OnPoint: Election 2011: GO!
848 Responses
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Matthew Poole, in reply to
Perhaps someone could tell them that grey on grey breaches the government’s web standards and makes their taxpayer-funded content hard to read.
pfffft. Standards are for the prolles. We're innovating here!
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BenWilson, in reply to
So we get downgraded, and they up interest rates. We get our house in order slowly by improving private savings (my preference is for a compulsory scheme with real tax advantages for holding until retirement, much like it is in Oz). After a little while, our rating goes back up.
And that's only IF we get downgraded. Currently we're only at risk of it, and we're always at risk of it. We could just forge on improving savings rates, not get downgraded, not sell our valuable assets, not borrowing heaps and not licking Standard & Poor's dot.
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Dismal Soyanz, in reply to
improving private savings
Do that, Ben, and I will gladly nominate you for a Nobel.
Seriously, that is our no.1 hurdle - and it is hugely disappointing to see successive governments fail to address it properly.
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Reading even further into that lovely link (cheers Dismal!), they make it plain that no nation with an A rating or above has defaulted within 15 years of reaching it. Which means that there would be no real justification for increased interest rates, even if we got downgraded all the way to A. It would simply be a reflection of the honest truth that NZ has a private debt problem.
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Matthew Poole, in reply to
You’re conflating sovereign borrowing and private borrowing. Downgrade would be for sovereign rating, and only affect sovereign borrowing. Private debt is meant to be rated by the individual lending institutions, which in turn have their own ratings based on the ratings of their debtors.
So getting sovereign borrowing in order requires reducing its levels relative to GDP. Which means increasing GDP or decreasing borrowing, or both. Since they go together, with increased GDP meaning increased tax income which reduces the impetus to borrow, if the government can stimulate the economy things will improve. Flogging off assets won’t stimulate the economy generally, so it’s rather a pointless exercise.ETA: Even though our private borrowing is significant relative to GDP, it’s still pretty inconsequential globally. As I said yesterday, Spain’s private debt relative to GDP is more than double our net foreign debt relative to GDP. So we’re not at great risk of a rating downgrade on the strength of our private borrowing.
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How hard can it be to say "NZers must save 3%"? They just put up GST by 3% without batting an eyelid. The older the people are that the scheme is being put to, the more they will like it since they are already shitting their pants about their retirement. Only to kids will it be a hard sell, and kids don't vote National.
Edit: Oh, and foreigners won't like it. I didn't much like being forced into it in Oz. But...as I get older I hate it less, that there's 50g waiting for me over there.
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BenWilson, in reply to
Sure, it's bloody unlikely, but I like to know what the disaster would be, even if it were to strike. It's hardly a disaster to go from AA+ to AA.
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Paul Williams, in reply to
Edit: Oh, and foreigners won't like it. I didn't much like being forced into it in Oz. But...as I get older I hate it less, that there's 50g waiting for me over there.
Ben, you know that Cullen struck a deal prior to the last election which means you can repatriate your contributions now? I don't know the details however.
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If it's to go into a local scheme I'd only be doing it out of patriotism. As it is right now, Ozzie dollars storming ahead, I'm even happier with it over there.
I could look into it, but foresee a wall of bureaucracy, involving 2 governments. Hmmmm.
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Sacha, in reply to
We can have all the smart, inspired SMEs you can handle
To be clear, I'm not being cynical. I really do want to see more of that sort of message to the world - but backed by actual arangements that sustainably support the story so it's not hot air. This place has such tremendous potential.
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Dismal Soyanz, in reply to
Ah, much care is needed when reading rating agency tea leaves, Grasshopper.
Sovereign ratings can act as a ceiling for private sector ratings. Moreover, if the threat of a government defaulting increases, the flow on effect (government runs out of money -> cannot pay for services, public sector etc) can be significant for the economic prospects of the private sector. For some economies this may not be a big risk (Japan) but for others it’s huge (the PIGS – Portugal, Ireland, Greece, Spain).
