New Zealand’s brighter future

Written By: - Date published: 4:00 pm, October 2nd, 2014 - 139 comments
Categories: Economy, farming, john key, national - Tags:

There appears to be some serious problems developing as far as New Zealand’s economy is concerned.

Some thought when John Key announced that the general election was going to be held two months earlier than usual he was bringing the election as far forward as he could without appearing to be desperate.  And the past few weeks have highlighted news that suggests that our brighter future may be no more than a Crosby Textor inspired myth.

First there was Fonterra’s announcement of the forecast milk fat payout for the next year.  The expected reduced payout will cost the country $5.6 billion or 2% of GDP next year.  At an individual farmer level this will result in a reduced payout of over $100,000 a farm.  The causes are a surge in international production and a reduction by China in further purchases due to overstocking.  Medium term Fonterra is still confident that prices will come back but this shows the danger in relying on a growth in dairying to deliver us to economic growth nirvana.

Some wondered if the timing of the announcement of the size of the payout represented a conspiracy by Fonterra to hide the bad news until after the election.  I do not believe so as it appears that the announcement was made at the same time as previous Fonterra payout announcements.  It is more likely that National scheduled election day with the desire of making sure that it occurred before the announcement.

There was further bad news this morning that wholesale milk prices had dropped further and the expected total reduction in payout had increased to $6 billion.

Then there was a move by the Reserve Bank to drive down the value of the New Zealand dollar.  The  sell down of the dollar happened in August but the attempt was only publicised on September 29.  Bill English said the sell down was well timed and the markets had listened.  John Key thinks the goldilocks value is 0.65c, which is not too high and not too low.  It may have been intentional that the action was taken at a time where news of it was not going to be released until after the election.

The level of the dollar has been a problem for many years.  Ever since the Global Financial Crisis New Zealand’s currency has been overvalued and heavily traded.  In 2013 it was the tenth most traded currency despite New Zealand’s small size.  New Zealand has had a relatively high interest rate and a perception of being a safe investment and this may partially explain this rather startling statistic.

The value of the dollar is not a new issue.  In April 2014 David Parker noted IMF’s estimate that the dollar was overvalued by 5 to 15%.

The action will certainly help exporters but increase inflation and hurt importers and consumers.

Labour announced as policy a number of proposals which could have had a beneficial effect.  Flexible Kiwisaver account contributions could have been used to take steam out of the economy and regulate the value of the dollar.  A capital gains tax and restrictions on the overseas purchasing of farms could also have affected the flow of money into the country.

National ridiculed these policies at every opportunity.  But all it seemed to have as an alternative with by way of economic policy was more drilling and farming and an undefined on the never never tax cut.

Recent events show how dangerous it is to rely on an increase in dairy production to sustain growth.  And how National’s simplistic approach to economic growth may soon be revealed as being deeply flawed.

139 comments on “New Zealand’s brighter future”

  1. Marksman33 1

    Fed Farmers said today that the latest milk price drop was ” A kick in the guts “.
    Welcome to my world cockies.

  2. ghostwhowalksnz 2

    Having an early election means they can have at least a month of parliament to get through all their scary stuff, before closing down for 3 months.

    I guess all the special inquiries will be ‘late’ too so as to go public after parliament has risen for the year.

  3. les 3

    can anyone please explain the benefits/advantages to NZ in having a floating dollar?

    • Not a PS Staffer 3.1

      Teh alterative to floating is “fixed”. What would you fix it to? AUD, USD? EUR?

      A floating currency should allow us to relect our economy and strategy in the currency’s value.

      Unfortunately the Kiwi is the most over traded currency and has too high an interest rate. That is mainly because of the high level on investment in house property.
      A Capital Gains Tax would create more sensible investment behaviour and there would be less need for a high interest rate.

      • Kiwiri 3.1.1

        There is also the option of pegging the currency to a basket of currencies (usually comprising those of strategically selected trading partners). This option allows for better planning in the (re)development and transformation of a country’s economy.

        Will come back to discuss this but there should be others who can expand on the net advantages of this approach.

      • ghostwhowalksnz 3.1.2

        ‘Over traded’ is a myth.

        The currency trading is done in so called futures, as you dont have to use real money, only a tiny fraction of the amount traded.
        For $1000 down you can trade say $50,000 worth. For real trading in $NZ you have to buy it all up front

        • nadis 3.1.2.1

          no thats not correct. Most of the trading is actually in spot or forwards. Volumes traded in futures on the CME are a tiny fraction of actual traded of spot or forward volumes.

          But the point you make is kind of correct in that currency traders don’t need to front the entire amount up front. For instance if I (say) sell 10mm NZD now at (say) 0.78 then in 2 days I need to be able to deliver NZD10mm in return for receiveing USD7.8mm. But I have two days in which to close out the trade. My credit exposure to the cou nterparty is the difference between 0.78 and whatever the rate moves to. As long as i close out the trade before settlement in 2 days I dont have to front the full value, just the mark to market which is 0.78 *10mm/ close out rate.

          I could alos choose to do my transactions as of a forward date or roll them out prior to settlement.

          All u need is a credit line form a bank which is typically 1 to 5% of value traded, and at that point they have the right to ask you for a top up otherwise your position is closed out.

      • Colonial Viper 3.1.3

        Teh alterative to floating is “fixed”. What would you fix it to? AUD, USD? EUR?

        Kiwiri has it right. There ARE alternatives.

        NZ is one of the very few countries with a very predictable, unmanaged “clean float” of its currency. Makes it something beautiful to manipulate and speculate off.

        Most other countries use various mechanisms to achieve a “managed float” of the currency. The “pegged to a basket of currencies of trading partners” approach is very commonly used and gives a sovereign nation far more stability and discretion in their currency.

      • KJT 3.1.4

        We have a bloody high interest rate because of our absurd reserve bank ACT. Which gives everyone who has nothing to do with it, a kick in the guts in a vain attempt to slow Auckland house price rises.

        Every one knows the price rises could be reversed tomorrow, by limiting non-resident buying and immigration, limiting high geared loans for second houses, building State houses, a CGT, and taxing land bankers.

        However it will never happen as those who can do something to reduce house/land prices are making too much money off speculating in them.

        • Draco T Bastard 3.1.4.1

          +1111

          That is precisely the problem. A few people making a lot of money from speculation. It’s why speculation used to be a hanging offense and interest was banned.

          • aerobubble 3.1.4.1.1

            Maybe. Sure. Too few people actually making money off speculation, but far too many looking at their house price and thinking they are better off thanks to Key. Having never taken the lesson about bubbles and jerks who trade off them. Speculation is how middle nz believes it can get rich, a CGT was a threat to that, despite the imposition of a CGT finally increasing the stress on boardroom NZ, finally getting boards to think about real growth rather than any capital growth.

        • Chooky 3.1.4.2

          @KJT..+100….”Every one knows the price rises could be reversed tomorrow, by limiting non-resident buying and immigration, limiting high geared loans for second houses…”

          ….and how good was the Labour Party policy on these issues?…the Labour Party had policies which did nothing much to stop these things as far as I could see

          • GregJ 3.1.4.2.1

            The policy on overseas speculation is here.

