Hard News by Russell Brown

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Hard News: Budget 2017: How do we get out of here?

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  • Joshua Arbury,

    It seems to me that housing really is the elephant in the room. A lot of things are in real terms much cheaper than they used to be, especially electronics. But housing is wayyyyyy more expensive, buying (in particular) or renting.

    The broad impacts of the country, and especially Auckland, building tens of thousands fewer homes than needed, for decades, seems massive.

    Sort that out and maybe the rest follows.

    Auckland • Since May 2009 • 236 posts Report Reply

  • Sacha,

    I was surprised how unified the panel commentary was on Q&A this morning about this Budget's lack of tackling the important structural factors. Sprinkling some lollies does not a brighter future make.

    Ak • Since May 2008 • 19667 posts Report Reply

  • Don Christie,

    Wait for the clamour of UBI to really kick in. That's the "Uber" subsidy of non-tax paying corporate dreams.

    Wellington • Since Nov 2006 • 1645 posts Report Reply

  • John McCormick,

    I was at the Auckland Writers Festival last week and artificial intelligence and jobs came up several times. The broad consensus seemed to be that we are heading for a radically different world, but without really knowing what we're going to do about it. We may soon reach a point where there are just not enough jobs available for the majority of people to be employed. What then? Both economy and social structure are predicated on most people working. Some version of a UBI seems the most likely candidate for a way of coping.

    Auckland • Since Sep 2014 • 18 posts Report Reply

  • Downbeatdan, in reply to John McCormick,

    I agree John. I find myself think about how we shift to a world where stacks of the work is done by machines, and a UBI seems to be the only way that world can emerge.
    A utopian future, may be one where humans are free to pursue the things which make them fulfilled, and the basic needs for existence are able to be supplied to all through the smart transition of energy and labour to a fully automated system. Ian Banks has it pretty right in his 'Culture' scifi novels. Energy technology and AI is getting close to delivering, so we'd better set about adjusting society to let it happen.

    Hamilton • Since Jul 2007 • 12 posts Report Reply

  • Katharine Moody,

    Yes, I think UBI is in our future but we'd need a major overhaul of tax - including, I assume finding a way to make multinationals pay their fair share.

    Meantime, maybe a way out for the accommodation supplement is the announcement of a programme of staged reductions in it (perhaps over a 4-5 year period) while announcing at the same time rent controls and tenancy protections (for existing tenancies) and 'ring-fencing' of tax losses on residential rentals. It will have a knock-on effect of lowering house prices over that 4-5 year timeframe (as landlords exit loss making businesses) and likely bring more low-priced/FHB suited property to the market. Government might also need to think about providing housing finance to people who have poor credit ratings mainly because their cost-of-accommodation has just been too high to meet all bill payments on time every month in the past (i.e., mortgages to those households with bad credit ratings but good employment history).

    Building more social housing as the safety net is key to any such radical market adjustment I imagine.

    And I wonder if the only way out of WFF is wage inflation, possibly through a series of planned (and notified) minimum wage rises over a 4-5 year period. It will have an inflationary effect but we seem to have room for that at the moment anyway. And surely, it would focus business owners and employers on productivity gains. Additionally, perhaps minimum wage rises should be accompanied by a staged approach to lowering company tax rates over the corresponding period - and introducing some form of capital gains and/or inheritance tax to supplement the lost government revenue.

    Point is though - I'm neither a tax nor an economics expert but I can see we do need an unwind to all these subsidies and adjustments/tax rebates. I'm aghast it doesn't seem that any political party (aside from TOP perhaps) are crunching numbers with the right people to come up with expert informed solutions.

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • Lynn Yum, in reply to John McCormick,

    I find it odd that the question isn't answered in a writer's festival. Creative industry is exactly where the economy can grow. Writers, artists etc. produce works that can't be automated.

    And the world still needs lots of scientists, engineers and programmers to make the automated world work.

    And I honestly don't know why UBI is taken seriously​ instead of being a libertarian fantasy. The idea that structural inequities like classism, sexism, racism and colonialism can be solved by giving bags of money to those victimised by those structural inequities is just... inconceivable!

