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Posts Tagged ‘superannuation scheme’

National guts Kiwisaver

13 August 2013 4 comments

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Released today at the National Party annual conference in nelson;

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National tackles first home affordability

Source: NZ Herald – National tackles first home affordability

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Kiwisaver was set up in July 2007 by Labour Finance Minister, Michael Cullen, to motivate New Zealanders to save for their retirement. Our Aussie cuzzies already have about A$1.3 trillion saved in their compulsory super schemes – we are lagging way behind.

“After more than a decade of compulsory contributions, Australian workers have over $1.28 trillion in superannuation assets. Australians now have more money invested in managed funds per capita than any other economy.” Source

A similar scheme, implemented by the Norman Kirk-led Labour government in 1973, was scrapped by National’s then-Prime minister, Robert Muldoon, in 1975. National has a horrendous track record when it comes to planning and motivating New Zealanders to save for retirement.

Instead of saving for retirement, we tend to invest in “bricks and mortar” – rental properties. This is not saving as it relies heavily on borrowing from overseas lenders to finance. Those borrowings are other peoples’ savings.

So in effect we are borrowing other peoples’ savings to invest in rental properties which we are using for our retirement “savings” – other peoples’ savings being used to build up our own “savings”.

This is not just “false wealth” and damaging to our economy (those borrowings have to be re-paid eventually) – it is sheer economic lunacy on a grand scale. Note the green line in the chart below – it is private debt incurred from overseas;

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Source

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And the National Party turns a blind eye to it.

As a result, our savings is meagre enough as it is.

The ANZ and ASB summed it up with brutal reality,

ASB’s executive general manager wealth and insurance Blair Turnball said someone who wanted to live off $40,000 a year needed to retire with a pool of around $600,000 if they wanted to make it last for 25 years – the timeframe in which people felt they could live beyond the retirement age.

“This [$70,000] is $530,000 less than the average respondent in our survey aspired to, and only 55 per cent of the aspiration annual $40,000 income. It is alarming how big the gap is.”

Source: NZ Herald – Kiwis ‘not saving enough to retire on’

John Body, managing director ANZ Wealth and Private Banking New Zealand, said New Zealanders were saving around 2 to 3 per cent of their take-home pay whereas Australians were saving 9 per cent and many in Asia were saving 12 per cent.

“We are just not saving enough.”

Source: IBID

For Key and his incompetant  government to allow New Zealanders to tap into their Kiwisaver funds undermines the very purpose for it. In fact, he’s made the situation, as outlined by the ANZ and ASB, even worse.

We’re back to square one; people investing in bricks and mortar instead of saving for their retirement.

There are other ways to get Kiwis into their first homes without subverting Kiwisaver. National apparently chooses not to consider any of them.

In July 2008, Key made this public pledge,

“There won’t be radical changes. There will be some modest changes to KiwiSaver.”

Source: NBR –  Key signals ‘modest changes’ to KiwiSaver

This most certainly constitutes a radical departure from Kiwisaver’s original intent.

Allowing people to withdraw from their Kiwisaver savings account to invest in housing may work for the very short term; Key has “solved” a potential election nightmare for himself and his Party.

But for the future of this country, and the hundreds of thousands of baby-boomers soon to hit retirement – he has left us a ticking time-bomb.

Political expediency wins out again.

This blogpost was first published on The Daily Blog on 12 August 2013.

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Our growing housing problem…

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Muldoon and Key

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“Ministers have signalled that changes could include widening access to KiwiSaver contributions and subsidies, as well as boosting the government-guaranteed Welcome Home Loan scheme that is exempt from LVR calculations. “

Source: Fairfax Media – Few first home buyer details in PM speech

Well, so much for saving for our retirement instead of investing in property and thus fuelling an unsustainable, speculative housing bubble. The whole point of Kiwisaver was twofold,

  1. To create a local investment fund from which business could borrow, so we were not so desperately reliant on foreign capital. Our Aussie cuzzies currently have A$1.3 trillion-dollars invested in their  compulsory savings funds.
  2. To give New Zealanders – especially baby-boomers – a better standard of living upon their retirement.

In July 2008, Key promised not to interfere with Kiwisaver –  “there won’t be radical changes…there will be some modest changes to KiwiSaver”   – and like most of his promises, they are blown in the wind.

