cuts have to be funded by borrowing other peoples’ savings from overseas, and have benefitted mostly the top 10%; when the income/wealth gap continues to widen; when we have to sell the family “silverware” just to paint schools – something is seriously wrong with this picture.

New Zealanders may choose to overlook your documentary (I hope TV3 re-broadcasts it) , but they won’t be able to ignore the next message, and the next, and the next.

Eventually it will percolate into our collective psyches that the promises made of  by the New Right economists; politicians; and their fellow-travellers; of “trickle down” benefitting us all – has been a hoax. Or a scam. (Pick whichever word you prefer.)

The next message that our socio-economic values are terribly awry, will be the increasing flood of New Zealanders leaving for Australia.

The more I look at this phenomenon, the more I’m thinking that our brothers and sisters are not leaving (just) because of “higher wages”.

There’s more to it than that. There is a massive dislocation in effect. People have lost that sense of belonging to a community – and once that no longer exists, why not shoot through to richer pastures?

What’s to keep our children here?

The answer is; not much. Our children can’t even buy their own home in NZ anymore. Why? Because my generation (baby boomers) have bought up most of the available stock, using borrowed funds from offshore, which has pushed up prices and “locked in” ownership to my generation.

New Zealanders can turn all this around. But it means making decisions at the ballot box based on what is good for our country, rather than our own wallets. (John F Kennedy said it much more eloquently.) Until then, we will be the victims of our own selfishness and short-sightedness.

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Sourced from “Inside Child Poverty NZ”

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On his Facebook page, Inside Child Poverty, Bryan Bruce has started a Poll; Should we raise the retirement age by 1 year to pay for free school lunches to all school children?

The responses opposing raising the retirement age are not just unhelpful – they are indicative of the very nature of our society; our self-centredness; and how badly we have gone so far off the tracks.

Raising the retirement age by one year, to pay for free lunches? Absolutely!!And there are some very good reasons to do so.

  1. If we don’t have healthy children, we have no future (or not much of one). Because it is our children who pay for the retirement of the elderly. The connection is fairly simple.
  2. My generation, the “baby boomers”, have had it “sweet”. We had free education; free healthcare; and many other state-provided services.
  3. Then, after 1984, all that changed; “baby boomers” voted seven tax cuts for themselves; implemented User Pays in tertiary education, and elsewhere; sold off state assets that had provided many of these services; and succeeding generations made do with much less of what my generation enjoyed.
  4. The feeling I’m getting from the responses on Bruce’s FB page is that it is  becoming a generational  “resource war”  –  the aging baby boomers vs succeeding generations.
  5. Well, I can tell you now who will lose that “war”; the elderly. If we continue to deny the services that we ourselves enjoyed – expect to see the flood of migration to Australia turn into a torrent. We’ll be “killing the Golden Goose” for sure because it is the younger generations who will be the ones who support the elderly and greying Baby Boomers into their retirement.

Am I painting the picture clearly enough here?

The question, to me, is not whether we should be raising the retirement age by one year – we should be asking our children; is one year enough? Can we do more for you, our children?

Because as sure as sunrise follows night, if we don’t look after our children; if baby boomers continue to vote more and more resources for themselves – the result will be predictable. And I for one will not blame our young people for leaving this country for richer pastures.

If we don’t look after our children, why should they look after us?

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Additional Blog Entries

Greed is Good?

“Building better public services” – Really?

Further Reading

Greed of boomers led us to a total bust

Rich list shows rich getting richer

New Zealand’s wealth gap widens

Rolls Royce sales rocket as super-rich drive in style

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Dunne’s Dumb Deal?

5 December 2011 3 comments

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Full Story

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What Mr Dunne gets:

– No sale of KiwiBank or Radio New Zealand.
– Statutory limits will be introduced on the sale of public asset to no more than 49 per cent of shareholding to private interests and limits would be put on the extent of single entity ownership.
– A ban on guided helicopter hunting on conservation land will be introduced to Parliament.
– The budgets of both Radio New Zealand and Television New Zealand will be maintained.
– The Families Commission will be revamped.
– There will be public consultation on Mr Dunne’s Flexi-Super policy.
– Guaranteed access to rivers, lakes, forests and coastline.
– An agreement to reintroduce Mr Dunne’s income sharing legislation which failed to win enough support in the last Parliament.
– Free health-checks for over 65-year-olds would also be investigated.

