OnPoint by Keith Ng

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OnPoint: Election 2011: GO!

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  • Dismal Soyanz, in reply to Lyndon Hood,

    might they not sue us under the trade agreement for devaluing their investment?

    A quick squizz at the FTA suggests not. Provided everyone is treated the same regardless of whether the investor is NZ resident or China resident (and also no worse than any other nation - MFN status), then there is no breach of the Agreement.

    Wellington • Since Nov 2010 • 174 posts Report Reply

  • Sacha, in reply to DeepRed,

    Devlin's latest spoutfest confirms he's a member of the Good Ole Boys club

    Even the Herald noticed a pattern.

    They were applauded for being "laddish" and outrageous on screen - but no one is laughing after a fifth panel member of the sports show Game of Two Halves got himself into trouble.

    Ak • Since May 2008 • 16418 posts Report Reply

  • Danielle, in reply to Sacha,

    If I had to hang out with one of them, I think I'd prefer the Ecstasy Supplier to the Vicious Backbreaker. (To paraphrase Sesame Street, some of these things are not like the others.)

    Charo World. Cuchi-cuchi!… • Since Nov 2006 • 3624 posts Report Reply

  • Sacha,

    Seems Key may have been reading Keith too. Labour's Red Alert blog addresses (and links to) the PM's interview on Breakfast tv.

    Weird moment of truth from Key on Breakfast this morning. He admits government debt is low and private debt is high. Why then does he expect Mum ad Dad Kiwis to borrow to buy shares (which they already own) in SoEs. Bill English says it is to pay down that, already low, debt.

    ...

    CORIN DANN: I just want to pick you up on that because there was some criticism about the debt issue. I think it was Professor Bowden from Victoria University who called it spin doctoring, because he argues, in fact New Zealand’s government debt is some of the lowest in the world.

    JOHN KEY: It is.

    CORIN DANN: So isn’t it the private sector and in particular the big four Australian banks who are the – who are the worry, not the Government’s position?

    JOHN KEY: Well I wish it was spin doctoring. You’re right, New Zealand’s government debt as a percentage of GDP relative to the other countries is low, in other words we don’t owe very much. Vis a vis, say – and we’re about 20-odd per cent of GDP. If you go and look at Japan it’s 200 per cent of GDP. But the difference is New Zealand domestic consumers, mum and dad, they owe a lot of money. So on a combined basis we owe 85 per cent…

    Ak • Since May 2008 • 16418 posts Report Reply

  • Matthew Poole, in reply to Sacha,

    JOHN KEY: Well I wish it was spin doctoring. You’re right, New Zealand’s government debt as a percentage of GDP relative to the other countries is low, in other words we don’t owe very much. Vis a vis, say – and we’re about 20-odd per cent of GDP. If you go and look at Japan it’s 200 per cent of GDP. But the difference is New Zealand domestic consumers, mum and dad, they owe a lot of money. So on a combined basis we owe 85 per cent…

    *head explodes*
    He goes on to say that Japan just got downgraded by S&P - what a shock, with debt like that. And he compares our debt profile to Spain's, which is nonsense when Spain's level of private debt is double our combined public/private debt, at 178% of GDP!

    Spin, bullshit, lies, and more bullshit. This is not about our debt levels.

    On a positive note, Dann is very definitely not the suck-up that PH was. Maybe it's a deliberate effort to differentiate from PH, or maybe he's actually just not living in awe of King Smiley. Hopefully it's the latter, because the former will doubtless run out of steam at some point.

    The pit from whence crawl… • Since Mar 2007 • 3898 posts Report Reply

  • nzlemming, in reply to Matthew Poole,

    Key's right that it's not spin doctoring - it's spin fucking butchering!

    Waikanae • Since Nov 2006 • 1835 posts Report Reply

  • Jim Cathcart, in reply to Matthew Poole,

    What do you mean it's not about debt levels? It's all about debt levels, particularly private debt levels. One of the major issues with a high private sector debt burden is that it reduces the private sectors ability to invest and therefore contribute to an increase in the productive capacity of the economy. If the debt associated with non-productive investments (such as bidding up house prices) grows, then the productivity of the economy will decline as the capital available for productive investment diminishes. NZ is reliant on Australian banks procuring wholesale money markets to fund our addiction to debt. However, you cannot simply take on debt with no reciprocal improvements in productivity.

    Since Nov 2006 • 117 posts Report Reply

  • Dismal Soyanz,

    In terms of a meaningful justification for the partial asset sales, the only connection with government debt is that the revenue would allow for additional spending without adding to government debt.

    Whether or not you think government debt is currently at sustainable levels, the elephant in the BoP room is private sector debt - to which the partial asset sales have no connection.

    Wellington • Since Nov 2010 • 174 posts Report Reply

  • Matthew Poole, in reply to Jim Cathcart,

    Jim, not a word that you have said explains how flogging off state assets to indebted "mum and dad investors" will do the slightest thing to improve the national debt situation.

