Hyping doesn’t help the economy, work does

Written By: lprent - Date published: 8:45 am, February 26th, 2014 - 67 comments
Categories: Economy - Tags:

At the end of last week Treasury announced that they were surprised by the lower than predicted tax take. I wasn’t, and I suspect that no-one who is involved in businesses would have been. I am anticipating quite a lot of faux surprise this year and next from the numbwits who have been hyping an illusory “recovery” when it doesn’t happen.

The Crown’s operating balance before gains and losses (obegal) was a deficit of $1.79 billion in the six months ended December 31, $380 million wider than forecast in its Dec. 17 half-year economic and fiscal update, and down from a shortfall of $3.19 billion a year earlier. Core tax revenue was $602 million below forecast at $29.18 billion.

“At this stage it is difficult to determine how much of the lower than forecast tax is temporary versus permanent, but we expect this to become clearer over the next few months,” the Treasury’s acting chief government accountant Fergus Welsh said in a statement.

The smaller tax take was across the board, with GST 2.3 per cent below forecast at $7.5 billion, source deductions for personal income tax 1.2 per cent below forecast at $11.71 billion, and total corporate tax 4.9 per cent below expectations at $3.56 billion.

Now that means that National’s long promised return to a government surplus is going to keep retreating over the horizon. But it is also a pretty good indicator about the real economy. While it could simply be delayed tax payments, it is probably more likely that it reflects the reality of businesses.

It is a small market, and the government simply isn’t providing an environment that fosters economic activity. There are few new jobs, there are few wage increases coming through, and generally business is tough. The lack of effective growth means that businesses are still folding, few new ones are being created (especially new export orientated ones) and the difference between optimistic Treasury forecasts and the reality of the tax take will continue.

Sure it is less tough than it was early last year. But last summer the farming sector was still in the grip of a rather nasty drought with the inevitable flow on effects to the rest of the country. While not as severe, it is still looks pretty damn dry out there this year. Also we didn’t have the much hyped and very belated trickle of rebuild money coming into Christchurch.

The same effect is showing up in other measures. Last year the reserve bank signalled that they were likely to push the baseline interest rate (OCR) from 2.5% to 2.75% to counter price inflation that was persistently above the centre line of their band at 2%. They based this on last years expected inflation expectations. Turns out as the Greens reported, that:-

The Reserve Bank released its March 2014 Survey of Inflation Expectations this afternoon which shows that inflation prospects remain stable at two percent – the mid-point of the Bank’s Policy Targets Agreement.

I completely agree with Russel Norman (and I have to say that I’m still a bit freaked out saying that about any Green economics statement) when he then says:

“We need smart policies to fix the causes of inflation, not the blunt tool of higher interest rates that hurts families and businesses.”

The last Consumer Price Index figures released by Statistics New Zealand show that inflation was 0.1% in the December quarter and 1.6% in the past year. Housing and electricity were significant contributors to the little inflation there was. The Reserve Bank has indicated it intends to raise interest rates this year.

“New Zealand families don’t deserve to be hit with higher mortgage rates when inflation is stable,” said Dr Norman.

“Raising the Official Cash Rate now would hurt the economy and hurt families with mortgages.

“We need smart policies to address inflation in the sectors where prices are rising too rapidly – the Auckland housing market and National’s broken electricity system.”

We have a stalled economy. I see it in my area of interest with the complete lack of new startup export orientated tech businesses over the last 5 years. All the growth that our sector is doing is coming from businesses started when the government gave a damn about them before National cut down the policy garden that they started in.

Even if the government continues with it’s simple neglect of every export sector outside of farming, then it should at least fix the infrastructure factors that are pushing inflation – housing and electricity profit gouging. Instead they’re about to sell another electricity company, Genesis, to patch the hole in their tax take.

Sure businesses are getting excited about the short term benefits of the Christchurch rebuild, but the reality is that it just a one off. It is also likely to get in the way of Aucklands ever increasing deficit in affordable housing that the government has been avoiding addressing. Almost every housing initiative they have been involved in there involves very few affordable houses, and many of the large types of houses that return developers more money. Outside of Christchurch, companies intentions on hiring more staff are going down – not up.

But there are a no longer term plans for growth from this government. But we can expect more high quality hyping of retail sales like this from National’s media outlet. What is the bet that when the stats department releases actual numbers, that we’ll find the December quarter growth to be les sthan expectations.

67 comments on “Hyping doesn’t help the economy, work does ”

Comments are now closed

shorts 1

26 February 2014 at 9:18 am

hype and bluster is all this govt has…. leaving loads of room for the opposition to make some pre election hay

We know the Greens and Labour have policies – now for both to convey that to the public in a positive and filled with hope manner – the average kiwi needs some hope… underscored with solid prospects
Colonial Viper 2

26 February 2014 at 9:36 am

Apart from the right policy environment, Government has to spend into local communities and SMEs in order for the economic engine to fire. Exporting NZ tax payers dollars by awarding contract after contract overseas is part of what is killing the NZ economy.
- Pasupial 2.1
  
  26 February 2014 at 10:21 am
  
  CV
  
  I don’t disagree, but SME is a truly awful TLA.
  