Whoa…! Back up that coalition-pony, sonny boy!

No sale of KiwiBank or Radio New Zealand?!?!

Since when did National advocate or campaign on the privatisation of Kiwibank or Radio New Zealand?

In fact, John Key made it a campaign promise that Kiwibank was not up for sale, and that the only state assets on the block were Genesis Power, Meridian, Might River Power, Solid Energy, and Air New Zealand. No mention whatsoever of Radio NZ or Kiwibank.

What’s going on here?

Either Peter Dunne is telling fibs and creating a false “victory” – or else National had a secret agenda of further asset asales!?

Someone is misleading the public.

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+++ Updates +++

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Full Story

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The above article starts out positive and seemingly Dunne has succeeded in saving TVNZ7 from disappearing and being replaced by a shopping channel…

Until one reads this in the same piece,

I would have preferred to have got a much more explicit agreement regarding the future of TVNZ 7 but the National Party wouldn’t go there.”

And Dunne  then adds,

TVNZ keeps saying it needs to run as a commercial body, and it obviously makes its own decisions, but I think it needs to recognise there is a significant chunk of the population that prefers the approach TVNZ 7 takes and would be very disappointed if that channel was to close.

So he really hasn’t “saved TVNZ7” at all. In fact, Dunne admitted as much this morning (Dec 6) on Radio NZ, when he said on “Morning Report“,

” …I wanted to get an absolute committment  to the retention of TVNZ7. We weren’t able to get that. The government wasn’t prepared to make that, uh, concession…”

Ok, so let’s sum this up,

  • Dunne get’s a promise from National that neither Kiwibank nor Radio NZ will be sold.
  • But National never suggested selling Kiwibank or Radio NZ in the first place.
  • So what kind of “victory” is it to get a committment on something that the Nats weren’t intending to do anyway?
  • Dunne then negotiates to get an absolute committment to save TVNZ7.
  • And fails.

Have I missed anything?

Moving right along…

“Free health-checks for over 65-year-olds” – ???

Great. More rip-offs from my generation, the Baby Boomers. Everyone else has to pay for health checks – but all of a sudden we get freebies?

Yet again Baby Boomers – being a sizeable bloc of voters – gain tax-payer funded social services whilst everyone else has user-pays.

No doubt these “free health checks” will be funded from that sale of state assets. Once again Baby Boomers are ripping off future generations for our own selfish benefit.

The word obscene comes to mind.

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Email  Peter Dunne to let him know what you think about asset sales:

p.dunne@ministers.govt.nz

ohariu.mp@parliament.govt.nz

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The Great New Zealand Scam

19 November 2011 1 comment

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Never mind Nigerian scammers – we have something much closer to home, and is the biggest rort ever. What do retirement policies and asset sales have in common? Plenty!

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Full Story

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One commentator to the story above posted this message on Stuff’s messageboard,

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cm   #47   11:48 pm Nov 18 2011

All this shows is who votes, and in numbers.

the boomers stand to loose the most from a retirement age increase. The boomers stand to gain the most from asset sales.

come on gen y, x, z what ever the demographs call you. get out and vote before the baby boomers (your own parents/grandparents) sell you and your future out. its pretty damn simple, if you over 20 you arnt a child anymore, your an adult. so act like you give a damn about your futures and stop believing the bullshit that your parents will look after you, put that on a tui bill board.

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CM has pretty well identified how Baby Boomers are going to “internalise a complicated situation” by voting National even though, on the surface, they have an alleged dislike of asset sales.

It is a perfect analysis of what is about to happen on 26 November: the Baby Boomer generation is about to ‘steal’ property from the next generation, for their own gain.