    Supposedly these assets will be sold back to the owners. But the owners are broke, and if they don't have the money to buy up then who does? Key's mates, and foreign pension and sovereign investment funds, that's who. Joe and Joanne Average-Kiwi don't have thousands of bucks sitting in the bank just begging to be invested in power companies. If they have thousands of bucks, it's probably their overdraft.

    So J & J A-K have limited or no free cash, but they're meant to buy these shares. Right? With what money? Borrowed money? Borrowed from whom? Oh, that's right, those Aussie banks and the foreigners to whom we're already in hock to the tune of about 65% of GDP. And this does what, exactly, for our net foreign debt position?

    The pit from whence crawl… • Since Mar 2007 • 3898 posts Report Reply

  • Matthew Poole, in reply to Dismal Soyanz,

    the revenue would allow for additional spending without adding to government debt.

    Ignoring the loss of government revenue from dividends, of course. And at its worst the Smiling Assassin and his band of merry men are projecting that government debt will top out at about 30% of GDP. These asset sales, if they net the upper end of $8b, amount to about 5% of projected FY11 GDP. That’s not a big difference between borrowing with or without the sales, and comes at the cost of foregone dividend revenue.

    The pit from whence crawl… • Since Mar 2007 • 3898 posts Report Reply

  • Dismal Soyanz, in reply to Matthew Poole,

    Something wrong with that link. Perhaps you meant this?

    5% of GDP is a lot of money to play with - it represents around 10% of the current government expenditure.

    As 1/6th of the current debt position that is also significant.

    I don't see how you can say it's not a big difference.

    Theoretically: If the shares were sold at a fair market value, then the price should be equal to the present value of the expected dividend stream plus residual value. From the government perspective, the loss of the dividend stream is reflected in the price it receives. So it is not a cost you add on at the end of calculation.

    Given that working out this PV requires some major assumptions, it is always possible to fudge the numbers. Also remember that it would be necessary to sell at a discount in order to induce NZers to buy the shares (especially as they already own them indirectly) -meaning the actual price may end up slightly lower than fair value.

    Wellington • Since Nov 2010 • 174 posts Report Reply

  • Sacha, in reply to Jim Cathcart,

    If the debt associated with non-productive investments (such as bidding up house prices) grows, then the productivity of the economy will decline as the capital available for productive investment diminishes.

    A government with balls would respond with a capital gains tax. Whatever else you may think of them, at present the only party saying that seems to be the Greens.

    "Instead of inheriting public assets, the next generation will inherit $84 billion in National Party debt. National needs to stop bludging off our grandkids," [Russel Norman] said.

    The truth was that the Government needed more revenue and the Greens were the only party willing to put forward a serious plan to generate revenue, a capital gains tax excluding the family home.

    It would move capital away from property speculation and towards the productive sector; reduce house prices, helping to make home ownership a reality for more New Zealanders; and it would reduce spiralling government debt.

    Dr Norman said National was bereft of economic vision in the wake of the "catastrophic collapse" of the neo-liberal economic model.

    "The old order is dying but what will replace it?"

    Ak • Since May 2008 • 16418 posts Report Reply

  • Sacha, in reply to Dismal Soyanz,

    it would be necessary to sell at a discount in order to induce NZers to buy the shares (especially as they already own them indirectly) -meaning the actual price may end up slightly lower than fair value.

    Sounds awfully familar. Next step, those first-round investors all sell out at the non-discounted market rate to foreign investors happy to pay for a guaranteed low-risk infrastructure asset backed by government bailout if needed. Another successful transfer of wealth from all taxpayers to those Kiwis who can afford to buy shares. And perpetually exporting dividends as well as sovereignty. How original.

    Ak • Since May 2008 • 16418 posts Report Reply

  • BenWilson,

    Yes, I think a CGT is definitely needed. It won't be anywhere near as disastrous to property values as people think, especially if homes are excluded. The only think it discourages is speculation.

    Auckland • Since Nov 2006 • 8305 posts Report Reply

  • Steve Parks,

    For anyone who hadn’t noticed, part three of that series in the Herald about CGT, Busting the myths of capital gains tax.

    Wellington • Since May 2007 • 1131 posts Report Reply

  • Paul Williams, in reply to BenWilson,

    Yes, I think a CGT is definitely needed. It won't be anywhere near as disastrous to property values as people think, especially if homes are excluded. The only think it discourages is speculation.

    Agreed. As is the case in Australia.

    Sydney • Since Nov 2006 • 2193 posts Report Reply

  • andin,

    <quote>Revenge of the Jocks, methinks?/quote>
    Nerds ....Jocks...who the fuck doesnt want to kick someone's arse.
    And (more importantly) who DOESNT FUCKING deserve it!

    raglan • Since Mar 2007 • 1171 posts Report Reply

  • Kyle Matthews,

    I'm not arguing about the value of the asset or how its distributed. I'm saying that if the proceeds from an asset sale were used to retire foreign debt and the equity was held by NZ residents, there would be a reduction in the outflow of the current account. The improvement in the current account makes us better off.

