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Solid Energy and LandCorp – debt and doom, courtesy of a “fiscally responsible” National Govt

28 December 2015 3 comments

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solid-energy-chief-executive-don-elder-and-hon-bill-english-at-mataura-9-sept-2011

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In May 2013, I first reported on National’s gutting of Solid Energy, detailing how Finance Minister Bill English and then-SOE Minister, Simon Power, had used the State Owned Enterprise as a cash-cow, to assist the government to balance it’s books;

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

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The story details National’s ministerial interference on Solid’s Energy’s financial affairs; under-mining (pun unintended) it’s bio-fuels programme; and extracting huge dividends, as well as taxes paid, to fill government coffers.

At the end, as Solid Energy teetered on collapse, National ministers did what National ministers do in time of crisis; they blamed others for the crisis;

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Prime Minister criticises Solid Energy

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Solid Energy was in debt. But not to “diversify” as Key claimed. The Prime Minister lied.

The debt was due in large part to Ministerial demands that Solid Energy borrow BIG, and pass those borrowings onto the government. This was a piece of accounting trickery, so National could claim, hand-on-heart, that it was not borrowing billions more. In actuality, the SOEs were doing the borrowing, and then passing the cash on to it’s shareholder, the government. This was borrowing-by-proxy by the government.

That is how desperate National was to claw back as much lost revenue due to the Global Financial Crisis/Recession, and unaffordable two tax cuts (2009, 2010) which they had promised during their 2008 election campaign and which has cost government an estimated $4.5 billion annually.

In 2009, English instructed all SOEs to increase their debt. This Statement of  Corporate Intent is clear in National’s expectations;

I would like all SOEs to increase their gearing from current levels, to a level more consistent with a BBB flat credit rating. In this regard, I have been advised by officials that Solid Energy may have the capacity to sustain a 40% gearing ratio.

I urge the Solid Energy Board to give serious consideration to this proposal, and to release all surplus capital to the shareholder as special dividends. “

Not only was National instructing SOEs (including Solid Energy) to borrow more (and then pass the cash on to the Government’s Consolidated Fund), it was also openly raiding their bank accounts by demanding “all surplus capital to the shareholder as special dividends“.

Furthermore,  not only were English and Power expecting higher profits diverted from SOEs, they  demanded two dividends per year instead of just one;

“I would also like to standardise and simplify the dividend policy for all SOEs, to ensure that a larger and more consistent share of profits is returned to the Crown as shareholder.

In this regard, I propose that the Solid Energy Board give serious consideration to adopting a dividend policy equal to 65% of operating cash flows (including net interest paid) from 1 July 2009.

Related to dividend policy, I wish to outline an expectation that all SOEs pay two dividends per year, an interim and a final dividend.”

On  18 August 2009, Bill English met with Solid Energy’s then-Chairperson, John Palmer. After that meeting, Solid Energy increased its gearing (borrowing/debt) from around 25% to 35%, and changed the way it  accounted for mine rehabilitation costs.

This was a cash-grab on an unprecedented scale, and one that went largely un-noticed by media, Parliamentary Opposition, and the public.

On 13 March 2013, soon after Solid Energy’s massive $389 million debt became public, English was forced to concede that  National has mishandled governance of Solid Energy;

“The decisions about how much debt to incur was made by the board.

In Solid Energy’s case it turned out that a company operating in the world coal market, which is now so volatile, would have been better off with no debt – in retrospect that’s easy to see, at the time it wasn’t.”

However, in claiming that “decisions about how much debt to incur was made by the board“, the Finance Minister lied.

Solid Energy had been directed to increase it’s debt by Ministers English and Power – not by the SOE’s Board. The Treasury document above are a paper-trail evidencing National’s determination to increase it’s revenue at any costs (literally).

Both Key and English have consistently lied on this issue.

More recently, on Radio NZ’s Morning Report, on Friday 14 August, Guyon Espiner interviewed Finance Minister, Bill English, on Solid Energy’s corporate demise.

At one point, under persistent questioning by ‘Checkpoint‘ host, Guyon Espiner, English admitted National’s role in Solid Energy’s financial woes;

Espiner: But I’ll tell you what you also did, and you’ll remember this well in 2009, you looked at the balance sheets of SOEs and you decided that many of them could carry more debt and in fact you presided over a massive expansion in Solid Energy’s debt and in formal letters your government encouraged them to significantly increase their debt. That was a mistake wasn’t it?

