Singapore has it right. We have it wrong. Here’s why.

Let’s look again at Monetary Policy (pptx)

Let’s look again at Monetary Policy (pdf)

The “Mr Nice Guys” like Prime Minister John Key - and US President Barack Obama - who have soared high on the basis of personal popularity and feel-good vibes - are now finding out the hard way that there is more to making a good political hamburger than mere sizzle.

If Key does not want to preside over a one-term Government, he must set about constructing a crucial point of difference by starting to act as his nation’s CEO instead of the prime political firefighter who repeatedly rides to the rescue to save his Government from fiascos caused by his own lax political management.

From The NZ Herald

Bill English, Dr Bollard and Treasury are doing their best to paint an accurate picture of where we are as a country. Unfortunately the Prime Minister seems to be presenting a very different landscape to the public. If borrowing an extra $250 million a week doesn’t make the Prime Minister and the average New Zealander think we have a problem with the way our economy is operating, what will asks Selwyn Pellett, the spokesperson for the Productive Economy Council.

“The fact is that we are living beyond our means and we need to restructure our economy. If we were talking about a business, the need for a restructure would be taken for granted. The shareholders would be demanding it and the CEO would see the need to make hard decisions or know they will be replaced by the board. Well, our economy is a business, and we are all shareholders. It’s time we made that demand, and it’s time the Prime Minister realised that hard decisions must be made,” says Pellett.
read more »

“Bold tax reforms and changes to the mix of monetary and fiscal policy are needed if New Zealand is to rebalance its economy and close the gap with Australia, according to the Treasury’s head.”

From the NZ Herald

“Talk of a cross-party agreement offers the Government a chance to rebalance New Zealand’s tax system say the New Zealand Manufacturers and Exporters Association (NZMEA).  The tax haven in land and buildings has fuelled non-tradeable inflation and this is too much for the tradeable sector to carry.  The claim that a Capital Gains Tax, where the family home is exempt, is unpalatable has more to do with the self interest of a few than any general rejection.

NZMEA Chief Executive John Walley says, “Things like reducing Government spending and minimising compliance costs are necessary but we cannot expect a balanced economy while property tax havens exist.  Phil Goff is to be congratulated for making an offer of a cross party agreement, adding his voice to those of the Treasury and the Reserve Bank.  Now is the time to balance the tax code and close off this damaging tax haven.”

“Bill English has spelt out the problems with New Zealand’s economy; there is too much household consumption and insufficient investment in the traded economy.  It is difficult to attract productive investment when investments in land and buildings are tax free and the return on tradable activity is so uncertain due to a massively overvalued currency.  Real policy change is needed, not talk or wishful thinking.”

“Alan Bollard also spelt out the difficulties of managing inflation during a housing bubble in his last Monetary Policy Statement.  The high interest rates aimed at stopping the housing bubble attract foreign money damaging the export sector via a substantially over-valued dollar.”

“If the Government is opposed to an asset tax we at least need to hear why – ‘I don’t like them’ does not convey why they are a bad idea for the country.”

From the NZMEA

This Powerpoint presentation outlines the PEC’s vision of where we’ve gone wrong economically as a country and what the PEC thinks we should do to get it right.

Download Growing up to business (1875KB)

The Prime Minister’s comments on Capital Gains Tax has brought into sharp focus his leadership style says Selwyn Pellett, spokesman for the Productive Economy Council.

“It is totally inappropriate to make these comments before the tax advisory group has officially released its findings,” says Pellett. “The Prime Minister has essentially said that the tax advisory group is wasting its time, because he is highly unlikely to listen to their findings if it involves a recommendation for any type of Capital Gains Tax. It looks like John Key is telling the advisory group and the rest of New Zealand that he doesn’t need to listen to advice from either experts or those economically affected by property speculation. That’s an enormously arrogant position for any Prime Minister to adopt so early in his term as Prime Minister.” read more »

“Dr Bollard’s comments about the need for a speculation tax are underwhelming in light of the rise of the NZD to 70 cents against the US dollar and the damage another bank fuelled property bubble will do to our economy. It’s time farmers and exporters joined together to tell the Prime Minister that Dr Bollard needs more sophisticated tools as the OCR is a very blunt instrument,” says Selwyn Pellett, spokesman for the Productive Economy Council.

It is the PEC’s position that property speculators are doing serious damage to the economy, aided by the banks and our outdated monetary policy. The PEC calls on Dr Bollard to be more candid with the country about just what the relationship between property speculation, monetary policy and the bank’s behaviour is and the effect it is having on the economic outlook for the country. read more »

The OCR has become a rod with which Dr Bollard can beat exporters while he remains powerless to punish speculators and banks, says the Productive Economy Council (PEC) in reference to the pending RBNZ statement out this week.

“The reports today suggest the recession is over for the average New Zealander and that may well be true. The housing market has again started to take off and bank lending follows. Yet the green shoots of economic recovery are still so fragile that any decent frost will wipe them out. The tradable economy (Exporters) is hurting more now than at the beginning of the recession and Dr Bollard must surely know that. As a result his options are actually very limited”, says Selwyn Pellett, spokesman for the Productive Economy Council. read more »

PEC’s submission to the Parliamentary Banking Inquiry can be viewed here (PDF).

The presentation by the New Zealand Manufacturers and Exporters Association to the Banking Inquiry can be viewed here and its full submission here.