Instead of our generation paying it’s way through taxation, we’ve voted tax cuts for ourselves (2009, 2010) and big borrowings from overseas to sustain those tax cuts, and maintain social services. Then, to start paying it back, instead of doing it through taxation, we’ll sell off state assets. End result; we get the benefits, and Gen X, Y, etc, are left with $13 billion in student debt and not much more to show for it.

By the way, John Key and many others in his position had the benefit of a free tertiary education – fully tax-payer funded. With a student allowance on top, to make it all as easy as possible.

Then, through two tax cuts, he voted himself an extra $1000 a week.

Meanwhile, our young folk are accumulating more and more student debt. By last year, the student debt mountain has grown to an unfeasible $13.9 billion.

What a racket! This is ‘better’ than a Ponzi Scheme! It’s better than a Nigerian scam – because it’s all totally legal.

This is why our best and brightest young people are heading overseas.  They’re leaving before they get saddled with the bill for looking after us in our retirement.

Unfortunately, Labour’s policy to make sure disengaged youth are heard may be too little, too late. Our children are already disconnected from us and our society because we made damn sure it happened that way. Saddling our young folk with a debt we (Baby Boomers) never had to face is pretty well telling them, “Kid, you’re on your own!”.

All I’ll say to Gen Xers and Yers is: Run! (Though Baby Boomers – through the government – won’t let you get away quite so easily.)

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Additional reading

Student loans – the debt mountain

Govt may use student loan debt collectors abroad

Greed is Good?

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Of Polls, Politics, & Pollution

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“Do as I say, Not as I Do”, is not a particularly savvy way to relate to an important electorate such as Epsom,

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Full Story

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It beggars belief that a Party leader could ask voters in a given electorate to vote for the candidate of another Party – whilst he himself supports his own Party’s candidate.  John Key has stated categorically,

“‘I’m going to vote for Goldsmith. I am the National Party leader and I am going to vote for the National Party candidate and give my party vote to National.Source

One wonders how National supporters in Epsom must be feeling.

The leader of their Party hints that they should vote for ACT’s John Banks, whilst Key himself votes for the National candidate, Paul Goldsmith?

And if Paul Goldsmith is the “sacificial lamb” – why is he standing as an electorate candidate anyway?  National could just as easily – and more honestly – simply not stand a candidate and mount a publicity campaign for the Party Vote only,

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In effect, National’s  electorate candidate is not really campaigning to win. And if he doesn’t want to win, why is he standing? To give  Epsom National supporters a “wink and a nod” to Electorate Vote ACT and Party Vote National?

And if such is the case – what possible legitimacy does that give ACT when they can’t attract electorate support on their own merits?

So much for ACT being a Party that encourages success through merit. Especially when they apply the merit-based principle to Maori:  Maori Must Earn Auckland Seats On Merit .

As the ACT statement sez;  “Let our bright boys and girls EARN their seats.

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ACT and National’s  machinations in Epsom are, of course, due to ACT’s low poll ratings. Practically every single poll has them around the 1.5-3.5% mark. Under MMPs rules, if they cannot cross the magical 5% Party Vote threshold – or – win an Electorate Seat, they will end up like  The Alliance and NZ First: out of Parliament.

(Despite what critics of proportional representation would have us believe, MMP is not a very ‘forgiving’ system to small Parties.)

The latest Horizon Poll makes for very interesting reading. Horizon is the only polling company that prompts Undecideds to state a preference. Under this system, the results appear to give a far more realistic result of Voter’s intentions, rather than the ‘fantasmagorical‘ results that have National at 53-55%-plus,

Horizon is the only polling company publishing results for don’t know voters.

Horizon’s results are for

  • Decided voters
  • Undecided voters with a preference

who are

  • Registered to vote and who
  • Intend to vote.

The poll finds

  • National has 36.8% of registered voters (down 2.7% since September 22)
  • Labour 25.7% (-1.1%)
  • Green Party 11.6% (up 0.9%)
  • New Zealand First 6.2% (- 1.1%)
  • Mana Party 2.3% (+ 0.3%)
  • Act 3.4%  (down 1.4% from September and down from a high of 5.3% in May shortly after Don Brash became leader)
  • Maori Party 1.7% (+0.7%)
  • United Future 0.4% ( 0% in September)
  • Conservative Party of New Zealand 2.2% (new party, first time measured)
  • New Citizens 0%
  • Other parties 1.2%

National has highest voter loyalty:  76.2% of its 2008 voters still support it. It has picked up 19.9% of Act voters and 9.1% of Labour voters (while Labour has picked up 7.6% of National’s).