    Auckland • Since Dec 2016 • 38 posts Report Reply

  • Zach Bagnall,

    I hoover up articles like this.. because occasionally I think about moving back to NZ, as I must eventually, then I remember I couldn't afford it. 100% less Trump and 100% more beach access, but economically it's not viable. Somehow NZ has got to get over it's real estate addiction. For example, UK has been making tax changes over the last few years that have caused a massive decline in "buy-to-let" activity - without spiking rents. It can be done if there is the will.

    Colorado • Since Nov 2006 • 120 posts Report Reply

  • BenWilson,

    AI is constantly raised as the thing that will take all our jobs. This has no basis in observation of what has actually occurred with AI. The loss of jobs is down to EVERY kind of technological improvement and AI is the very least of all of our worries. It is literally the hardest kind of productivity improvement to make.

    I'm always annoyed by this because it defers into the future a problem that is not only already here, but has been for several hundred years. It's this easy catch all end-game, this singularity, this cataclysm that suddenly ends work. Wake up! Work is already ending. Every time we improve something, we remove a little bit of our pressing need to work. We literally have to manufacture scarcity in order to justify work.

    AI is not going to build the houses we need. That will be chippies and plumbers and electricians and jib stoppers and painters and carpet layers and so on, hundreds of jobs that are simple things that generally can be learned quickly, don't really require that many years of training. All of these people can work way, way faster than they could 100 years ago on account of their tools and materials being vastly superior. But we have somehow landed ourselves in a situation that despite having far more capacity than ever before to produce one of the most basic needs in human life, literally the first thing a human lost in the bush should set about organizing, we have found ourselves unable to do this basic thing.

    Our economic situation has simply stopped functioning when it can't provide basic needs in a time that we have supercomputers in our pockets.

    I felt this way ten years ago. To be honest, I felt it somewhat even twenty years ago, when even on a very high income I found that property seemed impossibly out of reach. I also felt that property was a fundamentally unproductive thing to invest in, but that our society was so invested in it that it was going to keep inflating massively for the foreseeable future. It is too big to fail. I knew I had to be in it, or be losing ground. It wasn't about getting ahead, even then. It was about stalling how rapidly I was becoming less wealthy, as property rose in value far faster than my disposable income. I managed with a whole lot of scrimping and some good timing to get into it. Since then, my paper wealth has steadily risen but my personal evaluation is that I'm effectively the same as I was then. The mortgage is bigger. It's still 30 years before it will be paid off. I'll still be in an average house in a poor suburb.

    Auckland • Since Nov 2006 • 10629 posts Report Reply

  • BenWilson,

    ...which all just makes me feel tired of this kind of discussion. I'm glad that there's a steadily rising appreciation of this conundrum, as genuine hardship slowly slides its way up through the middle classes, and brutal homelessness has become a normal thing in this country. But still, the discussion is going to continue to follow the past. Neoliberals will insist that doubling down one more time is the way to go. The "Left" will insist that it's all about getting jobs. The middle ground will be found between those two bankrupt positions and things will continue as they have for all of my life. This is how our incremental system works. It will slowly and gradually tinker itself to death because power will continue to be held by the small group that is mostly unaffected. They will be evenly split between people who just don't give a fuck and those who vainly try to convince them to.

    It's fairly clear to me that only quite drastic changes to fundamental settings are going to reverse things. Instead, we have projects to build large numbers of houses. Less than the population growth rate needs, of course, so the problem will still get worse. And any discussion about controlling the main source of population growth, immigration, will be shouted down as racist, and the "Left" will be the worst culprits of this.

    We literally can not have a sane discussion about economics. It is an ideology driven field, totally dominated by the people who profit from things being as they are. It masquerades as scientific, despite endless failures to predict major events, thus automatically taking it out of the realm of public discourse and into a specialist topic. And the genius of Neoliberalism is that it plays both the wealthy and liberals at the same time. With one hand it gives rights and with the other it takes away equality.