  “Government must invest in SME, so we can all reap the bounty of SMEG” would be a misguided, if accurate, slogan. Then we’d have to deal with press releases issuing from a Small & Medium Enterprise Growth Maximisation Association. Best avoided by sticking with Small & Medium Businesses as a tag.
  - Colonial Viper 2.1.1
    
    26 February 2014 at 10:34 am
    
    Ahhh smeg, point well taken.
Saarbo 3

26 February 2014 at 9:37 am

I reckon that the larger than projected deficit is a sign that things are probably MUCH worse than suggested. Quietly bean counters tend to keep upsides hidden away in case of inaccurate projections, so Im guessing that in this case the mistake in the projection (over estimating the Tax take) was so large that it absorbed the upsides and then some (not that I ever did this when I was a bean counter :-)).

Something has gone wrong and I will be very interested in the next Deficit announcement.
Ant 4

26 February 2014 at 10:16 am

I’m unsurprised economists were wrong, for the plain old fact that they have things the wrong way round and try to make reality fit their models.

The people who are winning are white collar home owners, but their consumption can’t prop up an economy on its own
Ad 5

26 February 2014 at 10:36 am

Would be a little cosmically unfair if the Christchurch earthquakes’ insurance-based sugar-rush provided the economic growth impetus to win an entire election. It may.

To counter this, Labour needs two stories to grow: firstly that economic growth must be for the many and not the few (if it is to be real for individuals, families and for the country), and secondly that inequality can break down for each person when they can see a ladder of success upwards and that only central government can make that ladder of success.

I hope that is the challenge David Cunliffe is articulating. I will get pretty tired of Russell Norman saying that “we need policies…”. He needs to do his own job and convince the public of what those policies are.
- Crunchtime 5.1
  
  26 February 2014 at 11:12 am
  
  I’ve come to the realisation that National must be hiring the all the marketing and PR people money can buy. Their words are always pitch-perfect – usually far from the truth, and often full of bullshit, but pitch-perfect. Labour’s and the Green’s words in response are usually a little weaker, and without knowing the truth of the matter National “seems” better, comes across better.
  
  In short, Labour needs better and quicker wordsmiths for every occasion. Every soundbite coming out of every Labour spokesperson needs to be turned up a notch or two to dominate this election. …same goes for the Greens.
Crunchtime 6

26 February 2014 at 11:07 am

Weird – I just tried to share this to Google+ publicly – it would not share. I tried to paste the link and share it – it said “Your link was not shared, please try again”. I tried many times. Stupid G+.

I was able to paste the URL and post but no preview.

[lprent: Added to my longish list of things to test and fix. I have to confess that I have never tested the google+ mostly because I haven’t really used it. ]
captain hook 7

26 February 2014 at 11:08 am

the actual economy is too hard for the National Party. They are more interested in looting the treasury and finding sinecures for their mates than actually getting the country working again.
- captain hook 7.1
  
  26 February 2014 at 11:52 am
  
  Imagine my surprise when I picked up the Dompost after writing the above and there was an item about one of their mates picking up a top job with a faked CV.
  Standing there with a big cheezy grin next to Murray McCully.
  hmmmmmmmmmm.
  - Tracey 7.1.1
    
    26 February 2014 at 12:21 pm
    
    and michelle boag saying it was a minor matter, he just failed to put “incomplete” beside his law degree
    
    Lprent
    
    I have been waiting for some one in opposition to remind people that while the Pm crows about lowest interest rates… they are still high compared to everywhere else, hence the climbing dollar… and a RB raise will see this escalate.
    
    Aussie is a big market for NZ businesses and the dollar is hammering them.
    
    Th economy and its rockstarness is being perpetuated despite much of it being down to earthquake recovery. In fairness tot he Govt without the earthquake they would have had some money they otherwise had to put into CHCH BUT alot of the “boom” they now crow about is due to that same event.
    
    Despite being poo-pooed by many the recent warning of an economist to his clients about trouble ahead for NZ deserves more analysis than it is getting. Why? because the majority of economists have missed the last few major economic crises in recent history.
    
    Economist and public relations are the growth communicators of the neo lib movement. God help us all, you can barely move without falling over one or the other.
Rob 8

26 February 2014 at 12:21 pm

I’ll enter into this discussion in good faith and outlay our experiences of managing a medium sized manufacturing business in consumer durables through the GFC and now.

Prior to GFC in 2008 we employed 217 souls nationwwide. From mid 2008, the GFC eneterd and as a result our revenues were in a consistant decline of 10 -15% PA until our bottom in Sept 2012. During this time the business went through a huge re-engineering and change . Staff dropped to a low of 98. We moved buildings , exited out leases, implemented new ERP with increased BI capability and a full CRM. We negotiated with suppliers on increased payment terms, indent raw material supply and other initatives. We opened new distribution, closed non performing distribution. We were forced to innovate and we developed more products and new services in 3 years than the business had done in the previous 10 years. In short , this business like many others around us worked incredibly hard to get through and it was full of sleepless nights, constant stress and health issues. Our peer group have all had similar circumstances. Dealings with the bank and taking on more debt and signing many PG’s was a sign of the times

Where we now is that the business is up 22% on the year to date previous, last October we did starting wage salary increases of 4% . We will end this year with +10% NPAT, a massive improvement.