            Main points:

            *clamp down on the sale of rural land to foreign buyers by limiting the discretion of the Minister to approve sales,

            *restrict the purchase of residential property by non-residents, so that they will only be granted permission to purchase a residential property if they intend to live here permanently or that purchase adds to our existing housing stock, e.g. building a new house,

            *not allow infrastructure with monopoly characteristics to be sold to overseas interest.

            Not necessarily perfect but It was a start.

            • Chooky 3.1.4.2.1.1

              should have been propounded and publicised by Cunliffe at every opportunity! ( I did not hear it loudly in the debates)

              ….but the msm was so keen on attacking Cunliffe ….that all Labour’s really good policies, which were very different from Nactionals, were blindsided

              ( thankyou right wing msm for the crisis NZ is now in)

              i think the right wing also managed to fudge the issue by placing the emphasis on a Labour CGT for ALL New Zealanders

              …which was not a winner with the struggling middle class and their small investments in their farm and business and one rental retirement investment….

              (Labour should have placed emphasis for CGT on the truly big speculator investors and the banning of overseas ones)

              • GregJ

                Yep – I’d agree with that.

                Unfortunately you can’t rely on decent policy analysis from the MSM where everything is reduced to sound bites in a “presidential” style campaign.

                Labour and Cunliffe (if he’s allowed to) could learn a lot about messages and simple policy articulation from this election and build on it for the next.

                As an aside “Economic upgrade” didn’t/doesn’t really seem to work as a slogan either. It implied some tweaking around the edges of a system already working rather than something promoting fairness and targeting inequality in a system failing to deliver for many.

    • Draco T Bastard 3.2

      The idea is that a floating dollar will automatically maintain a balanced current account. It’s supposed to do this by the value of the currency dropping as imports exceed exports thus making imports more expensive and our exports more attractive to overseas buyers. And vice versa of course.

      This has never happened due to one thing:

      Interest Rates

      New Zealand has consistently had higher interest rates than pretty much anywhere else in the world for as long I can remember which means holding our dollars (technically, Bank bonds denominated in NZ$) gets a better return than holding anyone else’s which pushes our dollar up on the exchange rate.

      This also floods our market with a lot of hot money which is looking for a return and banks, being risk averse conservatives, put most of that money into one market – housing. This inevitably results in higher house prices.

      Now, having a floating dollar could work but it requires a couple of adjustments:

      1. Zero percent interest rates
      2. A ban on foreign ownership

      Do that and then the only reason why anyone would buy our dollars is if they want to buy our products.

      • Nic the NZer 3.2.1

        “The idea is that a floating dollar will automatically maintain a balanced current account. ”

        Pull the other one, there is simply no reason to believe that the current account will balance itself.

        “It’s supposed to do this by the value of the currency dropping as imports exceed exports thus making imports more expensive and our exports more attractive to overseas buyers. And vice versa of course.
        This has never happened due to one thing:
        Interest Rates”

        In fact this believe by economists that a floating exchange rate will balance the current account appears to be based on their idea that the economy will naturally head towards what is called an equilibrium. One thing which has been consistently shown is that the theoretical requirements for the economy to naturally head to an equilibrium are perverse and extremely unrealistic. In other words even with interest rates following some other regime there is no reason to believe that NZ will have a balanced current account.

        “New Zealand has consistently had higher interest rates than pretty much anywhere else in the world for as long I can remember which means holding our dollars (technically, Bank bonds denominated in NZ$) gets a better return than holding anyone else’s which pushes our dollar up on the exchange rate”

        As you allude to later the interest rate in largely dictated by the RBNZ, so the choice to have a high foreign exchange rate is largely theirs. In fact this should be obvious from their recent interventions in the market (dramatically lowering the exchange rate). But this is in reality just a kind of political decision to favour the NZ economy exporting more and making some imports more expensive.

        One quite negative impact of the equilibrium/floating and current account debate is it leads to a competition between countries in exporting. This competition can never result in *all* of those countries competing gaining an advantage through exports (trying to run a current account surplus), because the net of current accounts between all countries must always be zero. The result of these policies is typically to lower wages in those economies which try to compete in such a policy.

        • Draco T Bastard 3.2.1.1

          Pull the other one,

          Just pointing out the hypothesis.

          there is simply no reason to believe that the current account will balance itself.

          Actually, it can’t and not just because of the interest rates as I pointed out. The lack of diversity in our economy forces us to buy many essential things (Oil, cars, computers, etc) from offshore which prevents people changing their buying habits due to prices changes from changing exchanges rates.

          One thing which has been consistently shown is that the theoretical requirements for the economy to naturally head to an equilibrium are perverse and extremely unrealistic.

          The entire mainstream economic theory is based upon unrealistic assumptions. This has been known by economists for at least two centuries and yet, despite not being able to replace those assumptions with facts, they keep the false theory.

          As you allude to later the interest rate in largely dictated by the RBNZ, so the choice to have a high foreign exchange rate is largely theirs.

          The RBNZ is largely restricted there due to being legislatively required to keep inflation down and only having the OCR with which to do it.

          This competition can never result in *all* of those countries competing gaining an advantage through exports (trying to run a current account surplus), because the net of current accounts between all countries must always be zero.

          QFT

          This is why I’ve been saying that we should be as independent as possible producing everything that we need here. Trade between countries would essentially be limited to luxury items (and NZ doesn’t have any).

          • Nic the NZer 3.2.1.1.1

            “The RBNZ is largely restricted there due to being legislatively required to keep inflation down and only having the OCR with which to do it.”

            That narrative depends on how much you buy into the economic theory which is, ‘based upon unrealistic assumptions’.
            http://fixingtheeconomists.wordpress.com/2014/10/01/the-economic-consequences-of-the-overthrow-of-the-natural-rate-of-interest/
            The mainstream theory just tends to repeat, if you try to solve that economic issue there will be inflation, blah, blah, blah. Its mostly bullshit nobody needs to believe that the reserve bank is really doing that much about inflation anyway.

            “This is why I’ve been saying that we should be as independent as possible producing everything that we need here.”

            Why? The current account is a non-issue.

            • Draco T Bastard 3.2.1.1.1.1

              That narrative depends on how much you buy into the economic theory which is, ‘based upon unrealistic assumptions’.

              Well, the entire RBNZ is legislation is based around that theory. It does the exact opposite of what it’s supposed to do but the OCR is still the only tool that it has to work with.

              Why? The current account is a non-issue.

              Actually, it is an issue because we have to honour those dollars with our limited resources. Our present system of selling everything off as fast as possible will leave us poor and so it’s something we need to stop.

              • Nic the NZer

                “Actually it is an issue because we have to honour these dollars with our limited resources”

                What does that even mean. It appears to imply that the current account deficit will vanish (maybe go into surplus) when overseas agents want to redeem their savings. That doesnt seem to be an issue then does it in fact you just called for it to happen sooner.