    I don't think you're carrying the picture far enough.

    The NZ residents have to get the money from somewhere. If they sell assets (other shares) to pay for these new shares, they're going to be selling them overseas. If they take out their savings, the banks/investment companies are going to need to find money elsewhere to replace it so that they maintain their equity, and they'll look overseas.

    The only way that this money all stays in NZ is if the government sells the shares in the SOEs, and then uses all of the money inside NZ - retiring local debt, investing in infrastructure. Because a lot of the money to buy them will inevitably come from overseas.

    Since Nov 2006 • 6157 posts Report Reply

  • Jim Cathcart, in reply to Matthew Poole,

    Matthew, what it might do is encourage some people to take ownership of some assets besides rental properties. Would you agree that our biases towards rental property have indebted us in the first place? Would you disagree that living within your means, as an individual and as a nation, is something that we should all be facing up to? Privatization of strategic public assets gives some of us who have forgone debt for saving an opportunity to invest in potentially valuable assets. Is that such a terrible thing?

    Since Nov 2006 • 117 posts Report Reply

  • Sacha, in reply to Jim Cathcart,

    what it might do is encourage some people to take ownership of some assets besides rental properties

    Which could also be done by implementing a CGT - but without making the rest of us pay for your opportunity.

    Ak • Since May 2008 • 16418 posts Report Reply

  • Jim Cathcart, in reply to Sacha,

    Sacha, why would you pay for my opportunity? I may be missing something but given that I am a net saver, I would think that my "savings" would pay for the opportunity. Think of it as an old-fashioned approach to generating wealth.
    CGT exists in Australia and other Western countries. It hasn't prevented property bubbles. I would go as far as to say to that it is easy credit that has driven the property bubble in NZ, but that's too just damn obvious and distasteful for most people.

    Since Nov 2006 • 117 posts Report Reply

  • Matthew Poole, in reply to Jim Cathcart,

    Privatization of strategic public assets gives some of us who have forgone debt for saving an opportunity to invest in potentially valuable assets. Is that such a terrible thing?

    If I thought that there might be a sufficiently-large pool of "mum and dad investors" out there with cash to spare and a long-term outlook on investing that history says is significantly absent from the NZ landscape, I might agree with you.
    However, history gives me no faith in those investors looking for anything more than a quick (tax-free) capital gain. If we're going to sell shares in our state-owned businesses, it should be to people who will hold onto those shares for a long period of time. If not we may as well just list the companies on the ASX or the Shenzen Exchange and cut out the pathetic attempt to pretend that the final majority holders of the listed stocks will be kiwi.

    Sorry if that deprives you of an opportunity, but you are the few and the many have shown repeatedly that their length-of-view is limited only by the cents-per-share being offered by the long-termist buyers in Australia and China.

    The pit from whence crawl… • Since Mar 2007 • 3898 posts Report Reply

  • DexterX,

    CGT is crap and it shows that the opposition(labour and the greens) are just as vacuous as the present govt.

    A CGT to bnidge the cap in reckless spending is not responsible govt.

    If Govt debt sits at 20% of GDP, then bringing the spend under control and promoting growth is the answer.

    I would hope that the Govt does change but it will depend on the opposition promoting a credible alternative - it doesn't appear they have the collective wit to do this and a CGT I don't think would help change the govt.

    If capitlal values drop will the Govt give people a refund.

    The burden of CGT will end up in the rented doorstop of the working poor.

    Another level of taxation is not an answer to anything.

    Auckland • Since Nov 2006 • 1183 posts Report Reply

  • Steve Parks, in reply to DexterX,

    CGT is crap and it shows that the opposition(labour and the greens) are just as vacuous as the present govt.

    The Greens are promoting it, and labour aren't, as far as I'm aware. How does CGT reflect badly on both?

    Anyway, your concerns are not shared by the experts (sorry, 2nd time today I've made that link).

    ...a CGT I don’t think would help change the govt.

    Probably true, unfortunately.

    Wellington • Since May 2007 • 1131 posts Report Reply

  • BenWilson, in reply to Jim Cathcart,

    Matthew, what it might do is encourage some people to take ownership of some assets besides rental properties.

    I'm still struggling to see the connection. Government sells valuable asset. This encourages people to buy shares how? What's stopping them buying shares right now? There actually are good stocks already to buy. Most of the ones on the NZX are NZ companies so they're "investing in NZ". But NZers don't, on the whole. Why? What's changing when the government flogs off those stocks we do actually already (indirectly) own?

    I think investing in stocks is a great idea, personally. But, despite having an income that's well over the average, I STILL don't have enough money to do it, and know that paying off my mortgage is a way better use of any spare money I have. If some new stock hits the market, namely our energy companies, how is this any different from any other IPO that I can't afford to get in on?

    Auckland • Since Nov 2006 • 8305 posts Report Reply

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