My view and many others around is that this is a fastly growing economy and it is not hype.
- Tracey 8.1
  
  26 February 2014 at 12:22 pm
  
  Glad to hear it Rob.
  
  What is your debt level today compared to, say, 2007?
  - Rob 8.1.1
    
    26 February 2014 at 12:52 pm
    
    Yep good question
    
    Debt has grown, so we have greater debt servicing charges. however due to our profitability now we are well under our banking covenant so we are able to negotiate better rates etc. But it will be a long road back for us. To be honest I think most banks did do a pretty good job of helping businesses through the GFC, if the business understood the level of change required in their businesses and were able to articulate a way forward in a strong business plan.
    
    Just on a side note I really enjoyed reading this and actuially had the full study sent to me. Being a manufacturer and fighting to keep manufacturing in NZ this did make me feel stronger.
    
    NZ Maufacturing Sector
    - Tracey 8.1.1.1
      
      26 February 2014 at 1:07 pm
      
      Thanks Rob
      
      Is your debt double, triple that of 2007? You said you made some pretty big changes. Am thinking in manufacturing that would be expensive?
      
      Thanks for the link
      - Rob 8.1.1.1.1
        
        26 February 2014 at 1:26 pm
        
        Yes, some big capital investments, new machinery, RF wireless bar coding that came from doing a “Lean” Six Sigma review. Thats the thing about running a manufacturing base is that it is hard, expensive and long and requires visible leadership and management
        
        The idea of being able to take a day to”work from home”, when you run shifts and millions of dollars of assets to keep opertaing doesn,t really happen in these types of businesses.
        
        Just on a side note, NZTE subsidised our “Lean” manufacturing programme and co-ordinated all the ‘tool box’ sessions and work shops on deconstructing our processes, then rebuilding them and time and effort balancing them. We gained a great deal from their input. I would recommend any manufacturing unit to look at using these guys.
        
        Tracey 8.1.1.1.1.1
        
        26 February 2014 at 1:31 pm
        
        So how much has your borrowing increased by Rob? Just percentages, I dont want you to risk any commercial sensitivity. It seems tome your debt will be pretty big? I know you are able to service it and give 4% wage increases, but am still interested.
        
        Ad 8.1.1.1.1.2
        
        26 February 2014 at 2:37 pm
        
        Be great to see Rob do his own post.
        
        Sounds like a hard, dedicated, rewarding life.
        
        Great lessons for a progressive gov’t there that need unpacking further.
        
        Rob …
        
        26 February 2014 at 3:20 pm
        
        Thank you very much Ad. I am not sure I could be as articulate and entertaining as your regular posters.
        
        JK …
        
        26 February 2014 at 9:05 pm
        
        Rob – you didn’t say how many your firm now employs. What’s that figure ?
        
        RedLogix …
        
        26 February 2014 at 9:30 pm
        
        Your comments Rob reminded me of something I’ve often said before – that SME business owners are emphatically not the problem. For instance:
        
        I too am pretty close to a company very similar to the one you describe. Your typical SME owner is a very courageous and decent individual who works very hard in his business, and is very, very loyal to good staff… who are often more like family than employees. This downturn will hit these good folk harder than anyone else.
        
        But as much as these people are nominally business owners, I wonder if they are really capitalists? Sure they may well be owners of the means of production, but the reality is that they are also workers in their business, equally as much as their employees. The capital they have invested is often a secondary consideration to the fact that the business only exists because of their skill, knowledge and the enormous commitment of time and energy they put into it.
        
        The real capitalist is a rather more removed creature, someone whose participation in the productive process is one almost entirely of a monetary/predatory nature.
        
        http://thestandard.org.nz/es-ist-mein-teil/#comment-116426
        
        Any real economy has three principal actors; workers, business owners and various forms of financiers, bankers, speculators and sundry corporate spivs. Its this latter class of parasites who attract most of the angst around here.
        
        While there is always a natural tension between employers and employees much of that has been moderated in recent decades with the rise of the skilled knowledge worker whose become an important part of the business.
        
        This merging and blurring of the old distinction between employer and employee means that almost no-one really thinks of themselves as ‘working class’ in the old economic sense of the word. (Sure there are plenty of people who don’t identify with the habits and customs of the middle class – but they’re more likely to call themselves bogans, or goths, or Gen-Y – anything but working class.)
        
        But while no-one was watching our real owners, that class of hyper-wealthy who control more wealth than the bottom 3.5 BILLION humans – were fighting a stealth class war behind our collective backs. And won comprehensively.
    - KJT 8.1.1.2
      
      26 February 2014 at 2:20 pm
      
      I found it rather depressing actually.
      