The Greens have 68.7% voter loyalty and are gaining 2008 voters from the Maori Party (23.1%) and Labour (14.6%).

Labour has 63% voter loyalty, losing 14.3% to the Greens, 9.1% to National and 3.7% to New Zealand First.

The Maori Party has 30.8% voter loyalty, losing 23.1% of its 2008 voters to the Greens and 19.1% to Mana.

Assuming John Banks wins the Epsom electorate seat for Act, Peter Dunne retains Ohariu-Belmont, the Maori Party retains its four electorate seats and Hone Harawira retains Te Tai Tokerau, a 122 seat Parliament  would result, with a two Maori Party seat overhang, comprising:

National 50

Act 5

Maori party 4

United Future 1

Current governing coalition: 60 seats

Labour 35

Green 16

NZ First 8

Total: 59 seats

Mana 3

Horizon Research says a great deal depends on the support New Zealand First attracts at November 26.

Horizon polls have had the party at 6% or higher since November 2010. (Note the poll’s margin of error is +/- 2.2%).

Source

If correct, National is in trouble.  Their chances of a second term are not guaranteed, and judging by the public’s low opinion of National’s performance of the grounding of the m.v. Rena; the double credit-rating downgrades; the questionable veracity of the so-called Standard & Poors  “email”; and various promises made that have not been kept, John Key’s “teflon” image is definitely beginning to show signs of wear and tear.

And with the RWC behind us, and the public “partyed-out”, a return to politicking may be a welcomed diversion for many. Especially as people begin to focus on issues such as asset sales and the sales of farmland – both contentious and highly unpopular with the public.  In a way, the RWC may even strengthen opposition to asset/farm sales to foreigners.

After all, if we’re good enough to beat the world in rugby, then  why the dickens aren’t we good enough to hold on to our taongas?! Explain that, Dear Leader!!

On the other hand, though Labour leader Phil Goff has consistently polled lower than Key, his dogged determination to persevere and not fold under media scrutiny may actually earn him “brownie points” with the public.

Goff can wear the label of  “underdog” with real credibility. If Labour can play on this in a subtle manner, and show that Goff does not cave under pressure; that he keeps on like the proverbial ‘Energizer Bunny’ when all seems lost; and that he doesn’t rely on shallow charisma and meaningless smiles and utterances – he is in with a fighting chance.

God knows that lesser mortals would’ve probably chucked it in long before now, and call for a replacement from the “benches”.

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Another Horizon Poll has shown what many suspected would be the reaction from New Zealanders over the grounding of the m.v. Rena: that the government was slow of the mark and wasted precious time in delaying action,

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Source: Horizon Polls

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Taken in isolation, the grounding and response from government and statutory bodies would probably have raised no more than slight annoyance from the public.

But the grounding of the Rena is now the third major disaster this country has experienced; on top of the Pike River Mine explosions and the Christchurch earthquakes.

In both instances, central government made promises to locals that – in hindsight – may have been unrealistic at best, and irresponsible at worst. Public patience with the ever-smiling, waving, John Key may be wearing just a bit thin.

Then on top of all that, was the near-disaster of the Rugby World Cup’s opening night. The government had well and truly taken their collective eyes of the ball that night, and it is pure good luck that no one was seriously injured or killed in the mayhem.

Unrealistic promises and slow responses were only the beginning.

We also have the government intending to bring deep-sea oil drilling to our coastal waters. More than half the country by now must be asking themselves,

Just hang on a mo’, Mr Prime Minister! If we can barely cope with a single stranded freighter, sitting on the surface of the sea – how the heck are we going to cope with a major oil disaster that might be two or three times the depth of the Gulf of Mexico disaster?! Aside from hoping for good luck that nothing goes wrong, we’re not really prepared are we, Mr Key?