    • Nic the NZer 3.3

      The main benefit/advantage to NZ having a floating dollar is that RBNZ doesn’t need any pool of foreign currency assets in order to operate a fixed exchange rate. In 1984 there was a major event, what is called a currency crisis, but which has typically been described as NZ going broke. In fact what happened was that the government didn’t have sufficient foreign exchange reserves to defend its fixed exchange rate. After using this event to help get into office the Lange/Douglas government then closed the door (so nobody else could do the same thing presumably) by floating the exchange rate and NZ can no longer have such a currency crisis. Neither can NZ run out of NZ$, which it still could not and didn’t during the currency crisis.

      That is a major advantage because government spending tends to put downward pressure on a fixed exchange rate. It means that the NZ government can engage in as much spending as it wants at any time, without having to worry about maintaining a fixed exchange rate.

      • Draco T Bastard 3.3.1

        Neither can NZ run out of NZ$

        And yet they act as if they can borrowing when they have no need to.

  4. blue leopard 4

    Micky,

    Sorry I think there must be a spelling error in your post’s title, its meant to be ‘blighted’ isn’t it? #TheresOftenTruthInJest

  5. Marksman33 5

    Yeah , Fed Farmers the staunchist union in the country ! No wait, that would be Greg O’ Conner and the Police Association. Whew can’t decide.

  6. peter h 6

    Not just that
    80 billion govt debt
    50 billion farm debt
    highest ever household debt
    higher petrol prices
    11% drop in household confidence
    13% increase jn business confidence
    And all the sheep go BAA

    • ghostwhowalksnz 6.1

      Plus big slowdown in China, Russia banning dairy imports ( Thanks John Key and Tim Groser)

    • Paul 6.2

      We are a selfish people now affected by 30 years of neoliberalism.
      The mantras of ‘there is no alternative’, ‘greed is good’ and ‘there is no such thing as society’ had had its effects.
      We as a people blame the poor for the faults of society.
      To care for others has become counter cultural.

      • blue leopard 6.2.1

        +100 Paul

      • marie 6.2.2

        Absolutely agree.

      • aerobubble 6.2.3

        120 Mps. That’s all. This is not victorian England where 4 million ruled the world, this is a 7 billion people world with intense detailed regulation remits, that needs a parliament that will import good practice. The very fact we do not as a rule match Australia’s tax structure, for example, etc, shows a deep amateurish or incompetent parliamentary body. Distortions are how cheaters make money.

    • Paul 6.3

      The middle classes who voted for Key in this election will begin to see the impacts of voting for global corporations when the TPP is passed into law.
      You only have to look at the US to see what’s coming next down the track.
      10 years ago I was absolutely bemused that Americans would vote Bush back in. Now this country has voted back in Key. We have become an uninformed and politically ignorant nation.
      Just as the owners of this country planned all along.

      • Bruce 6.3.1

        You represent Labour Party arrogance and narcissism well. Perhaps you need to sort out your own tragic mess of a party before declaring the country ignorant because it didn’t vote the way you wanted.

        • yeshe 6.3.1.1

          bruce .. is that u again Jason ?

          +100% to Paul. Any power we have is gone forever if TPPA is signed as intended by Key and Groser.

      • aerobubble 6.3.2

        People in the US vote Bush because he had a clearer… …oops… …SCOTUS decision.
        People re-elected Bush, because the US is a great country, needing defending from terrorists and lying climate liberals, etc.
        Key was returned to office, because they believe in trickle down, handing 40% to the top 10%… …no, thats not it… …because they like house prices being kept high for fear that their wealth and standing will suddenly drop to where they actually know it should be. Smart, motivated, kiwis will continue to leave, and those left behind will always feel they aren’t as capable or as keen, and so need a strong conservative leader to take them by the hand, and lead them into a brighter future, that will keep them ‘special’, and the evil market from crushing them. Debt.
        Kiwis love debt, they just won’t believe the ‘left’ contention that we can grow organically, rather than lard out on speculation and so pay double, repaying both capital and interest.
        NZ a fat lazy economy based about pigging off the farm export penny with leveraged finance. NZ has one of the biggest financial sector cancers in the western world, per head of population.

      • Tony 6.3.3

        Can you point me to the text of the TPP. I see lots of people talking about it but haven’t been able to find the text of the agreement anywhere.
        You have obviously read it so can you give me a link.

    • Andrea 6.4

      Y’reckon we’ll see petrol past $2.50 this time? Y’reckon?

      And the good old NZ govt helping us out like in the 70’s for car conversions to CNG? Y’reckon?

      And the pigs are fed and ready to fly.

      • Thinker 6.4.1

        Maybe not those things, specifically.

        But we are on the cusp of a brighter future, and we might get a tax cut sometime.

        Hold that thought, when life gets you down a bit…

        • yeshe 6.4.1.1

          Thinker ? What a grand delusion … I hope you have someone to help you when it sets in.

        • thatguynz 6.4.1.2

          I assume you went with “Thinker” as a pseudonym because “Dreamer” was already taken? Clearly a misnomer.

  7. mikesh 7

    There seems to be a, possibly temporary, lift in beef sales to the US. Serendipity rules OK.

    • Saarbo 7.1

      Imagine how all of those farmers feel who have converted from Beef to Dairy in the last couple of years? bummer.

      • Chooky 7.1.1

        they will have to convert right back again to sheep and cattle and crops …very fast

        …it is not as if this down turn in dairy was unexpected…with all the land conversions to dairy around the world, the bubble was sure to burst….cautious farmers and other people have been saying it for the last 10 years

        ….shows very poor long term economic management by Nactional to be putting so much reliance on dairy industry and not enough investment in other areas… in fact running down other exporting industries and making it difficult for manufacturers and others with the high NZ dollar ( the Greens economic analysis was correct )

        (ooops see this is all said below)

        • Saarbo 7.1.1.1

          Yep, and also sheep and beef is a heck of a lot easier/better environmentally and more relaxed to run than dairy…

        • Wreckingball 7.1.1.2

          This exemplifies the fundamental difference between the left and the right. The left want to manage the economy because they know best.

          National didn’t put “reliance on the dairy industry”, farmers saw an opportunity to make super normal profits and invested. Some of those farmers will go broke as a result of the fall in prices, and then the economy will readjust.

          Why do politicians and armchair critics think they can run the economy better than those people actually involved in each individual industry???

    • Treetop 7.2

      I heard about the beef shortage in the US. Two porterhouse steaks are going to cost $2 more in NZ. Watch anything beef increase, even greasy mince.

  8. Paul 8

    And overseas banks prioritise even more profits over jobs in New Zealand.
    This is the start of the globalised economy eating into middle class jobs in the country.
    Wonder what will make some people realise that the way our economy is run does not look after them?

    http://www.stuff.co.nz/business/industries/10572402/ANZ-moves-jobs-to-India

  9. coaster 9

    Nz wanted more of the same, many that I know hated the idea of the five headed monster(what an awesome piece of spin) and for some reason realy dislike david cunliffe.
    The catchphrase that these were unforseen events but kiwis tightened their belts succesfully after the global economic crisis and having had 3 years to breath easy kiwis might need to use that extra notch in the belt again ” will probably be used.

    sadly for most of us, if we tighten our belts futher we will end up like lambs tails except our legs will fall off.