      The report says our level of manufacturing is comparable to countries, which, like us, have decimated their manufacturing base in fits of idealogical madness. UK, Ireland, Greece, UK
      
      The lack of skilled workers is an own goal by employers, who do not want to pay the price of training and paying them, nor pay the taxes required for the State to do it…
      
      The perennial complaints about not being able to get skilled workers.
      Expecting the lack to be supplied by Government or immigration.
      Well. Employers supported reducing taxes, so the Government has no money to train workers.
      And, expecting skilled workers to pay for their own training and, then, work for the low wages on offer………..
      That is why we are all working in Australia, Asia or Saudi Arabia.
      
      Then there is the unsaid problems, of over-hyped exchange rates and costs of borrowing, due to the insanity of the reserve bank act.
      - Rob 8.1.1.2.1
        
        26 February 2014 at 3:16 pm
        
        Oh well KJT that is your view, I did see it differently as actually being part of the sector.
        
        I assure you that a lack of skilled workers is certainly not a goal of ours , nor any business i am aware of and if you really think about it , its not a method to build a sustainable and strong business.
        
        I think the call is ” what happens if you train people and they leave , or, what happens if you dont train people and they stay” . A business is reliant on people, processes and technology. Under investement in any of these three leads to poor performance.
        
        Ennui 8.1.1.2.1.1
        
        26 February 2014 at 3:26 pm
        
        Rob, you did not mention the pace of change and the increasing specialization that takes time and effort to learn / train. We constantly face that issue, I am sure you do as well. We bite the bullet and do it, yes we may lose people. I think that retaining staff comes down more to being a good employer and creating a good atmosphere / environment.
        
        Rob …
        
        26 February 2014 at 4:05 pm
        
        Yes, one of the big requiremenst in specialisation and increased skill sets actually came from putting in the new ERP. It completely changed the way all aspects of our business was run and enabled simple and complex changes.
        
        For example at the simple change end before ERP we would be mailing out 2,000 statements per month, now we have a bulk email generator, obviuolsy savings in terms of postage and envelopes has been considerable, but we have had to train internal skills to be able to manage CRM systems and be able to generate our own reporting systems to so these seamingly simple tasks.. Order confirmation is now emailed.
        
        The more complex changes were in regards to runing Kan Ban “lean” inventory systems and this has required a huge change in working practices and systems.
        
        What I dont get is that there is this idea that manufacturers want to chuck skilled staff out for untrained staff to save a few dollars per hour. Once you have invested and implemented these changes and skills then you would be an absolute moron to just chuck skilled staff (even if you could) because it could save a few dollars less per hour. I just cant believe that businesses could do that and still be in business.
        
        I would like to think we have a good working environement with stable staff. However I am a realist as well.
        
        KJT …
        
        26 February 2014 at 4:19 pm
        
        “I just cant believe that businesses could do that and still be in business”.
        
        Seen it happen often.
        
        I was one, at one stage. They kept the people that were costing them several million a year, and chucked anyone who could show the managers up..
        
        Many businesses do. Usually so they can pay a useless administrator more 100’s of k. Which is one of the reasons I think, so many New Zealand businesses are finding it hard to compete.
        
        Ennui …
        
        26 February 2014 at 5:25 pm
        
        Rob, which ERP / CRM package are you using (just curious as we are currently reviewing our CRM)?
        
        Also you are so right about the foolishness of chucking out trained staff. That ignores the amount of cultural fit, company / workplace intellectual property embedded in these employees and resultant effectiveness. Then there is the cost and time frames around rehiring, training etc…the lower wages have to be extremely significant (and market warping) to justify such a move.
        
        Rob …
        
        26 February 2014 at 9:32 pm
        
        We assessed SAP One, Infor and Microsoft AX (eventually went with AX) and bolted on their Dynamics CRM and BI Module.
        
        KJT 8.1.1.2.1.2
        
        26 February 2014 at 4:14 pm
        
        What makes you think I wasn’t in the sector?
        
        Gave up when National got in and made all my local customers too poor.
        A wise decision, as it turned out.
        
        I Agree with you. Which is why I am puzzled why so many new Zealand employers treat good staff like crap, and refuse to invest in people expecting the Government, or their employees, to do it. A vote for “big Government” I suppose.
        
        Or worse, bleat to the immigration department.
        
        Though I will admit it is not all employers, just too many of them.
        
        Rob …
        
        26 February 2014 at 4:24 pm
        
        If you havn’t been in manufacturing for a while then I tell you business is very different that what is was even 5 years ago. Maybe it is time for you to have an honest look and you may be suprised by what you see.
        
        KJT …
        
        26 February 2014 at 8:55 pm
        
        I am not aware of what is happening in your industry necessarily.
        
        However I do keep in touch with various people in the ones I was involved in.
        Still do some subbing occasionally..
        
