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Nats: economically illiterate

Written By: - Date published: 10:50 am, April 15th, 2010 - 22 comments
Categories: Economy, jobs, tax - Tags: ,

I thought the Nats were meant to be good with money. You know, they’re all ex-currency traders and Treasury officials, and one of the reasons people went over to National at the last election was the promise that National would deliver a ‘brighter future’ via a better economy (and tax cuts!).

But how economically illiterate do they have to be to send the NIWA research vessel Tangaroa to Singapore for a $20 million refit when VT Fitzroy at Devonport was ready and willing to do the work here?

Wayne Mapp’s excuse is that the Singaporean bid was several million lower than the VT Fitzroy bid.

Oh dear. Did the Nats really only consider the headline figure on the bids?

What about the corporate tax, GST, and income tax that would have flowed to the government if it had kept the work in New Zealand? What about the lower benefit payments by creating more work here?

And that’s just the first round of gains for the government. Then, you’ve got the multiplier effect of the workers spending their wages and creating more jobs for taxpaying workers.

The fiscal result for the government alone would surely be much better if they had kept the work in New Zealand. And that’s before we consider the wider gains for the country’s economy and society of keeping the work here.

On top of all that, the reality is that when you contract overseas you often get less reliable service. Just ask the Safe Air workers. They had been due to undertake refurbishment of the Air Force’s Hercules aircraft but the aircraft are stuck in upgrade work in Canada after the foreign contractor announced an indefinite suspension to the work in December. Result: 100 jobs lost in New Zealand.

But it looks like these supposed financial wizzs didn’t even consider any of that.

22 comments on “Nats: economically illiterate ”

  1. nzfp 1

    Well there’s the problem Marty “But it looks like these supposed financial wizzs didn’t even consider any of that.” Finance and Economics – while related – are not the same thing.

    • Bright Red 1.1

      so, you’re saying that the National government is totally ignorant of economics and that’s OK?

      • nzfp 1.1.1

        Not at all, I’m making a humours remark.

        However, while on the topic of Nationals economic and fiscal policies, when electing a government it is worth noting the financial interests of the key players within the government. For example, Bill English’s Trust/Rent/Tax Payer rip-off debacle where Bill English was invoicing the tax payer for rent paid for his rent of a house in Wellington which turned out to be owned by a trust controlled by him and his family – essentially he was charging the public to rent a house from himself – highlighted the fact that the English family – through various trusts and other financial vehicles – owns property around New Zealand. Consequently it is safe to assume that English would not advocate a imposition land tax in conjunction with the aboltition of income tax to create a tax revenue zero sum gain.

        A land tax would reduce the cost of housing to New Zealanders while providing a tax windfall to the government, while the abolition of income tax would reduce the cost of labour with the knock on effect of reducing the CPI by reducing the cost of products manufactured in New Zealand. However, a land tax would also reduce the profits of the landed gentry – like the English family – and would certainly reduce the profits of the banks and bankers like English and Key and all their mates. However a land tax – as demonstrated in the 1800s by the most influential of the classical economists David Ricardo, not to mention Adam smith, John Stuart Mills and Karl Marx – cannot be passed on to renters. This is because classical economic theory has proven that the tax on land is taken out of the interest paid to banks and not the rent – which is dictated by the market.

        So no I’m not saying National is ignorant of economics at all – I’m saying that Nationals economic and fiscal policies are geared to their interests – where I mean Bill English, John Key and their mates specifically and absolutely NOT the interests of National voters or the wider New Zealand community.

        If you still doubt me about land tax, take a few minutes to listen to American geo-onomist (geo-economist) in an interview on the Australia radio show renegade economist on 3CR. Wendell Fitzgerald discusses the conflict that land owning MP’s and bankers face as well as the merits of land tax vs income tax and how a land tax – a tax on unearned income, a free ride – could remove the requirement for income, value added, sales or any other tax on earned income.

        Wendell Fitzgerald — “Conflict on Interest” on Renegade Economist, 3CR (Thursday, 27 August 2009)

  2. toad 2

    Marty, I suspect it was because the Free Trade Agreement with Singapore precluded the Government from considering the corporate tax, GST, and income tax take it would have received if it had kept the work in New Zealand.

  3. Jim Nald 3

    Fantastic!

    Our wise Minister Wayne Mapp is determined to ensure NZ widens the economic gap with Singapore.

    Hey Kiwis who love to travel, how about moving to Singapore for work?

    Tip to VT Fitzroy peeps:
    See you in Singapore, whoop dee doo?

    Tip for another National Govt Taskforce:
    ‘How to close the gap with Singapore?’

  4. Indiana 4

    “Wayne Mapp’s excuse is that the Singaporean bid was several million lower than the VT Fitzroy bid.”