    • Paul 9.1

      The banks and this government, their agents, have a lot of power over many NZers.

      The reason why many middle class NZers voted for Key’s government is because they are hoping CGT on their rental property will be their nest egg. These are scared people, massively in debt to the banks, whose economic plan relies on the housing bubble.
      If that collapses, they have no plan b.

    • bearded git 9.2

      but Coaster, surely you dislike Key more than Cunliffe?

      Your answer to this question will help to explain the election result to me.

      (though the fact that you can’t explain why you dislike Cunliffe probably explains much; the destrutive msm campaign against a fundamentally sound and intelligent man)

      • Murray Olsen 9.2.1

        I think Coaster is saying many people that they know dislike Cunliffe. I had to read it twice. If I’m right, Coaster has nothing to explain in terms of disliking Cunliffe.

        • CrashCart 9.2.1.1

          Yea to be fair I would hear the same thing over and over again. I come from a very blue family and every time I would have an argument with them about policies and why were they voting National it primarily came down to “Oh well I don’t like/trust Cunliff”. I would then ask why and they couldn’t give a specific reason (that is how good the smear work done on him was).

          The only response I could give was if you were going to hire an accountant would you hire someone who was a qualified experienced accountant or would you go down the local pub and hire the guy that every one likes but just spent his last dollar on a shot of Burboun?

        • bearded git 9.2.1.2

          sorry murray you are right, and apologies to Coaster.

          But the point I’m making, which drives me mad, is that I have left of centre friends who say “I don’t like Cunliffe” but never seem to say “I don’t like Key”.

          If Cunliffe wins I think over 3 years this will change, or at least become diluted as Key’s brand is destroyed when people finally see through him and they are disappointed in the “rock star economy” they were promised.

      • tc 9.2.2

        Also snowden, greenwald and others are now viewed as criminals and frauds thanks to solid MSM hammering and don’t get them started on KDC it’s like kick starting a lawn mower.

    • aerobubble 9.3

      Surely the lesson of 2014 was there were too many voices, that Cunliffe made a strategic error when he failed to unite with the Greens, and let Hager, Dotcom, and a smorgasbord of some 10+ parties plague the ballot. Hey, even the weed party got more party votes than UF!

      Some bright lights, sort of, brighter lights in the doom of a night on a darkened road.
      Mana is gone, Hone imploded and is likely to retire. Dotcom is out of the favor, politically toxic. Labour might actually finally invent a panel of national voters to run their platform past before they open their smug fat know it Dunne like mouths.
      Whtye misses the Waka. Maori party knocked back further, now to ?two?

      Labour has a choice, find a strong leader and return to polling in the 40+, or recognize they are the largest minor party and form a block, an alliance.

      • greywarbler 9.3.1

        @ aerobubble
        Funny I don’t feel very happy after reading your latest. Do you really think all that imploding is good for NZ and Labour. It read as if you think Labour hasn’t a chance without all the little parties lying down on the road and waiting to be run over.
        edited

        • aerobubble 9.3.1.1

          Labour needs a new leader that either gets traction with voters, i.e. 40%+, or doesn’t and has to build a alliance. Cunliffe did neither and lost. Certainly, its not a bad outlook for Labour, give the NZ is an export nation, Key has little to do with our economic strength, and everything to do with misfiring at home.

          Christchurch Earthquake means a huge re-investment in the EQC.
          Dairy demand collapse, means a huge debt stress wave across the NZ economy.
          Again, nothing to do essentially with Key, upside or downside.

          What Key did do, that Labour would not of, was? Can you remember Cunliffe stress what Key actually did? Rewarded the top 10% with 40% of the value of the tax switch. That meant, lower and middle incomer earners, got to pay more of the revenue, got to pay interest on debt, got less spent on them as Key cut, and got less revenue from assets Key sold off. All in the middle of a GFC and as Key says, as Z entered a recession. So when we were all being hit, Key double, tripled and then quadrupled the pain. And locked it in, as nobody is going now to unswitch the revenue burden.

          So yes, its going to get worse, and Labour prospects will be looking up, but unless Labour start honestly point to the fact that Key does not create global demand, or earthquakes, but does stiff middle NZ with a giant wealth grab…

          So no, maybe Labour prospects remain poor, until they find someone with half a brain to run Labour.

  10. GregJ 10

    Kiwiri posted over on Open Mike the link to the July Bloomberg article on the projected Global Milk Supply glut for the next five years.

    That article had a forecast of NZ$7.00/kg milk solids, Fonterra announced 24 Sept $5.30 and today the ANZ & Westpac <forecastsare for $4.85 & $4.80 with the salient point being:

    “This sits well below the average cost of production for farmers and will have a significant impact on discretionary spending,”

    • Paul 10.1

      This video was posted as well and show how the US dairy industry has increased production.
      Reckon a whole post on the dairy industry would engender a good discussion.

      • GregJ 10.1.1

        Thanks – very interesting.

      • tricledrown 10.1.2

        Paul Ireland former eastern block countries south american countries Australia China
        Many other countries as well have all increased production on the back of the recent high prices !
        Primary commodity industries are easy to expand quickly!
        the only hope for NZ is for droughts everywhere but NZ ,for the next five years!
        the large increase in manufacturing in recent years has been because of the dairy industry! that will rapidly decline!
        Our dollar will fall inflation will take off the reserve bank will increase interest rates that will encourage speculation on the NZ $ causing stagnation and recession!
        back to the 1990’s .
        nationals naive economic policy has come home to roost no plan b just another bout of austerity or more muldoomist borrowing and hoping!
        look after the speculators and capital gaingters bugger the rest of you smile and wave will Con you!

        • Melanie Scott 10.1.2.1

          Rod Oram last week spoke on National Radio about a report which analysed the performance of large dairy corporations. Worth listening to, especially the comment about Danone – worlds largest Dairy corp and its comparative efficiency in converting milk products into big profits. It would appear to make Fonterra look like a bunch of complete idiots, complacent and arrogant ones too.

          • Kiwiri 10.1.2.1.1

            Had a chat with dairy farming friends last week who were livid with Fonterra. I should have asked for more details as to the reasons but will see them again by Christmas. Hope they are getting by ok.

          • RedLogix 10.1.2.1.2

            It would appear to make Fonterra look like a bunch of complete idiots, complacent and arrogant ones too.

            My professional engagement with them (admittedly some years back now) would confirm that. At one level there are indeed a lot of very technically capable, non-idiot people. At another level it’s plain that they are constantly hindered by an intensely political, confused and conflicted management regime.

            Or as my father once said, “most kiwi managers are well-meaning amateurs at best”.