        Another one, Fitzroy Yachts, has just hit the wall. So from where I sit, things look far from rosy with export manufacturing.
      - Saarbo 8.1.1.2.2
        
        27 February 2014 at 7:23 am
        
        “The lack of skilled workers is an own goal by employers, who do not want to pay the price of training and paying them, nor pay the taxes required for the State to do it…”
        
        Agree with this 100%
- Ennui 8.2
  
  26 February 2014 at 1:57 pm
  
  Great result Rob. My companies don’t manufacture but we do add value by way of developing IP and deploying systems to improve other companies process etc. Our experience was subtly different, but we had to basically change the way we operated (processes, deliverables etc) to maintain margins. I am really interested in your comments below re Lean Sigma Six and NZTE help, will definitely follow up on that.
  
  The Personal Guarantee thing from the banks…dont get me started. The bit which annoys me most is the way they expect to be bailed out by the taxpayer, plus hand off all risk. The charges also increase to reflect this when in reality the bastards carry no risk.
  
  On the debt loading, we don’t carry debt, there was years back a deliberate move by us to avoid overdraft..(because of the lovely personal guarantees) what it means is that we have some very scary cash flow patches that are highly stressful. What we have struggled to do is to keep the fixed costs (salaries etc) down as a decreasing proportion of revenue…if anything it goes in line or increases….which is why we need to constantly rejig the processes etc to drive more efficiency.
  
  Yes it is tough out there, which is why on this blog I criticise those who seem to think the money grows on trees and can just be spent into existence, or taxed out of companies to pay for whatever they wish to be funded.
  - KJT 8.2.1
    
    26 February 2014 at 2:25 pm
    
    Like the businesspeople who expect State support, infrastructure and educated employees, yet demand ever decreasing tax rates.
    - Ennui 8.2.1.1
      
      26 February 2014 at 3:19 pm
      
      Don’t get me started down that track either: Cant think of a single bit of state support we receive (or for that matter really need). Infrastructure and educated employees….fekk what we get in the way of both of those is becoming increasingly substandard. Good thing is we have got it into our directors heads that it is good for us to train and develop talent.
      
      On that note we have hired young people with aptitude and attitude who don’t have tertiary qualifications: a degree comes with an expectation that is rarely realistic and the debt impoverishes the holder. Better no debt and real world development whilst earning cash. I wish to hell other employers would do the same, give young people an career entry without a debt.
      - Draco T Bastard 8.2.1.1.1
        
        26 February 2014 at 3:57 pm
        
        Infrastructure and educated employees….fekk what we get in the way of both of those is becoming increasingly substandard.
        
        The inevitable consequences of cutting taxes on the rich and pushing productivity in education.
        
        On that note we have hired young people with aptitude and attitude who don’t have tertiary qualifications: a degree comes with an expectation that is rarely realistic and the debt impoverishes the holder.
        
        That’s something that I agree with.
      - KJT 8.2.1.1.2
        
        26 February 2014 at 4:27 pm
        
        Certainly agree with you there.
        
        My best apprentice was a retired housebreaker. Very useful when someone forgot to leave the key out. 🙂
        
        I still prefer those I can train myself, before they learn bad habits. Or get their heads filled with theory, overconfidence and BS at a tertiary institution.
  - Rob 8.2.2
    
    26 February 2014 at 3:07 pm
    
    Good on you Ennui. Really agree on your PG issue with banks.
    
    I am very impressed at how you obviusoly manage working capital to be able to run a business without even a basic overdraft.
    
    Your last comment is on the money. Non producers that have no regard for how jobs, incomes and communities are actually created, have an innate ability to over spend and over commit as they do not care where it has come from. There does need to be more accountability on how tax payers contributions are distributed.
    
    I had a converstaion on Friday with a guy from Auckland Transport and he was laughing at how the office on a Friday is cleaned by 4:00pm and in fact at 3:00pm people are “still” rolling out the drinks trolley. This is what creates anger from producers around lazy, fat and soft civil servants and their operations.
    - greywarbler 8.2.2.1
      
      26 February 2014 at 5:14 pm
      
      Rob
      And I have a laugh at the way that some employers will embroider their stories and then it becomes an anecdote, based very loosely on fact, which becomes airier and fairier each time it is repeated. By the end the workers have caused the employer an ulcer, and his family is breaking up and he has to sell his boat to avoid his house being foreclosed on – all because they won’t work hard enough and want to have a cup of tea in the afternoons as well as half an hour for lunch, sitting down at Their Leisure, or talking on the phone doing their own business. On the premises!!
      
      and Ennui
      I think the money grows on trees thing that I have read, is that the government can create money to fund infrastructure, instead of borrowing it overseas it borrows it within NZ’s financial system, and then applies it to the needed infrastructure that may not be earning any income but forms the basis of other revenue-earning businesses to utilise the advantages at no or low cost.
      
      I thought that was the idea. And the money would not be inflationary, although there would be a rise in the amount of money in circulation from net wages.
      - Ennui 8.2.2.1.1
        
        26 February 2014 at 5:44 pm
        
        Grey, raising cash by fractional banking practices, even by national treasuries works on the basis of generating tomorrow sufficient from the investment to pay off yesterdays debt. That works well in a growth economy. What happens however if we decline or stay in stasis? I don’t favour it any longer because i believe we have reached the end of growth due to energy and resource constraints. I think fractional activities incredibly imprudent.
        
