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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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 »

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 »

Introducing Capital Gains Tax would bring New Zealand one step closer to rebalancing the economy in favour of exports and jobs instead of imports and passive asset inflation, says Selwyn Pellett of the Productive Economy Council.

While we must wait till next week for details of Labour’s proposal, the PEC, like Treasury, RBNZ, New Zealand Exporters and Manufacturers Association and the Tax Working Group, favours a broadening of the tax base to include a tax on capital. read more »

What had looked like being a non-election may yet turn out to be a real one if Labour can follow through on the bold approach outlined Monday night by David Cunliffe and David Parker before a largely sceptical audience at the Manufacturers and Exporters Association in Christchurch.

Labour obviously faces an uphill battle, hampered by its inability to articulate a clear, long term economic strategy in the past few years. Its audience last night, well familiar with the pain of trying to run real economy businesses in an investment poor environment where the fluctuating exchange rate hammers their every effort, were understandably initially lukewarm about what Labour had to offer.

And yet Cunliffe outlined a plan that was bold, practical and admitted that the time for tinkering was over. Both in his speech, and in Q&As with the audience, Cunliffe and Parker acknowledged that the previous Labour government had made mistakes. Nor were they dismissing everything the current government has done out of hand, saying, for example, that they won’t argue that there needs to be spending cuts, but that they will challenge National on whether it is making the right tax cuts. Overall this new Labour message was clear: Government needs to structurally support exporters and the productive economy, and not just pay lip service to it as they believe National is doing. read more »

Bernard Hickey’s presentation – attached – should be a stimulus for all political parties to stop their populist policies and start focusing on strategic imperative of regaining control of our economy. New Zealand’s debt position is serious and rising alarmingly. Our income per person is being eroded. Skilled migration is gutting our ability to respond to rebalancing our economy. And, most serious of all, our income as nation (exports) are falling off a cliff. This is an unsustainable position and selling assets isn’t a cure, it’s simply a postponement of the inevitable corrective action that is required. read more »

“The IMF has recognised and publically admitted there is a need for restricting capital flows from country to country under certain conditions,” says Selwyn Pellett of the Productive Economy Council.

The IMF’s executive board said that capital controls are “squarely within the toolkit”. Most of its directors “broadly supported the substance of the proposed policy framework” – suggesting there is greater consensus than before between developed and developing countries on the use of controls.

“This is what we at the PEC have been saying and advocating for some time and it’s reassuring this thinking is finally becoming mainstream. For those who have advocated the free flow of capital under any conditions this announcement will be a jolt to their belief system,” says Pellett. “Economists around the world will have to rethink their training as clearly one model does not fit all circumstances.” read more »

Medium and long-term solutions to the crisis facing Christchurch will be required, but right now there is an urgent need for some quick and entirely practical help to be given Christchurch businesses, says PEC spokesperson Selwyn Pellett.

“The time for political and economic debate on recovery funding will come, but right now we need to focus on what we can do to get businesses in Christchurch back to work. There is an economic impact, one that will have serious medium and long-term consequences, one that is happening right now, and one that will get worse the longer businesses stay closed,” he says. read more »

Both the media and the public need to look deeper than the carefully constructed sound bites coming from the government on its asset sales plan, because the long term consequences for New Zealand are massive.

In effect John Key has, by resurrecting a failed strategy from our past, signaled that he and his government have no idea how to grow the economy and demonstrated that National’s ideological views are driving its decisions without reference to the reality of the situation we find ourselves in.

There are a limited number of arguments in favour of asset sales and so far that’s what most of the media is picking up on. But let’s ask the serious questions about what sits behind such a move for New Zealand’s economy, and how it may affect our society. read more »

This month Bernard Hickey and Selwyn Pellett will lead free seminars in Wellington and Auckland on what is required to set the NZ economy on a path away from the precipice it faces. Find out more on the Fabian website here