The response to last week’s column, which argued that our universal New Zealand Superannuation is not sustainable in its present form, indicates New Zealand is heading down the same route as Greece, Italy, Portugal, Spain and France.

The basic problem is that successive governments, National and Labour, have introduced a plethora of welfare-entitlements financed through current taxation or borrowings.

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The latest wave of financial markets’ volatility is caused by a combination of factors, including the world’s addiction to debt over the past 30 years and serious flaws in our political systems.

The debate over the United States Government’s debt ceiling and Standard & Poor’s downgrade of US Government debt from AAA to AA+ have brought these issues to a head.

The United States has a long history of spending far more than it earns. The Federal Government has run a budget deficit in 69 of the 81 years since 1930.

Read Brian’s full article here

The last fortnight’s dramas on financial markets is really just the sound of investors waking up to some fundamental problems in the global economy.

It is now dawning on the world’s biggest fund managers that there is too much debt weighing on households and governments in the developed world.

More importantly, they realise there will not be enough economic growth and income to repay those debts over the next 10-20 years.

Read Bernard’s full article here

Bernard Hickey highlights 10 options available to the Government and the Reserve Bank to lower the value of the Kiwi dollar. Hickey’s suggestions focus on reducing New Zealand foreign borrowing by: Cutting the government’s fiscal deficit, reviewing government procurement policies to encourage tendering of contracts to New Zealand firms, increasing the Core Funding Ratio for banks, and keeping New Zealand assets in New Zealand hands.
These policies will help the productive sector by lowering the crippling New Zealand dollar whilst also helping New Zealand develop the economic base and policy framework that ensure New Zealand realizes its economic potential.

For more information read here

Geoff Simmons suggests that the Reserve Bank look to increase the Core Funding Ratio for New Zealand banks. The move would protect against an influx of foreign money flooding in to New Zealand banks after the upcoming interest rate hike by forcing New Zealand banks to fund its lending through long-term deposits. This would reduce the impact of the rate rise on our dollar and the crippling effect that the high New Zealand dollar has on our exporters and manufacturers.

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With the New Zealand dollar at a record high and the high costs of borrowing, New Zealand’s industry is suffering. Rather than support local industry, the current Government has made life even harder by pursuing policies that have seen jobs exported. The Government is willing to invest taxpayer dollars in the Rugby World Cup and re-write legislation to support the Wellington movie industry and yet it only makes things harder for our domestic manufacturers and exporters. The decision to tender a $500 million contract to an overseas company to build railway carriages for Auckland’s light railway network lacked common sense. The Bureau of Economic Research made a strong economic case for keeping the jobs, tax dollars and industrial capacity in New Zealand and yet the government opted instead for the short-term gain to the bottomline. Common sense procurement policy is not about protecting industry but investing in industry.

The Productive Economy Council supports a procurement policy that would balance the costs of providing large infrastructure projects with the wider benefits of procuring a contract to local industry and the flow-on effects on jobs, wages, income tax and GST, and the long-term effects of building New Zealand industry. The KiwiRail contract was expected to add 770 – 1270 full-time equivalent jobs over the construction period; $232 – $250 million in added gross domestic product; Crown net revenue increase of $50 – $70 million and an improvement in the trade balance to the value of $122 million. BERL concluded that it made economic sense to pay up to 25% more for an infrastructure project if it was delivered by a New Zealand business. read more »

Capital gains  tax will be the defining issue of November’s election. Its advocates want to tackle our economic problems and fast-forward our opportunities; its opponents are in economic and political denial.

We, along with Turkey and Switzerland, are the only developed countries without the tax. Its absence causes economic distortions, weakens the tax system and undermines government finances. – Read Rod Oram’s full article here

Chalk this one up as something of a triumph for Phil Goff. So far, at least.

You can question the merits of a capital gains tax. You can question whether Labour’s promotion of such a tax will turn out to be the game-changer the party is so desperately praying it will be… read the full article here

In the debate that will rage around Labour’s tax policy announced today it is important to recognise and focus on one thing: Our economy is in crisis. It remains dangerously reliant on the primary sector, despite efforts to create a diversified export economy. Our tax system distorts the economy by discouraging investment in the productive sector while encouraging non-productive property investment. We continue to fall behind Australia in productivity and income levels, and housing has become unaffordable to ordinary New Zealanders. We are falling far short of the prosperous future our parents thought their children would enjoy, and something needs to change.

First and foremost, Labour’s Capital Gains Tax policy is designed to address this situation. Alongside already announced policies – such as the re-introduction of Research and Development tax credits and broadening the tools available to the Reserve Bank to control currency fluctuation – Labour’s tax package hopes to rebalance our economy and encourage the channelling of investment in to businesses that will earn us export dollars. Without those dollars, we have no prosperous future. read more »

“In the wake of the collapse of finance companies and the slide in bank deposit rates, investors are just as keen to put their money into housing in the hope of making tax-free capital gains.

House prices are rising again, particularly in Auckland. Since Key ruled out a capital gains tax or land tax in February, housing loans have risen by $3 billion to $172 billion.”

Read Bernard Hickey’s full article here