        KJT 8.2.2.1.1.1
        
        27 February 2014 at 8:28 am
        
        Generating enough to simply pay off the debt amount in future, should be fine so long as the spending is sensible. Such as spending on poverty reduction, export substitution and sustainable energy.
        Spending which reduces our costs in future.
        
        What we cannot do is add interest.
        
        Even in my teens, when I was told about the “magic of compound interest”. I thought here is something which cannot be sustained.
        The wonder is that it has carried on for so long.
        
        Though you could argue that the frequent system crashes, (GFC’s) are part of the self correction. Inflation used to be, until it was artificially restricted.
        
        Compounding interest, of course, is an exponential function.
        Like all exponential rises it looks like a hockey stick, tending, eventually towards infinity.
        
        For everyone to get their “magical compound interest” on their investments the money supply has to expand at an exponential rate.
        Which is fine so long as, inflation equals the interest rates, (Your savings are worth the same amount of goods and services on realisation, as they did when you put them in the bank) or no-one expects to spend the increase in money supply on real goods and services.
        
        Infinite growth, which is a requirement for our present economic system to function, is not possible in a finite world.
        
        Something even the Greens find hard to grasp.
        
        Draco T Bastard …
        
        27 February 2014 at 12:16 pm
        
        Though you could argue that the frequent system crashes, (GFC’s) are part of the self correction. Inflation used to be, until it was artificially restricted.
        
        Actually, inflation pretty much didn’t exist until the private banks got seriously into creating money ex nihilo over the last couple of centuries.
        
        For everyone to get their “magical compound interest” on their investments the money supply has to expand at an exponential rate.
        Which is fine so long as, inflation equals the interest rates,
        
        Nope, not even then. Because of the way that capitalism channels the bulk of the money to the few those few will have more return from interest than inflation is eating away at their accumulated money. Those few want to keep it that way which is why they pushed governments to restrict inflation. It’s interesting to note that the way that was chosen to restrict inflation also gives higher returns to money and, as we’ve seen, doesn’t really limit inflation in critical things such as housing.
        
        Infinite growth, which is a requirement for our present economic system to function, is not possible in a finite world.
        
        Something even the Greens find hard to grasp.
        
        Actually, they’ve known that since the 1970s and the first publishing of Limits to Growth. The problem is that the rest of the population, especially the RWNJs, don’t want to believe it.
      - Rob 8.2.2.1.2
        
        27 February 2014 at 10:54 am
        
        Yep Grey , there are certainly many winging business owners out there that are pretty good at blaming all their issues on poor staff, poor tools, poor circumstances etc. All they end up doing is putting there own capital at risk and the livelyhoods of their staff.
        
        The key difference I think simply between management and leadership is that management requires a microscope (ie lets view all activities and tasks to a micro level and be able to form fixed judgement on the outcomes of the analuysis), where as leadership requires a mirror (ie how are my expressions and behaviours and clarification of direction inspiring the team and people around me).
        
        Obviusoly there is arequirement for both , good business management requires you to have a solid grasp of the numbers and the detail. Good leadership requires excellent self awareness and knowldge of how your behaviours, commenets and direction lead a team successfully. Average businesses are often management driven, where as very good businesses couple good management with strong leadership.
        
        greywarbler 8.2.2.1.2.1
        
        27 February 2014 at 11:44 am
        
        Rob
        Thinking of the difference between management and leadership. I’m thinking management is more following precepts, ensuring orderly provision of the company’s product, and can be done in a number of ways.
        
        My relative tells me that their team leader is often elsewhere, not where required, and this no doubt adds to the efficiencies and costs that balloon in hospital expenditure. And management has not devised a way of gathering knowledge and feedback from the doers of the work.
        
        Leadership is surely about direction which goes beyond checking on the zeitgeist and effectiveness of the organisation, it’s examining the whole dynamic of the company, looking to the future, what will be lost and is there business in being a specialist preserving it? How many customers would like to recover some of that lost benefit and at what cost? What is the future and what will need to be incorporated into the business without losing its spirit of loyalty, commitment and communication with the customer? What is the mission statement and whether it is being reflected in the attitudes of the staff to those they deal with?
        
        And in government, is the policy that has been made law being delivered in the manner intended? It can be skewed and twisted and squeezed into another than its intended shape by the policy deliverers, who are likely to be reflecting their managers’ ideas and approaches. And also affected by the difference between the high-minded ideas in the law, and the low-budget desire of people who just want to quiet a problem, not invest in a solution.
        