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To make things worse, is the disquieting suspicion that our de-regulated safety regime; lax building codes; and continual cutbacks to government workers are  contributing to a systematic running-down of essential services. Especially when even  emergency services are now starting to feel the blades of National’s  savage cuts,

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Full Story

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When the aspirational middle class Baby Boomers start to feel that their comfort zones are threatened, government politicians should take heed. That’s when we throw out governments. We don’t like our “comfort zones” upset. (It upsets our delicate tummies.)

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Now let’s really stir the political pot of discontent;   our youth seem to have re-discovered their own political power and realised that leaving matters to the Older Generation (us) may not achieve the outcomes they desire. God knows our generation has succeeded in wrecking the global economy; threatening the stability of the Eurozone; and bringing the once great super power that is the United States, to it’s knees.

Young folk have woken up to the world around them – and they are not very happy at what they find,

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Full Story

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The recent government interference in Student Union affairs (forcing voluntary unionism upon people who may not necessarily wish for it) should be a stark wake-up call to young people that National governments – far from being “hands off” and opposed to “nanny statish” behaviour – can be just as controlling as their counterparts allegedly were.

In fact, more so. After all, this “hands off” government did force almalgation on Aucklanders without any democratic referendum being conducted. National had no hesitation in passing legislation to ban cellphone usage whilst driving (but not banning  applying makeup or eating whilst driving). Then they lifted the driving age. And have begun liquor law reforms. And John Key is even now contemplating the ungodly “Nanny Statish” policy of making Kiwisaver compulsory!! Oh dear gods – whatever next?!

Oh, that’s right – National wanted to  extend Police powers to allow greater video surveillance in the community. (Which even ACT decided was a step too far.)

All in all, the gloss has worn away from this government, and it’s track record of the last three years cannot be dismissed with a smile and a wave, with a hollow promise chucked in for good measure.

And young New Zealanders are starting to flex their political muscle.

Not too bad, on top of winning the rugby world cup, eh?

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Greed is good?

28 August 2011 54 comments

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As we look back on the last 25 years of neo-liberal “reforms”, including User Pays; the canning of “Labour’s” superannuation savings plan in 1975 (by Muldoon – after being elected into office with his infamous “Dancing Cossacks”  TV ad); and National’s continuing high popularity in the polls, despite their avowed proposal to sell-down 49% of several State assets,  – it seems abundantly clear who has been  pulling the “strings”.

No, it’s not Washington. Nor the Bilderbergers. Nor the UN/New World Order/Illuminati.

The answer is mind-numbingly far more prosaic:  it’s us – the Baby Boomer generation. The 1960s and 1970s rebellious youth  weren’t just an “aberration” – they were a clear signal that the Baby Boomers had arrived; could be inclined to  incredible selfishness (hence the term the “Me Generation”); and we voted individually for personal gain – on a collective basis.

Yep. We have seen the “enemy” – and it’s us; graying; self-centered; resentful of the young (who we’ve well and truly shafted);  and looking back at ourselves in the mirror, wondering where it all went wrong.

The case of  Surgeons Ian Penny and Gary Hooper, who tried to rort the tax system using Trusts  and companies – even though they had graduated BEFORE student loans and fees were implemented in 1992 – is the clearest example ever of our collective unbridled selfishness.

To re-cap;

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A court battle is over for two surgeons who challenged Inland Revenue over claims they tried to avoid tax bills worth tens of thousands of dollars.

The Supreme Court has ruled unanimously against Ian Penny and Gary Hooper, saying they underpaid themselves from their own businesses to avoid the top personal tax rate.

The issue arose after the previous Labour-led Government raised the top personal tax rate to 39%, compared to the company rate which was then 33%.

The orthopaedic surgeons openly paid themselves a lower salary than the market rate, arguing that they had a choice about how they operated their business.

They tried to challenge a Court of Appeal decision that found in favour of Inland Revenue, which said the surgeons had paid themselves salaries too small to be commercially realistic.

It said they were therefore able to avoid paying the top tax rate, while the balance of their businesses’ profits went as dividends to family trusts.