English: Well, at the time it was valued, well actually that time, was valued about $3 billion and they took debt up to $300 million. It was a… As it turned out it was the pressure that put on the cash flow, well, the issues it raised, that got the government and, ah, the officials differing with the Board and that’s all on the record.

Espiner: Yes, so why did you, because you took their gearing ratio from about 14% in 09 up to 35% in 2010, 41% in 2012. So you presided, in fact, encouraged Solid Energy to take on the debt that they have eventually drowned in.

English: Well we worked with the Board over , over making sure the Crown was actually getting something out of the business. Um, certainly, in retrospect the debt levels got too high [garbled].

Espiner: So do you take the blame for that? Because, you failed there. You encouraged them to take on more debt and they’ve drowned in it.

English: Ahh, between us and the company, yes, we’re responsible for that.

There we have it. Under Espiner’s persistant questioning and quoting of facts, English had no place to hide; no one else to blame; and no lies he could resort to.

English had admitted that his government had gutted Solid Energy, and used it as a proxy for borrowing.

Then, under further questioning, English made one of the more bizarre assertions ever made by a politician (incest, chem-trails, and  moonlanding hoaxes notwithstanding);

Espiner: What about the dividend programme? You stripped more than $160 million in dividends out of this company over four years. Was that a good thing to do, given the state of the company, and couldn’t if they’d reinvested that money in the company been in some sort of position to keep the thing afloat?

English: Ah, no, precisely the opposite. And this has been the case with SOEs for years. If you leave the cash in there, generally, ah, they waste it. And, ah, in fact, one of the interactions here was we required a dividend because it was a company that was making money –

Espiner: Well hang on. Sorry to interrupt you but that’s an extraordinary statement to make, ‘You leave the cash in there and they waste it’?

National, of course, never wastes money. They never waste money on subsidising Rio Tinto; subsidising SkyCity; subsidising Charter Schools; subsidising Hollywood corporations like Warner Bros; subsidising Saudi businessmen to the tune of $11.5 million. Nor does National waste money on two tax cuts which were utterly unaffordable, being funded by  heavy overseas borrowing.

Espiner quite rightly mocked English’s ludicrous justification for government looting of Solid Energy;

Espiner: So it was better for you to take the money out, put it in the Consolidated Fund, let the company take on more debt, and they’ve eventually blown up.

This is the party that many New Zealanders believe is a “fiscally responsible manager of our economy”?!

Unfortunately, National’s mis-management does not end there.

The latest SOE to disclose financial difficulties is Landcorp;

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Landcorp in 'pretty tight situation' – English

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Landcorp’s current liabilities amount to $359 million, whilst it’s assets amount to $1.846 billion, according to the company’s half-yearly statement.

What is not mentioned anywhere is that, according to a document from Treasury’s Crown Company Monitoring Advisory Unit (CCMAU), the National Government sent a letter to Landcorp’s Board  making similar demands for higher dividends that it made to Solid Energy;

Firstly, as the CCMAU chart below shows, National’s expectations were that Landcorp increase its “gearing” (borrowed funds against a company’s equity) from 11% to 20% – a near doubling;

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CCMAU - SOE gearing and dividend expectations - national government

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Note also that National demanded 75% of Landcorp’s net operating profit as a dividend; two dividend payments per year;  and  as much as  100% of operating cash flow.

In a 2009 letter to Landcorp, Ministers Bill English and Simon Power demanded the following from the SOE’s Board;

“I am minded to increase the gearing of all SOEs from current levels, to a level more consistent with a BBB flat credit rating. In this regard, I have been advised by officials that Landcorp may have the capacity to sustain a 20% gearing ratio. I urge the Landcorp Board to give serious consideration to this proposal, and to release all surplus capital to the shareholder as special dividends.

I am also minded to standardise and simplify the dividend policy for all SOEs, to ensure that a larger and more reliable share of profits is returned to the Crown, as shareholder. In this regard, I propose that the Landcorp Board gives serious consideration to adopting a dividend policy equal to 100% of operating cash flows (including net interest paid) from 1 July 2009.

Related to dividend policy, I wish to outline an expectation that all SOEs pay two dividends per year, an interim and a final dividend.”

In the same letter, English and Powers  outlined revising “the land sale moratorium imposed on Landcorp as part of the Protected Land Agreement (PLA)“.