    Why then did VTF not simply match the Singaporean bid? What can they do in Singapore that we can’t do to bid more competitively?

  5. ianmac 5

    VTZF said that their wages were about $60 per hour and they couldn’t compete with Singapore’s $30 per hour.

  6. wibblewithoutapause 6

    Has anyone got any information on salary differences between NZ and Singapore in the industry sector being discussed. I was interested to know how such an educated society like Singapore could pay almost half the salary rate of New Zealand… I went to http://www.worldsalaries.org/newzealand.shtml
    and
    http://www.worldsalaries.org/singapore.shtml

    These give salaries in USD so far as I can see… and i dont see a 2:1 ratio of salaries as was being claimed was the difference between the NZ bid and the Singaporean bid. So was the New Zealand bid padded up by the JV thinking it was a sure thing being based in NZ or was the Singaporean bid under market rates for this type of work? Or, could there be certain Singaporean government furnished tax breaks, incentives etc that allowed them to come in as the lower bidder? Ie based in a special economic zone which means their business costs may be subsidised?
    OR
    Does the NZ JV not have modern enough plant and equipment to undertake the fit out in a more effective and person-hour efficient way to beat the Singaporeans and others when it comes to such bids? Since I do not for a moment really buy the wages argument being the point of difference….

    • Realist 6.1

      The Singaporean bid was 20% less then V T Fitzroy. When service contracts are in the millions range this is a huge saving. Apart from that it was NIWA who made the decision.

      As for Singaporean wages – it is cheaper to live in Singapore for many S’porean workers who do not aspire to the luxuries expected by NZ workers. They have cheap Govt. housing, free medical, do not expect airconditioning, SUV’s, Armani suits, private health insurance and do not drink to the extent that we do and live on a cheaper and healthier diet than the West therefore living an economical and more family orientated lifestyle. And they are bloody hard workers!

      • wibblewithoutapause 6.1.1

        I would be impressed to find a kiwi company offering any benefits other than a wage.
        *Private health insurance from a kiwi employer ?- yeah right!
        *air conditioning…? – heck we should be so lucky
        *Armani suits..? Unless its a cheap imported knock off..not on my kiwi salary
        *SUVs….haha when your city is the country I don’t suppose thats a luxury of much use to your average Singaporean but then most kiwis only have them when the rest of the world is dumping its gas guzzling shitty old stock…I couldn’t afford to buy one let alone try n run one on my kiwi salary for sure!
        *Singaporeans are bloody hard workers – SO ARE KIWIS especially when they are given decent tools to work with from a company willing to invest in its infrastructure with or without government backing.

      • Jim Nald 6.1.2

        You are joking, right? Or being ironic??
        How often have you visited Singapore? And how long do you stay each time? And since when? And when was the last time you were there?
        How many friends and relatives of yours live there who you visit every few months and skype every day?
        What is the basis of your observations?
        That is a string of the stupidiest, most ignorant generalisations of Singapore and Singaporeans – totally out of sync from reality!

    • wtl 6.2

      Basically, the average wages in Singapore are cheaper than here because they exploit unskilled and semi-skilled workers from other Asian countries – paying them sh*t and having them work in appalling conditions. In my opinion, it pretty much borders on slave labour.. Pablo discusses this over an kiwipolitico, have a read if you are interested.

  7. djp 7

    If that is the case Marty then we may as well shut down all foreign trade

  8. Jim Nald 8

    The issue is how we engage in foreign trade; how we intervene, protect and develop local industries; how we ‘play’ the enabling, ambiguous, grey areas of international trade rules and laws –> for the benefit of NZ

    Some countries that started off from below us in the OECD played the foreign trade game to their strengths and advantage. And they have now overtaken us and are enjoying higher standard of living, eg Singapore and South Korea. Meanwhile, we have only read half the textbook, poorly executed half of that half, and failed miserably to cleverly follow through what we began.

    • wibblewithoutapause 8.1

      Thanks for the clarification, Jim … 😉
      We have to learn to play the game on what is really a very un-level playing field and when working to different rules for the same game….
      I do think it is wrong that the works went overseas, especially a government contract. You can bet your bottom dollar our cousins across the ditch and further afield would be more circumspect…maybe thats how they get a better lifestyle – within the rules you protect your own, keep the skills onshore and have the revenue to generate future wealth from innovation built from experience…
      SO…how can we do this, and explain it to the government as a novel (!) approach to future wealth generation that doesn’t rely on selling the family silver or screwing the third world with derivatives and currency speculation?