Source: NBR – Key signals ‘modest changes’ to KiwiSaver
All because Key and his cronies are unable to address the housing crisis directly;

  1. Introduce a capital gains tax (my preference is that it matches the company tax, and not GST)
  2. Restrict ownership to New Zealand citizens and permanent residents
  3. Begin a programme of home construction – including 10,000 state houses per year
  4. Pay the Unemployment Benefit as an incentive to employers to employ more apprentices
  5. Reduce/eliminate all fees for trades training course
  6. And long term: promote regional development to take pressure of Auckland and other highly urbanised areas.

But the Nats won’t do any of this. That would involve systematic State planning on a level that Key and his cronies would never countenance. It would fly in the face of their right wing ideology for minimal State involvement in housing and other economic activities.

(Unless you are Warner Bros or Skycity, in which case the Nats have an open chequebook to throw taxpayers’ money at corporate welfare.)

The only thing National is capable of is short term, self-serving policy-changes. Never mind that such changes create long term harm to our economy and social fabric.

Gutting Kiwisaver is economic sabotage – much like Muldoon did in 1975 (see:  Brian Gaynor: How Muldoon threw away NZ’s wealth).

Meanwhile, people desperate to get into their own homes are raiding their Kiwisaver accounts – effectively “stealing” from their own future;

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Hot property Home-buyers rush to cash in KiwiSaver

Source: Dominion Post – Hot property: Home-buyers rush to cash in KiwiSaver

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Never let it be said that the Nats learn from history…

*pfffft!*

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Previous related blogposts

Can we do it? Bloody oath we can!

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Regret at dumping compulsory super – only 37 years too late

21 January 2013 22 comments

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It started with the 1975 election campaign,

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It’s consequences, 37 years later were,

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private sector debt 1988 - 2009 (% of GDP)

Source: Private-sector debt and factors affecting it

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Private debt shot up like an unguided missile, into stratospheric heights. There were no limitations on our private borrowings.

By comparison, up until 2008 (Global Financial Crisis), Crown debt has been falling,

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Treasury - government debt to gdp ration - june years

Source: NZ Economic Chart Pack – April 2012

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In the 1975 general elections, 763,136 voters decided the course of New Zealand’s social and economic history.

By electing Muldoon, under the manifestly unpredictable and unfair First Past the Post electoral system, Labour’s compulsory superannuation scheme was ditched the following year.

As a young lad in his first job, this blogger vividly recalls receiving a cheque from my then-employer, as a reimbursement of my previous super-contributions. I recall looking at the cheque and the pitifully tiny amount it was made out for.

I recall a feeling of disquiet…

Even as a teenager, barely politically conscious, I was uneasy that the scheme was being canned by Muldoon and wondering how we were going to pay for superannuation in the future. I was also  aware that bank mortgages were extremely hard to come by, as New Zealand had a low savings record. Businesses and industries competed with people seeking home-mortgages from banks.

A year later, I bought my first house and the experience was one I shan’t forget.  By 1978 mortgages were nigh-on impossible to obtain; vendors’ Second Mortgages were a necessity (where the house seller left part of the sale price as a Second Mortgage to the Purchaser); and interest rates were high.

New Zealanders simply weren’t saving enough.

Which is why, when the incoming (secretly right-wing Rogernomics-controlled) Labour government was elected into power, they de-regulated  New Zealand’s exchange rate and allowed overseas investment to flood into the country.

As a temporary, short-term “fix”, home ownership became easier. Second mortgages all but vanished. Interest rates dropped, as availability of finance met local demand.

On a long-term basis, the consequences created a rod for our economic backs.

Private borrowings from overseas skyrocketed, leading to ever spiralling-upward housing prices,

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total household liabilities 1978 - 2007

3.1 Trends in household liabilities
Total household liabilities have increased in both real and nominal terms. However, until 1990 the growth was moderate (Figure 1). Following the deregulation of financial markets, the growth of liabilities accelerated, and in the past five years has been driven by lower real interest rates and rising house prices.

Source: Debt in the aggregate balance sheet of households

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With no limit on the amount we could borrow from offshore lenders, there was no natural ‘cap’ on prices. That meant we could demand more for our properties and the banks would happily comply, and borrow more from China, Japan, America, or where-ever. The banks “clipped the ticket along the way, amassing billions in profits in the process (see:  ANZ profits up 17pc to $1.26b).

