The Productive Economy Councils welcomes Labour’s stance on tax and monetary policy reform

The Productive Economy Council welcomes comments in a speech from Labour leader Phil Goff today in which he outlined Labour’s economic priorities in 2010.

PEC spokesman Selwyn Pellett says Phil Goff is spot on in highlighting the need to up skill our population to create more productive and wealthier society.

“Phil Goff obviously understands the danger we face. Namely, that as New Zealand comes out of the recession it is not enough to simply rely on a default recovery back to the status quo. It will be all too easy to mistake a general improvement in the economic outlook for a positive long-term prognosis for our economy’s health. In reality our economy is in no better position to guarantee a prosperous future than it was before the recession,” says Pellett. read more »

The Tax Working Group is the latest initiative from the government that is setting out to find answers to questions we haven’t yet asked, says the Productive Economy Council.

“Like Don Brash’s productivity taskforce, the Tax Working Group will inevitably make recommendations to “fix” a broken system. Which is fine, as far as it goes. The problem is that that if New Zealand is viewed as a train, with the economy as the engine, and our society as the carriages being pulled behind, these fixes might help keep the whole train moving, but they do nothing to define its destination.”

“In short, what’s lacking in all of this is any articulation of a vision for our economy, our society and our country,” says PEC spokesman Selwyn Pellett.

“The applicability of any of the policies from the Tax Working Group can only be measured against such a vision,” he says.

“Without an articulated vision, how do we as a country decide which is better; a lift in GST (Goods and Services Tax), to tax income derived from capital appreciation (Capital Gains Tax) , or a land user tax? All have very different outcomes and biases and considered in isolation they all have merits.”
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“Labour has also to rethink tax, productivity growth and innovation. Like Mr English, it worries about the serious imbalance between exports and the domestic economy, low savings and seriously high foreign debt. Unlike Mr English, Labour is much concerned with “economic sovereignty”.”

Colin James analyses Labour’s shift in thinking on inflation targetting in The Dominion Post

Phil Goff’s decision to seek a more equitable monetary policy is welcomed by the Productive Economy Council.

It’s good to finally see a politician stand up and say we have got it wrong with our monetary policy and it’s time to fix it.

But Labour’s shift in position is only the first step in what promises to be a bitter fight about the future of our economy. The business community is clearly divided into two camps; those that make their money from exports, creating jobs and earning the country’s foreign exchange and who are thus heavily penalized by our volatile dollar and tax regime, and those who profit from the current system, exploiting the tax system and shifting exchange rate to their advantage and the county’s detriment.

While exporters and farmers will welcome Labour’s new focus on getting the fundamentals of our economy right, those in favour of the status quo represent a powerful lobby group both numerically and in terms of funding ability.

They have benefited from our dysfunctional economy for so long, that they appear to have mistaken what is good for them as being what is good for the country as a whole, even when there is a mountain of solid evidence to the contrary. read more »

John Key’s comments this morning about New Zealand having best practice in monetary policy is clearly untrue. The facts don’t support John Key and as an ex-Foreign Currency trader himself he must surely know that. Singapore is currently No 9 in GDP per capita in the world and we are no 46. Mr Key needs to explain if we do have best practice why so many countries that don’t have our monetary policy rank at the top twenty in Global GDP per capita rankings. In 1965 Singapore was No 42 in GDP/Capita and New Zealand was No 11. If we have best practice where are the results Mr Key exactly where are the results?

Mr Key looks and sounds nervous on this issue and throw away lines like “If Labour want to increase petrol prices etc we won’t have anything to do with it” are designed to scare the public and derail the debate. As people have said, if politicians where paid in US dollars this problem would have been solved 20 years ago.

In a speech to Federated Farmers today Labour leader Phil Goff  has indicated that at least one of the major political parties appears to be getting the message, saying:

“… our Reserve Bank policy targets are not well designed to produce a stable and competitive exchange rate, nor to keep interest rates as low as possible. In fact, it often operates the other way round. When there is a surge in domestic demand, the policy response is to increase interest rates. Ironically, higher interest rates attract even more inflows of foreign capital, which then gets lent out and sometimes causes even stronger domestic demand. So New Zealand’s overseas debt increases inexorably, while monetary policy punishes our most productive businesses and first home-buyers - just about the two sectors that we least want to affect.”

The full text of his speech is available here.

“Alan Bollard deserves to be congratulated for quietly leading the world’s central banks towards a new tool for monetary policy that might help New Zealand avoid the tyranny of a high official cash rate (OCR) killing our export sector.”

From The NZ Herald

“Statistical evidence produced to the inquiry showed that while most interest rates had fallen since the global financial crisis began late last year, major banks had not passed on the full impact of OCR cuts into short-term interest rates charged to customers,” says Labour finance spokesperson David Cunliffe of the results of the parliamentary banking inquiry by Labour, the Progressives and the Greens.

Which just goes to show that Dr Bollard is probably wasting his time trying to give the Banks advice on how to run their businesses. They know what they’re doing. They’re making money.

“We would encourage the banks to avoid any return to riskier mortgage lending practices,” says Dr Bollard. Well, we all know how well the Banks take that type of encouragement and advice, so let’s not hold our breath.

“New Zealand has had a recession, and the pick-up is slower and more vulnerable - a difference financial markets do not appear to appreciate.

“This is particularly evident in the relatively stable cross-rate on foreign exchange markets. If financial markets can’t see the differences, they will eventually lose money, and it will hurt the New Zealand economy.”

So says Alan Bollard today. So it’s official. The only thing Reserve Bank Governor Alan Bollard can do to stabilise the exchange rate is to plead with Forex dealers, asking them essentially to leave us alone.

So that’s our monetary policy in a nutshell: we beg people not to mess up our economy.