The trusts funded items such as a loan for one surgeon, and a holiday home for the other.

Inland Revenue said using those business structures to create artificially low salaries amounted to tax avoidance, saving each man between $20,000 and $30,000 a year for three years, beginning in 2002.

Supreme Court Justice Blanchard on Wednesday delivered a judgement supporting that argument, ordering Mr Penny and Mr Hooper to pay Inland Revenue $25,000 in court costs.

Mr Hooper told [Radio New Zealand ]Checkpoint the court has created a salary benchmark that is higher than the one countless private practitioners have been using.

He says they have been following Inland Revenue advice and calculating their salaries based on public hospital rates.

An Inland Revenue deputy commissioner welcomed the ruling, telling Checkpoint it clearly states and reaffirms what the department’s commissioner felt was the case all along. Carolyn Tremain says IRD has yet to fully absorb the implications and consequences of the ruling.

PricewaterhouseCoopers John Shewan, who appeared as a witness for the surgeons, said the case is important for individuals and firms. He said tens of millions of dollars may now be claimed by Inland Revenue from cases it still has open on this matter.

Source:  Radio New Zealand

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Specifically,

Surgeons Ian Penny and Gary Hooper set up companies, owned indirectly through trusts, to buy their surgical services and paid themselves artificially low salaries.

After 2000, Hooper’s personal income fell from $650,000 to $120,000 a year. Penny’s dropped from $302,000 to $125,000, and then to $100,000, while the income of their companies grew.

Source:  Dominion Post

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What makes this case of case of tax avoidance stand out is that none of it was ever necessary in the first place.

Dr Ian Penny received his Bachelor of Medicine Bachelor (MB ChB) of Surgery from Otago University in 1981.  He became a Fellow of the Royal Australasian College of Surgeons in 1990.

Dr Gary Hooper received his Bachelor of Medicine Bachelor (MB ChB) of Surgery  from Otago University in 1978 and became a Fellow of the Royal Australasian College of Surgeons in 1985.

In simple terms, they graduated as doctors in the late ’70s and early ’80s. Tertiary education then was still nominally free. Plus,  student allowances were available to most students,

“Up until 1992, nearly every student (86.4 percent) studying at a public tertiary education institution in New Zealand received a living allowance or grant while they studied.

 Prior to the mid 1970s, student support was based on a system of bursaries and scholarships. In 1976, a new system of government-funded tertiary bursaries was introduced. This included a study or living costs grant that was available to most students.”

Source: NZUSA

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Student fees and student loans came into effect in 1992, during the Bolger-led National Government, when Ruth Richardson was Minister of Finance (and coincidentally the same year that Shortland Street came on air).

In simpler terms, Dr Penny and Dr Hooper enjoyed the benefit of near-free tertiary education before fees were raised in 1992. They had no student loans to repay, as  medical students currently do, and may well have benefitted from receiving a Student Allowance.

Contrast their free tuition with that of medical students, in the 21st Century:  “on average medical students will graduate with around $80,000 of debt and nearly 90% will have a student loan“, according to the  New Zealand Medical Students’ Association in April, last year.

So with a free education; in receipt of student allowances; and no student loan; Dr’s Penny and Hooper were, as Revenue Minister Peter Dunne stated;

… the important thing about this decision is to bear in mind the scale of what was happening. This wasn’t people minimising their income because they were reinvesting in their business. This was people minimising their income because they were actually minimising their tax liability but still enjoying the full benefits of the income they were in reality earning.

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So not only did these gentlemen benefit from a free education – but they were now minimising their income because they were actually minimising their tax liability [whilst] still enjoying the full benefits of the income they were in reality earning.”

God, you’ve no idea how sick this incident has  made me.  Let me explain why.

Prior to the introduction of “Rogernomics” in 1984 (and National’s addition from 1990 onward),  education in this country had been free (or as close as possible to free) to nearly all New Zealanders. Education whether at Primary School or University was funded by the previous generation; our Mums & Dads; Grandmothers & Grand dads. The idea was terribly simple; education was a right, and not to be determined by ability to pay.