As the National Business Review reported in August 2010,

Last Wednesday Mr English bemoaned New Zealand’s debt problem, saying that in 2000 the country’s debt to the rest of the world was about $100 billion but now it was close to $180b, and forecast to hit $250b by 2014.

See: Key cautious over compulsory super

Essentially, we’re now chasing our own tails, borrowing more to buy more expensive houses; then on-selling at a “profit”; and borrowing more to buy higher-priced housing.

Gareth Morgan pointed out in May 2012, when he criticised the futility and destructiveness of property speculation,

“ So lubricated with the credit availability we all pile into the asset in unison and drive up its price. Hardly rocket science.”

See: House prices a cancer for the economy

Which led to the inevitable,

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Home-ownership falls dramatically

Full story

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And,

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Frustrated home buyers want investors to be discouraged

Full story

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It’s interesting to note that the above Herald story had an associated poll that yielded a rather telling result,

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Do you support a Capital Gains Tax on the sale of residential investment properties

See: IBID

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The 39% who responded with ‘No’ corresponds roughly with National’s core support.

The 15% who responded with “Yes, as long as it’s not too high” are those who will vote for whichever political Party best meets the needs of their wallets – and the long-term repercussions for the country be damned. They still want to profit from property speculation, so long as said speculation doesn’t push property prices beyond their own reach.

Those 44% who voted “Yes” indicate a growing maturity and understanding that everything has a consequence – including property speculation. These voters perhaps  understand that,

  1. The money has to come from somewhere – and it is coming from overseas lenders,
  2. High levels of borrowing are ultimately damaging to our sovereign credit rating
  3. Housing speculation is not just a giant legal pyramid scheme – but is harming the future of our own children, who then have to escape to Australia to be able to afford a home of their own

See: IBID

Again, as Gareth Morgan said last year,

This is the legacy of the last 30 years. And it has become so entrenched in our psyche that our ability to build businesses and create wealth and employment has been numbed.

A bit like growing your own veges or preserving the summer harvest, it’s a lost craft. The cost to incomes is high, the consequence being our GDP per capita continues to slip down the OECD charts.

As we contemplate economic recovery some thought at least should be given to the quality of the recovery we’d prefer – do we want it to be a housing-led one again where we all seek riches through a speculative race for property; do we want it to be a business-led type where jobs and incomes take priority; or do we really not care? Is it all too much to think about?

The sense one gets is that politicians at least couldn’t care less, just bring recovery on, any recovery.”

See: House prices a cancer for the economy

A further comparison;  Australia’s  superannuation scheme (also referred to as the Superannuation Guarantee) –  made compulsory in 1992 – has amassed savings of over $1 trillion dollars. In September 2010,

After more than a decade of compulsory contributions, Australian workers have over $1.28 trillion in superannuation assets. Australians now have more money invested in managed funds per capita than any other economy.”-  Source

Two years later, by September 2012,

Total estimated superannuation assets increased to $1.46 trillion in the September 2012 quarter. Over the 12 months to September 2012 there was a 13.0 per cent increase in total estimated superannuation assets.” – Source

No talk of  “nanny statism” here. Our Aussie cuzzies knuckled down; made hard decisions; and did the hard work. In 2006, the Sydney Morning Herald proudly proclaimed,

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Australia 'tops' in managed funds

Full story

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The Aussies have  earned the benefits.

By comparison the NZ superannuation Fund – begun in 2003 – made this announcement in October 2012,

New Zealand Super Fund breaks $20 billion mark; releases 2011/12 Annual Report

Posted On: Wednesday, 17 October 2012

The New Zealand Superannuation Fund reached an end-of-month record high of $20.08 billion in September.
The Fund, which commenced investing in 2003, was set up by the New Zealand Government to help pay for the increasing cost of universal superannuation. It is managed by the Guardians of New Zealand Superannuation.

See: New Zealand Super Fund breaks $20 billion mark; releases 2011/12 Annual Report

As for Kiwisaver, in the five years to June 2012, Kiwisaver has amassed  $12.9 billion in contributions.

See: IRD – KiwiSaver Annual Report 5

That’s around NZ$33 billion saved here in New Zealand – compared to A$1.46 trillion saved by our Aussie cuzzies.