        The leader can see the tracks, or make new ones, and then has to turn and guide the managers along and influence the workers to transport the company well and profitably.
    - Ennui 8.2.2.2
      
      26 February 2014 at 5:39 pm
      
      Rob, Managing the cashflow:we are lucky that the business has grown faster in sales with reasonable margins than costs have been incurred in delivery…over the years lump sums deposited have been used for working capital but they often get eroded and it can get very seat of the pant especially in terms of us paying suppliers. The key thing is that the balance of aged sales and opposed to aged payables remains positive, and we crunch delivery times to enable fixed costs to not erode the margins. Life would certainly be a lot easier if we had overdraft facilities (we now do) that we used, but for me that is also a bad discipline to rely upon.
  - Draco T Bastard 8.2.3
    
    26 February 2014 at 3:44 pm
    
    Yes it is tough out there, which is why on this blog I criticise those who seem to think the money grows on trees and can just be spent into existence, or taxed out of companies to pay for whatever they wish to be funded.
    
    Money is always spent into existence and then taxed out afterwards. It’s the basic nature of fiat currency. It’s more a question of who you’re paying the tax to – the private banks or the government.
    - Ennui 8.2.3.1
      
      26 February 2014 at 5:32 pm
      
      Draco, it depends on whether the tax is extraneous to the economy / environment / community that the individual or business is being taxed in. What I am getting at is that taxes are necessary to provide that environment / community, and as such should be paid as part of the total cost of doing business. When taxes are seized by banks for private gain, or by governments for private gain / distribution to their mates etc then (a la Edmund Burke) they should be strenuously opposed.
      - Draco T Bastard 8.2.3.1.1
        
        26 February 2014 at 7:03 pm
        
        Which is why total transparency is needed in the creation, distribution and destruction of money. That latter bit is actually really important as people, especially banks and economists, think that money should last forever when it actually shouldn’t. Payment of taxes to the government should be recognised as removing money from the economy which is why the government should also be the only ones to create money.
- Mike S 8.3
  
  1 March 2014 at 5:18 am
  
  So the GFC wasn’t really the cause of your business going backwards. The GFC merely highlighted the fact that your business needed changing. I find the term “forced to innovate” particularly interesting. It is a shame that so many of our businesses need to be forced to innovate rather than being innovators.
  
  You stated yourself that you’ve had to take on more debt, which is essentially how we measure economic growth. i.e more borrowing = higher GDP. Not sure if this is a good thing as it always leads to boom / bust cycles. However, that is the way our current economic system functions and an economy can only grow monetarily from more debt or increased exports..
  
  It’s great that you took the anti-austerity path though, as more private debt should mean less government borrowing, although as far as I’m aware, government borrowing isn’t slowing down? This would indicate that your business is the exception rather than the norm due to the fact that in order for an economy to grow, either the private sector or the government must borrow money. more private sector debt = less public sector debt and vice vers. If the private sector saves money instead of spending, then the government must spend money or the economy deflates. it’s one of the ridiculous things about our economic system that you can’t have less private and less public debt at the same time or the economy will crash. (Because all money is created as debt, less debt = less money in circulation = lower economic growth.) If government borrowing is steady or increasing that would indicate not much business growth in the private sector )at a very basic level), or, not many businesses like yours who are spending and growing their businesses and adding to the country’s economic growth.
  
  “last October we did starting wage salary increases of 4% .” – Does that mean that prior to last October there were no increases from 2008 to 2013? If not, then although the 4% increase is better than nothing, it still means that you are paying paying a lower starting rate than you paid prior to 2008. (in real terms)
Poission 9

26 February 2014 at 12:23 pm

Almost every housing initiative they have been involved in there involves very few affordable houses, and many of the large types of houses that return developers more money.

One of the emerging trends in CHCH is the appearance of Ghost houses in new subdivisions.Unoccupied houses owned by offshore investors as passive investors.

http://www.stuff.co.nz/the-press/opinion/columnists/mike-yardley/9758984/Mike-Yardley-Rental-housing-still-in-crisis

The other constraint on affordable housing is the ubiquitous use of building covenants in new housing developments,that stipulate minimum floor size and building materials (which by proxy dictates capital expenditure).

This land use constraint precludes the relocation of reusable redzone housing stock at a substantial discount to a greensite rebuild.

Policy initiatives need to address the use of building covenants.
- Tracey 9.1
  
  26 February 2014 at 1:08 pm
  
  Still wondering how to find out if broownlee is renting out any of his fendalton or Ilam properties and for how much.
Ennui 10

26 February 2014 at 1:29 pm

LPrent, Hyping does’nt help the economy…… just to be really contentious just look at the stock market, its all hype!!!!!!! (Hmmmmm! Whether the stock market helps the economy, well that’s open to conjecture).
- Colonial Viper 10.1
  
  26 February 2014 at 2:32 pm
  
  The really poisonous neolib meme is that the financial gambling markets ARE the economy.
  - Tracey 10.1.1
    
    26 February 2014 at 3:21 pm
    
    Was there a time when the “markets” weren’t an item on the news bulletins on tv and radio…there was indeed
    - Draco T Bastard 10.1.1.1
      
      26 February 2014 at 3:54 pm
      
      Yeah, back when we had a healthier economy with less poverty.
  - Draco T Bastard 10.1.2
    