In turn, as we graduated from schools and Universities, we – my generation, the “Baby Boomers” – were to fund our children through their education, through our taxes.

Except, it did not quite happen that way.

In 1984 we unknowingly elected a Labour Government that had been taken over by a secret cabal of neo-liberals, conservatives, and proponants of the Free Market. A raft of  radical changes were implemented throughout the economy and impacting directly on society.

Despite public objection; mass protests; and even vocal opposition from within the Government by some Labour MPs such as Jim Anderton, Labour was re-elected in 1987.  Curiously, they had increased their majority from 55 to 57.

During Labour’s two terms (1984 to 1990), they cut taxes twice, and implemented a new tax in 1986, called GST.

National followed, implementing User Pays in tertiary education whilst  cutting taxes in 1996 and 1998.

In 2008, despite evidence that the world was plunging into a global recession, John Key promised that National would again cut taxes. As New Zealand went into deep recession; unemployment rose; businesses closed down – National cut taxes in April 2009 and October last year.

Most of the public, it seems, will swallow User Pays if they stand to reap a benefit from tax cuts.

The social contract therefore, was well and truly broken between our (the Baby Boomers) generation, and our parents/grandparents.

We had taken their gift – that of free education which they had paid for – but we decided not to pass it on to our children. Instead, we accepted one tax cut after another. And social services were either cut or User Pays applied, to pay for those tax cuts.

To my generation of fellow Baby Boomers, I say this; we’ve well and truly  shafted our own children. We denied them the very same opportunities of a free education that our parents had bequeathed to us. Instead, we voted ourselves seven  hefty tax-cuts; instigated User Pays; and left our children saddled with $13.9 billion in student debt.

Is it any wonder that our children our leaving New Zealand in greater and greater numbers? They’re not just emigrating to seek better paying jobs – they’re sticking it to us for our unmitigated greed. Whether consciously or sub-consciously, our children realise what our generation has wrought, and by god, they are not happy.

No doubt there are some folk who will cheer on Drs Penny and  Hooper. These people  feel that paying taxes is “unfair” and that it is unreasonable for the State to take the money that they have worked hard for.

Perhaps I should take a moment to remind these people what their taxes were, and in many cases  are still, used for…

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Inter-island Ferry, Aramoana

Dams and other power generation projects

Our first television broadcast system

Roading and highways

Hospitals

University education

Dental care for our Children

Our Police and justice system

Railways and other public transport

Schools

State Housing

Infrastructure such as power transmission lines

Social welfare and superannuation

Bridges

Postal and telecommunications systems

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Many of these assets no longer reside in public ownership – but they were originally built and maintained by previous generations of taxpayers; our parents, grandparents, et al.

As the Baby Boomer generation, what have we built and left our children?

$13.9 billion in student debt?

No wonder they are departing our shores…

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But I leave the last word to this expat Kiwi, now living in Australia,

A Victorian-based Kiwi with a student loan debt, who did not want to be named because he did not want to be found by the Government, said he did not intend to pay back any of his student loan.

The 37-year-old’s loan was about $18,000 when he left New Zealand in 1997. He expected it was now in the order of $50,000. The man was not worried about being caught as the Government did not have his details and he did not want to return to New Zealand.

“I would never live there anyway, I feel just like my whole generation were basically sold down the river by the government. I don’t feel connected at all, I don’t even care if the All Blacks win.

“I just realised it was futile living [in New Zealand] trying to pay student loans and not having any life, so I left. My missus had a student loan and she had quite a good degree and she had paid 99c off the principal of her loan after working three years.”

Source: Dominion Post

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Further Reading

Greed of boomers led us to a total bust

New Zealand’s wealth gap widens

Over-55s own most of NZ’s wealth

 

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A lethal lesson in de-regulation…

18 August 2011 1 comment

More here.

De-regulation and an open, unfettered economy was the big fashion in the late 1980s (“Rogernomics”) and 1990s (“Ruthenasia”). It was argued by neo-liberals; the wealthy; and by segments of wannabee-rich middle class, that de-regulation was the new paradigm that would create an efficient; highly productive; wealthy society.