By contrast, investment strategist and analyst, Brian Gaynor estimates that had New Zealand kept the Labour superannuation schemem it would be world approximately $240 billion dollars (See:  Brian Gaynor: How Muldoon threw away NZ’s wealth). As Gaynor explain,

Without this decision we would now be called “The Antipodean Tiger” and be the envy of the rest of the world. We would have a current account surplus, one of the lowest interest-rate structures in the world and would probably rank as one of the top five OECD economies.

We would still own ASB Bank, Bank of New Zealand and most of the other major companies now overseas-owned. Our entrepreneurs would have a plentiful supply of risk capital and would probably own a large number of Australian companies.

Most New Zealanders would face a comfortable retirement and would be the envy of their Australian peers. The Government would have a substantial Budget surplus and we would have one of the best educational and healthcare systems in the world.

See: IBID’

Never underestimate the capacity for some people to vote stupidly.

Meanwhile, here in New Zealand, we are only just waking up to the mistakes we made 37 years ago,

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Strong support for universal KiwiSaver

Full story

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Oh well, 37 years… rather late than never.

Which rather paints this current ‘government’ as a thing of the past; unwilling to learn from our historic mistakes; unwilling to learn from the Australian experience;  but willing to take the easy road; and playing Muldoon-style politics with our country’s future economic stability,

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John Key - We cannot afford KiwiSaver

Full story
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The question now is – have New Zealanders learnt enough history from 1975 to get rid of this inept, inward-looking government? Or will it be John Key – Muldoonism v.2 ?

As always, the choice is ours; a future of debt and under foreign ownership or “Antipodean Tiger” ?

National Party supporters – take note.

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bromheadhouse

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Previous related blogposts

Nanny State, Daddy State, poor state?

References

Horizon Poll: Strong support for universal KiwiSaver

Fairfax: Compulsory Super regret for most Kiwis

NZ Herald: Foreign ownership shortchanging locals

Reserve Bank: Dealing with debt

Treasury: NZ Economic Chart Pack – April 2012

Treasury: Private-sector debt and factors affecting it

Wikipedia: 1975 General Election

NZ Herald: Govt eyes blind to housing crisis

NZ Herald: House prices a cancer for the economy

National Business Review: Key cautious over compulsory super

Bay of Plenty Times: John Key: We cannot afford KiwiSaver

NZ Herald: Brian Gaynor: How Muldoon threw away NZ’s wealth

Update

Radio NZ: NZ housing ‘seriously unaffordable’

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Evidently it’s a “balancing act”?

19 October 2011 2 comments

The latest “vacant optimism” from John Key,

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Full Story

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Answering queries about offshore drilling, Key said it was a “balancing act” between business and the environment.”

“Balancing act”? Jeez, has this man learnt nothing from the last couple of weeks???

Is this man for real?

New Zealand  is hit with the worst environmental disaster since Whenever, and John Key maintains an equanity stating that “we need to protect the environment as much as we can but not to the point where we do absolutely nothing. This is a tragedy that’s occurred of no fault of any New Zealander –  this is a boat that’s run aground and accidents do happen whether they’re on land or on sea or on the air.”

Well, excuse me, Mr Kiey – but the explosion that blew apart the Deepwater Horizon rig in the Gulf of Mexico in April last year, killing 11 men, and spewing 4.9 million barrels (780,000 m3) of crude oil into thre Gulf Of Mexico – was also no doubt an accident.

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Of course accidents happen. Only a fool denies that. But it takes a wise person to weigh the risks and arrive at a sensible conclusion. In this case, it seems blatantly obvious that (a) New Zealand could not handle the grounding of one single freighter, the “Rena”  (b) cannot extract 1700 tonnes of oil and 200 tonnes of diesel  (c) has had 300+ tonnes of oil leak into the sea, and (d) more may end up in the sea, as the ship eventually breaks up.

So the multi-billion dollar disaster of the Gulf of Mexico should serve as a very loud warning to us all: we have no way of dealing with a really bad oil spill.

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The “Rena”  was one ship; on the surface; run aground; with a (relatively) small quantity of oil aboard.

Now imagine an oil rig blowing apart, as the Deepwater Horizon did last year, spewing millions of tonnes of oil into our coastal waters, as happened in the Gulf of Mexico.

Now let’s re-read John Key’s statement; “we need to protect the environment as much as we can but not to the point where we do absolutely nothing. This is a tragedy that’s occurred of no fault of any New Zealander –  this is a boat that’s run aground and accidents do happen whether they’re on land or on sea or on the air.”