    I live in a time when the Mayor of my city of unaffordable housing was the man who made me pay for my tertiary education, and he's the "Left" wing option. How the hell can I engage with any of this?

    Auckland • Since Nov 2006 • 10629 posts Report Reply

  • Bart Janssen,

    How did we get here? Well we've spent the last 20-30 years basing our economy on the idea that lowering taxation will increase the efficiency of government and business leading to a stronger economy that benefits all New Zealanders.

    Both governments have followed roughly the same ideology with minor tweeks.

    It's a lovely idea, you can come up with lots of rationales explaining why it will work.

    The problem is it hasn't worked. At all. The observation is that while the economy has grown, government is no less or more efficient than it was, and the increase in the wealth of the country (which is real) has excluded two thirds of the people in New Zealand.

    The idea that reducing tax will benefit New Zealanders has proven to be wrong.

    That shouldn't be a surprise. Everywhere else in the world where they reduced tax the rich got richer and the rest of the population saw no benefit. Those countries with high taxation are the ones we love to quote when talking about human rights and freedom and happy societies and equality and education etc etc etc.

    If this was a lab experiment we'd simply say our hypothesis was wrong and we should use the method that other countries have shown is successful.

    The solution is taxation and a government that then spends that money for the benefit of all New Zealanders.

    And I'm sure there will be a bunch of economists (spit) who present models explaining why that is wrong, it's just a pity that their models don't fit the observed data from all over the world.

    Auckland • Since Nov 2006 • 4450 posts Report Reply

  • Paul Conway,

    Thanks for the article - good to see a summary of reaction to the budget and reflections on more structural aspirations for NZ's economic future. Thanks also for plugging our 2015 paper on the labour income share and the (rhetorical!) question we posed. The fact is, NZ is still a pretty difficult place to get ahead for many people because our productivity performance has been poor over many years.

    To answer the question in your title - how do we get out of here - we published a paper on exactly last year: Achieving New Zealand's Productivity Potential. You can find it here: http://www.productivity.govt.nz/research-paper/achieving-new-zealands-productivity-potential

    There is the main paper, which is still accessible but aimed at an economist audience, and a very accessible overview. The main paper includes around 20 pages on "big-picture policy considerations" that would help in "getting us out of here". It is not a fully baked economic strategy as such but does give a good idea of the types of policy reform that would help achieve our very high potential. Interested to know what you think.

    Wellington • Since May 2017 • 4 posts Report Reply

  • Russell Brown, in reply to Paul Conway,

    Thanks for the article – good to see a summary of reaction to the budget and reflections on more structural aspirations for NZ’s economic future.

    Thanks for swinging by, Paul!

    Auckland • Since Nov 2006 • 22743 posts Report Reply

  • BenWilson, in reply to Bart Janssen,

    The solution is taxation and a government that then spends that money for the benefit of all New Zealanders.

    You had me up until this point. This doesn't follow axiomatically from rejection of the hypothesis. It is simply one of the alternate hypotheses.

    I'd say it's part of the solution, but not sufficient in itself. It depends what they tax, how much they tax, where the money to be taxed comes from, and how the revenue is spent. The devil is all in the details. But absolutely, any person not totally committed to laissez faire should see that raising taxes is at least a possible thing to try. There are so many knobs to twiddle in this machine.

    The most difficult thing about being scientific about it is that the knobs interact, making systematic experimentation extremely difficult. You can't just turn one dial and thus conclude everything there is to know about that dial's effects. You also have to do it for a range of other settings in there. You only need a few variables and you're into impossibly large experimental combinations. But we have more than a few, we have hundreds, if not thousands of potential levers to tweak.

    Which is probably why economics is always done in theory with simulations. This makes it a very soft science, if it is a science at all. It can look at historical data for many countries too, but for any combination of more than a few variables, there just aren't enough data to really make conclusions.