  9. Pablo 9

    Ianmac:

    I believe that your figures might be incorrect. SG$30/hour (roughly equivalent to NZ$ 31-32) would only apply to supervisory and managerial staff. The vast majority of those doing the labour would be foreign nationals paid far, far less.

    Realist:

    The comfy conditions you describe only apply to Singaporean citizens. Foreign workers of any sort are not, under any cicumstances, entitled to the benefits you describe, and they constitute the vast majroty of the blue collar labour force in the country (including shipyard workers). As for hard working–that may be a function of employer-biased labour laws and employer pressure under such laws rather than employee disposition. Moreover, Singaporeans do expect air conditioning. cars, maids and the like–that is the Singaporean lifestyle bought on the backs of cheap foreign labour. So your assessment of the Singaporean ethos is a bit off.

    My take on the issue is found here: http://www.kiwipolitico.com/2010/04/niwa-knobs/ (thanks wtl for mentioning it).

  10. Nick C 10

    Actually Marty you are the one who lacks economic literacy and is completely shortsighted.

    Firstly for the sake of argument lets assume you are correct that the tax/other benefits to government from doing this in New Zealand would more than cancel out the several million dollar extra they would have to spend. Unlikely but possible.

    The governments position is economically efficient when one considers the benefits of trade. Lets also say that the singapore army needs to buy new winter uniforms for troops, and they can do that for $20million in New Zealand or $25million in singapore. The NZ option is cheaper but the singapore option will overall benefit the singapore govt more when tax/other benefits are considered.

    In a world where both governments choose to buy the goods in their local country they will both be paying a higher price and the tax benefits to each government will be equal (as each country has a $25+million project). In a world where each country buys the goods in the other country, the tax benefits are no different as again each country gets one project, but the costs are much higher for both governments.

    You may be thinking; “But what if the singapore government is selfish and doesnt want to to buy our clothing, then surely all the benefits go to singapore”. This is a silly position; given that the NZ government is paying Singapore $20million in NZ money the question is; what will they then do with that money? Its worthless unless they spend it in NZ. They could sell it on the international currency exchange, but then whoever buys it is going to spend it in NZ at some point anyway.

    • Marty G 10.1

      “Firstly for the sake of argument lets assume you are correct that the tax/other benefits to government from doing this in New Zealand would more than cancel out the several million dollar extra they would have to spend. Unlikely but possible.”

      completely likely, hard to see how it wouldn’t be the case.

      “You may be thinking; “But what if the singapore government is selfish and doesnt want to to buy our clothing, then surely all the benefits go to singapore’. This is a silly position; given that the NZ government is paying Singapore $20million in NZ money the question is; what will they then do with that money? Its worthless unless they spend it in NZ. They could sell it on the international currency exchange, but then whoever buys it is going to spend it in NZ at some point anyway.”

      oh. my. god. that’s in the top five dumbest comments so far on this site. You’re saying that when NZ spends money overseas it doesn’t really go overseas because the overseas buyer has to buy something in NZ otherwise they can’t enjoy the value of their money? That’s just retarded.

      First of all, we’ll be paying in Singaporean dollars or US dollars. Secondly, you need a lesson in the money supply and I’m not going to give it to you know because its sunny and i’m going outside.

  11. Nick C 11

    Marty you’re clearly an idiot, that statement is accurate as NZ dollars are ultimatly worthless unless spent in NZ. How will the government get those Singaporean or US dollars to pay them with? They will trade them for NZ dollars, and at some point whoever buys those NZ dollars will use them to buy NZ goods, regardless of how many times they are onsold on international currency markets. So the benefits flow back to NZ at some point anyway.

    • Marty G 11.1

      nick c. you’re getting confused because you don’t understand money supply.

      think about how inherently wrong your statement must be. If it were true then every purchase anyone in NZ makes of a foreign good or service must result in a purchase of new zealand goods and service of equal value. we don’t have to worry about the current account deficit (buying too many imports and exporting too little) because it magically takes care of itself.

  12. Nick C 12

    “If it were true then every purchase anyone in NZ makes of a foreign good or service must result in a purchase of new zealand goods and service of equal value. we don’t have to worry about the current account deficit (buying too many imports and exporting too little) because it magically takes care of itself.”

    EXACTLY!!! Well put!! In the real world its more complex than that when you take into account the full balance of payments, but if you isolate the current account then that is exactly what happens.

    The logical proof of this is: why would a foreigner sell us goods (which involves them putting in hard work and us recieving the actual benefit) if they didnt want something in return from us? The thing they get in return is cash, which they can then use to buy stuff off us. Logically they must buy it off us, otherwise what is the cost to us from paying for the good (consider here that money is really just a voucher for goods)? The current account deficit merely indicates that we owe the world some net exports, which will be payed off in the future.

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