The letter to Solid Energy followed the same pattern;

I would like all SOEs to increase their gearing from current levels, to a level more consistent with a BBB flat credit rating. In this regard, I have been advised by officials that Solid Energy may have the capacity to sustain a 40% gearing ratio. I urge the Solid Energy Board to give serious consideration to this proposal, and to release all surplus capital to the shareholder as special dividends. I note that Solid Energy currently has a gearing target of 35%, including the company’s rehabilitation liability as if it were debt.

Given that the nature of the rehabilitation liability is significantly different from debt, I am sceptical that this is an appropriate treatment. I have asked my officials to engage with you on this issue.

I would also like to standardise and simplify the dividend policy for all SOEs, to ensure that a larger and more consistent share of profits is returned to the Crown as shareholder.

In this regard, I propose that the Solid Energy Board give serious consideration to adopting a dividend policy equal to 65% of operating cash flows (including net interest paid) from 1 July 2009.

Related to dividend policy, I wish to outline an expectation that all SOEs pay two dividends per year, an interim and a final dividend.

Almost identical letters. Except for the 20% gearing ratio, which differed from Solid Energy’s more onerous 40%, the demands placed on Landcorp were the same; high gearing (borrowing); higher dividends; and all surplus cash to be paid over to the Crown.

National was looting every SOE of every spare dollar.

The questions now demanding  answers;

  • How many other SOEs have been left in a similar parlous state to Solid Energy and Landcorp?
  • How much damage has been caused to SOEs due to unreasonable dividend and cash demands made to their Boards?
  • How much longer are New Zealanders willing to maintain the fiction that National is a “prudent fiscal manager of the economy”?

And the last question;

  • Which SOE will be next to disclose a dire financial state?

For Bill English and John Key, a whole bunch of chickens have suddenly come home to roost.

Some very, very expensive chickens.

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References

Radio NZ: Prime Minister criticises Solid Energy

Green Party: Asset sales bring in less than cost of National’s tax cuts to top 10%

Treasury: Solid Energy Information Release March 2013 (Document 1875419)

Treasury: Solid Energy Information Release March 2013 (Document 1732352)

TV3 News: Solid Energy was allowed to increase debt

Radio NZ: Morning Report – English defends Govt’s record over Solid Energy (alt. link)

TV3 News: Landcorp in ‘pretty tight situation’ – English

New Zealand Farming Landcorp Farming Limited: Half year report for the six months ended 31 December 2014

Additional

Radio NZ: When is an asset sale not an asset sale?

Previous related blogposts

The real cause for Solid Energy mass redundancies?

Dirty Dealings with Solid Energy

That was Then, This is Now #18 (Solid Energy)

Dear Leader Key blames everyone else for Solid Energy’s financial crisis

Dear Leader Key blames everyone else for Solid Energy’s financial crisis (Part Rua)

Mediaworks, Solid Energy, and National Standards

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solid energy - english - ryall

 

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Letter to the Editor – tax cuts bribes? Are we smarter than that?

7 September 2014 6 comments

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Frank Macskasy - letters to the editor - Frankly Speaking

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from: Frank Macskasy <fmacskasy@gmail.com>
to: Sunday Star Times <letters@star-times.co.nz>
date: Thu, Sep 4, 2014
subject: Letters to the editor

 

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The editor

Sunday Star Times

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National must be in panic-mode if they are resorting to the tactic of bribing voters with promised tax cuts.

Key and English both maintain that the government’s books will be “back in surplus” next year.

That is not the whole truth. In  fact, it is a lie.

The government (and therefore taxpayers) owe $68 billion in debt that this government has borrowed since 2008.

On top of that, the dairy pay-out to farmers is expected to fall dramatically, taking more revenue out of the economy and reducing the government’s tax-take.

And we still have billions to spend on re-building Christchurch.

In the light of this, it is grossly irresponsible for any politician to be making promises that are simply unsustainable.  Tax cuts will have to be paid for and simply putting it “on tick” and adding it to the $68 billion debt is verging on criminal negligence.