We would become the “Ireland” of the South Pacific – and Ireland at the time was doing extremely well, economically.

So the National government of the day, led by Prime Minister Jim Bolger, and with Ruth Richardson as his Minister ofFinance, continued what a Labour cabal consisting of Roger Douglas, Richard Prebble, Peter Dunne, Michael Bassett, et al, had started: de-regulating the economy.

The new mantra was “De-regulation, good. Government regulation, bad”.

It was a childishly simplistic notion, and one that would cost us dearly in terms of vast sums of money; destroyed dreams; and lives lost.

The years passed. The 20th Century turned into the new 21st Century. The public became tired of National, and elected a new, Labour government, led by Helen Clark. Labour had a hard task of paying off a decade of accumulated debt and resolving deep social problems that were afflicting the country; growing poverty; high unemployment; increasing cases of poverty-related disease; lack of support for the country’s mentally ill;  a loss of state housing (National had sold off 13,000 state houses during it’s tenure); and other pressing matters.

There were also two silent time-bombs waiting in the shadows.

In the early 1990s, changes were made to the Building Act 1991/Building Regulations 1992  with several  subsequent amendments.

Effectively, these amendments de-regulated much of the industry, permitting untreated timber to be used where, previously, only treated varieties could be using for house construction. New materials could also be used that had not previously been common in residential building, including a newly fashionable “Meditteranean style”.

Similar de-regulatory events were to take place in Health & Safety, in 1992,  with regards to mining. In 1998 seven dedicated OSH mines inspectors were absorbed into OSH.  The disbanding of the mines inspectorate group, and moving its functions to the Department of Labour, had saved about $1 million. Health and safety (mines)  inspector, Michael Firmin,  was the sole inspector of mines left.

The bombs were set, and the fuses lit.

On 26 May 26 2001, the first “bomb” went off, with a NZ Herald article  revealing that a growing number of new or near-new houses were rotting because of lack of water-tightness.

On 19 November 2010, the second “bomb” went of at Pike River mine, as a methane explosion killed 29 mine-workers.

Investigation into both the “Leaky Homes Syndrome” and the Pike River disaster have one, inescapable common factor: regulations that were once in place, had been removed; altered; or watered-down. In both cases, de-regulation had meant a lack of direct responsibility for ensuring that whatever regulations did remain, were not observed.

Hopefully, New Zealand has learnt a harsh, expensive, and deadly lesson about de-regulation. Regulations are there for a reason. Like the road speed limit. We may not always like the nuisance that rules and regulations provide – but they exist for our safety and our financial security. (When the Huntly West mine blew up in 1992 there were no fatalites. (Former) Chief coal mine inspector Harry Bell had closed it down 36 hours before.)

If we give away regulation for expediency, or because it fits some trendy political free-market ideology – then be prepared  for the consequences. Because as sure as day follows night; there will be consequences.

One thing I have noticed about my generation, the “Baby Boomers”; we seem to be child-like in so many respects. We are  impatient – we want it now. Until the Cullen Fund – we didn’t want to save for our retirement (the Fund had to bribe us with a $1,000 kick-start from the government – ie, us, the taxpayer). We accepted tax-payer funded free education from our parents – only to abandon it and force User-Pays on our own children, through Student Fees. Charming.

We ignore complicated social issues – in favour of displaced penguins and “Wellywood” signs. We lose interest in matters that demand our long-term attention – a fact that politicians are aware of, and exploit to their benefit.

By god, we need to grow up. Because, collectively, we are still making incredibly bad or stupid decisions based on self-interest and short-term gain.

Our lack of collective wisdom; our inability to see things long-term; our willingness to accept short-term gain – and never mind the consequences – should give us cause for concern.

Unfortunately, I am pessimistic that we will “grow up” any time soon. In fact, I await the next silent “bomb” that is ticking away, somewhere, in the shadows. How much will it cost us? And will we pay dearly, in lives?

Postscript: following the global banking crisis, Ireland is now bankrupt and a fiscal basket-case needing bail-outs from the EU to survive.