    • bearded git 10.2

      Even more salient Greg I’m sure I read somewhere that this ANZ prediction included an expected bounce back from the current awful prices.

    • aerobubble 10.3

      Why do you think Key wants Peters on board, so he can tackle the economy. Key’s locked in the nation to a huge revenue burden to fund a wealthy few with tax cuts, Then sold assets, run up the credit car, and missed opportunity to change course.

  11. Richard 11

    Dollars dipping, dairys dipping, 93 billion and interest owing. Has to be paid loss of income means higher taxes, higher interest, financially we are in deep shit. Deep, deep, shit.

    Imports are going to go up things will get bad, all those home buyers in Auckland with 6-7% interest rates on half a million, are going to see hard times, no wine, no sky, and a struggle to make ends meet, welcome to Keys brighter future, live for today, when I’m sick of it all that will be about the time the borrowing will come crashing down on the people, and I can fuck off to Hawaii for golf with the pres mentality. If bush can bullshit the US I can fuck with NZ and play PM , no worries.

    Oh we are screwed I foresee in my magic ball a depression like no other for Kiwi’s.

    Inflation is going up.

    ..then again ..shakes magic ball you told me labour would win by a landslide.

    • aerobubble 12.1

      Funny idea. Okay, maybe not so funny. But could, may perhaps, the tories are looking at NZ thinking that what they should have done was give the top 10% a huge tax cut.
      And here’s the joke. The NZ economy never went through the correction. Yet to happen, and so Key’s trickle down looks great in the distorted neo-liberal bubble, the pre-GFC economic settings, that no longer exist in the UK.

      It would be like the blind discovering that the blind could led them, after they tried all that already, and were suffering the trauma’s from the blind leading them over the cliff.

  12. Andrew 13

    You cynical buggers, Do you enjoy it when the country starts hurting ! we may not have got our govt set the way we wanted but we still need a strong economy . Jez this is exactly why the party is in such disarray. your playing the man not the ball!

    • Paul 13.1

      Not at all.
      People have commented a long time about the dangers of running a 1 trick economy.
      And you don’t get an economy that works by simple cheerleading.
      Adding value, using our (diminishing ) reputation as a high quality clean green source….
      this is what is needed.
      Owning our economy rather than flogging it to multinationals.
      There’s no celebrating the fact that NZ is heading down the gurgler on its present settings.
      However, people here have said this would happen when you lose control of your economy.

    • Saarbo 13.2

      No one is doing that @Andrew. Many here including myself are rightly challenging a government which has at the heart of its economic policy the doubling of exports by 2025, a big part of this is via growing Dairy. But Dairy is collapsing, many on the standard predicted this downturn including myself. Certainly no one is enjoying it.

      As a Labour supporter the promotion of “value add” is an important part of Labour policy, it not only adds jobs but also is good for the country. From Fonterra’s point of view they need to be driving the “branding” and higher end products similar to Tatua co Op in Morrinsville sooner rather than later. Labour’s R&D policy would have made this transition easier.

      Also a CGT would bring down the price of over valued dairy land reducing the growth of debt…only 4 weeks ago a dairy farm sold in Waikato, 30km away from a main centre for $50 kg ms…absolutely ridiculous money, completely uneconomic. This is growing our private debt out of control and the banks are pushing these unecomomic sales, I suspect that is why they are playing things down.

      I could write a book on the problems with national’s approach to the dairy industry, I haven’t even touched on the environmental side…

    • GregJ 13.3

      Fuck off.

      I have a brother who is a dairy worker, a brother-in-law who works in Fonterra corporate, another brother-in-law who manages a farm machinery business, my father is a retired dairy worker living in a country town. Most of my immediate family (siblings, nieces and nephews, cousins & their families) live and work around small towns in the Waikato or in Hamilton.

      You think I enjoy seeing the prospect of their jobs, well-being, standards of living being affected by a downturn caused by slumping dairy prices? That I’ll enjoy it if they are thrown onto the mercies of a welfare state decimated by a Tory government?

      No I’m pissed off by a government so short-sighted that it’s economic plan rests on dairy (almost to the exclusion of any other primary production), historically high dairy prices, tax cuts for the rich, assets sales, a re-build bought about by the tragedy of the Christchurch earthquake(s). One that demonizes the poor, sneers at the low income workers and bullshits the “aspirational” middle-classes while making them worse off.

      You are a sanctimonious prick.

      • greywarbler 13.3.1

        @ GregJ
        Why are you taking your angst out on us? We have been writing about all the things you fear or are angry about for, it seems years. It isn’t our fault that NZ is where it is and many are taking really bad medicine already as things deteriorate. It could get worse, every upturn goes to some downturn. Hope it doesn’t hurt your family much.

        • GregJ 13.3.1.1

          It was a response to Andrew who claimed we (here at The Standard) were cynical and enjoying see our country potentially (and probably) hurt because dairy prices were falling. I took it he was insinuating those of us on the left were “enjoying” seeing National’s economic policies begin to fail – failing to recognize that even as we lament the short-sightedness we all have family and connections that will suffer and no one enjoys that.

          Sorry – I just saw “red” (and it wasn’t the good type!)

          • greywarbler 13.3.1.1.1

            @ GregJ
            Oh. Right. I was puzzled. I had been reading your comments before and thought it was a lurch away from your usual position.

    • lprent 13.4

      You can see me starting to warn about the dairy crash 6 years ago.

      Blame the useless pricks in your current government for being so concerned for short-term profit that they stopped almost all export growth except for dairy powder.

      • Saarbo 13.4.1

        I just heard Kim Campbell on RNZ saying that the dairy collapse wont be a problem because we have “a diversified economy” and then even worse, he went on and said “we have Christchurch, which is the GIFT THAT KEEPS GIVING”. This guy is a major arsehole.

        One thing is for sure, this will be a major problem. If losing $6b per annum isn’t a major problem then why the hell bother even trying to increase exports.

        • left for dead 13.4.1.1

          I heard that too,I despair.They come out with these one liners like sum comedy show,they should leave that for us,were its way less offensive .Captains of industry.BS

        • Tracey 13.4.1.2

          he said it would be offset by lower dollar aiding other industries…

          • aerobubble 13.4.1.2.1

            Kiwis have a lag in investing in added value, leaving us behind the world, and a love of debt keeping a interest rick premium in play. NZ thus does well when the global economy overshoots, like the EU which started cutting production to keep prices high. Now the GFC changed the map, the imbalances in interest between nations has fallen, and as globalization continues and financial interchange, like carbon trading, unites the world economy into one. Even corporate tax avoidance is being reigned in. So the kiwi love of a risk premium comes under threat, we won’t be able to attract investment without it, unless we restructure the kiwi mentality, its love of debt and living for the next sheep’s back or cows udder. Kiwis will have to learn to take real risks, not cheap housing bubble speculation, but real investment into real industries that could really fail, and won’t be bailed out by government protections (like no CGT, like workplace reforms that force competent skilled employees to fly out of Auckland forever, like regulation capture and niche retailing, to protect our very own lordly class who expect their dividends without actually having to play on a level playing field).