I sincerely hope that voters think carefully before accepting this bribe. We should be smarter than that.-Frank Macskasy

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[address & phone number supplied]

 


 

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Skipping voting is not rebellion its surrender

Above image acknowledgment: Francis Owen/Lurch Left Memes

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Letter to the Editor – Time for a bribe

6 September 2014 Leave a comment

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Frank Macskasy - letters to the editor - Frankly Speaking

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from: Frank Macskasy <fmacskasy@gmail.com>
to: Dominion Post <letters@dompost.co.nz>
date: Thu, Sep 4, 2014
subject: Letter to the editor

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The editor

Dominion Post

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John Key justifies his electoral bribe of tax cuts saying that his government will be “back in surplus” next year.

This is a lie. A $68 billion lie.

Because $68 billion is the debt that government (and we, the public) owe after six years of borrowings.

New Zealanders should reflect on that before voting. We are being bribed with money we don’t have; must be borrowed from offshore; and will have to be paid back.

What is supremely ironic is that John Key and Bill English then have the gall to label Labour and the Greens as “fiscally irresponsible”?

National won the 2008 with promises of tax cuts.

They were unaffordable then, they are unaffordable now.

$68 billion in debt. Think about it.

-Frank Macskasy

 

[address & phone number supplied]

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Skipping voting is not rebellion its surrender

Above image acknowledgment: Francis Owen/Lurch Left Memes

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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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Time to bend over again, fellow Kiwis (part # Rua)

20 April 2012 2 comments

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2010

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"If we ended up in a position where New Zealanders are tenants in their own country, I can't see how that would be in New Zealand's best interests." - John Key, 27 July 2010

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2012

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"No where is that better illustrated than in the Crafar farm deal where the tenant will be a Government state-owned enterprise, Landcorp." - John Key, 2 February 2012

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As this blogger predicted and wrote five days ago, National has caved to the  Wide Boys from Beijing who rode in to town on 15 April,

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China's no4 flies in as clock ticks on Crafar farm selloff
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The loss of the Crafar farms – and other farms sold to foreign investors – is not just about loss of direct ownership. It is about losing the profits that all those farms will generate, to overseas investors.

The flight of profits to offshore investors began in the late 1980s when Doulas, Prebble, Bassett, et al hocked of our former state owned enterprises. As with farms, we didn’t just lose ownership – we lost the income streams they generated. (Which worsened our balance of payments deficit and in turn made borrowing from overseas much more expensive.)

National did precisely the same thing on 27 October 2010, when Warner Bros sent their ‘boys’ in to ‘persuade’ John Key to ‘see things their way’.  Two months later,  it was revealed that Warner Brothers had threatened our government that  ‘The Hobbit’ movies  would be taken offshore if  changes to New Zealand’s employment laws were not made according to their demands.

This time, it was our Chinese cuzzies visiting  New Zealand – this time threatening our trade with their country, “if we don’t see things their way”.

National capitulated on both occassions, yielding to threats made first by a corporation, and then by a foreign power.

In the case of Sky City and the proposed Auckland Convention Centre, the tactics are more akin to bribery; building a convention centre in return for changing the gambling laws so the casino can install up to 500 more gaming machines (pokies). Problem gambling is expected to rise commensurately.

If the reader is starting to pick up a common theme here, you’re not alone.

New Zealand has a government willing to prostitute the country; our assets; our laws – in return for financial gain. This is perhaps the shabbiest, most degrading government we have ever elected. If New Zealanders are not angry and repulsed  by what we’ve all be witnessing – then we’ve all lost our collective senses.

The question I ask every New Zealander is; who will be next to come to Wellington; knock on John Key’s door; and announce, “I’ve got an offer you can’t refuse!”

What will be sold next?

What laws will we have to change to satisfy some corporatation or foreign power?

Is this what it feels like to be a Latin American “banana republic”?

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2014

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An incoming centre-left government  must address these issues of sovereignty. We cannot allow every foreign Tom, Dick, and Harriet to take ownership of our most precious resources and to dictate what laws we must amend to satisfy their profit-line.

This must stop.