While the immediate ability to service (and ultimately repay) debt for government and the private sector are different, I’m not sure lenders would necessarily keep the two completely separate. It’s also important not to see the credit rating as the only determinant of sovereign (debt) interest rates. NZ has the same local currency long term debt rating as Singapore but we pay (basis unadjusted) around 3% more for the same term money.
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I guess it's a relevant question then what the *rating agencies* think help economies live within their means and grow. Any deviation from the neolib consensus?
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The PIGS comparison is blatantly misleading, and those who cite it for political reasons know it full well. If anything, Iceland is a potentially more accurate comparison, due to privatised nature of its debt.
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Dismal Soyanz, in reply to
I should add though that S&P see the private sector as a big part of the problem but public debt reduction as part of the solution – which is a bit odd but may relate to the local/foreign currency distinction (see below).
what the *rating agencies* think help economies live within their means and grow. Any deviation from the neolib consensus?
Pretty standard commentary from the agencies. Exports good, debt bad.
So we’re not at great risk of a rating downgrade on the strength of our private borrowing.
Further to what I said and more directly addressing your point above, note that S&P said this in Nov 2010:
The negative outlook on the New Zealand foreign currency ratings reflects the possibility of a ratings downgrade if New Zealand’s external position does not improve. Rising public savings will be an important component of such an improvement.
The rating could fall, too, if New Zealand’s current account weakens because of any higher real cross-border funding costs within its banks. On the other hand, the ratings could stabilize at the current levels upon a sharper-than-expected improvement in the external accounts, led by stronger export performance and higher public savings.
So the private sector is a threat to the foreign currency sovereign rating. Which kinda highlights the need to read this stuff carefully. Notice they are talking about the foreign currency debt. Most of our public debt is denominated in NZD. Probably the more accurate thing to say is that the local currency sovereign credit rating is not at risk from private sector debt.
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nzlemming, in reply to
Purely from a design perspective, that site sucks.
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Steve Parks, in reply to
I find the experts view in the Herald Naive for the same reasons I have mentioned above.
But your only criticism that seems relevant to them is the issue of increasing rents, and that only because they didn’t address it because (in their estimation) it wasn’t one of the usual objections.
Do you have evidence that CGT inevitably leads to rent increases, and if so are they significant ones that cause real long term problems?
I would also like to say that a CGT is like giving heroin to a heroin addict as a cure for heroin addiction.
Hmm…seems to be a simile fail.
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One point that has not been made is that the price of electricity is a major cost to business and industry. Much has been spouted about the positive effect on our economy by investing 1.5 billion in "Ultra Fast Broadband", a point I find rather dubious. Instead of stripping off vast chunks of our assets to pay for roads for doubtful significunts we should be nationalising the power companies and amalgamating them to improve efficiencies thus reducing overheads for businesses and industry, increasing profits and therefore the tax take. Reducing costs in this area. by removing the extortionate profits of power companies we would improve our export possibilities by reducing the cost of our goods thus increasing GDP.
Then, maybe, Ms Tolley could sleep at night not having to worry about repairing all those schools that are rotting from the last time this bunch of twats had a "brilliant idea" and reduced the costs of property developers. -
DexterX, in reply to
A landlord/investor considering the return derived from a ppty/investment will factor in any costs increases, which would include a CGT, into the return they are looking to receive.
A CGT would increase both the level of rent and the price of property.
The costs increase will always get passed down the pyramid to the base level - the renter and first homebuyer will bear the brunt of CGT.
There are a myriad of ways to avoid paying CGT – one that is pretty harsh on renters and involves a strategy where " a homeowner moves out of their primary residence, rents it out for a period of time, evict the renters, exchange for a new house, rent the new house out, evict the new renters, and then move into the new house thereby avoiding capital gains tax". Refer – (http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States)
In Spain Capital Gains Tax is 18% for both residents and non-residents. If the proceeds are re-invested in another Spanish property within a 2 year period the CGT is not payable.
Increase to taxes be it income tax, consumption taxes, capital taxes always migrate down to the working poor, the people with greater income/resources are always able to structure their affiars so that they avoid or pass on any tax increase.