            Our parliament has legislated a soft landing for our managers, shored up by risk premium, by regulatory capture (think Skycity but on a smaller scale, and rivers running with pollution, consumer and mines inspectors lacking, etc). i.e. we were at the edge of the world, now we right in the middle with everyone else, as the global market replaces barriers with opportunities.
            Opportunities that debt loving easy street managers are incapable of risking real money to invest into.

          • greywarbler 13.4.1.2.2

            For those not in the know, Kim Campbell is Chief executive of the EMA since 2011. White, balding, greying, well-fed, looks happy, probably getting good returns for moaning about every attempt to improve worker conditions.

            Indication of his attitude to any innovative social changes. –
            Kim Campbell | The National Business Review
            http://www.nbr.co.nz/tags/kim-campbell
            Jun 25, 2014 – Kim Campbell, EMA Chief Executive … EMA slams iwi role in Auckland Plan · Kim Campbell, Chief Executive of The Employers and …

            http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11136325
            Peter King of the Anglican Family Centre puts the case for the Living Wage with comment from Mr Campbell.
            ‘At 65 per cent of the median wage, New Zealand’s minimum wage is reasonably high, and it could be higher, though if it were, many people, including the lesser skilled and those seeking their first job, could find it harder to get a job.
            The minimum wage was always intended as a wage “floor” and as a protection against exploiting unskilled people. For most it is a stepping stone towards more skilled, higher-paid work.’

            The EMA is Employers & Manufacturers Association still going for 100 years, though unions are struggling. A message there. Perhaps because they can afford these services. ‘With over 100 years experience, EMA provides its members with free legal advice, quarterly market briefings, national wage and salary information, employment law guides, export opportunity, targeted business training and a voice for New Zealand business. ‘

            Some useful information from their site:
            The New Zealand economy is made up of around 95% small and medium sized business owners. They are the back bone of the economy with almost 40% of the total economic output and 30% of the work force.
            and
            07 Aug
            Labour’s small business policy best so far
            Labour’s package backing small businesses is the party’s best policy effort so far, the Employers and Manufacturers Association says.

  13. Simon 14

    The concern is how many farmers will be pushed to the wall. For many farmers, their greatest expense is interest on debt, with some need $6pkg/milk solid to break even. Those who have recently converted in Cantabury with expensive irrigation systems, in addition to those who have converted pine plantations etc.

    The question then becomes, if these farmers are pushed to the wall, and a forced to sell, what does this do to the value of other farms, and then is there a knock on effect as debt/equity ratios get out of whack and banks start demanding repayments, or withholding overdraft access etc.

    On the upside, beef prices are going up and up, which is good for dry stock farmers, as they have been hit hard for about a decade.

    • Paul 14.1

      And we have a government happy to sell off productive land to foreigners.

      • mickysavage 14.1.1

        That is the scary bit. A downturn may accelerate overseas ownership of our productive land.

        • Paul 14.1.1.1

          I actually think it was the plan.

          • tc 14.1.1.1.1

            Yup, the greatest trick the devil pulled off is to convince folks he doesn’t exist, he’s just an aspirational friendly guy.

            We’re being traded, conditions need to become more favourable, laws will change, RMA gutted and game on. Watch out for urgency in the house before Xmas.

          • aerobubble 14.1.1.1.2

            The plan for Fonterra, grow its exposure to bad investments, provide an avenue to farmers to get into greater strife (sell off future profits to keep on the farm), and then pow-pow-pow a triple whamming. Banks calling in debt, Fonterra having nothing in hand, and demand collapse.

            • tc 14.1.1.1.2.1

              Fonterra is a co-op so it must distribute to its members regularly, so no reserves of note.

              It’s this structure that way too many overpaid managers and incompetance which leads to overspending gets smudged into.

    • Saarbo 14.2

      Banks pushed many off farms in 2008/09 (Crafar farms being the highest profile but there were many others)…this is looking worse.

  14. Peter 15

    None of this, or any of the other issues followed keenly by political junkies, is of any consequence as long as middle NZ believe the Blue team will do a better job than the Red team. With the Red team currently imploding in spectacular fashion they have little choice other than to follow the Blue team, regardless of any evidence to the contrary.

    • Paul 15.1

      It’s hardly the red team ATM.
      More like a paler blue.
      Until it’s red again, Labour does not offer an alternative to neoliberalism.
      1 million non voters testify to that.

      • bearded git 15.1.1

        Exactly Paul. Dita de Boni’s superb commonsense recent article in the Herald summed up what Labour should be doing. This should be printed in big font and stuck up at Labour HQ.

    • GregJ 15.2

      Fuck off.

      I have a brother who is a dairy worker, a brother-in-law who works in Fonterra corporate, another brother-in-law who manages a farm machinery business, my father is a retired dairy worker living in a country town. Most of my immediate family (siblings, nieces and nephews, cousins & their families) live and work around small towns in the Waikato or in Hamilton.

      You think I enjoy seeing the prospect of their jobs, well-being, standards of living being affected by a downturn caused by slumping dairy prices? That I’ll enjoy it if they are thrown onto the mercies of a welfare state decimated by a Tory government?

      No I’m pissed off by a government so short-sighted that it’s economic plan rests on dairy (almost to the exclusion of any other primary production), historically high dairy prices, tax cuts for the rich, assets sales, a re-build bought about by the tragedy of the Christchurch earthquake(s). One that demonizes the poor, sneers at the low income workers and bullshits the “aspirational” middle-classes while making them worse off.

      You are a sanctimonious prick.

      [Edited to note your original comment appears to have changed – hopefully so has your mind]

  15. geoff 16

    Large structural changes in global dairy production are inevitable. If Western farmers can make out like bandits under the present system then it is only a matter of time before less developed nations undercut them with cheaper labour and less stringent environmental regulations. And this doesn’t even take into account the potential for biotechnology to completely up-end conventional food production in the coming decades.

    • tc 16.1

      We can never compete with larger economies, closer to the markets with lower standards of pay, environment etc.

      You will probably see the ‘internationally competitive’ dogma being rolled out as a reason for taking NZ pay and environment down that path as dairy farmers will be portrayed as economic saviours that must be assisted.

      National needs little excuse to reward farmers at the best of times let alone this inevitable dip.

  16. Paul 17

    NZ Herald editorial ( probably written by Key biographer John Roughan) lectures the Greens.
    Drop your social concerns, forget poverty and inequality and buddy up with the Nats.
    It’s in a section called ‘Best of the Herald.’
    What the worst like?
    And doesn’t Roughan get the Greens?
    Principles matter.

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11335852

  17. Rodel 18

    A week after the election was the Sealord announcement (100+ jobs gone). Two weeks later ASB job losses and now Dunedin redundancies. But wait there’s more!

    • Wreckingball 18.1

      Here is a good idea – let’s put the minimum wage up further and drive even more jobs offshore…

      • Draco T Bastard 18.1.1

        It’s not the minimum wage that’s causing the job losses.