Is the man clueless or what?!

Just to remind us all what is at stake,

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Containers from the 47,230 tonne Liberian-flagged Rena float next to it after falling from the deck, about 12 nautical miles (22 km) from Tauranga, on the east coast of New Zealand's North Island October 12, 2011, a week after hitting the Astrolabe Reef. The captain of the Rena has appeared this morning in the Tauranga District Court over the incident and has been remanded on bail, and about 70 containers fell from the vessel amid heavy seas last night, according to Maritime New Zealand.

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A volunteer removes thick fuel-oil from the stricken container ship Rena washed up on beaches at Papamoa, near Tauranga October 12, 2011. The 47,230-tonne Liberian-flagged Rena has been stranded on a reef 12 nautical miles off Tauranga on the east coast of New Zealand's North Island since running aground a week ago and authorities estimated 300 tonnes of oil have escaped from the ship, causing the country's worst environmental disaster in decades.

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Volunteers remove thick fuel-oil from the stricken container ship Rena washed up on beaches at Papamoa, near Tauranga October 12, 2011. The 47,230-tonne Liberian-flagged Rena has been stranded on a reef 12 nautical miles off Tauranga on the east coast of New Zealand's North Island since running aground a week ago and authorities estimated 300 tonnes of oil have escaped from the ship, causing the country's worst environmental disaster in decades.

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Conservation officials remove dead seabirds as thick fuel-oil from the stricken container ship Rena fouls beaches at Papamoa, near Tauranga October 12, 2011. The 47,230-tonne Liberian-flagged Rena has been stranded on a reef 12 nautical miles off Tauranga on the east coast of New Zealand's North Island since running aground a week ago and authorities estimated 300 tonnes of oil have escaped from the ship, causing the country's worst environmental disaster in decades.

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A volunteer looks at dead seabirds on the shore as thick fuel-oil from the stricken container ship Rena fouls beaches at Papamoa, near Tauranga October 12, 2011. The 47,230-tonne Liberian-flagged Rena has been stranded on a reef 12 nautical miles off Tauranga on the east coast of New Zealand's North Island since running aground a week ago and authorities estimated 300 tonnes of oil have escaped from the ship, causing the country's worst environmental disaster in decades.

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Conservation officials remove dead seabirds as thick fuel-oil from the stricken container ship Rena fouls beaches at Papamoa, near Tauranga October 12, 2011. The 47,230-tonne Liberian-flagged Rena has been stranded on a reef 12 nautical miles off Tauranga on the east coast of New Zealand's North Island since running aground a week ago and authorities estimated 300 tonnes of oil have escaped from the ship, causing the country's worst environmental disaster in decades.

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A volunteer removes fuel oil from the stricken container ship Rena that washed up on beaches at Papamoa, near Tauranga October 12, 2011. The 47,230-tonne Liberian-flagged Rena has been stranded on a reef 12 nautical miles off Tauranga on the east coast of New Zealand's North Island since running aground last week. Authorities said up to 300 tonnes of the ship's 1,700 tonnes of heavy fuel oil had already escaped, causing the country's worst environmental disaster in decades.

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Conservation officials search for dead and injured seabirds as thick fuel-oil from the stricken container ship Rena fouls beaches at Papamoa, near Tauranga October 12, 2011. The 47,230-tonne Liberian-flagged Rena has been stranded on a reef 12 nautical miles off Tauranga on the east coast of New Zealand's North Island since running aground a week ago and authorities estimated 300 tonnes of oil have escaped from the ship, causing the country's worst environmental disaster in decades.

Source

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The unfortunate aspect to National’s plans to allow deep sea oil drilling is that governments come-and-go.  But the effects of their actions live on for years and decades.  Rob Muldoon’s canning of  Labour’s superannuation scheme n 1975 and the ‘Think Big’ projects, and Roger Douglas’s so-called “reforms” are but a few well-known examples.

Long after John Key has vacated Parliament, deep sea drilling rigs will pose an ongoing risk to our coastal waters and environment. This is simply not acceptable.

It is up to New Zealanders to call a halt to such madness when they enter the Ballot Booth on 26 November.

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Additional information

The Gulf of Mexico Oil Spill by the Numbers

Wikipedia List of oil spills

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