    Which leaves us with the twiddle-and-see method. Personally I think we've jammed ourselves so far as this method is concerned. The little twiddles we are really capable of just won't do it. By "capable of" I mean what our actual politicians can manage to sell to themselves and then an electorate. Good luck selling a general rise in taxation at a time when even upper middle class people are struggling to make ends meet. In the long run it might well pay off, if the revenue is spent wisely over time. But in the short term it will ruin many people and that is what stops it happening.

    Auckland • Since Nov 2006 • 10629 posts Report Reply

  • Paul Conway, in reply to Russell Brown,

    total pleasure and I'll sign up for your mailing list. If you ever want to chat about "how we get out of here" just get in touch - It's one of my favourite topics!

    Wellington • Since May 2017 • 4 posts Report Reply

  • Kumara Republic,

    From all the struggles I've experienced in education and the job market as a long-time undiagnosed Aspie, I've come to the conclusion that the best, if not the only thing that'll get me ahead now is a Scandinavian/German approach - which the Future of Work study seems to take a few leaves from.

    Expect the apologists for the incumbent Anglo-Saxon model to incacurately smear the Scandi/German model as "big government old Labour tax and spend", not realising that 1) Scandinavia and Germany rank highly in economic freedom, and 2) the longer that sort of A-S thinking persists, the more likely NZ could be in for a "hard Brexit" or "Trumpification".

    The southernmost capital … • Since Nov 2006 • 5414 posts Report Reply

  • Bart Janssen, in reply to BenWilson,

    You had me up until this point. This doesn't follow axiomatically from rejection of the hypothesis. It is simply one of the alternate hypotheses.

    Nope it's just saying other countries, that for the most part we want to emulate, use much higher taxation settings.

    It's not a hypothesis it's simply using someone else's method rather than trying to invent it all from scratch. That also applies to all the details.

    We don't have to reinvent this stuff.

    Auckland • Since Nov 2006 • 4450 posts Report Reply

  • Lynn Yum,

    That report from The Productivity Commission is an interesting read, even for a laywoman. Thanks Paul Conway.

    Auckland • Since Dec 2016 • 38 posts Report Reply

  • Bart Janssen, in reply to BenWilson,

    I'd say it's part of the solution, but not sufficient in itself.

    I'd agree completely.

    I don't think there is a simple solution.

    But I do think the ideology of lower taxation = growth which will make everything all right is utterly debunked. It's a completely broken model. The only people supporting it are self-serving nobs like the taxpayers onion and The NZ Initiative.

    I also don't think it's something you can change quickly, you need to allow people to adjust to a new balance. And I absolutely think most of the rise in taxation needs to be borne by those on the top of the heap.

    Auckland • Since Nov 2006 • 4450 posts Report Reply

  • Matthew Poole, in reply to Bart Janssen,

    And I'm sure there will be a bunch of economists (spit) who present models explaining why that is wrong, it's just a pity that their models don't fit the observed data from all over the world.

    It's never the fault of the models, it's always the fault of the data. The participants in the experiment failed to behave in a truly rational, self-interested manner, so the results are invalid. The model is fine, and markets are perfect, but if the participants are going to behave in an irrational manner then that's not the fault of the economists or their models. Can't be. After all, what rational person would ever not act out of pure self-interest and with full consideration of all the available information?

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • Bart Janssen, in reply to Paul Conway,

    If you ever want to chat about "how we get out of here" just get in touch - It's one of my favourite topics!

    So I had a read through and I can't say I felt better. It feels like you're blaming everything on lazy unproductive workers.

    You don't address what it takes to make a worker actually want to be more productive. Basically in a lot of those industries someone on the line working harder just makes more money for the old white guy in a suit who has kept his/her wages as low as possible for the last decade.

    As for the business owners they have no incentive to be anything other than a minimum wage payer. If it all turns pear shaped they walk away and start a new business.

    There are exceptions and a whole generation of small startups with ethical attitudes but there is nothing systematic that promotes or rewards ethical behaviour.

    Auckland • Since Nov 2006 • 4450 posts Report Reply

  • Matthew Poole, in reply to BenWilson,

    But absolutely, any person not totally committed to _laissez faire_ should see that raising taxes is at least a possible thing to try.