An incoming government must, immediatly,

  • ban the sale of all land to non-New Zealanders
  • non-farming land may be leased to overseas businesses,  but not sold
  • farmland must not be sold nor leased to non-New Zealanders
  • conduct a stocktake of land ownership at the next Census
  • land already in foreign ownership may not be on-sold to anyone except New Zealanders
  • introduce a capital gains tax
  • introduce a Financial Transactions tax  in conjunction with Australia and our APEC partners
  • introduce a sinking-lid policy on gaming machines with a view to banning them altogether by 2017
  • implement job-creation programmes (eg; free vocational training for able-bodied unemployed; building 10,000 new state-houses, etc)
  • introducing a land/wealth-tax to capture those 1% who pay little tax, because they can hide their wealth by structuring their affairs to escape paying their fair share
  • reinstate Kiwisaver’s previous provisions (scrapped by National) and make it compulsory

Part of the problem we face as a nation and economy is that New Zealanders have always been poor savers. Instead we prefer to borrow billions from offshore lenders and invest it in non-productive assets such as rental housing and investment farms. This speculative investment does not create wealth – we simply  shuffle money around like some mad reality-game of “Monopoly”,

” There has been a big reduction in household debt,  from 154 per cent of gross domestic product, and one of the highest levels in the world three years ago, to 144 per cent now. ” – Source

In the process of this reckless self-indulgence (promoted by certain irresponsible right wingers who delude themselves that is “wealth creation”), we are heavily in debt,

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Treasury

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Further to that, it makes us reliant on overseas capital.

In fact, it makes us totally  vulnerable to those  who hold the capital. We are at the mercies of those who hold the money-bags.

And they know it.

What makes matters even worse (yes, it gets worse) is that a National, once elected, exacerbates the problem with it’s blind adherence to free-market policies. National believes that only the free market can create jobs – with a little ‘nudge’, occassionally, by amending laws; reducing taxes; and implementing de facto subsidies. And anything else business wants.

In expecting only business to create jobs, National ties its own hands and becomes reliant on the markets for employment solutions. Unfortunately, those solutions are not always forthcoming.

Which means that National has to look at other, dubious, unconventional means to promote job creation. Such as the Sky City-Convention centre deal which might deliver more jobs – but will almost certainly create more problem gambling.

Who pays for more problem gambling? Answer; look in the mirror, Mr/Ms Taxpayer.

The sale of the Crafar farms; the dirty deals with Sky City and Warner Bros; our vulnerability to pressure from overseas investors are all symptoms of an economic malaise which the likes of Bernard Hickey, Gareth Morgan, Rod Oram,  and others have constantly warned us about.

Like the person who ignores the several “Warning” letters from debt-collctors – that is only postponing the Day of Reckoning.  New Zealanders are ignoring our own Day of Reckoning – and yet the warning signs of our gradual loss of economic sovereignty is fairly plain to see.

Whether we do something about it; abandon the lunacy of neo-liberalism;  implement planned policies that encourage saving; promote job creation; etc – then everything we’ve witnessed in the last few weeks, months, and years will be only a prelude to more unpleasant things to come.

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2050

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A young student at Levin University is scrolling through the results of his on-line search for ‘farms-history-new zealand-colonisation’ and finds the information he is looking for. He turns to his study-mate, and says,

Hey, it’s true what my grand dad told me. Farms used to be owned by New Zealand families back in his day!”

His study mate looks up from his ‘ii-Pad’ and peers at his friend’s pad,

Yeah? I wonder how they could afford it? No one can afford to buy land  unless you’re really rich or a big Corpora-State.”

Dunno“, replies the first student, “It looks like land prices weren’t that expensive , and then they started to rise when Earth’s population reached 6 billion.”

Wow! They really owned farmland? They’re so lucky. I wish we could buy our own farm!”

Well, at least we get to work on them. Once I finish my Degree in McDonalds Beefculture, I’m applying for a job at the ’14th Manawatu Herd-Complex’. Are you still going for the Shanghai Agricorp in King Country?”

Nah. I’m thinking I might change and apply for the Nestle Agriplex in Otago or Southland. They don’t pay as well, but they teach you German as part of the contract. The Shanghai Agricorp want me to learn Cantonese at my own cost.”

His study mate dims the screen on his ii-Pad and asks his friend,

Are you studying this weekend or doing some workpractice at McD’s?”

Nah. I’m going to see my family. It’s my ninth birthday, and we’ve hired a blanketspace at my favourite park...”

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That was a bit of fiction. So far.

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References

Rich list shows rich getting richer

NZ dollar soars on speculation of Chinese investment

Numbers reveal National disgrace

Bryan Gould: Free-market ideology wrong

Debt being paid off, but savings not growing

Bernard Hickey:  the High Court ruling against the Crafar Farms sale may be just the intervention NZ Inc needs to confont its addiction to foreign debt and asset sales

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Blood from a stone?

27 January 2012 4 comments

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Full Story

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Why do I get the impression that this story just screams desperation, from this government?