      • aerobubble 18.1.2

        What, and have to deleverage, I make so much money from screwing every cent and then leverage it, capital gain is the future of NZ, the brighter future. Take real assets, place them in debt, sell off future profitability, then squeeze every employee, and pay the board proper remunerations for their capital gain farming.

        Yeah, maximum wage limits of boards, 10 times lowest paid, then we might actually see jobs growth in NZ. People paid too much hiring more staff for the same money they are paid (and themselves much much less).

      • One Anonymous Bloke 18.1.3

        Cullen raised the MW nine times in nine years and unemployment went down to its lowest level in NZ history.

        Why does Wreckingball tell lies? Charity urges that we assume they’re another victim of the low IQ so typical of right wingers, rather than deliberately malicious and twisted by hatred. I have my doubts.

  18. Treetop 19

    Bad news all round, cockies will do it tough, supermarkets will still charge too much for dairy products and less money spent in retail. Last forecast I heard per kg of milk solid was $4.85, prior to that it was $5.30. It can not drop any lower.

    • Treetop 19.1

      I did not read the comment above at 10 re the estimated payout. Have a good laugh on me for reiterating it. I can see why Greg is so pissed because it keeps decreasing and his family have invested a lot in the industry.

  19. Treetop 20

    What exactly is milk solids?
    Does this include milk formula?

    • tc 20.1

      google not working dude ?

      The solid bits like fat and protein that are left when all the water is removed from the milk, this is what the big plants do, turn milk into powder by removing the water.

      Milk formula is part milk protein then lots of other additives thus the contamination risk being highly manufactured so as to not be so perishable.

      • Treetop 20.1.1

        Thanks for that I learnt something.

        My computer is 9 years old and I am self taught, (computers are not my thing).

        • tc 20.1.1.1

          no worries, wikipedia is great also with the links in articles as one thing leads to another etc etc

  20. Brutus Iscariot 21

    “Some wondered if the timing of the announcement of the size of the payout represented a conspiracy by Fonterra to hide the bad news until after the election. I do not believe so as it appears that the announcement was made at the same time as previous Fonterra payout announcements. It is more likely that National scheduled election day with the desire of making sure that it occurred before the announcement.”

    How absurd to suggest than when Key scheduled the election on 10 March he knew that international milk prices were set to drop so dramatically six months later.

    There are any number of (nefarious?) reasons why Key scheduled the election for when he did, but soothsaying ability isn’t one of them.

    • Draco T Bastard 21.1

      How absurd to suggest than when Key scheduled the election on 10 March he knew that international milk prices were set to drop so dramatically six months later.

      Not absurd at all. I, for one, don’t doubt Key’s professionalism in the money markets. He would have known that the US and EU were about to hit big milk production even if no one else saw it coming (Which I don’t believe either).

      There are any number of (nefarious?) reasons why Key scheduled the election for when he did, but soothsaying ability isn’t one of them.

      It’s not really soothsaying – just reading the numbers.

      • nadis 21.1.1

        Q: What is the contribution of Dairy to NZ GDP?

        A 2.8%
        B 12.8%
        C 28%

        • Draco T Bastard 21.1.1.1

          Who gives a fuck?

          No country should be reliant upon a single industry as NZ has become. Trying to justify that rather precarious position by saying But it’s soooo BIG just proves how bloody stupid you are.

          • nadis 21.1.1.1.1

            What? Not trying to justify anything you always stridently combative and so intellectually superior battler you.

            Its actually so small. try 2.8%.

            And if you want a slightly more enlightened discussion about the dairy industry try Wheelers view here:

            http://www.rbnz.govt.nz/research_and_publications/speeches/2014/5721595.html

            Oh, and from that speech: 50% of dairy farm debt is held by 10% of farmers so that would indicate not a lot of systemic risk form the dairy sector in light of lower farm incomes.

            • Draco T Bastard 21.1.1.1.1.1

              You know, if you’d actually made that comment in the first place rather than that rather stupid question you would have got a better answer.

              Economists estimated the drop of more than NZ$3/kg would reduce revenues to the dairy sector and the wider economy by around NZ$5.5 billion or over 2% of GDP.

              The drop in revenues was over 2% of GDP and once you take in the multiplier effect of the money as it’s spent (or, in this case, not spent) the drop in GDP will be quite significantly higher.

              On top of that a lot of farms (Yes 10% is a lot) are going to go to the wall (and they’re probably the bigger farms as well, leveraged to the hilt) and the chances are that the banks, once they’ve repossessed them, will sell them offshore because no one in NZ has got the cash to pay the mortgages. That will mean another large increase in profits heading off shore (on top of the banksters taking their bit of course).

              This is going to hurt and National know that.

    • tc 21.2

      It’s called supply and demand Brutus and based on the production and demand side numbers many knew this was coming.

      After all Fonterra/Wrightsons are the ones teaching China, Sth america etc how to milk cows, including shipping them pregnant dairy cows.

      • Brutus Iscariot 21.2.1

        It’s all very well though to say something is overvalued, quite another to predict the timing and magnitude of the drop – that’s how the trader can lose his shirt, regardless of whether he’s right in the long run. Just look at the NZD which has been overvalued for years (and people have lost their shirts trying to get in before the move lower). If i could be bothered i’d go back and look at bank research from earlier this year and see if they called it. Anyway, if he was so prescient there are a lot of things he could have done to buffer the payout or enhance the economic environment (talk the currency down before the election for example).

        Anyway back on point – this isn’t armageddon. Farmers can and have made money for a long time with dairy prices lower than this. However it does mean that more highly leveraged or marginally profitable farmers will really struggle (not sure of this %). It removes a source of additional economic growth but it will not completely tank the country. I do however agree with the need for value-add and diversification of industry.

    • greywarbler 21.3

      Anyone who took a close interest in NZ business and the international and offshore competition on our NZ based milk production would know the likely movements in milk prices that have been referred to. Then there is the well-known truism that prices cannot keep rising, there is a Bell curve for everything.

  21. greywarbler 22

    Bill’s eyes are shifty like the National Party.

  22. Marksman33 23

    Good on you Greywarbler, a really good overview of the EMA, thanks for that.

    • greywarbler 23.1

      @Marksman33
      Thanks. I’m not used to getting ticks! I think it is important to know what and who you are dealing with. I thought I had heard some sensible practical comments from the EMA and was surprised to read backward stuff when lateral thinking is needed. Some decent analysis is of course needed on a simple scale, not exhaustively conducted by Treasury, but being able to draw on stats or Treasury figures where they aren’t slanted towards their favourite shibboleths.

      But if we could increase small business (40% of the total economic output and 30% of the work force.) and then divide that sector into micro (that’s perhaps with 5 or under employees) and see if we could increase those by 100% over 4 years. We would have a healthier economy.