The answer does not lie in increasing the tax rate but by increasing the capacity of the producitve base of the economy such that there is growth in GDP and employment - an increase in the tax take is part of the answer.
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DexterX, in reply to
What was the "brilliant idea"?
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In my opinion, Cactus Kate's latest blog post hits the nail on the head regarding the problem with NZ savings and the investment property "scam" that forms the basis of our economy.
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There are a myriad of ways to avoid paying CGT – one that is pretty harsh on renters and involves a strategy where " a homeowner moves out of their primary residence, rents it out for a period of time, evict the renters, exchange for a new house, rent the new house out, evict the new renters, and then move into the new house thereby avoiding capital gains tax".
It's also harsh on the investor, and a good way to get busted for tax evasion.
Increase to taxes be it income tax, consumption taxes, capital taxes always migrate down to the working poor, the people with greater income/resources are always able to structure their affiars so that they avoid or pass on any tax increase.
If that is so, then why do rich people always scream blue murder when their tax goes up? Tell me it's because they feel sorry for the poor, I dare you. If it's so easy to just avoid, it shouldn't matter.
Your very argument is half the problem. The belief that you can just hike rents to keep returns flowing is part of what has led to this addiction to property. It's false - eventually people won't pay for your property. They won't be able to. The money just won't be there.
A CGT would slow down speculation, it's that simple. It won't stop it, because profit is still profit, even if it's taxed. It will still be sweet to own property. They'll just be paying fairly for something that is, in fact, income.
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I'd further note, that only a small part of the reason for thinking CGT is a good idea is a hope that it might put prices down. Mostly it's about closing another tax loophole that encourages a particularly unproductive behavior.
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BenWilson, in reply to
So Kate's idea, stripped down from all the ragging, is that you can't make property more affordable, and shouldn't try. It is something that only rich people should have. This should be done by requiring very high deposits.
Newsflash, Kate, this already happened.
She doesn't, however, provide any argument against CGT, other than to say that it won't bring prices down. Which it hasn't in some examples. But the analysis is weak, it could well have had a dragging effect, slowing the inflation. And the reason for it is more to do with fairly taxing an unproductive economic activity that has made lots of people rich.
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Matthew Poole, in reply to
What was the “brilliant idea”?
Reduce building industry regulation and demolish the apprenticeship scheme. Lo-and-behold we ended up with untreated timber used for framing, poorly-constructed buildings with no wall cavities, and lots of builders who hadn't learned the trade in a proper, structured apprenticeship system and thus didn't know that they were constructing shitty buildings.
Leaky buildings is pretty much entirely on National's head. Making it cheaper to get stuff built by way of deregulation ended up with the entirely-predictable consequence of low-quality shit going on the market. And trashing apprenticeships because education wasn't worth any investment, well, let's not go there.
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Matthew Poole, in reply to
argument against CGT, other than to say that it won’t bring prices down
Which is not the purpose of a CGT. Its purpose is to increase tax revenue, and discourage property speculation. At best it might cap property prices for a while, allowing wages to catch up and thus bringing housing back within affordability limits relative to incomes.
In South Africa's case, as stated in the OpEd in Granny from Craig Elliffe, the CGT brought in dramatically more tax than anticipated. It was also done with relatively minimal need to close loopholes and no tinkering to create new ones for special interests, so compliance was high.
If the CGT increases tax income significantly, it limits the need to increase income taxes. That's good for those on lower incomes. Or it can fund a tax-free threshold, which is also good for those on lower incomes. Either way any impact on rents (which, as has been pointed out, must be naturally self-limiting because there is a free market for supply and demand of rental property so people can avoid gouging landlords) will be offset to some extent by other tax effects.
On the self-limiting rents thing, if you're a landlord who's intending to hold onto your rental properties through retirement and draw on the income stream why would you need to increase your rent? The CGT does not create a loss for you, or a cost that must be recaptured. It's only if you're planning to speculate the property away that you want to capture the lost capital gain, and in that case the market effect from landlords who aren't gambling on property prices helps cap what you can charge.
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