Aside from the fact that many sceptics voiced doubts last year about National’s optimism to “balance the books”, and considered it nothing more than election propaganda for gullible voters, Dunne’s comments on this issue beggar belief,

“‘We just had public consultation on the use of mixed assets such as holiday homes and launches, and we’ve been doing other work looking at the tax treatment of various forms of activity.”

”That programme needs to be ongoing… what we should be doing is making sure we are collecting all the existing taxes which are due and if there anomalies and loopholes we need to be closing those to make sure the system is fair to everyone.’

It was estimated the Government was missing out on hundreds of millions of dollars of revenue a year.” – Ibid

Whut?!?!

We just had public consultation on the use of mixed assets such as holiday homes and launches

“…what we should be doing is making sure we are collecting all the existing taxes which are due and if there anomalies and loopholes…”

Isn’t this precisely what Labour was suggesting last year with it’s Capital Gains Tax?

The Green Party certainly made that connection,

“Bill English has failed to close the single largest remaining loophole in our income tax system. A comprehensive tax on capital gains (excluding the family home) is hugely progressive and would help close the growing gap between rich and poor,” said Green Party Co-leader Dr Russel Norman.

“Treasury advice to Bill English in 2009 made it clear to him that capital assets are owned disproportionately by higher income families. The advice said not taxing this income is regressive. That’s Treasury’s way of saying that a capital gains tax is incredibly fair.

“Both John Key and Bill English have consistently defended the tax loophole, however, preferring to ignore growing inequality in our society…”

…“The largest proportion of capital gains is earned by those at the upper end of the income spectrum. This income currently remains untaxed,” said Dr Norman.

“This tax loop-hole for those that can afford to own multiple properties needs to be closed.” ” – Source

So much for John Key stating last year,

Scrapping the top income tax bracket reduced the value of highly leveraged investment properties as a tax shelter, while tougher rules on depreciation and LAQCs also reduced their relative attractiveness as investments.

Labour, Prime Minister John Key declared on Monday, is “fighting a problem they had when they were in office, not a problem we have today”. ” – Source

Yeah right, Prime Minister. Unfortunately, simply saying that didn’t make the problem go away, did it?

Gareth Morgan pointed all this out to us, last November,

It’s difficult to detect any sort of principle – liberal or otherwise – in the economic policies we could reasonably expect to address the widening income gap. Gaping loopholes in our tax system permit those with wealth to earn tax-free gains – putting them further ahead than ever.

While the Government sees fit to give a handout to working families earning $100,000 per year (nearly twice the average wage), those who can’t meet bureaucratic hoops miss out on support altogether and we have abandoned targeting in toto for the politically powerful (the elderly).

Equally worrying, current tax policy incentivises investment for capital gains, causing excessive investment in property at the expense of business – something which has hindered the long-term outlook for incomes and jobs.” – Source

So for United Future leader Peter Dunne to try to excuse their inertia by saying  “that the Prime Minister could not have foreseen a dramatic slide in global economic conditions“, is disingenuous.

No. Not disingenuous. Let’s call it for what it really is: bullshit.

National’s tinkering with the tax system is not going to address the shortfall in government revenue. We will simply see more of the above headlines in future media, as the core-problems in our taxation system go unaddressed.

National simply does not have the intestinal fortitude to address taxation problems in any meaningful way. If they did, they would,

  • Implement Labour’s capital gains tax
  • Stop Trusts from being tax havens
  • Reverse the 2009 and 2010 tax cuts for those earning above $70,000
  • Implement a Financial Transactions Tax
  • Review Working for Families payments for families earning over $100,000

Unfortunately, none of the above will happen. Generally, only reformist Labour governments have the inclination to make radical changes when they become blindingly obvious as necessary.

It also takes a collective frustration from Voterland to “connect the dots” and realise that voting for National will not achieve longterm reforms.

In the meantime, Dunne will tinker; National will continue cutting services; government workers will continue to be sacked; and we’ll see more of the following, as our economy stumbles along like a diabetic with low blood sugar,

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Full Story

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Additional

NZ Herald: The case for a tax revolution

Gareth Morgan: Capital gains tax best way to tackle rot

Gareth Morgan: Reviving the values of an egalitarian society

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That was Then, this is Now #8

26 October 2011 1 comment

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Previous Blog post

That was Then, this is Now #7

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