      And then a Kiwi Enterprise Retention Fund that paid a small return, and regions could tap into that to stop core businesses being sold off and so keep that business definitely in the region. Setting up regional co-operatives based on Mondragon might be good. We need to get a new way, we are going over the cliff like lemmings as we are.

  23. Jones 24

    National bought the election ahead to avoid this sort of news. I believe it’s well known in the financial sector that sh*t tends to go down around late-September/early October. And this is the sort of news that WILL impact on elections… every time.

    Anyway, National only need another 3 years to do what they need to do as we’re on the verge of “something special”. If it’s anything like the “brighter future”… I’m very concerned. There’s much more to come… bit by bit… an economic death (for an increasing majority) by a thousand cuts.

    Who are “we”?

  24. Mike 25

    Sounds like a good Tui Billboard “Labour would have done it much better” Yeah Right.
    The Left dont learn…the economy is the economy the Government only makes the rules. NZer’s are sick & tired of the left talking everything down and accusing the Government of making all the wrong decisions. If Labour had been in power they would have spent heaps of taxpayers money in advance and the economy may not be earning it due to a commodity price downturn.
    Next time you want to write a negative blog check out the election result!

  25. Stephen 26

    I am going to ask for help understanding that appears to be an almost religious belief with you all, and so I know I risk being shouted at. I don’t really understand why you all believe that CGT is a magi bullet that will solve the problem of wealth and evil. So first I want to make it clear that I am a saint, almost St Teresa.
    I am in my mid-sixties. I have worked since I was 12, full time since I was 17. This country gave me a free education (I even got a university degree, the first in my family ever to keep in school past 15); I got free education. We lived in relatively warm solid state houses and mostly the rent was pegged to my father’s wages, not the “market”. I have never cheated on my taxes, and mostly don’t claim all the deductions legally available because I think they are immoral – for example I don’t approve of “entertainment” being tax deductible. Journalists and their business cronies swilling alcohol and eating fat at the expense of working people seems a bit wrong. I love my country, even if less than I used to. I am suspicious of New Zealand businessmen and I do not want to invest my savings into their “care”.They are not very good at what they do. And they don’t go out of their way to create jobs or even preserve tjhem – the reverse, they outsource everything and fire theor compatriots. Then they sell the busines to some American sod.
    I own my own flat, and I have paid off the mortgage. I own another flat in the same building and I rent this out. I have paid off the loan on that too. I provide a safe, warm and secure home to a young family and charge lower than market rent.
    So there; I told you I am a saint!
    So now the question I have: why the obsession with a Capital Gains Tax on property? There seem to be a few reasons you all advance:-
    Firstly, a sort of moral argument – that it is just unfair that I could make money when I sell the flat because it has increased in value; and I should be taxed. But I paid tax on the rent; I paid tax on my earnings and paid the loan principle off in post-tax dollars. I have paid GSt on all the repairs. I feel like I have paid my taxes and pulled my weight.
    Secondly, that there is no tax on people making profit out of buying and selling on a hot market. this is plain worong. If you buy with the intention of selling them you pay income tax on te profits. The sub-arguement seems to be “but no-one pays income tax on profits and I know people who buy and sell tax free’. This is a differnt argumment; I agree that teh IRD are slack at enforcing the rules around this – they are very thorough in hounding small buisinesses near to death, but oddly slack when it comes to taxing teh clever rich folk. But this is an argument about enforcing exisitng tax laws.
    Thirdly, that a CGT will make property less attractive as an investment, and people will avoid it. This is plain wrong too. It may stop people like me buying one flat, but it is not going to stop the wealthy from putting their money into passive assets like beach houses, or property generally. The truth is that wealthy people (other than traders – above) don’t sell assets, they keep them.
    I work in property; I know where the true distortion comes from. CGT is imposed at the point of sale; the tax distortions come from the purchase pf property, at the beginning. Look at how people buy additional properties: they do it by borrowing from the bank, and then making that borrowing really cheap by making the total interest tax deductible. This is acheived by using their own home as part security for the second (then third, fourth and so on) property. The tax department allows you to pretend that you raised 100% of the cost of an investment property, and the bank let you do that so long as it takes a mortgage over the investment property and your home. So you have a house worth $500,000.00 with $200,000.00 in mortgage; you buy an investment property for $400,000.00. You raise the whole $400,000.00 from the bank and let the bank secure the loan over your home as well as the investment property. And you claim all the interest as a deduction. This distortion by manipulating the tax dedution on interest would be solved immediatelty by restricting deductions to a level equivalent to what a bank would lend on the investment property only – so 60% of a commercial property usually; 60% on tiny flats; 80% on residential homes and so on. The people would either have to put (post tax) savings into the investments OR pay post tax dollars to meet the interest on the over-borrowing. That would make the BUYING of investment properties less attractive, and is fair. Also the tax take would increase from the very day the new rule is introduced not years later on a sale. This is not original; there have been calls to impose this sort of “prudent business” test before but it all got drowned out in the CGT cries.
    Another justification for CGT that is advanced is that it will “bring prices down”. I haven’t been able to find any examples of any jurisdiction which has introduced or used a CGT and then found that property prices have reduced. London? In fact most experience tells us that when costs increase prices increase to meet those costs.
    Some of the commenters have hit the mark; many ordinary working people are frightened by CGT – providing safe and warm houses to tenants is suddenly evil behaviour, and we who do that are to be reviled and taxed. And we ordinary people thought we were being prudent, sensible, providing for our future to help our kids and so as not to be a burden on the community, and now we are pariahs, and the cry is that it is more moral to invest in Fonterra, or South Canterbury Finance, or in builders to build leaky homes, or in agriculture so we can all be polluters, or in forestry so we can all kill working men and women on the job. It is confusing for an old, stupid, greedy snake like me; so if someone could gently explain it all to me I would be grateful.

  26. A VOTER 27

    Of course Key with his expertise in currency manipulation and theft WHICH IS WHAT THE 90’S were all about, is reaping what he sows with his indoctrination by his masters overseas prior to taking up politics
    Anyone who can fire 100 people in one day a feel good about it has no more morals than a person who can commit mass murder
    Back to the fact that now the country has been repopulated since Keys economic reform with a larger % of consumers who can afford the increased cost of domestic prices the fall in the currency value is really no problem because there are sufficient numbers bringing in money from outside the country to keep the sales ticking over
    The poor will once again be the sufferers because they have less power than ever to get ahead which is why we need a Labour party that targets the reality for the main bulk of the population and hammer this Nat govt on every front and give up nothing to them until something is done for the glaring state of inequality that exists in this country
    It now, seriously, is a state for a long over due REVOLUTION of the scale of the ’51 STRIKE
    How anyone can be blind to whats happening in this country, really is a shame for the integrity of this nations sense of being a NZER

  27. AT this rate, we are probably better off keeping all our currency in self storage I think! SO much uncertainty and fluctuations that it becomes really quite worrisome when you think about how our economy is shaping up against others. But I wouldn’t worry so much about the value of the NZ dollar if you’re not really intending to trade or travel. A dollar is just a dollar if you’re spending it within NZ anyway.

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