    Except that Labour and the Greens have committed to no new taxes and a cap on overall government expenditure relative to GDP. So they've strapped themselves into a straitjacket of not raising taxes, or at least not raising them to anything like the level required to deliver the standards of living and social services that we observe in the Scandinavian/Nordic parts of the world.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • Matthew Poole,

    Timely and relevant is this piece from Bloomberg, bewailing the "threat" of the LIS catching up to the productivity gains of the last 15 years, meaning the workforce recapturing the huge increases in profit margins that US corporations have seen over that period.

    Goldman Sachs Group Inc. is worried that rising pay is closing in on the productivity gains of the past 15 years, erasing the margins businesses have counted on to boost their profits

    If wages converge with productivity over the next three years, profitability will shrink by about 10 percent annually, strategist Charles Himmelberg wrote in a note this week.

    While classic economic theory holds that wages and productivity should move in lock step, that hasn’t been happening in recent years as an oversupply of job seekers suppressed salaries. This divergence explains the lion’s share of U.S. profit growth from 2004 through 2014, according to Goldman’s estimates. In light of tightening labor markets in the U.S., the analysts say the trend is likely to reverse -- businesses are going to have to pay their workers more and it’s not going to come with any increase in output.

    “We find the prospect of what a normalization would look like to be sobering,” Himmelberg wrote. “Rising wages are a threat to corporate profit margins.”

    Cry me a river.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • Katharine Moody, in reply to Paul Conway,

    There is the main paper, which is still accessible but aimed at an economist audience, and a very accessible overview.

    Just read the very accessible overview. Reads like a PR piece for the incumbent Government’s BGA (Business Growth Agenda) which has been around for 5 years now;

    http://www.mbie.govt.nz/info-services/business/business-growth-agenda/towards-2025

    But what actual difference has it made? To me in so many areas of the environment and the economy (and of course our economy relies on our environment to such a great degree here in NZ) – all the indicators of social, economic and environmental health and wellbeing are going backwards.

    Hence the need for a budget with the emphasis on basic life necessity support mechanisms as we have just seen.

    We can’t reverse this trend until we admit failure. We can write all the right fuzzy warm words we want on a page – but has the Commission analysed the government’s uptake of any of its recommendations since its inception, and quantified the positive outcomes observed? Do you know what didn’t work, and have you made recommendations for change?

    A specific example that I’d bring up is the work on housing affordability. Many aspiring homeowners would like to buy a section in Auckland and put a house of their size and design choice on that section. However, restrictive covenants for new subdivisions/development prevent that. What has the PC said about that? Wouldn’t it have made a huge difference if SHA legislation had required all new land brought on stream to be restricted from having any of the design/build covenants? Or perhaps my perception is wrong – and there is lots of new land being made available where you can move a relocated house (perhaps the least cost housing solution) onto it?

    These are the simple but significant and practical policy measures that (to my mind) are desperately needed.

    I don’t mean to be overly critical (its just that my patience is wearing thin) but most of the PC work I’ve had a look at so far seems very much status quo type of advice that mirrors what was said to MED (when that was the name of the equivalent Ministry) years and years ago. The advice states the obvious and provides a set of ‘room for improvement’ sounding goals with heaps of promise for a better future – as opposed to practical ‘on the ground’ advice to do things differently in the here and now.

    At least when the government ignores the PCE’s advice – which they usually do – she writes a follow up report and criticises them for their inaction. Same has been the case for the Children’s Commissioner, Perhaps that is not the PC’s mandate.

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • BenWilson, in reply to Bart Janssen,

    But I do think the ideology of lower taxation = growth which will make everything all right is utterly debunked. It’s a completely broken model.

    Yes, it's far too simplistic. It may sometimes happen that lowering taxation in something you specifically want to grow is a good idea. But there's no need for it to be forever, and each case should be frequently re-evaluated for fairness and other concerns in a taxation system. To just run a policy that always dropping tax will be good is pure ideologically blinkered madness.

    Auckland • Since Nov 2006 • 10629 posts Report Reply

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