    26 February 2014 at 3:53 pm
    
    Thankfully people are waking up to the fact that they aren’t. That they’re just money for nothing for a few seriously over paid people.
- Mike S 10.2
  
  1 March 2014 at 5:23 am
  
  The stock market as it’s called, has nothing to do with the real economy of goods and services. It does however suck money from the real economy which is harmful, as do all the other financial markets. These ‘markets’ offer nothing whatsoever in terms of productive economic activity, they are simply a means for the elite to make money from money, whilst destroying the real economy.
aerobubble 11

26 February 2014 at 3:06 pm

English.
We have incurred significant extra debt by spending in excess of our revenue to protect the most vulnerable families, to maintain living standards and to support the renewal of our second-largest city.

Labour went the polls, like National promising tax cuts, but Key lied and increased GST.

Labour then let National crucify them about govt debt being out of control under Labour.

Labour even today lets National spew lies, for obviously the rise in GST hurts vulnerable families
more! That the debt increase is largely due to lower tax for businesses and higher income earners.

Remember Labour is a monopole thinker, it can’t accept dual narratives, that tax cuts stimulated the fast food sector as the public cut back on finer dining and fast food cut prices thanks to lower taxes and youth rates etc. Labour finds its impossible to attack lower taxes as harmful to the economy while also attacking National for raising debt and so the currency.

Fairer taxes on the richest, progressive taxation, is still National policy, so why hasn’t Labour lied and attacked it for wanting to let the rich off taxes. Do all the snide underhanded lying that takes place routinely in the media about the majority of people in NZ who aren’t in the top 10%.

Thats the problem, the chatter is hype to serve the richest (who strangely enough are realizing that people who kiss their hairy fat behinds aren’t actually doing them any favors, as the banking system wobbles thanks to thirty years of arse kissing excesses).
geoff 12

26 February 2014 at 8:22 pm

LPrent:
I wonder how much of this hype is coming from the banks. Sales volumes are down since the reserve bank changed loan to value ratios (https://www.reinz.co.nz/shadomx/apps/fms/fmsdownload.cfm?file_uuid=C21A025B-C03C-8FFA-BE0F-B05619338669&siteName=reinz).

Therefore there is less new mortgage business for the banks and therefore the only way for the banks to maintain their level of profitability is to increase interest rates, and the only way they can do that is by talking up the economy and putting pressure on the reserve bank to raise the official cash rate. Hence hype from a very powerful industry.

Sound reasonable?
- lprent 12.1
  
  26 February 2014 at 9:27 pm
  
  It will. However what you’ll see is a non-monopolistic unstated increase in the effective interest rates..
  
  They don’t have to increase business if they can cooperate to increase nett profit.
Frank Macskasy 13

27 February 2014 at 1:07 am

Interesting blogpost…
- lprent 13.1
  
  27 February 2014 at 8:20 am
  
  Tax takes below spec on friday and then the RB inflation expectations lower than expected. Not symptoms of a economy getting hot.
  
  Problem is that National are so hung up on milk powder that, like previous resource commodity booms from Korean war era wool to their current obsession with mining. They all end. Then where will we be?
  
  BTW: Saw your one at TDB when I was hunting around for links.
greywarbler 14

27 February 2014 at 6:07 pm

About business and getting jobs.
This about the wonderful developers behind the Life of Pi Rhythm and Hues. All about chasing the job from country to country as the film coys game the countries for the most tax breaks etc.

http://www.hollywoodreporter.com/behind-screen/revealing-rhythm-hues-life-pi-682526
greywarbler 15

27 February 2014 at 8:04 pm

Good line from an Australian social funder helping social entrepreneurs.

http://www.philanthropy.org.nz/node/8771
There will also be events for business donors in Auckland.
Auckland: ‘Building Great Partnerships’, 9am to 4pm, Tuesday March 4th, Telecom Conference Centre, Telecom Place, Auckland. A full day event with a variety of speakers. PNZ members: $100.00, Non-members: $250.00

Rotorua: ‘From Success to Significance’, 10.30am to 12.30pm, Wednesday March 5th, Rm 1, Civic Centre Building, 1061 Haupapa St, Rotorua. No entry fee.

Wellington: Meeting of the Wellington Funders’ Network, 9.30am to 11.30am, Thursday March 6th, Willis Tower, Telecom Central, 42 – 52 Willis St, Wellington. No entry fee.

We are also hosting events for new philanthropists in Hamilton, Tauranga and Christchurch.
To register for an event or to request more information, please contact Yvonne: yvonne@philanthropy.org.nz.

Audio from Thursday 27 February 2014
From Success to Significance ( 20′ 36″ )
19:12 The importance of supporting social entrepreneurs with Australian businessman now philanthropist Allan English.
Radionz Thurs
7:10 From Success to Significance

Audio from Thursday 27 February 2014
From Success to Significance ( 20′ 36″ )
19:12 The importance of supporting social entrepreneurs with Australian businessman now philanthropist Allan English.